Dare to be Different

Peter Katevatis - Apr 22, 2014
We all find comfort in being normal.  We follow popular trends in our clothing, music, movies, books, restaurants, etc.  This gives us a sense of belonging and comfort.  If you are a Boston Red Sox fan you will gravitate closer to someone with a B on

We all find comfort in being normal.  We follow popular trends in our clothing, music, movies, books, restaurants, etc.  This gives us a sense of belonging and comfort.  If you are a Boston Red Sox fan you will gravitate closer to someone with a B on their hat versus an NY.

Conformity and being average is a comfortable place to be, but if you want to be great, truly great, you must be different.  If you take the same actions as everyone else, you will not outperform the masses.

In the world of investing we often talk about “the markets” or “benchmarks”.  This is used to gauge a portfolio or manager against the opportunity cost of simply buying an exchange ETF.  Today’s five-year Government of BC bond yields 2.15%.  If you constructed your own bond portfolio with a five-year duration, you would want a total return to exceed the BC bond yield of 2.15%.

Let’s assume you have constructed a 25% Canadian, 50% US, and 25% Rest of World portfolio.  To determine its effectiveness, you need to compare it to a benchmark based on 25% S&P TSX Index, 50% S&P 500, and 25% MSCI World Ex-US.  Now, if you are happy with the return of the indices, you can just buy the indices.  Therefore, keeping your portfolio at the average by buying the average.

However, as Confucius said, “The cautious seldom err or write great poetry.”  You cannot do better than the average or benchmark by being a conformist.  This does not mean you have to take big risks.  A large misconception is that using a manager who has an investment strategy that is different than an index is risky.  But you can’t outperform an index or benchmark if you use the same investment strategy. Being different, but not crazy in your investment strategy, can lead to bigger gains in the long run.

If you only invest in Canada you would benchmark against the S&P TSX Composite index.  If you look at the index below, you could almost give the argument that it is too concentrated.  The index is 34% Financials, 26.7% Energy, and 12% Materials.  That is almost ¾ of an index in three sectors!  Doesn’t look like prudent diversification to me.

To be a successful (in life in addition to investing) you have to break out from the norm to succeed.  Steve Jobs did not make products similar to others.  Henry Ford did not simply improve on the horse & carriage.  Chuck Fipke did not deter in finding diamonds where no one had before.  These guys bucked the trend and did it differently.

Going back to investments, John Maynard Keynes wrote in 1936, in The General Theory of Employment Interest and Money, “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”  So, most money managers stick to their benchmarks rather than trying to beat them.  Sadly, that is human nature and too often how managers are compensated.

Here is a list of guys I have found that Do Things Differently:

Different Fund Ideas from Katevatis Wealth Management

 

  1 Year 3 Year 5 Year 10 Year Since Inception Inception Date
Stonecastle - Redwood Income Growth 14.56% 8.18% N/A N/A 6.97% Sep 17, 2010
Beutel Goodman - NEI Ethical Global Div 19.20% 14.05% 14.35% N/A 5.60% Oct 30, 2007
Vertex - Vertex Value Fund 31.13% 19.17% N/A N/A 18.53%

Sep 21, 2009


The information contained in this document has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by the author or Canaccord, its affiliates or any other person as to its accuracy, completeness or correctness

Let me know if you want to investigate the unconventional in a deeper way.