How investing has changed in the last decade

A fictional conversation between an advisor and his client shows us how nothing is quite how it seemed it would be a few years ago.

Advisor: My long lost client has returned. How have you been Larry? Or should I say, where have you been?

Client: Jim, I’ve been out of touch since 2003. I went to what I thought would be the Rolling Stones’ final tour. The last thing I remember was Mick singing “Gimme Shelter.” I guess I inhaled a little too much of the happiness.

A: It’s great to have you back, although as your financial advisor, I must say you’ve been my best client. No questions. No panic when markets are down. No grumbling about fees or returns.

C: It can’t have been that easy Jim. You’ve gone bald while I was away.

A: Well, not really. I shaved my head a few years ago. It’s cool now.

C: Oh, really. The last time we met, my house was the hot topic. You were giving me heat for paying $350,000 for my little place on the West Side of Vancouver. I haven’t checked yet. How have I done?

Why you should learn to love stock sell-offs

A: If you wanted to sell it today Larry, you could probably get around $3 million.

C: Seriously? That seems like a ridiculous number. Have we had double digit inflation while I was gone?

A: No, inflation has been around 2%. Vancouver real estate has been like a winning lottery ticket Larry.

C: And to think I bought because the price had been reduced twice and my banker agreed to give me a five-year mortgage at 7.5%.

A: Larry, it’s a little different today. The banks will lend home buyers any amount they want with almost no interest. Debt is a big thing now. Everyone’s into it.

C: Jim, you can’t be serious. Bald heads and debt are cool. No really, are we just coming out of a severe recession? Why would rates be so low?

A: We did have a downturn a few years ago, but things have been OK since. The central bankers kind of did what you did. They got all stimulated and then went to sleep.

C: This is confusing. Well, at least the loonie hasn’t moved much. As I remember, just before the concert it rallied to the high 70s.

A: Well, no. Our dollar has been all over the place. It was even above the Greenback for a while. This is funny Larry, because my other clients have been complaining about how weak our dollar is. The price of their California vacations has gone up. In any case, do you want to look at your portfolio?

C: Sure. I remember you telling me how well my energy stocks were doing after oil popped to $30 a barrel. I see that it’s now $40. I must have coined it.

A: Sorry, Jim. The energy sector has been pretty depressed. The oil price went way up and the companies let their costs get out of hand. They can’t even make money at $50 now.

C: Boy, it’s like you’re talking a different language. What about my technology stocks? I see some familiar names in the portfolio. That internet and mobile stuff was really overblown, wasn’t it?

A: Well, no. The hype proved worthy and Microsoft has been a good stock.

C: What are you talking about Jim? It’s 40% below where I bought it. Did the company go into the tank?

A: Well, no. It’s probably been the most profitable company in the world while you were out of touch, but it doesn’t trade at a hundred times earnings anymore. It’s more like 18 times, with a nice dividend.

C: Cisco is down 60%. And let me guess, it did well too?

A: Yup, huge profits and it yields 3.6%.

C: Jim, why do you keep mentioning dividends? I don’t want dividends, I want growth.

A: Larry, dividends are the thing these days. It’s the new growth.

C: Whatever you say. I haven’t looked at my RRSP yet. I hope Nortel did better than the other two.

A: Well. Um. Actually, you don’t own it anymore because I’ve shifted your portfolio into ETFs and a couple of hedge funds.

C: ETFs? What are they?

A: They’re index funds that trade like stocks. You get the market return minus a small fee. And minus my fee of course.

C: What do you mean, “my fee.” I thought I paid you commissions.

A: That’s changed too. Trades are free now, but you pay an annual fee. If you dig through the transactions on your statement, you might be able to figure out how much I charge you.

Investors, advisors welcome to the age of transparency

C: And hedge funds – are they cheap too?

A: Well, no. Their fees are really high, but they perform differently than ETFs, so they’re an excellent diversifier.

C: Index returns minus a fee, minus your fee, plus expensive diversification. Boy, that’s sounds like a winning formula. For who, I’m not sure. Speaking of that, how is your firm doing? You were pretty pumped about becoming a partner.

A: Well, it’s gone. Bought by Royal Bank.

C: You were always big on independence Jim. Did you consider going back to your old firm?

A: Nope. It’s National Bank now.

C: Wow, things have changed. So who is the leading money manager these days? Is Altamira still around?

A: No, it also disappeared into National Bank. As for the best, I think it’s pretty clear cut—Ontario Teachers. They’re highly regarded all around the world. And Larry, you’ll like this. They actually owned the Leafs for a while. It was a good investment for them.

C: Oh, did they win a few Cups while I was gone?

A: Well, no. Like the Rolling Stones, some things never change.

Tom Bradley is president and founder of Steadyhand Investment Funds Inc.