SharperDingaan

Yes TFSA accounts can be a bastard, when the recipients are < 18. The way around it is to apply the contributions you would have made from age 1-17, to additional principal payment on the family mortgage. At 18 the recipient opens the TFSA, and the family makes the ongoing contributions out of the accumulate mortgage prepayments. The wizard and the recipient using the contribution as tuition towards ‘learning business’ Changing residency can also be a bastard. It’s really just a cost of doing business, and in most cases not particularly high as the amount in the TFSA will not be extravagant. If it becomes extravagant, the recipient simply closes the account. Option use. We’ve done well by options (Leaps), but agree that it’s generally the writer who benefits; hence our preference for cheap stock with high optionality, versus naked calls. To do well; you have to understand the business you are investing in, how to use payback period, and how to use risk. A good example is PWT and the Jan-2018 calls. If you're pretty sure PWT will be > $3 by the end of the year, it's pretty hard to ignore the calls. Houses in TFSA accounts. Rental properties in a TFSA results in income tax paid being reimbursed, according to what proportion of the rental property the TFSA owns. Similarly if there’s a gain on sale, it’s tax free. SD

Years ago, shortly after leaving university, some friends & I partnered together to pursue 'adventures in trade'; primarily as a way of keeping in contact with each other, and to use the opportunities resulting from 1-2 year international assignments. One of the early ventures was 'collectable' furniture. As one of the guys, we would scour northern England & buy up wrecked late 1800's couches & chairs, put them in a container, and ship them to Halifax. The girls went to Paris and Milan and bought bold designer couture fabrics from 6 names (Lacroix), for export to Halifax. One of the moms & her friends, would then re-upholster the frames in a couple of garages, with the finished product sent on to New York (usually as part of someones personal effects) for sale in a high-end shop. Put a designer name on a unique 'one-off' piece of furniture (evidenced by chips/dents on the frame), & you can sell it as a collectable (with attitude!) - at a price comparable to an oil painting. The profits paid for a few wedding dresses, and one or two receptions. The money in collectables is in recycling them, not holding them. SD

TFSA/RRSP accounts are just tax free/tax deferred accounts. The disadvantage of the RRSP is that if it's very large - the forced withdrawals starting at age 71 will result in the clawback of pension income (OAS, etc.). The $ come out at a very high effective tax rate. The intent of the TFSA is to foster overall savings, the intent of the RRSP is to foster retirement saving. Timeframe. Both applications are valid for the bulk of people using them, but there are always going to be outliers. Obviously we want to encourage the good, & discourage the bad - but to do well in a TFSA, you must be comfortable taking on risk. Hard for an adviser to recommend. Young people have long runways (plus), but no expertise (negative); resulting in a neutral exposure. Replace the expertise, and you magnify the impact with a long period of compounding. Use options, or cheap stock with high optionality; and you ramp this up still further. At the extreme; a 60 year old wizard contributing 5.5K every year, to the TFSA of a 2 year old grandchild. Life options. More importantly, options have the huge advantage of capping the downside to the premium paid. If the wizard gets it wrong the loss is limited to the contribution made; but if he/she gets it right - the upside is unlimited. If option premiums never exceed the wizards cumulative TFSA contribution, from inception to current date; the recipient also takes on zero downside risk. Should options be permitted in these accounts? I would suggest 'Yes'. If you will not allow a meaningful contribution, & the intent is growth - you must allow the TFSA holder exposure to quality equities. If I'm not allowed to contribute enough to buy 100 shares of Royal Bank, then at least allow me a large enough contribution to able to buy a one year, at the money call, on 100 shares of Royal Bank. SD

The TFSA is illustrative of how most things work in Canada. Everybody gets the same shot, but it's up to the individual as to how they choose to use it; hence over time, there will be significant differences between individuals - reflecting their actual practice. Seldom fully appreciated, is that the TFSA permits the use of options (RRSP's do not) - and it doesn't have a sunset date (age 71 for RRSP's). An enterprising lad need only get lucky on options a very few times - to do very well (& tax free), then use the proceeds (inside the account) to buy a portion of a property; anywhere in the world ;) 4-5 accounts acting together to make the down-payment on a property being rented, & all it requires is that each TFSA holder have a valid Social Insurance Number. TFSA holders are also allowed to be dual nationals ;) SD

The reality is that all bail-outs eventually end, and fear has a limited shelf life. Even if you think exit is a Russian Roulette decision; there is still a 5 in 6 chance that pulling the trigger is going to result in a successful exit - and if it fails, its no different to what we already have. 'Radical change' is also the underlying mandate of the tens of millions who voted for Brexit, and Trump; because for them - there is little to lose. SD

As we prefer to sell, hold cash, then repurchase .... to many we would be considered 'high cash'; when in fact it's anything but - as the cash is committed. Point is that 'cash' really means 'uncommitted cash' + remaining margin capacity + (option strike price - premium) x # of shares. The option position is more subtle, but obvious if you consider Taleb's Antifragile. Imagine you bought 1000 shares at 10, the price today is 15, & you can get a 1 yr call option with a strike at 15 for 2.50. You are concerned there may be be a blow-up, have no idea as to timing, & suspect that things will get more extreme between today & blow-up date. You could; 1) Sell today, sit on a T-Bill, & wait. Cash of 15,000, gain of 5,000, zero risk 2) Do nothing today & buy additional shares on margin, on the dip. No cash, uncertain gain, high risk 3) Sell today & replicate with options. Cash of 12,500, gain of 2,500, zero risk, uncertainty working for you If you're retail you might go with 1), if you're institutional you might go with 3). Point is that 3) is also a source of cash. Obviously not for everyone. SD

The fractional reserve is supposed to be the $ on hand to meet demand deposit withdrawals – UNDER NORMAL CONDITIONS. The; if customers have $1000 on demand deposit with us, & on any given day we expect to have to return no more than $100 - we can have a 10% LIQUID RESERVE, and $9,000 out on loans at various terms to maturity. The central bank is supposed to be the ‘go to’ when conditions are not normal. Their function is to temporarily absorb the entire ABNORMAL market risk, until such time as normality can be restored; and it is you and I, Joe citizen, who absorbs the risk. We know the division works very well, and that it puts the everyday risks of lending on the bankers making those decisions. The poor lender goes bankrupt if they make bad decisions, & is instantly replaced by a more competent lender. Our issue today is that we don’t let big banks fail, & reward them for incompetency. We ‘bend’ the interpretation of ‘reserve liquidity’ to essentially lower the fraction, and increase total loan making capacity; the if we only have $40 when we need it, & not the $100 required – the central bank will spot us the difference. Moral hazard. It has been almost 10 years since Lehman Brothers. We don’t need to end fractional banking, we just need another Lehman Brothers and a central bank exit from everyday banking. No more liquidity injections, no more bowing to threats of mass layoff, end of moral hazard. Obviously, not a popular view. SD

The key to many of these businesses is the ability to think outside the box, & having the cohones to execute. In the Greater Toronto area (GTA) there are a great many very good, and very reasonable, ethnic eating establishments. All you need do is look in the window - and count how many other people of the same ethnicity are sitting at the tables; they wouldn't be there if it was the same as they could do at home. Quality of food/service, or value for money; and not in ritzy locations. There are also a great many gems where it's literally maybe 10 indoors tables, and a moderately sized outside patio open in summer. The places are usually on the rural fringes, & only open 5 days a week (12:30 am close by 8:30 pm weeknights, maybe 10:00 pm on Friday and Saturday). The food is superb & it is almost always a retired chef, purely in the business for fun - working a 40 hour week. Quality of life. Good artisans (chefs, bakers, brewers, cheese/cake makers) are also part of their community. In many ethnic family businesses it's not unusual for family friends to voluntarily work the business for a week/month or so, along with the patrones kids, while the patrone/wife take a vacation. Paying it forward. Some of these are truly sh1te businesses, but if it's your passion - it doesn't really matter. To be happy, you've got to do what you love. SD

I've never attended the event, as I prefer to keep my thinking as independent as possible. That may change once I retire, but for now it's still some distance away. We may also want to bear in mind that the lower attendance is underlining the message of some of his partners - that he's on a short lease. Should it become necessary to part ways, it's better to have some distance. That's not a bad thing, but it is a reminder that their recent changes haven't been meeting the test. SD

Look at a small business as a family enterprise - maximizing its value as a family unit. Members that wouldn't be otherwise employable, or would be underemployed, are now contributing by saving costs; and the bigger your extended family in this position - the greater your advantage. It's not unusual for a premises, or even a franchise, to also be owned by a rich uncle; & rented to the family; the uncle working the 'capital' side, and the family working the 'operating' side. The expectation is also that the operating business has zero/nominal terminal value; you make your money from operating it (no different to most other personal businesses), & your 'retirement' fund is the building itself after paying off the mortgage via the monthly rent. Its very efficient, & more than adequate for most purposes. But the business itself isn't profitable. If you had to pay minimum wage for all those hours, it would be very difficult to turn a profit - and most of the benefit would go to everyone but your family. And if you did turn a profit - it's unlikely to be enough for your risk. Hence there are very few 2nd or 3rd generation owners - they get out. SD

"BTW2: If anything is interesting it's Mimblewimble (to increase privacy) which would require the Bitcoin script to be extremely simplified instead of made more complex." While elegant, this thing is deadly. THE major attraction of blockchain is that 1) everyone can always see the ENTIRE transaction history, 2) the entire chain is independently re-validated every time there is an addition, and 3) you CANNOT look at just the last block. The major negative is that if you're doing this on a distributed ledger, it's taking longer, and costing more per update as the chains get longer. It is the price for total anonymity, but it puts inherent limits on ability to scale up. Put this on a database, and you WANT both centralized AND complex coding. Coding ONLY through the Oracles own facility, with very tight system enforced logic controls, routinely audited every year; logic errors caused only by the user, and not by software bugs in the coding. A major issue for private Oracles where governance is about trusting in 'the rules', the 'code', and the robustness of the fault tolerance. It really comes back to the architecture decision on whether to run on a DL or Database, & living with the consequences of the trade-off. Does your purpose of your application really require the level of anonymity that the DL allows? SD

In the Cdn system, when there is miss-selling; it's typically dealt with behind closed doors. Facts to find out how extensive it is across the industry, identify the standouts, determine root causes, and come up with an approach. You are then informed as to what the minimum is that you're going to do to correct it, & you're expected to do better than this. How, is up to the bank. So .. when employees feel that things are so bad, that they have to essentially 'whistle blow to the media'; it is akin to the red light going off over the goalie net. And this from Canadian employees, in a conservative bank?; it is highly likely that it is not disgruntled employees. We know that prior to the 2006 banking crises, many banking employees around the world were raising flags that things were seriously 'off'. The warnings were ignored, because it wasn't convenient; & we got a decade of continuous bail-out instead. In Canada, those warnings get taken up behind closed doors. Its a strong system, & it works very well; but it's everyone's responsibility. SD

Keep in mind that with this bank, the 'controlling mind' has been quietly shifting south of the border for some time. While much of their business may originate from the US (& be expected to grow further), they've made the mistake of thinking they are a US bank. They aren't. The brown bank thought they were traders. Then found out they weren't, & still haven't recovered. The green bank has made a similar type of error. Hard to imagine the whole sector doesn't pay for this, & the green bank in particular. We may have done it do - but they are much worse than we ever were; and its a way more juicy story if you report on them ;) We're hoping for another DB ... from some kind of trip up. No long term damage, but this WFC type of sh1te is going to stop. SD

The oligopoly is a privilege; the entry fee is the cost of regulation, and doing what you're told - when you're told. Traditionally, the banks were allowed to expand into other countries; on the understanding that the efficiency gains would be passed on to consumers to defray some of the regulatory cost. Everyone kept an eye on everyone else, & ate well - so long as everyone behaved. So when one of the chosen few chooses to rip off customers - well beyond the norm .... & it's so bad that employees feel they have to tell the press/regulator; there will be consequences. Prominent heads on a stick, both to shut it down - & deter any others from getting ideas. In the age of fin-tech we don't need as big a back office as before, & those jobs are going to be vanishing. So .... if you want to continue to do business abroad, you're going to bring everything that isn't directly sales related back to Toronto. Yet at a time when leadership is required, we have a bank acting like a thug? Thugs get slaughtered. SD

The green bank has cultural governance issues that are only beginning to surface. Their attitude also isn't going to be tolerated, and they will be made an example of. Most would expect some high level departures in the next little while, and some further declines. SD

The most benefit comes from knowing the basics, and the cycles of an industry. To most of us that means you've either worked in it for some time, or its an industry that you feel strongly about. Track 2-3 quality names, if that. Application makes the money; simply have a game-plan & stick with it. For many it may be as simple as buying somewhere in the trough, selling somewhere in the peak, & holding a treasury until the next trough; rinse & repeat. For others it may be as simple as holding a treasury, & waiting for a quality 'name' to screw up; TransCanada Pipeline, BP, Barrick, FFH, etc. Lots of ways to play. Do something else. Stare at the same thing everyday, & you cant see the forest for the weeds. If you're retired - use the working day to do what those working cannot do. If you're simply bored - either start up a small business, volunteer for, or get a job talking to people. An investment decision takes 2-3 days at most, not weeks. SD

Most of us don't need additional ideas - we just need to eat our own cooking. Selling at 70c on the $, to buy something at 60c, isn't useful. Even McDonalds pays you better for your time. When starting out, you're not a PM - or a 'trader'. Your biggest 'life lesson' is learning how to back your own convictions, and being patient enough to tolerate material interim MTM losses. The tuition has to hurt, & that learning isn't going to happen if you insist on owning 'everything'. For most of us, maybe 1 night/week is more than adequate. A little more around earnings season. Most are not 'investing' either, we're simply managing cash between events - & XYZ company is simply a reasonable opportunity. SD

It's a tough job being a border patrol officer, and not the best paid either. Many might also argue that while most officers may be well meaning, they probably aren't the top 20% of the barrel. So .... what do suppose might happen should enterprising reporters put streaming cameras and microphones on suitable subjects - & send them through the border? Most would expect 'incidents' especially upon discovery of the streaming tech. But it'll be too late; because all the nice clear insignia, faces and voices are already on the feeds - the feeds were automatically re-broadcast off the NA continent as they were received, then turned into viral releases from multiple sites, to drive a feeding frenzy. It is of course a bait and sting, but it would generate millions of hits, & there is nothing the patrol officer can really do about it. The only defense is to not fall for it - which maybe ONLY the top 20% of the barrel could do. The commercial incentives are very high, & it would get shut down very quickly - but not until after the first viral images have begun hitting the net; & too late. Charming. Food for thought? SD

In the real world we have auditors .... They exist to verify (on a sample basis) that a department is either following mandated procedure (internal audit), or that the numbers are what they are claimed to be (external audit). Test failures are expected, there's a discussion, and a written resolution agreement. Make an issue of it, & ultimately you get replaced - at the behest of the Board of Directors. Its an expensive process, of trust and verify. If the independent reviewer cant reasonably verify it, the asserter was lying. It's essentially French Law - guilty until proven innocent - and by-and-large, it works very well. Of course it's possible to defraud; hence an audit only provides 'reasonable', and not 'absolute' assurance. Audit in the blockchain world is a shrinking business, new sources or revenue are needed. It is a very simple thing for a public funder to demand that all statistical conclusions be audited by a 3rd party independent, and the auditor needs the business. Resulting in less - but verified research, versus the current river of BS. Get the house in order, or it'll be done for you. The clock has already begun ticking. SD

A few points for the vandals ;) VC versus Ivory Tower are simply competing models .. & nobody likes competition. All research is a project of some type - but in the real world, all projects need to demonstrate 'proof of concept' within a reasonable period of time. It used to be that the academic made the decision as to when an avenue of research should be abandoned, now its also the VC process. No commercial prospects, no $, no further research - competition. We all 'gotta serve somebody' (Dylan). Most university facilities, & much of the funding paying for those grad students, is publicly funded; the intent is to produce basic research that society can capitalize on (the annual $1 into the university + intellectual processing = $2-3 of 'intellectual value' out). Incubators & VC involvement is simply the next stage of the value chain (the $2-3 of 'intellectual value' + business processing = $8-10 of annual economic value out). Society gets lots of jobs, and if the average tax rate is 10% - that $10 of annual value created funds the next annual $1 ($10 value x 10% tax) invested in university research. Academics don't make the decisions, society does - more competition. Waste. Of course not all university research is commercial (as pointed out), not all incubator research comes from universities either (blockchain). But very few dispute that academic research processes could use a ruthless review - from professor through to grad student. The well worn 'we found and rejected the cure for cancer' because we were looking for the 'cure to xxxxx', comes to mind. There is waste in VC as well, but at least it gets systematically market tested every day. Hence it's not hard to see why the DBA is despised in academia, as they are highly visible disruptors. OK to have them in the Olympics, if we really have to; but make them swim under time trial in a separate pool. Different rules, different payoffs, and no piles of money interfering with the pictures of that Noble prize ;D Different strokes. SD

The majority of people invest in an index because they have better things to do with their time. The index investment is expected to return either a reasonably reliable cash flow (interest or dividend), or earn only marginally less that could be made on a direct 'widows and orphans' investment. For most people if you want to be more 'hands-on' in your investment approach, you invest in rental property rather than 'widows and orphans' shares - and collected rents versus dividends and interest. No fund trading, and an index sector review maybe once/year - if that. Horrifying from an industry perspective. Capital flows to main street (rental property) versus wall street (stocks/bonds), there is heavy bias to not 'trading' (no commissions), fees are highly visible, and value-for-money isn't. More telling, is that this was pretty much the norm prior to the major wall street firms becoming public companies. Hence - anything other than this is essentially marketing, to generate commission. There have always been a small number people who outperform; but it's just that - small. Making the pool of people bigger doesn't create more out performers, it just makes it harder to out perform; returning us back to that very small number. Education is a very good analogy: There was a time when an MBA was very hard to get; hence the people who had one were very good, & paid accordingly. Today pretty much everyone has one, but most of the folks who have it ? not so good. In the real world we live on Main Street. Get a life, & enjoy it! SD

Academia relies on the fact that it is far easier to go around the problem, than fix it. In the business stream it is possible to do either a DBA (Doctor of Business Administration), or a PhD (Some Business Discipline). The PhD is expected to add to the global knowledge on a narrow subject area, and pursue fortune and glory for self and university by way of a Noble prize. The DBA is that odious fart in the presence of the Pope; zero interest in benefiting their fellow man, fortune and glory for self only - via an IPO (Microsoft Facebook, etc.), and the nerve to simply BUY the university (name on the business school). Across North-America, there are maybe 1 in 75 spots/year for those f@#g vandals! - at best. Build and own Microsoft, or restructure an academic faculty? - its a petty easy choice. Worse still - if you were starting from the ground up you'd make the whole thing on-line and simply sell shares in it; same as you would make a new bank - entirely virtual. Buy 100 shares of Harvard 'virtual', & frame them up - along with your degree. No different to a Louis Vuitton offering a cheaper line of the same quality goods. Scandalous! So instead, change goes around them - & nothing really changes. Real change happens at the business incubators, not the universities - they just get in the way. SD

We learnt from the financial crisis that all you had to do to get a good rating on a bond securitization, was bribe the bond rating agency. Not by giving them an envelope, but by agreeing to pay them a large fee for their services/research. Do we really think that academia is any different? The reality though is that there is very little we can do about it. SD

Its only the competitive types that care about 'beating an index'. It is just a number that substitutes for rank; I was 200bp > the index, my neighbor was only 150bp > the index, therefore I'm #1 & my neighbor is #2. The fact that both are well above the index is irrelevant. Most 'owners of that money' don't really care either. If I have 1M and made 100K versus the 110K some index says I should have made, so what. At 100K/yr (more than most can spend in a year) - how the money was made, starts to become more important than how much. A great many also recognize that 1 year, is an arbitrary measurement period. And anyone with kids will tell you that most returns aren't monetary ... You are not even measuring your total return, & then you are trying to compare to something that isn't relevant. And wondering why you're disappointed? SD

Most of the best investors I know are from 'main street', not 'wall street'. They do other things, and largely treat 'investment' as simply cash management. Laborers who ended up as major house developers, managers/developers who developed their own products, little old ladies who married well - and often! They are all entrepreneurial, enjoy pretty balanced lives, have tremendous common sense, and express a wicked sense of humor. They also take the long view on just about everything. Point is that a 'wall street' man/women is a one-dimensional product, sitting in a bubble. Pop, or move outside, that bubble - & it quickly becomes apparent how much of an illusion it actually is. OK for a while, but do you really want to emulate it? SD