SharperDingaan

The Toronto downtown vacancy rate (Grade A space) has gone from a little over 1% in January, to 4.7% as at September 30 - increasing at 2%/quarter. Of course, some segments are doing far worse, and Covid will remain with us for at least another 3 quarters. At only 10% vacancy by June 30, 2021, there aren't going to be any dislocations within the institutional ownership. Toronto condo vacancies are materially higher, but it is primarily the owners problem - not the builders. Many are also off-shore investments, and liquidations at a loss will not adversely affect the local economy. There will just be more condos available, for cheaper, and fewer AirBB's. Minimal incremental tourism impact as everything is already in lock down, and no dislocations amongst the builders. Point? Opportunities will be market specific, and more likely in the US vs Canada - the best probably being anything 'Trump' related. The US election is Nov-03, most polls have Trump 10% behind and worsening, and the current stays on prosecutions lift if Trump loses the presidency. Do you really think that post election - it's going to be 'business as usual' at the empire? To some this is 'political', the reality is that it's just trying to make a buck -as opportunity presents. As even Trump might say ... it's just business! SD

The reality is that a shareholder can only either buy, hold, or sell - whether the investment hold period be nanoseconds (HFT), or years. Hence, current price has little to do with value. To move the price up/down, all one need do is use the media - and stampede demand or supply in the desired direction. If you want quality investors, the solution is simple - either DON'T go public, or go private. One can't trade if there's no liquidity &/or a very high bid/ask spread, instantly eliminating the low-quality shareholder ;) The ancillary benefit is a focus on dividends, and the ongoing ability to pay them - wonderfully, focuses the mind! And if YOU are one of those quality investors? - you would rather not have anything change. Can't short shares unless somebody lends them. Can't really sell calls either, unless you can get someone to borrow. And really, the more volatility the better - as gains/fees/premium can easily increase a position without any additional investment requirement. Different strokes. SD

You aren't quitting the day job. You're buying your stake in stages, using proceeds from working holidays/weekends (under their supervision) to pay for your entry stake. Demonstrate your commitment, grow the business (incremental weekend work), while you learn the trade. Fit in - and the partner sells you the rest of his/her shares. Don't fit in - you're just paid for your time (with interest), and shown the door. Invitation only, means what it says. SD

Think more along the lines of industrial cleaning. Over time, pipes can accumulate different types of debris such as calcite, roots, waste, and other materials that can clog them or slow them down. Industrial pipe cleaning methods clear out these obstructions and others. Think effluent, sewage, fat downstream of restaurants, etc. Very stable businesses, very stable customer bases, high market share within their niche, relationships go back decades. Just starting something up in the space, not really viable. Internal return more than covers growth and dividend requirements. Private businesses that don't need public money, & all under the radar. Invitation only. SD

Hate to disappoint .... The bigger 'off sites' are primarily sales junkets, tax deductible if there's a business purpose. Typically quarterly, exotic locales, & to reward top performers - nothing to do with employee needs/wants. Downtown NY/Chicago/Miami/etc does not compare to Rio/BA/Bali etc. Of course, top performers bitch, but when competitors are doing the same thing .... there's no real competitive disadvantage. Standard practice varies across industries, but it's all about cutting overhead - at 33% margin, every 1M in OH reduction offsets 3M in lost sales. It's not hard to reduce the rent bill by 1/3+, solely by re-configuring existing footprint. Most could cut their footprint an additional 10-15% as well, as growth needs are not going to meet original projections. Downtown 'glamour' also has an image problem. Most of the workforce have family responsibilities that are easier to manage, and cheaper, when the commute is shorter - it is also a lot less frustrating getting to/from the 'office'. Relocating to the 'burbs, is the same as a raise for many. Of course the 'glamour' office downtown still has cachet, but it's maybe 25% (top quartile) of the total space requirement, at best. There's just too much downtown space, and much of it - just not prestigious enough. Obviously, not what your broker wants to tell you! Sure, demand may eventually come back to 'normal', but it's not going to be for quite some time yet. Even if mass quantities of a fully effective covid vaccine were immediately available tomorrow. SD

"Maybe there are short-term to medium-term hiccups for transit, but I wonder if long term, businesses located on the outskirts will be able to afford to move their shrunk footprints into Manhattan for its central transit-accessible location, giving themselves access to wider pool of employees to pick from, or choose to do their "onsites" in a central location accessible through transit for most employees in the region." Standard practice is an "on-site" in the burb, and the bigger "on-sites" in the central location. Rent the space as you need it, do your motivational (sales) meetings downtown, versus some resort somewhere. Minimizes the Covid risk, and saves on the airfare/accommodation/ancillary costs. Subways/metro's are funded from climate change related fee collections. Drive a SUV? Pay more gas tax on your monster, and some of it goes to covering the costs of the lesser polluting subway/metro. SD

There is a big difference between starting a business that can actually support you, and one that may throw off maybe 5-20K/yr at best - net of all costs. In the former case, buy an existing business and expand it - don't start it. In the latter case, work for someone else and let them take the business risk. Most people are the latter case. Covid and it's long-term implications has tipped a great many owners, with very good small businesses, into retirement mode. As a consequence, there are a number of very unglamorous, limited scalability, and highly profitable businesses available. Deep knowledge benches, but invitation only. Zero tolerance for financial cowboys. SD

The full article: https://www.morningstar.com/news/dow-jones/20200926885/inflation-is-already-here-for-the-stuff-you-actually-want-to-buy Wherever they can, every business has been passing on the lockdown costs of Covid. PPE, plus the additional per unit cost of fixed overhead distributed over fewer units sold. For most, the % increase has been substantial, but not noticeable by the average consumer. If you primarily eat out, vendors/subsidies have been eating much of the cost. If you primarily eat in, you are eating the cost. Within Canada, covid delayed the arrival of agricultural migrant workers, resulting in less plantings. PPE measures, and covid outbreaks added significant costs. Much higher costs/smaller volumes = higher/unit costs = inflation. Every time you choose to eat something fresh. If you are primarily importing food, and food is a material portion of the nations aggregate purchases, devaluation can absorb some of the inflation. If the food is primarily home grown .... welcome to inflation. SD

Stress is just inability to guarantee a particular outcome - discovery that you are NOT a 'master of the universe!' You can react to it (rip out eyeballs, etc.), accept it (ulcers, etc.), let it just flow past (meditate, etc.), or use it. It's gaming, and little irritates a boss more, than an employee NOT reacting to stress (Don't worry, be happy!; Bobby McFerrin). Lot's of ways to NOT play the game, and most people will naturally find what works best for them. Of course, if you also know what stress does at the extremes - there should be little hesitation to exploit it. 'Market discontinuities', 'dividend cuts/eliminations', are high stress events. So don't offer a door to anyone rushing the exits of a burning building, until you can see the flames/smell the billowing smoke. Stress - becomes fear - and your friend. On the upside, stress - becomes greed - and your friend. Both underscoring the reality that cold, hard CASH is your only real friend. Value investing 101. That said, it is a lot of fun to be in a riot - and you meet all kinds of interesting people! Just know who the predators are. SD

The great thing about a mortgage is that you just need to pay the interest. If you have remaining borrow capacity, you don't even need to do that. Your banker simply increases your mortgage, credits your chequing account, and you just pay it back to him/her as last months interest. With a little help from the BoC ;) no defaults as long as the price of the average residence keeps going up. Same thing applies to rent, the lender just needs to receive the interest, the landlord just needs to receive interest and operating cost. A little regulatory grace ;) a refi to reduce the interest rate, and everything can stay open - at 25-50% less rent. More people back at work, and spending again. The home owner also benefits from inflation ;) 'cause the real asset inflates, and the monetary liability deflates - increasing your equity. Compare the major fiat currencies to gold - and we can see that inflation both exists, and is sizeable. The incremental $'s just don't spread evenly over the same fixed supply. Hence the 31% price rises in PEI, and 5% in Alberta. Point? It's going to be a very long time before real estate blows up in Canada. SD

Just to tie it into the behavioural thread on social norm bias ... The 'formula' value investor looks to the price today, versus the price one-year ago - per mean reversion, if today's price is 70% less than it was last year, the shares are cheap! But the investor then measures performance, on a 1-yr TWR basis - 'cause that's the industry standard! Social norm. Problem is that the 'formula' then fails miserably if mean reversion takes more than a year - O/G, airlines, Covid-19, etc. Assume year-0 return was -70%, year-1 return is -20%, year-2 return is 3%, year-3 return is 250%. The 'formula' investor would buy at the beginning of year-1 - cheap at 70% off! End of year-1 ? the investor sells, takes the tax loss, and tells the world what a rancid POS this was! End of year-2 ? the investor looks back and congratulates him/herself on their great decision!, they made more than the 3%. The reality is that the investor is actually dumb as a brick. He/she never saw the year-3 return, and lost 20% of their dollar when they exited. Had he/she stayed they would have made 200% (1X30%x80%x250%=0.60/original investment=1x30%=.30). And more multiples still, had they simply stayed for year-4 - when mean reversion actually takes place (assumed timing). It wasn't the approach that was wrong - it was the performance measure being used. Following the norm. Severely cripples a value investor using OPM. But if you're private money, with a more relevant performance measure, it's help yourself time :D SD

Trying to do 'value investing' purely by formula is pretty meaningless. Assume 12 month forward earnings of $1/share, market P/E of 25x, current price is $40. To the value investor, the stock is overpriced to the $25 it is worth (25 x $1/share), and he/she should walk away. But if you expect 60% growth in 12 month earnings (ie: $1.60) ... the stock is fairly valued (1.60 x 25 = $40). At any one time, consensus 12 month forward earnings are just a market guess. But compare any forecast strip price against the subsequent actual, and you quickly see how inaccurate these guesses are. All that we really know that is that if a company is in the early stages of a growth cycle, an earnings miss will typically bias upwards. The nearer to the maturity stage, the more random the bias. So what? if this company was a Tesla, and in its early growth stage, you would think $40/share dirt cheap. Simply because a SINGLE 5% positive earnings miss is worth $2/share, and relatively easy to obtain as economies of scale kick in. Do it every quarter, and the P/E multiple will also expand. Value investing still works, you just need to apply it differently. Change. Something a great many value investors have real difficulty with. SD

Ultimately you have to be able to think for yourself, and be comfortable executing your decision. Because when you make an investment you are forecasting an outcome over a specified time frame, and backing your forecast. 'Success' means you were directionally correct, AND within the time horizon. However, to many people 'putting your money where your mouth is' - is paralysing. No confidence. Social licence is before the fact, social proof is after the fact - licence is priming the pump ($ in the mason jar). proof is ending with more than you started with. Make the mason jar bigger, and you have the structure of most HF's. Relying on proof essentially dooms you to always being a follower, and momo trading. Nothing wrong in that - provided that is your style, and you are good at identifying the patsy. Hence all the poker and gambling literature. Licence to 'set' the game, is valuable, and comes with responsibilities (don't manipulate). Doing your own thing is essentially 'setting' a game, that the market will hopefully reward you for (via a gain). if your 'set' is a short position, don't rub it in the markets face, if your 'set' is a long position, don't lord it over everyone else - responsible behaviour. If you're prone to this - you essentially have no confidence in your decisions, and are unable to step away from the flame. Either invest very little, or hand your investment dollars to someone else to manage on your behalf. SD

Not familiar with Bitcoin Tracker One, I use Coinsquare and assume that it will be hacked. Move token in/out for the trade, and cold-store directly at Mt Gox. My reliance is on Canadian regulatory BoC/OSFI enforcement, as I assume Coinsquare enforcement is rubbish. https://coinsquare.com/ For most uses, BTC as an investment in a retirement account just isn't worth the effort - regulation &/or adequate instruments haven't sufficiently evolved yet. If you insist on speculating in BTC, assume 2-3 swing trades per year, and accept the tax as just another cost of doing business. Sometimes you will be paying tax, sometimes the tax man will be paying you. BTC is also NOT an investment, just as holding a USD is NOT an investment. Sure you can buy/sell to capture a valuation difference, but BTC is just a parking spot - it could just as easily have been a tulip, or a 2nd property, denominated in the other currency. If the investment objective is protection against inflation, simply hold bullion directly &/or units of a precious metals fund. SD

Always keep in mind that BTC is just the obverse side of digital currency. It is extremely good at what it does, hedgeable, and highly suitable for large transactions that would otherwise be visible. The problem is that the founding libertarian view of BTC's use, and the criminal view of BTC's use, almost perfectly overlap. The good news is that it puts a cap on both transaction frequency, and mining cost. Total mining fees for the materially major activity < total cost of laundering, or about 1-3% of aggregate transaction value. The end by-product is reduction in overall money-laundering activity, and recognition of mining fee as a commission. Commission means demonstrate application value, benefit > cost. Good link! SD

Sadly, a CEO's ability to implement CSR is very limited - essentially set the tone from the top, and walk the talk. Obviously, it is a lot easier to do it in a small company, a private company, and a family owned one. If you are unsure, walk into any family owned business - it will be immediately obvious. CSR caps the Maslow Hierarchy, owners are already rich, and dynamics are very different. To an owner - the value of that extra dollar earned, after tax, is minimal. Were that dollar spent on additional staff costs - it's value would be 2-3x higher. So you pay your junior staff more, match retirement savings, cover health care benefits, etc. - and watch it come back to you in spades. Smart business. For some folks - this is just plain wrong. Not a problem, it's just not for them - they can vote with their feet. Just keep in mind that people are the limitation, not money - and that the new technologies are removing cost as a barrier to entry. The world is rapidly changing, and Big Inc. is not the glamour show that it once was. Interesting times. SD

We all remain perfectly free to consume as we wish - we just wear the consequence of our actions. When the same person is on the floor for the 4th time, and is both severely obese and drug addicted, he/she is just not resuscitated. He/she simply chose to die by gluttony, and was successful. Ultimately, it's the right to die - on your own terms. No interference in personal freedoms whatsoever. SD

Healthcare is insurable, and covers everything from dental, vision, and a basic level of service - we pay a small amount every year (premium, tax, etc,) so that we never have to pay a catastrophic amount. Loved ones never have to choose between OUR life, and a future life of extreme hardship. To some this is socialism (if the state does it), to others it is just common sense - so much so, that almost all companies offer some version of healthcare as one of the company benefits. Level of service is the key. There are those who argue that if you smoke, or are a drug-addict (drugs, opioides, etc.), alcoholic, diabetic, or obese - it's 3 strikes and you're out. Whatever put you there, after 3 strikes you wear it - thereafter healthcare is limited to making your exit, as painless and humane as possible. Others argue that you have the right to die on your own terms, and healthcare is to assist you - quality of life, versus longevity of life. Level of service evolves over time. Sure, if you have the money, you can buy a higher level of service - wealth gives you that privilege. But recognize that while in a different swim lane, it still leads to the grim reaper. SD

The reality is that every job is only worth so much. To get the job done, the employers choice is to either use capital/technology - or people, and demographics largely drives the CSR decision. When your home has lots of young people (China, India, etc) needing a job, use people; when there aren't many young people (Canada, Japan), use technology. Why? Because if there are no jobs, there will be unrest, and your privilege is at risk. Riots happen in poor neighbourhoods, not rich ones - for a reason. For most people, comp is a measure of worth, and cash the settlement mechanism. At the lower rungs on the Maslow Hierarchy this benefits everyone, thereafter it becomes progressively more toxic as one rises up the pyramid. A few at the top, behaving well, is inspirational. 20% at the top, behaving like arseholes, not so much. Amongst the already rich, cash is just a counter. CSR would argue settlement via other currency - prestige, social standing, etc. The behaviour thing has long been recognized as critical, as in the divide between Old and New money. WEB, Munger, Gates, etc. behave very differently to an Ackman, and many HF managers. They know that their privilege is a social licence - granted by you and I, the people. Notable, is that this doesn't really change as you move across the cultures. It just executes differently, according to local custom. SD

CEO pay to the average/median/lowest paid, is an often cited stat - supposedly the higher it is, the more abusive the comp structure. But do any cursory dive into the numbers, and it's clearly not an apples-to-apples comparison. Most large companies prefer to use take-home pay - as it excludes bonuses, and keeps eyes focused on the size of the bi-weekly cash flow obligation. A 1OOk/salary, less 30% in payroll deductions, is $2,692/pay. A 50K/salary, less 25% in payroll deductions, is $1,442/pay. The difference in life-style is < 2x (2692/1442) the bi-weekly net pay. Most companies cap salary at 120K/yr and 33% deduction, or $3,076/pay - about 2.5x median bi-weekly net pay. The rich get richer because of the risk they take, and the incremental skill brought to the table - leadership is essential, but results reflect the collective effort of ALL employees - not just the leadership. We would ALL be a lot better off if 'company result' bonuses went direct to a locked-in pension plan, versus our pocket. Simple change, but it's impact is fundamental - as the biggest participants in the plan would be current/past managements, familiar with the risks the company is taking, and the current market. ALL members of the plan benefit. Small changes, straight-forward to execute - but they make a real difference. SD

Where you are matters. Much easier in a Germany, or a France (where this is more the norm) than in a US or Mexico. Size and structure matters. Much easier in smaller firms &/or private ones. Market composition matters. Most businesses (70%) are smaller businesses Instability matters. Nobody likes change, especially radical change. Typically 'change' progressively dams up behind a 'wall of resistance'. Eventually the wall fails, and the change overwhelms everything in its path. We then pick up the pieces and build something new. SD

It really comes back to Corporate Social Responsibility (CSR) - the responsibilities that a company has to its various stakeholders. Sadly, in most business schools - maybe a single class within a single 12 week course, and only in passing. In NA, even business ethics (as limited as it is) gets more time. The good news is that network businesses demand a focus on CSR. No CSR, no social licence to operate - and tomorrow's technologies are network based. For most, CSR will be a by-product of change management, and Covid-19 will remove much of the current resistance. In many companies, standard practice is six-months to adapt to Covid-19 related change, and thereafter a package. Black Lives Matter, Me Too, Defund the Police, etc. are all manifestations of CSR - disruption because there is no social licence to continue operating in the current manner. Guaranteed income (70K in the article) is terrifying to many as it removes cheap and desperate labour - forcing radical change in how a business operates, that many will not survive. In Europe, a bar/eatery is typically owned in partnership with full-time employees who also receive both a salary and full benefits - as it both spreads the business risk, and works better for the surrounding community. Very different approach in NA. Do you really see current NA bar/eatery owners being able to easily make such a transition? Everybody eventually has to grow up. Obviously, if you can do competent change management and CSR, you should do very well ;) SD

He's just talking his book. If nobody follows his advice the Q4/Q1 opportunities can be more reliably identified. https://markets.businessinsider.com/news/stocks/stock-market-outlook-sam-zell-invest-significant-opportunities-end-year-2020-8-1029537249# "One industry containing this uncertainty is retail. Zell said he used to be one of the largest retail owners in the US, but called the industry a "falling knife" that hasn't reached its bottom yet. The industry hasn't fully felt the impacts of ecommerce yet, and Zell is hesitant to invest in it right away. The pandemic has led to low transaction levels, but as activity picks up it will be easier to identify potential investments, the investor famous for buying distressed assets said." The obvious target is the retail heavy REIT's, and conversion of the surplus space into large condominiums - the mystery is to what extent 'burb WFH becomes the norm. Who is going to buy those condominiums, how many, why, and at what price. Then how do you move the remaining space when retail and office are over-saturated. SD

Think of the public ledger (PL) as a ledger that that any member of the public can access, but with only 3 or more copies distributed amongst private entities. New activity updating on each DB in real time, and independently. The individual DB's validating against each other multiple times/day, and resolving any differences via an algorithm. One of the DB's residing at either the Central Bank or the Industry Regulator. It's the ultimate 'toll-booth'. Think of any given nation having MULTIPLE public ledgers, and the worlds public ledgers together - as the Internet of Things (IoT). As with everything there will be consolidation, and the obvious first choice is money itself - the worlds reserve currency NO LONGER being the currency of just one nation (ie: USD). Disruption isn't just a word. SD

The reality is that there's just too much RE - and a lot of it is stranded. A NYC has so many bars/eateries, because so many travel in/out of the city every day - reduce flow by 20%, and you clearly don't need all the existing bars/eateries. The demand for bars/eateries didn't just displace to the 'burbs either - WFH people don't eat/go out anywhere near as much as they did when travelling to/from the city core. Rational capital allocators will simply asset strip RE, and reallocate the capital to 'hotter' categories of the utility segment. Less capital in the asset buy/sell cycle reducing prices. Growing unpopularity reducing sentiment, and compressing multiples. Hardly surprising that owners are very nervous - there's lots of uncertainty, and very little upside. The same $ for a place in the city, gets you a much bigger place in the 'burbs - and better schools/infrastructure. All you need to make it worthwhile, is good internet, good public transit, and ability to do WFH at least 2 days/week - not a big stretch. If a company allows 2 days/week WFH, it only needs 60-70% of the current space. Split that space between core and 'burb 'rent a space', and the annual rent expense comes down by HALF. Sure, industry will argue against WFH, but it's pretty much a done deal. Industry just doesn't want the disruption. SD