DIY and Private Equity Investor Profile – Matthew Wilson
Long-time readers of this blog are well aware common stocks that pay dividends and low-cost, diversified Exchange Traded Funds (ETFs) make up the one-two punch for what I’ve coined our “hybrid” approach to investing.
This approach, based on our historical returns against various broad market stock indexes has performed rather well – as we continue to march towards this financial freedom goal – but this approach is hardly the only way to invest.
There are preferred shares as investments, in an article posted here; real estate, commodities; as well as different forms of equity investing using value-investing, momentum investing and much more. There are, if you will when it comes to wealth-building, many roads that can lead to Rome.
Private equity as an investment is also something worth looking into – something I don’t have any direct experience in but I’m curious about. When it comes to learning, I prefer to learn from folks who have been there, done that; to mine these individuals for their success stories and lessons learned from failures as well.
A fan of this site, Matthew Wilson, is a young and successful entrepreneur, investor, and co-founder of Calgary Beer Week. That last claim to fame really got my attention as a big fan of craft beer!
Having started his first company at age 11, he now works as an advisor to start-ups and early-stage organizations, helping to build their business model, sales, and marketing strategies.
Over a bunch of emails this summer, I invited Matthew back to the site to share his investor profile with readers so we could start diving into the world of private equity investing. Future posts together will go into more details on that, but for now, I wanted to get Matthew’s take on more traditional investing routes – given his success – he’s got some great perspectives to offer.
Here is what Matt and I discussed – check it out.
Matthew, welcome back to the site. Nice to chat with you again.
Thanks, Mark, It’s great to be back! There’s no doubt a lot has changed since our first chat last September, be it trade wars, rising interest rates, and daily political drama on Twitter. It’s great to see your hybrid portfolio model weathering the noise so well!
Let’s back up to the beginning. I mean, you started investing/your own company when you were 11. How on earth did you begin that so young? In what? Who helped you out?
It was out of necessity, really. I wanted money to buy the latest Much Music Dance Mix cassette and unlike other kids, I didn’t have an allowance, so I started shovelling driveways in the winter. The issue, however, it took nearly 30 minutes to shovel a single driveway, and by the time I completed two or three most people in the neighbourhood had either done it themselves or hired another kid from the block.
So, the following September, I had my father help me type an exclusivity agreement on our first-ever Windows computer and I went door-to-door getting neighbours to sign up for the entire winter – $150 up-front and another $100 in February if they were satisfied, with the guarantee their driveway be shoveled no later than 9 AM.
As winter rolled-in, I was then in a position to have the other kids on the street work for me at a rate of $10 per driveway since I locked all the neighbours into exclusivity agreements three months prior. I got my Dance Mix cassette and continued expanding the business each year from there.
Based on our chats, beyond your dabbles into private equity, you’re a huge fan of using low-cost ETFs for investing. Why? Why is passive investing for many Canadians the way to invest?
For me, it’s all about minimizing risk and preserving capital. I see so many inexperienced DIY investors putting themselves at huge risk by trying to be deal-pickers, when in fact, they should be portfolio constructors.
Diversification is the key to reducing risk and preserving capital, and to obtain proper (global) diversification research has shown that we need to own at least 40 stocks in Canada, 49 in the US, 43 in the UK, 38 in Australia, and at least 39 in Japan, for a total of 209 stocks! There’s no way I could manage that on an individual level. By using low-cost ETF’s I can construct a true, globally diversified portfolio (without having to wake up at 2 AM to trade foreign markets!)
As Warren Buffett said in a 2013 letter to shareholders:
“The goal of the non-professional should not be to pick winners, but should rather be to own a cross section of businesses that in aggregate are bound to do well. A low-cost index fund will achieve this goal.”
What’s your portfolio make-up now? What does your portfolio comprise of including any asset allocation and location? Meaning, can you share a bit of what you own, and where?
To be honest it really hasn’t changed much since last year. Of my 60% equity weighting, I’ve slightly pulled back my US exposure to 20% (from 21%), while increasing international equities to 19% (from 18%). As for Canada, I think we’re poised to play catch-up over the coming year alongside the recovery in oil prices, so I’m maintaining a 21% weighting through the ETF XIU.
As for fixed income, it’s not very sexy but I’ve maintained a 16% weighting to bonds split between Canadian, US, and international bonds. The preferred share ETF’s we discussed last year have held their value quite well and still pay me a nice 5% yield – I’ve maintained a 16% weighting to preferreds.
REIT’s, however, have been the true rockstar, some up more than 15% in the past year with a 5% yield! I use the ETF ZRE for Canadian REIT exposure and CGR for access to global real estate markets.
Lastly, I always keep some cash around for a rainy day – these days around 2%. Thanks to Trump, there’s more headline noise than ever, and it’s these short-term dips which make for great buying opportunities.
Canadians are fanatical about real estate. Some investors believe this is the holy grail. What’s your take on our real estate market in general? Do you own or rent yourself? Why?
Don’t get me wrong, real estate has worked well for many people over the past few years (if they were smart enough to sell). In only 18-months a friend of mine doubled his investment on a $650,000 house in Markham! But it’s important to note he got lucky – right place, right time, in a frantic, unsustainable (and unrealistic) market.
Personally, I’ve never owned real estate and I never plan on owning real estate. TV has glamourized ownership through an endless barrage of senseless TV shows where the host parades a pair of newlywed millennials around town with a big fat down payment cheque burning a hole in their pocket.
When baby boomers were buying houses back in the 70’s & 80’s they were buying their “forever home”, and could expect to double their money in 25-years. Nowadays, the average first-time home buyer stays only 11-years before wanting to trade-up.
Thankfully, my wife nor I have the desire to play house, pick out tiles or paint walls, so we are perfectly happy renting. Putting all of our money into a single property on a single street, and being at risk of going underwater on a mortgage if the market takes a turn, is a terrible investment strategy – I know people in this exact situation here in Calgary. Instead, we opt to gain real estate exposure through REIT’s, we don’t have to cut grass or fix plumbing, and can choose to instantly liquidate our investments with the click of a mouse for less than $10 in trade commission.
Let’s get into some lessons learned. I wrote about some of my major money mistakes here. What are your mistakes and what did you learn from them?
Back in the early 2000’s I learned the greatest investment lesson of my life – I lost everything I had saved from my snow removal business – which was around $35,000 at the time. Not the easiest pill to swallow for a kid in high school!
As much as it hurt, I look back and consider it my tuition to the Real World School of Investing and Personal Finance. I made all the common mistakes most DIY investors suffer when first starting out, like:
- Trying to pick winners instead of building a diversified portfolio,
- Holding onto my losers with hopes and dreams they would eventually recover,
- Having no idea when to sell a winner and take profits, and;
- Not understanding the incredible importance of tax-efficiency (among many other key lessons).
Given what you’ve learned, what advice would you give to 20-somethings who have been told to start investing today?
Get started NOW, don’t wait! Time is the most important asset we have as investors, and it’s something we can never get back.
Many people feel as though they don’t have enough money to start investing, or they’re afraid of losing money because they don’t have time to learn how to properly invest.
I tell people all the time if they can save only $25/week that’s more than enough to get started. It may not seem like enough to make an impact, but what most people don’t account for is the lost opportunity cost of not investing early.
For example, I recently sat down with a good friend of mine to crunch the numbers. We discovered if he invested his daily $5 latte into a simple, low-cost index ETF inside his TFSA over the next 25-years he would have more than $75,000 in tax-free cash once he’s ready to retire. That’s like making $106,000 before tax! With a 5% yield, he could collect $312/month tax-free without ever having to touch his principle – more than enough to cover monthly gas and groceries during retirement (on top of his pension).
Thankfully, there are so many great resources available nowadays to learn from experienced DIY investors – My Own Advisor is an excellent example. I’m always up to chat personal finance (preferably over a craft beer!) or via Twitter.
Thanks for having me back Mark, it’s always a pleasure catching up. I look forward to our next chat!
What do you make of Matthew’s advice to fellow millennials? What do you make of his investing journey thus far?