Our Mailbag Answers to Client Letters on Magna, Financial Plans, and Real Estate

We often receive similar questions from different people. Our communication with clients makes us better stewards of capital. If one person is thinking about something, chances are that there are other people wondering the same thing.

Of the many emails and phone calls we receive each month, here are four questions we pulled from our conversations.

Question 1 from Hamilton: How are you growing your business?

When we first became registered in early 2022, our base of clients included friends and family. Now, almost two and a half years later, we’re beginning to receive referrals. We manage money for 55 clients in Ontario, Alberta, Nova Scotia, and British Columbia. 

We believe our referrals are driven by the service we offer. No matter the inquiry, we work hard on the matter until it’s resolved to the benefit of the client.

Recently, our firm was featured in the Globe and Mail. One of the questions asked was, “What advice do you have for someone who wants to enter your business?” Our answer was, “Service trumps performance. Communication is key. Clients will forgive you for making a bad stock pick, but they won’t tolerate bad service for long. If your phone rings, pick it up. If you get an email, reply as soon as you see it. If you haven’t spoken to a client in a while, contact them to see how they’re doing. This is still a people business.”

 

Question 2 from Kawartha Lakes: I did want to ask you—on the list of companies, I see Magna International listed. Are you aware that Frank Stronach has been recently charged? Are we making enough money to turn a blind eye to this allegation? This is what I am pondering.

Our clients do own shares of Magna International. We’re aware of the charges pressed against its founder, Frank Stronach. Stronach resigned as Magna’s Chairman in 2011 and hasn’t been involved in the company since. For that reason, the charges don’t affect our investment thesis.

It’s never happened before, but if our clients owned the stock of a company where an executive were ever to be criminally charged, it’s very likely in 2024 that the company’s board would terminate that person very swiftly. We would have to nevertheless think about any situation of that kind on a case-by-case basis.

As interest rates fall, we expect the automotive environment to improve. Higher rates over the last several years have impaired the consumer and the auto loan market. We believe auto demand will pick up in the next several quarters as the cost of borrowing falls.

 

Question 3 from Etobicoke: Do you make financial plans?

Yes. We’ve worked with three of our clients to create a financial plan. Extrapolating the value of their assets using conservative assumptions has given these clients a reasonable estimate of their retirement income when the time comes. It also helps each person determine how much money they should save between now and retirement to achieve their goals down the road.

 

Question 4 from Kitchener: I’m constantly being told to buy real estate. But I’ve been hearing a lot of finance people on TikTok mention that your home isn’t an investment because you’re not making a lot off of it due to interest, tax, and maintenance. So, what’s your opinion on it? 

Most people look at the price their neighbor sold their home for last month, subtract the price they paid for the home they live in today, and compute the difference as their profit. 

That ignores the many costs of owning real estate—property taxes, which are about 1% a year in Kitchener; maintenance fees, which averages 2% a year; and mortgage interest, which in normal times is 5% of the loan’s value. 

While your primary residence is exempt from taxes, these three costs significantly take away from your take-home profit. 

In the long run, our calculations suggest you do slightly better than break even when costs are taken into consideration. The last 14 years has been an anomaly due to interest rates hovering around 0% from 2008 to 2022. After all, people buy the monthly mortgage payment (not the property).

To us, the value to home ownership is more psychological than financial.

-written by Jeff Pollock