Updated: Mar 22, 2020
IN THE MATRIX WITH BLAIR LUKAN, CFP
My first interviewing gig. I was nervous, the technology was cutting out, and fielding questions while focusing on responses was trying to say the least. But despite the distractions, hearing Blair’s perspective on investing was an eye opener for me. Especially, as I sat down to listen and summarize the audio version of our call.
Thank you, Blair. You truly are a pillar of calm, logic and optimism during the chaos and confusion being experienced by many these days.
“I knew you’d be excited.”
Clients checking in with their financial advisor, Blair Lukan, know he’s going to have an optimistic outlook, even during the market volatility we’re currently experiencing. I sat down with Blair to find out why, and specifically how, his clients are weathering this storm.
His emotions as an investor are different from that of his clients. He’s done the research on the companies he’s invested in and knows their value. He takes into consideration:
The Leadership: How strong is the team?
Their Financing: Are they well financed and how?
Do they have the shareholders’ best interest at heart?
Blair then does the math and becomes confident with the numbers. If it’s valued at $100 and trading at $90 it’s a good deal. Even if the stock drops to $70, he’s still confident in the book value of the company.
THE GOLD: Know the book value of the business, not the value the market chooses to place on it.
If a client’s in the “Distribution Phase” of their assets (retirees), he recommends they sit on ideally, two years of income in cash.
For those in the “Accumulation Phase” of assets, Blair recommends the importance of sketching out what you want your life to look like. And to then, to build a plan you can rely on. Not one you need to react to.
As in retirement, he strongly suggests having the necessary assets sitting in fixed income or cash instrument for contingency purposes or economic downturns. Did you catch that one?
THE GOLD: The key to investing is to never put yourself in a position where you have to sell assets at a loss.
Due diligence is a critical component of every investment he makes. The companies he’s invested in are well financed, with strong book values. This puts them in an enviable position to be able to get bigger, and grow stronger during economic upheavals, in stark contrast to their competitors.
Compromised companies will often experience the following downward trajectory:
They cut costs. Labour often being the first expense item to be cut.
Service levels plummet, costing them their customers.
They liquidate assets
Whereas many of the companies in Blair’s portfolio leverage economic downturns through:
Easily absorbing new talent
Effortlessly gaining new customers
Securing new assets for pennies on the dollar
Blair shared with us the screening process his firm implements to evaluate the companies it chooses to invest in. Here are the filters they use to determine if the company is a solid “Buy”. How would your business rate?
Geography. It’s important to understand the political climate and accounting policies of the companies in which you invest. North American and western European companies is where Edward Jones sets its sights.
Longevity. Any business can make money in good times. But what about in the bad. How have they weathered the past 10 years?
Safety. What’s their credit rating. Edwards Jones will only invest companies with a rating of BBB- or above.
Size. $1B to $2.5 market capitalization.
BTW… Market capitalization, if you're curious, refers to the total dollar market value of a company’s outstanding shares of stock. Commonly referred to as “market cap”, it is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share.
Believe it or not, this makes up fewer that 600 companies in the world!
But Edward Jones doesn’t stop there. They take it three steps further by:
Reviewing the financials and estimating the true book value.
Fly to sit down face to face with CEO and CFO to determine strength, integrity and values of the leadership team.
Interview customers, suppliers, competitors and employees to get alternative and unbiased perspectives on the company it’s researching.
THE GOLD: There’s a difference between Investing and Speculating.
The best advisors are always thinking about the downside for the client Blair points out. Their goal should be to protect the client first, while building their client's assets second.
“What’s the impact of the worst-case scenario on you and your family?” Blair won’t proceed until the client is able to answer this uncomfortable question. From here, this is where Blair builds a solid and safe investment strategy, a plan of action for the client.
Blair suggests every advisor should be asking questions centred around your hopes and dreams.
When do you want to retire?
Why is the timeframe important to you? Understanding the driving needs and motivators behind retiring at a specific age are important to building a plan that works for the client, and will in turn, determine how much money is required.
Where are you today and how much can you contribute to the plan?
Given a client’s responses to these questions, an advisor should be able to determine the annualized Return on Investment (ROI) needed today to reach the target goal and date. This number is what drives the decisions and the investment strategy.
THE GOLD: The ROI needed is the number he wants clients to know and memorize. Keeping this number in-check, is what takes the fear and emotion out of the fact that the market has dropped.
I love that Blair recounts his early childhood motivation for wanting to help people build wealth. He references the genius, likability, trustworthiness of Warren Buffet throughout his narrative, and shares with us a high-level perspective on the evolution of investing:
“Markets” opened for the express purpose of buying and selling shares (or stocks) of individual business
Harry Markowitz introduces the concept of portfolio management
And now, Edward Jones chooses to focus on what they call Human Centred Wealth Management. Understanding how investing impacts people emotionally.
Throughout each of these periods, what separates successful investors from others, was that they chose to behave differently. This then, becomes a pivotal question to ask of potential advisors:
“How did you react in the last market downturn? What did you do? What were the outcomes?
We spoke above about having the necessary assets sitting in cash accounts so that we never find ourselves in a position to have to sell at a loss.
For those who are in the position of being able to sit on their investments, to hold tight, but are wondering if it might be best to cash them in, and take what you can, wait! Blair reminds us that doing so may take pain away today, but you’ll be pushing it out to retirement because of inflation.
THE GOLD: There’s no such thing as getting rid of risk. The question is, what risk are you prepared to absorb and when?
Find an Advisor
Warren Buffet in his early days went door-to-door looking for clients. When one couple was asked why they decided to entrust Buffet with their hard-earned money, they responded, “There was something about him we really liked”. Blair believes in trusting your gut when you meet with potential advisors. “You’re going to get a feel for if they really care, or if it’s simply about the money. Their questions of you should be about your hopes, dreams and goals”.
On the topic of money, he does suggest it’s important that advisors are upfront and transparent about their fees. How and when they get paid and what level of service they plan to offer in return. What are their proposed check-in points and turn-around times?
Blair also introduces the idea of finding an advisor who knows and represents the needs of a specific community be it demographic, geographic or psychographic. Perhaps you may be a single mother who is an entrepreneur? A new-comer to Canada? Or a miner in a remote or rural community? Finding an advisor who personally understands the landscape you’re navigating, financially and emotionally is important.
Zoom in on a yo-yo in motion. Up and down. Up and down.
As you start to pan out, you see that the yo-yo is being held by a young boy. Releasing and catching it.
Up and down. Up and down.
Stepping back even further, you realize this boy has been walking up a hill the entire time.
This is the brilliant metaphor Blair uses to illustrate how indexes typically perform. The challenge, he points out, is that they become popular when markets are raging, in this case since 2009. For many individuals looking to manage their own portfolio, Index Funds are a cost-effective way of investing as they don’t need to pay a fee to have it managed. However, you’ll need to be really with controlling yourself emotionally, he advises.
So, what’s in store for the market? For our investments?
Blair chuckles as he shares the adage, “Investors’ predications are there to make the weather forecasters look good”.
Clients who work with Blair have committed to remaining focused on just one thing, the intersection of:
- Can I control it?
- Does it matter to me?
The world is not ending. This is not our first pandemic. We will come through this.