The founder of one of Canada's top independent investment firms has a curious piece of advice for investors this RRSP season: If it's hot, don't touch.
Charlie Spiring is the founder and chief executive officer of Winnipeg-based Wellington West Holdings Inc., which has $10-billion in assets under administration, with 56 per cent in fee-based business.
One of the few independents in an industry dominated by the big banks, Wellington West logged revenue of $200-million in the year ending June, 2010, with 82,000 clients and offices in 53 Canadian cities.
In a recent chat, Mr Spiring, 54, talked about the importance of behavioural finance. In short, it's where psychology meets investing. It involves using psychological theories and principles to explain why people make the investing decisions they make, and therefore why the stock market does what it does.
What lesson should investors take from the 2008-2009 financial crisis?
Timing the market is a difficult thing. I look at people who went through it and came out the back end in good shape, people who used balanced portfolio management and not a lot of leverage. And then I look at the more aggressive people with high leverage who made decisions because they had margin calls and were forced to get out of the market.
Balanced portfolio management has worked forever and it held up the best during that period.
How did you react personally at the height of the meltdown?
I'm a bear market baby - I thrive in a bear market. I went into action. My best work happens in those times. I started in this business in 1981 when the markets were in rough shape and it forced me to learn during tough times.
What did - or should - the global financial sector take from the experience?
Stuff was going on that board members didn't understand, and now people can see that it's incumbent on those board members to teach themselves - and not just collect fees.
You saw that more so in the U.S. than Canadian banks.
Have we slipped back into our old ways?
You're seeing that a bit. But the majority of people are doing the right thing, which is ensuring they have a balanced portfolio. That's the way you protect yourself.
Would you like to see one national regulator in Canada?
Yes, I am a big fan of the idea of a national regulator that would have a better set of eyes on the industry and provide consistency.
Some have said the recession sparked a global financial power shift, away from the U.S. and Europe and toward the BRIC countries - Brazil, Russia, India and China. Do you concur?
Yes, I totally believe that. The shift is moving toward the BRICs, and that will make the markets more volatile.
America doesn't work when America is not working - and at 10 per cent unemployment they are not working. I think we'll see over the next decade America continuing to lose a lot of its lustre and power.
The fortuitous part for us in Canada is that we are closely tied to these emerging markets with the mining and energy sectors.
What we're going to lose in the States we will pick up in the BRIC countries - as the U.S. becomes less significant to us in the next decade. It's a brutal reality but good for Canada in the long run. It's not perfect but it's a better diversification for sure.
What is the biggest challenge the industry will face in 2011?
Getting more and more bogged down in regulation that will not provide any actual help. More regulation sounds good but it won't achieve what it is supposed to achieve, and the greatest impact will be on the micro-businesses.
How so?
Costs will kill or maim the small micros. I know because I used to be one of them.
What's the biggest challenge facing individual investors?
Finding what works for them, having a plan in place and then sticking to it. Investors lose their discipline all the time. There's a lot more do-it-yourselfers out there now and they are their own worst enemies.
How would you describe investor appetite now?
A lot of them have lost faith. But that is why rational behavioural theory is important. We have hired [Santa Clara University professor and behavioural finance guru]Meir Statman to guide us on this. He is brilliant and he gives us guidance that our brokers then pass on to our retail clients. Behavioural finance is a monster part of the whole discussion around returns.
What should investors be thinking now?
I always caution against what's hot. You should have a heavy energy weighting in your portfolio - we are not going to replace oil and gas for decades, so that will go higher.
People should also be buying bank stocks and insurance companies.
What is the future for Canada's remaining independent investment firms? Could they one day be squeezed out?
Success for the super-independents will likely mean two or three mergers to create two or three powerful independents to take on the banks head to head.