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?
I love the driveway shovelling exclusivity agreement – what a cracking way to secure a monopoly in the neighbourhood. I’ll have to remember that one for my kids
Although it wasn’t legally enforceable since I was only 12, it was a great introduction to business and the realities of life. Plus, I suppose it made the neighbours feel somewhat obligated to hold true to our agreement.
@MW — scanned your site (I remember it from some years ago) and had a chuckle at the Tony Robbins write-up. It’s of zero surprise to me, as I’ve said the same about the FIRE bugs — it’s easier to try and control your bank account than it is to try and control your mind. Almost everyone will go for the money before trying to face themselves. Human nature. Still, funny story as Tony Robbins is all about self-improvement and all that yet somehow that herd of followers completely missed that part!
Thanks for your feedback @SST. Yes, it was quite the eye-opener – watching all those people explode with emotion and rush the signup table for a magical “beat the market” trading strategy. When in fact, emotions are the single biggest enemy of investing.
If that’s how they reacted when some guy on stage told them they could make an easy buck, how will they react when Elon decides to light a smoke and their nest egg drops 6% overnight? (The presenter’s strategy was to invest in only a handful of stocks – no diversification with ETF’s or otherwise. Very risky!).
It was a sad example yet again of an investment company taking advantage of people’s untrained emotions. It gets me so angry and gives the entire investment industry a bad name.
I’ve often wondered if I would have done things differently if I had had the opportunities there are today whence I was but a lad. I’d like to think I would but we all know about hindsight.
I think about that now in my 40s Lloyd – so you’re not alone 🙂
I like the term “portfolio constructor”. There are still a lot of people out there who think they can hit a home run with a few well chosen investments when the real focus should be on building a solid portfolio that can last 40+ years (untouched if necessary!).
Thanks for your input, Owen. I agree, a solid portfolio should stand the test of time, untouched if necessary.
All the best,
Then again, depends what those investments are. I would think if an investor picked 50% XIU and 50% VTI, they wouldn’t need to do a thing but to add a few thousand to each every year for the next 40 years!
Interesting story Matthew.
Sounds like youve learned some things by school of hard knocks like many of us have. The key is actually taking the lesson which you seem to be. Well done and good luck.
Thank you @RBull, I appreciate your kind words.
I was surprised there wasn’t a mention of Private Equity in the interview as it was in the title. As per a couple of comments, I love the public markets over private equity. I did one PE deal. A fund that was buying US real estate in 2009 and 2010. It should have been a home run but at the end of 6 years we were only up 35%, and the managers were congratulating themselves on how well they did. Exchange rate should have given us close to 35% AND my stock investments were up about 2-3x over the same time frame. PE requires a lot of due diligence, which is (mostly) done for us in the public markets. I figured most of the profit in this PE fund went to managers, accountants and lawyers. At least it wasn’t an outright fraud.
Only other comment is on bonds. Some may find them necessary but at today’s interest rates they will likely be a drag on performance. I’m not big on lending anybody money, especially at these rates. In my presentation I convince people that, while there are risky stocks you referred to, the stock market isn’t risky. It is however volatile which is a completely different issue, even though they are widely perceived to be the same.
Mathew: Congrats on everything else and I also love a good micro brew.
Thank you for your insight and feedback Herman, and great to hear you’re a fellow craft beer fan! I agree PE takes a lot of intensive due diligence, and management fees can be quite high among PE funds. Perhaps during a ‘Round-3’ Q&A Mark and I can dive deeper into the world of PE – it seems there are several people here who’ve had mixed experiences.
Thanks Herman. We’ll get to his approach about PE in another article later this year. He is a DIY and Private Equity investor though.
Great points about PE: can be very risky.
Good interview and good for Matthew!
Start young and invest in a balanced portfolio of ETF’s – such good advice. I like his coffee analogy – “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.”
Thanks for the kind works Marko! Glad you enjoyed the Q&A.
Smart stuff 🙂 Little savings matter over time!
Anyone smart enough to begin enterprise thinking in their teens will likely succeed later in life as well. Good work.
The only point I’ll comment on is “Having no idea when to sell a winner and take profits,” That might be true if one holds Growth stocks, but where one has quality DG stocks IMO one should never sell unless one sees the company going south.
Thanks for your feedback @cannew. I 100% agree with you, buying and holding high-quality stocks is the best long-term strategy. Unfortunately, back in my early days, I was attempting to trade stocks which ended up burning me hard. A tough lesson learned!
“I was attempting to trade stocks which ended up burning me hard. A tough lesson learned!”
That’s still the mentality as EVERYONE monitors the value or price of their holdings. All Financial news only reports if the market was up or down and the change in the price of the stocks. Most Active, Biggest Gains/Losses and everyone thinks in terms of the future value of their holdings. They tell everyone to hold for the long term but when the news is down and everyone talks about the next crash because of Trade Wars, Personal Debt, Cost of Housing, so when a correction comes most will panic. The other line is to hold a diversified portfolio, basically owning all markets. I doubt those who do will be too happy when the next crash comes.
re: As winter rolled-in, I was then in a position to have the other kids on the street work for me…
Ah, yes, the good ol’ days of child labour…well played.
re: research has shown that we need to own…a total of 209 stocks!
Buffet has also said pick just 25 stocks. Also not sure why the Canadian market would constitute 20% of a (global) portfolio when it only represents 3% in the real world; you could make the case for only needing 6.
re: TV has glamourized [house/real estate] ownership
The N.American governments have been glamourizing and pushing it for the last 70 years. TV is really late to the game.
re: $312/month…more than enough to cover monthly gas and groceries during retirement
Really?? In 25+ years $300/month is going to be enough for gas and food? It’s a nice dream.
Finally, thanks for not talking PE. I’ve been on the sell side (and buy side) of PE and can tell you first hand there are still a lot of crooks operating in that space. Unless you are at the centre of it (or very close to it), it’s best to find a public market equivalent. That said, PE is an intrinsic part of the economy, we need it. Think of PE like a battle field, only the strongest and/or smartest survive to make it to the public markets.
Thanks for your feedback @SST. Very true, the way things are going $300/month in 25 years likely won’t get us much in terms of food. A few heads of cauliflower perhaps?
As for PE, I couldn’t agree more. Although an important part of our economy it’s still a very uncharted area (especially in Canada). One truly needs to be at the centre of it (or very close), as you mentioned.
Re Canadians with home country equity bias:
This does a pretty good job explaining and suggests an equity weighting of 30% is reasonable for a balanced investor.
Thanks for sharing RBull, very interesting.
You’re welcome Matt.
These funds may be one of the best options for a passive balanced diy investor, or a model for constructing your own.
“factors such as investors’ home-country preferences, the potential for return variation and volatility reduction from adding more global securities, the degree of market concentration, relative implementation costs (including taxes and
liquidity), the impact of currency (to be covered later) and regulatory constraints…”
I’d say the biggest factor for the average DIY investor is home-country preference. Almost all others can be side-stepped using ETFs & index funds. So really, it still doesn’t make sense to overweight Canadian equity by 10x.
Any analysis out there which compares risk/return of a global portfolio vs an overweighted home-bias portfolio (esp. Canadian)?
I read this recently as some long term results but not risk adjusted. I’m sure I’ve read some risk adjusted factors on this. Off the top of my head Wade Pfau was one where iirc Canada along with the US equities allowed the largest SWR amount backtested or monte carloed (top returns over long term with lowest chance of running out of money) for retirees of many countries researched. Ie an excellent investment choice historically.
With respect SST you are certainly entitled to your opinion and can invest your 3% in Canada but I believe Vanguard would not construct and offer a single model global etf for Canadians that doesn’t “make sense.” This type of portfolio geographic weighting isn’t particularly unique among investing professionals, but probably very light Canada equities amongst those on this board.
“Even Warren Buffett has suggested (to a U.S. audience) that an S&P 500 index fund is all investors really need. You could do a lot worse than simply owning the 500 largest companies in the world’s most diversified economy, and this index does give you indirect exposure to international markets as well. But I would still argue that a globally diversified equity portfolio is a better choice for Canadians.”
Good article find.
More so, I think this decision also comes down to other things such as timing, luck, where you will spend your retirement $$, other. Hindsight for the U.S. market is always going to be 20/20. Of course everyone should have been invested in S&P 500 only over the last 10 years!
I like Dan, he is a prolific and talented writer but this article only scratched the surface about the factors to diversify or not.
Potentially a blogpost to come. 🙂
Agree Mark that there’s a variety of factors to consider. I’m not sure there’s a “right” answer. Some are fine 100% CDN equities, and others want Canada to represent global market cap numbers. I’ll leave hindsight for others as long as we’re doing okay with our life. Part of the reason I just do the balanced thing.
Yes, Dan is great. One of the best. And yes again, the article only scratched the surface. Interesting on the long term returns- pretty darn close across the board.
re: …you could make the case for only needing 6 [Canadian stocks] (SST) ….With respect SST you are certainly entitled to your opinion and can invest your 3% in Canada but I believe Vanguard would not construct and offer a single model global etf for Canadians that doesn’t “make sense.”
Would be interesting to track the top 6 holdings of the TSX (since inception) compared to the index as a whole and see which “portfolio” comes out on top.
I don’t think there is anything wrong with 30-50% home bias (Canadian equities), especially if you are looking to spend your retirement dollars primarily in that country. Eventually I’d like to get to a 50-50 Canada vs. U.S. + some international split.
Another consideration for that cdn equity number is whether you hold fixed income.
My equity split now is close to target and approx:
Indeed. I have no FI (just cash), 100% equities, largely CDN stocks but increasingly more U.S. stocks and ETFs. No EM or International at this time.
Ideally I would like 50-50 Canada vs. U.S. + international % TBD. A cash wedge of $50-75k. Those are my goals in another 5-10 years flawed as they may be?!
FI will come from gov’t pension ~ $28k per year now if something happened to my job.
FI will come CPP and OAS (both after age 65).
We’ll also have my wife’s DC pension, market value into in the 6-figures now and should be more starting age 55.
I’ve never really classified my holdings based on geography. I wouldn’t know where to place holdings like BAM.A or even our “Canadian” banks. There is so much cross border holdings in some of these that I don’t think that information would be all that useful to me.
Interesting point and same. I mean, do we really believe only Canadian banks operate and are focused in Canada? BAM as well?
Lloyd it may not matter to you. But it’s not too hard to dig up some rough numbers
CDN banks roughly 30-35% out of Canada – 2/3 US 1/3 Int BNS more int/emerg. Looking at my CDN holdings overall probably ~25% outside Canada.
BAM pretty safe to say global company. You’re diversified with it as I’m sure you know!