Ellen Roseman interview: Guidance for New & Young Investors

February 9, 2024No Comments

Introducing Ellen Roseman, Former Finance Reporter – Globe & Mail/Toronto Star

We have another exciting interview today. I’m quite pleased with this one because as you guys know, all I ever do on this show and through my blogs is talk about technical analysis, and that can get stale after a while. So, once in a while, I like to have a guest who covers an aspect of financial analysis or financial planning that I don’t. And today’s guest is most certainly one [00:01:00] of those people. You guys have probably heard of her. Her name is Ellen Roseman, and if you’ve ever read the Globe & Mail or the Toronto Star business section, you’ll know who she is because she’s a long, I was going to say an ‘old dog in the business’, but that’s not nice to say. So. we’ll say she’s……

Ellen Roseman [00:01:18] A seasoned reporter. That’s what they say. ‘A seasoned observer’.

Keith Richards: She’s a seasoned observer in the financial business. So, she has insights as a reporter and a person who’s been involved [00:01:30] with the industry for a long time. So a quick bio: Ellen was with the Globe and Mail from ’75 to ’96 as a Consumer Issues Columnist, but she moved over to the ‘Report on Business’, covered personal finance and mutual funds, and did an awful lot of the analysis pages back then. You guys might remember when mutual funds were popular in the ’90s. Ellen was responsible for setting up [00:02:00] a lot of the Globe & Mail analytical pages. So, she’s got some real insights there. She ended up with the Toronto Star, which is kind of funny because the Globe & Mail is a renowned paper for the business section. And the Star, not so much.

Ellen Roseman [00:02:24]: That was the challenge. And also it was a good way to be able to [00:02:30] negotiate a higher salary.

Keith Richards: There you go! Then finally, Ellen Roseman has most recently been an instructor at the University of Toronto in Finance as well as running an Investment Club. She brings in people like me to speak to their club so individual investors can benefit.

I want to start off by discussing your [00:03:00] background in mutual fund analysis. Again, most of my readers are not mutual fund investors, but before the show, we were discussing some of the insights you’ve gained, so maybe you can bring us up to speed on your experiences while doing that.


Ellen Roseman Discusses Mutual Funds and the Early Days Towards Reform

Ellen Roseman [00:03:18]: I don’t know if I’d even call it analysis. It was more like putting a spotlight on mutual funds. I interviewed a heck of a lot of managers, and I enjoyed it because they were ahead of everyone else in [00:03:30] finding companies, visiting companies, and giving us their thoughts on whether or not this was a trend. All these interviews were interesting, but often the most articulate fund managers weren’t putting up very good results. I was the Editor of a monthly section, (both the Star and the Globe had it) – and it was lists and lists of all the mutual funds with all their different “A”  “B” and “C” Classes, showing their performance over 1 year, 5 years, 10 years, and 6 [00:04:00] months for people who they thought wanted this information. And a lot of them did and they held onto it.

[00:04:07] But, it’s the funniest thing because when I started covering mutual funds at the Globe & Mail, they still had an evening edition that came out around 6-6:30 pm, and it was only sold in newsstands on the streets in Toronto. The people who owned mutual funds would rush out, buy the paper, check the prices, and say, “Phew!” And remember, in the industry, we always said mutual funds are a long-term purchase. [00:04:34] It’s not for the short term. You shouldn’t be checking your results often. Once a month is probably okay. But many of them wanted to see it every single day. And I hoped they weren’t making decisions as a result of a one-day change – but they were. For many of them, this was their first experience of the stock market. They were always told that the stock market is ‘too difficult for you as an individual.’ [00:05:00] ‘You need a lot of money to get started.’ ‘You probably have to have a hundred shares of every stock that you buy.’ None of that is true anymore. But they felt that at least now they were in the stock market. And if they were getting good performance, they could talk a lot about it.

If the fund had one great year and four bad years, the five-year returns would average out [00:05:30] and make it look better. But that’s not helpful for the investor, because they want to see what’s the worst loss you might take if you own this. So, we would put the worst – I think over 5 years – and then the best increase you would get. So, instead of 5 years averaged out – which was more comforting – it’s 8% a year. One of the things I brought in was calendar year returns. You could see what it did in ’98, ’99, 2000, 2001, or 2002 [00:06:00] separately. And that gave you a better idea of the volatility of the mutual fund. People liked it a lot. Although it did take up more room, I thought it was a useful indicator.

Ellen Roseman: When I started my career as a journalist, I worked for the McGill Daily, which was just a volunteer activity, but it awakened my interest in reporting. It was the late ’60s, the Vietnam War was on, and there was a lot of student activism. And then I started [00:06:30] writing about consumer issues, which also involved activism. Then back in the early ’70s, inflation came back with a vengeance. Prime Minister Trudeau (his father) started a food prices inflation board with a woman called Beryl Plumptre, who came out of the Consumers Association of Canada. They were a very well-educated group of mostly middle-class women [00:07:00] who were interested in trying to make the market better.

She did a whole bunch of reports on inflation in the food industry – how to avoid it, and how to bring it down. And that got me all excited about consumer activism. I followed that a lot in the Globe for my first 10 years, then I switched over to business, where I discovered that the mutual fund industry itself was something that really needed a shakeup. It was not consumer-oriented at all. The big Mutual Fund Company – aside from the banks which weren’t that big then – was Mackenzie Financial. They had a fund that they had just started at that time.

Ellen Roseman: That fund looked golden because it hardly had any investments, so it didn’t go down very much. It was made up mostly of cash. They were [00:08:00] very arrogant. They didn’t like talking to the media, and they didn’t like talking to their customers. The way the business worked was that the fund company would have a lot of meetings for the dealers (who were independents, usually working for firms like Asante and Regal Capital Planning), and they would have a big spread of food and drink in an evening. They’d give a speech or two, show some presentations, and talk about their [00:08:30] results. Thanks to a friend I attended one, where I also noticed they talked a lot about all their great ‘vacations’ in the Caribbean and Europe, where they talked about mutual funds.

[00:08:51] So, these companies were sending them around the world to do “educational seminars”.  I was finally able to attend [00:09:00] one with the people behind Mackenzie, and I went up to one of them afterward and told him I was an Investor Reporter, and he replied, “Well, we don’t talk to the media.” I asked, “Why not?” He said, “Because you write for the investors, but our clients are the fund sellers, and the dealers so those are the only people we need to talk to.” So, the company couldn’t see beyond getting a great deal [00:09:30] with these dealers, and you can imagine how much money they were spending to do that. They were being bribed to sell certain kinds of funds.

[00:09:47] The analogy I always used to give was: at the end of each aisle in the supermarket, you’d see a bunch of products that were often on sale. They were really good deals. But sometimes there was no deal and no [00:10:00] discount at all. Why were they put there? Well, the company has paid to put it there, and they don’t want to pay more by lowering the price. That was how the mutual fund industry worked. And it was corrupted by the fact that the customer didn’t know any of this. They didn’t know anything about costs, or how MERs worked, it just wasn’t a great deal.  So, I did all I could to get involved with the reform of mutual funds.

Ellen Roseman There [00:10:30] was an OSC Commissioner named Glorianne Stromberg, who did a very long, quite informed report for the OSC around 2000 that ruffled a lot of feathers. We wrote about it many times, but we kept asking as the years passed, “What’s going on? What’s happening?” She prepared [00:11:00] another one for the federal government, but she ended up very frustrated in the end.

We are now getting to the point where there’s more disclosure in terms of mutual funds. Back when I started, Investors Group charged a 9% commission when you bought the fund, another 9% when you sold the fund, and then several companies also started paying the intermediary, [00:11:30] (i.e. the dealer) for every year that you owned the fund.  They said it was a payment for ongoing service to the investor, but the investor didn’t know anything about it. They weren’t aware of the kind of service they should be receiving in the first place, and they didn’t know they were paying for it.

When Doug Ford became Premier for the first time, on the first day he canceled Ontario’s Agreement to ban ‘trailer commissions’. He has [00:12:00] since backtracked and it’s finally come to be. It has gotten better with mutual funds, but as we all know, the mutual fund industry is huge. It’s a trillion dollars in assets. There is an exchange-traded fund, which people can do on their own with just an online broker, and it’s growing faster, but from a smaller base. It has revolutionized the industry [00:12:30] because many people who decide to start investing on their own don’t want mutual funds. And unless they have a mutual fund dealer, they can’t even figure out mutual funds because there are so many different classes of them. So, they are kind of losing their momentum.

Keith Richards [00:12:51]: Back in the ’90s, I was writing columns for The Money Saver (where you and I have a common connection), I covered all this and talked about these backend loads, which is one of the things you didn’t talk about. You’d get a 6% (or whatever) commission, and then trailer fees, and the client would be [00:13:30] penalized if he/she dared to sell their underperforming fund. I was with the brokerage office, Merrill Lynch, and they were selling mutual funds. I did too for the first couple of years, but we were supposed to be ‘stockbrokers’ so I stopped doing it. [00:13:55] I realized they were inefficient.

And what’s [00:14:00] interesting is, they were making more money than me. They were doing less analysis than me, and they were getting all these trips. I remember one guy got this giant solid brass bowl given to him by CI, I think. They went to Texas and all these different places for mutual fund seminars, but it was just a bribe.  So yes, I too lived through those eras.

When [00:14:30] I spoke out about it, because it was so ‘hush-hush’, the clients didn’t know about all these trips and stuff like you said. But when I was writing these columns through The Money Saver, I was approached by a senior executive of Meryl Lynch and he said, “You’re writing all this stuff about mutual funds.” It was 100% [00:15:00] accurate. I was giving statistics just like you did about how they underperformed. He told me to ‘cease’. I emailed him back and said, “This is the truth. I’m just giving people facts through my columns.” And he responded “It doesn’t matter. Many of your fellow advisors here at Merrill Lynch are making a living selling this stuff, so you can’t jeopardize their business.”

It was like it had nothing to do with what was right for the client. It had [00:15:30] everything to do with what was right for the so-called ‘Investment Advisors’, which were just vacuum cleaner salesmen selling a different product than a vacuum cleaner. I could rant on and on about this, believe me – but those days are over, thankfully.  And funny, I was the black sheep for selling stocks in those days. And now, of course, you know, everybody says, “Oh no, I wouldn’t buy a mutual fund.”

The key point I wanted to ask [00:16:00] you about is what you’ve learned through your career about investor behavior how beginners should get into the market, and how you get into investing, when you don’t have enough money to deal with a guy like me, for example, who has minimum account size of half a million to invest.


Tips for Beginner Investors

Ellen Roseman [00:16:26]: There’s a lot of intimidating factors that face beginners. [00:16:30] There are a lot of complicated terms used in investing. And, I’ve found even when I’m teaching investing for beginners, some of these products have names that have to be explained because the concepts behind the name are difficult too. So, that can put people off. There’s an emphasis on charts and graphs – and many people don’t think that way. I found the charts intimidating too in the beginning, but now I quite like them. [00:17:00] However, many people don’t think visually. There’s also a lot of volatility. You don’t know when the market’s going to go up, or go down, and you don’t know what’s causing it. You also don’t know how long it’s going to last. The first time it happens to you, you feel incredibly nervous, and sometimes sick to your stomach. And then you start the wrong behaviors. You start checking prices even more often than before. You start listening to all the newscasts, and you start hearing predictions. [00:17:30] When markets are going down, everybody has predictions. And, it takes a year or two at least to start realizing that predictions are a commodity. Like anything else, there’s no value – because everybody’s got one. And very few people follow up their predictions to say, “I was wrong”, or “I was right.” So, don’t get spooked by predictions, and no matter how many initials somebody has behind their name, it doesn’t mean that they know what they’re talking about because nobody has a crystal ball.

A book [00:18:00] everybody talks about now is ‘Black Swan”, which means that when you’re predicting, you’re looking at things that you can reasonably anticipate, usually based on the past. [00:18:09] But a Black Swan is a very, very rare phenomenon in nature. And often the worst corrections in the market are caused by something unpredictable. You could say probably that COVID-19 was. Sure, there were a lot of people predicting that a pandemic might come along again, but nobody knew when, how, or how [00:18:30] serious it would be. And in our lifetime, I don’t think there’s been anything that caused so much economic disruption to so many people. Even now that it’s more or less, ‘tame’, we have all these businesses who are going under because they took loans from the government that they can’t pay back. So, you have to be humbler about investing and realize there are things that you outright don’t know and things that you might only partially understand.

Ellen Roseman Luckily for us as investors, there are places now where you can go. The Ontario Securities [00:19:00] Commission set up a site called Get Smarter About Money, and they’ve just revealed a new upgraded version. They’re using AI, and doing the best they can to make it as simple as possible. When they realized that there was a problem with too many people piling onto Crypto, they did one called Get Smarter about Crypto, which is even simpler and easier for anyone to follow.

Then, we have people like Preet Banerjee [00:19:30] who came out of the financial services industry, and now he’s a moderator and author. He has a popular YouTube channel, and he explains things well. We have David Chilton’s books, and he’s now a spokesperson for RBC in the estate planning area who is also doing YouTube Videos. They realized that a lot of people haven’t got up-to-date wills, or an estate plan, [00:20:00] and that maybe they could use a trust company like RBC Royal Trust to help their executors after they die.

Ellen Roseman [00:20:12] So, there are a lot more resources out there now. I’m a lifetime reader myself, but I think for many beginners, reading about this is tough. It’s easier to watch a visual presentation on a video. [00:20:30] I discovered a guy on Twitter/X called Brian Feroldi. He only got started as an investor in 2004, but then he got interested in charts. I don’t think he does technical so much, but he has charts for all kinds of things. And he’s got a newsletter and a course about how to read income statements and balance sheets. He is quite interesting [00:21:00] to watch. He also writes for The Motley Fool, which isn’t the best out there, but they’ve been around for a long time too, and many people just like following them.

So, it is easier to be a beginner, but many people, just can’t manage to do it on their own, even if they understand it. It takes a lot of time. And if you’re busy, [00:21:30] or you have a family and a job that requires a lot of extracurricular work, you’re not going to do it. So, then the questions arise: Do I need an Advisor? What kind of Advisor do I need? How are they regulated? What kind of relationship will I have with my Advisor? That too takes a while to figure out.

When I started with mutual funds, I had to do it through an Advisor. One day I was out on my street and a neighbor and I started talking and we soon realized we were cousins. [00:22:09] She said her daughter worked as a Stockbroker for BMO Nesbit Burns and suggested we meet and talk. I was nervous and afraid that investment advisors were overbearing, overpowering, and after my money. But then when I met her, [00:22:30] I quickly felt confident with her. We worked together really well because she told me everything that she was thinking. She was the one who got me from low-management low-expense ratio mutual funds to beginning to invest. She was the furthest thing from a ‘trend investor’ – she looked for the boring stuff. (i.e. Russell Metals, was one of her favorites.)

She was looking for value. [00:23:00] With her help, I got into individual stocks to the point where I had very little else in my portfolio and I was comfortable managing things myself. I had a locked-in retirement fund, my RSP, and a taxable account that I started after my parents died. It was all invested already, so it made it [00:23:30] easy for me just to keep going. I was buy-and-hold and that was all I really wanted to do.  I do recall how tough it is at the beginning for the investor to watch everything go down and think they’re smart enough to know how to get out. [00:23:49] But the problem is they’re never smart enough to know when and how to get back in.

Ellen Roseman:  So what kind of relationship are you going to have with your Advisor? Are you going [00:24:00] to participate with them like I did with mine where we talk a lot before we buy or sell anything? Are you going to delegate it to them?  i.e. They’re going to do it pretty much on their own and tell you what they’re doing more as a formality, not expecting any response/direction from you. And, then the last one is the worst – where you abdicate. You say, “Okay, you’re the expert. I don’t know anything about this. If I get involved, I’m probably going to make the wrong decision. I’m going to leave it all up to you.” And as you know, that’s just a way to get yourself [00:24:30] into trouble because you can’t let anybody control your money. Unless you watch it carefully, even good people can sometimes get carried away by the fact that there’s no supervision or monitoring. So, that’s something else you have to look for.

Ellen Roseman And again, there are ways now to find Advisors. Financial Planning Canada will help you find a Financial Planner near you. And I believe that in general, you should have an Advisor who’s not just investing for you. They should be looking at your tax [00:25:00] situation and trying to help you save taxes. They should be looking at your insurance, and whether or not you need more of that, they should be looking at your family, and saving for your kids’ education. So, a Financial Planner is somebody to get on board with really early.

There’s a site called advisorsavvy.ca, which also does that for people. It’s more like a private sector initiative where the financial advisor pays to be on the site, but they’re checked out thoroughly and a lot of them are turned away. [00:25:30] The site also has good information there about finances. So, it is getting a lot better for the average investor, but it does still require some time and attention, and you can’t just do it you know, vacantly. You have to put your mind to it.

Keith Richards [00:25:46]: Excellent. Ellen, that’s good input because there’s going to be a certain portion of the audience watching this today that is pretty new. As you know, I’m [00:26:00] a Portfolio Manager and I’ve spoken to your group and stuff, but we have fairly high minimums to come in and deal with us. Now, yes, when you deal with a Registered Portfolio Manager with the Ontario Securities Commission like we are, we are very overseen. We have a minimum of a half million to come in, and that’s our rock bottom minimum. [00:26:30] The problem for a new investor is they don’t have a $1-2M dollar portfolio that guys like me take in all the time. So, they’re going to have to find somebody who is honest who will communicate with them and doesn’t mind that they may be only starting with $20,000 – or whatever they’re starting with. It’s a challenge, but those are good resources that you’ve given. I appreciate that.


Ellen Roseman on Utilizing Family Connections

Ellen Roseman [00:27:01]: Also, if you as a parent have an Advisor that you like, they often will take on your kids as well, no matter how little money they have. My husband prefers to invest with the bank, and he has index funds with them, so we have a personal banker who has taken on our two sons. My son received about $8,000 from the government because his employer went under and he didn’t get any severance.  So, my son asked our banker [00:27:32] “What should I do with it? “Should I put it into my RRSP?” She advised that because he wasn’t working full-time, he didn’t need the tax deduction – put it into a TFSA. It’s great that he can talk to a banker instead of me – because when you work with family, it can often result in hard feelings later on.

Keith Richards: Actually, [00:28:00] that’s a good point because a lot of Portfolio Managers deal with higher net worth people. But as you mentioned, these higher net-worth people have kids. Most of the better portfolio management firms out there – I mean ValueTrend for sure – operate as a family office. So, we offer Craig, he’s a CFA with us, and he does the financial planning for our clients as well as the fundamental [00:28:30] analysis of our stocks, but we also take on our client’s family members. They may only have $20,000, but because they are part of the family and we’re a family office, we’ll look after them. As a beginner investor, that’s another good point, you can usually go to whoever your parents are dealing with.

So, I’ll finish up with one last question and that is any final tips or words of wisdom that you want to give to the viewers/readers about retirement saving, and the eventual need for retirement income.


Retirement Saving and the Transition to Retirement Income

Ellen Roseman [00:29:20]: You should start retirement saving early. We used to invest in GICs that were paying 13%-14% returns during the inflationary times. Keep track of your RSPs. My husband lost track of one of them, which was with a trust company that he bought way back in the ‘70s. It rolled over several times and because they were sending mail to the wrong address, we didn’t know about it. Then he turned 71, and that RSP/GIC [00:30:00] was converted to an RIF. The payments started coming out and being mailed to the wrong address. The CRA eventually caught up with him and said, you have this payment to Scotiabank and from Scotiabank that you haven’t paid tax on.  He’d never been a client of Scotiabank, so it took a long time to track it down. [00:30:20] We finally learned it was a smaller trust company that had been taken over by Scotiabank. And then, it took Scotiabank a while to figure it all out, but it’s finally resolved now.

So, it’s important [00:30:30] to keep track of these things. Plus, if you worked for a company, you might’ve had a pension, and you’ve got to keep track of that too. Now that I’m fully retired, there’s a lot to keep track of when it comes to taxes and you become a lot more conscious of taxes. Now you’re paying quarterly installments. My husband and I were lucky – I think the tax system favors married/common-law couples because once you start getting pension income, you can split it with your spouse or common-law partner, and it makes a big difference. The whole idea of saving for retirement is just to do it. Start early, keep it going. Don’t get discouraged by market setbacks. They will come back. If you take the long term.

Ellen Roseman[00:32:00] I saw Dave Chilton give a speech in the fall of 1999. We were all worried about Y2K. The computers were all going to fall apart because they weren’t designed properly. All our investments would be derailed, and we’d be left with no savings. He essentially said, “Okay, it’s implausible that this is going to happen. But suppose it does? Imagine yourself in 2020, are you going to be saying, I have no investments because back in 2000 we had this computer [00:32:30] problem? You always have to think well ahead. Don’t think two years ahead, think 20 years ahead and make sure you’re well set up for things.”

The thing about retirement is, that you have to take the money that you have in various places. You have government and company pensions, your savings, and/or you might have your principal residence that you can downsize and use some of that equity. [00:33:00] It’s called ‘decumulation’, and the term has been around for a while. There’s an author named Fred Vettese who was a Chief Actuary at Morneau Chappelle, and he’s written several books about retirement. His latest is called ‘Retirement Income for Life’. It came out in 2018 in paperback, and he revised it once a couple of years later. His newest revised edition might have already arrived in bookstores. [00:33:30] And although he’s an Actuary, he’s received good coaching in terms of writing for the average person. He takes a couple and follows them and sees what’s going on. And if you have any doubts about what happens once you get into your 65+ years and 71, once your RSP has rolled over into an RIF, you need to know what your alternatives are. It’s a really good book in that regard, and by reading it [00:34:00], you will likely be better informed than many of the financial advisors out there.

[00:34:45] The other thing I want to mention is about 6 months ago, the Bank of Montreal put out a survey to Canadians. They asked, “How much money they believed needed to be saved in their nest egg before [00:35:00] they retired to be comfortable and not have their money run out?” The consensus figure seemed to be $1.7 million, and it seemed like a lot. The bank even put out a press release saying they projected the figure to be much lower than that. There are several books out there that tell you what you need. Fred’s is one of them, and David Traher who’s written about retirement for procrastinators is another. They’re saying, as long as you have somewhere from [00:35:30] $750,000 to a $1M, you’ll be fine.

Ellen Roseman[00:35:34] The caveat is, that you have to make sure that you are watching your expenses, that you’re not a big spender, that you have a budget, and you’re trying to keep costs down. There are many discounts for seniors these days, and many places to live where the cost of living is lower. So, don’t be intimidated. Don’t start thinking that you’re way behind and you have to put all your money into the RSP. For the younger investors, I’d say, yes, put money into the RSP [00:36:00] if the tax deduction is good for you. Then when you get your refund as a result of your RSP, don’t spend it. Reinvest it into your RSP. If you have kids, you can reinvest it into an RESP.

[00:36:24] We have the First-Time Home Buyers Savings Account, the Tax-Free Savings [00:36:30] Account now – so there’s lots of great things to do with that refund. Make sure that you’re using the tax system properly and just make sure that either you do it on your own (if you’re well organized), or you have a really good Advisor who you believe is putting your interests as a customer, as a family, as [00:37:00] a citizen of Canada, ahead of their interests as a person who needs to make a living. Those are my words of advice. It’s been nice to talk to all of your clients. I’m sure that Keith has been a wonderful Advisor for you. Have a great 2024.

Keith Richards [00:37:24]: Thank you, Ellen. That was excellent. I’ll just mention one other book as we wrap [00:37:30] it up. I can’t remember the name of the book, but a man named Jim Otar. [00:38:37] Jim is great. I like his book because it’s very realistic. He uses a hundred years of history to talk about what could happen in the future.

Thank you again for coming on board and doing this interview. This video is going to be such a great resource to point new investors towards with ValueTrend. [00:39:00] You gave such great tips, and lots of resources for books, and websites, and even Twitter – there’s a lot of information shared here today. So again, thank you very much for all those great insights!

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