Podcast - October 7, 2022

Podcast Episode 60: Special Guest | Geoff MacDonald, Edgepoint Wealth

If you’ve ever wondered what combination of experience, training, aptitude and skills it takes to become a renowned portfolio manager and blueberry farmer, now’s your chance. Join Colin & Josh as they pick the brain of one of the best. Geoff MacDonald of Edgepoint Wealth is an award-winning portfolio manager who was recognized by the World Economic Forum as a “Young Global Leader” and named by Barron’s as one of the top 50 Portfolio Managers in 2007. Aside from those accolades and the awards he continues to amass, in many ways, he’s still just a guy from PEI.

Episode Transcript


Special Guest, Geoff MacDonald| EdgePoint Wealth


You’re about to get lucky with the Barenaked Money Podcast. The show that gives you the naked truth about personal finance. With your hosts Josh Sheluk and Colin White, portfolio managers with WLWP Wealth Planners, iA Private Wealth.

Colin White:

Welcome everybody to the next edition of Barenaked Money. We are super, uber, mega excited that we have the man, the myth, the legend Geoff MacDonald from EdgePoint here with us and I’ll throw it over to Josh for the official introduction with all the credentials and accolades that we can lay at Geoff’s feet.

Josh Sheluk:

Well, this is the first time we’ve had a blueberry farmer on the podcast, so we’re super excited about that. But more officially known as partner, founder and portfolio manager at EdgePoint Wealth Management, Geoff has a long history as a portfolio manager in the financial industry, not just with EdgePoint but with other firms prior to that. Since launching EdgePoint, I think in 2009, Geoff and his team have been pretty successful at delivering good results for their clients, us included. So we’re super excited to have Geoff on the podcast today.

Geoff MacDonald:

Thanks, Josh. Thanks, Colin. Glad to be here.

Colin White:

So, Geoff, our clients think that mutual fund managers can actually move objects with just their brain. Are you guys able to do magic like that or are you more human?

Geoff MacDonald:

Well, I think eventually as you spend more and more time in the business, be quite honest with you, you realize that you move nothing. You realize that you control nothing, to be quite honest with you. It’s not until you get to that point, and I’m happy we can get into that probably through the podcast here, but it’s really not until you get to that point as an investment professional and a portfolio manager when you realize that it’s other people that set prices actually, it’s not you.

There are other things that are beyond your control to be quite honest with you, that you just don’t control. When you come to work every day, realizing that, the humility that comes with that as well actually helps you probably to avoid mistakes, to be quite honest with you. So we’re the furthest from magicians and there’s no magic to what we do at all. There’s process, but not magic.

Colin White:

Geoff, you’re exceeding my expectations already by taking an absolute garbage question and turning it into a real answer. That’s fantastic.

Geoff MacDonald:

That’s great.

Colin White:

That’s amazing. So maybe, and Josh, I’ll think I’ll preempt, maybe start from the beginning as it were. Can you describe what it’s like to start a career path? Maybe speaking to your experience or what a typical career path is for somebody who ends up sitting in your chair?

Geoff MacDonald:

Wow. I guess there are typical career paths, but there doesn’t have to be. So many of us have a business degree. Honestly, you don’t need a business degree. I’ve always said, gosh, the four years that people take, don’t get a business degree. You can learn it with a few books and a little bit of experience. That’s the reality. So ideally there’s really no set path and there’s no set to-do list to be quite honest with you. Even if there was a defined set path where we walked through, this is what a perfect analyst would be and had the perfect background, there’s no guarantee that that analyst will grow and evolve into the decision maker or a good portfolio manager. There’s a big difference between being a good analyst and actually making good decisions.

As a portfolio manager managing money, we are making one decision after another, after another, after another. It’s a series of decisions over your entire career. There’s a totally different set of [inaudible 00:04:07] that are involved in those decisions than anything that you would find in a set career path. You know what I mean? In terms of just because you have a CFA does not mean you know how to make decisions. Just because you went to the best business school in the world doesn’t mean you know how to make decisions. In fact, that will work against you because you’ll have too much confidence and you won’t look around the corner if you think you came from the best business school.

So if I step back, I think I can look at my background, I can tell you my quick story, but everybody’s story is different. Everybody that we found here, we found from a different place, we found at a different opportunity. More of times than not, they find us. We love finding individuals that have passion. I feel like there’s no secret sauce here, but I feel like that’s the one. I regret even mentioning that because now anybody that listens to this podcast is going to claim they have passion and then they’re going to get through the first dream.

But the truth is, there’s no stop. There’s no end to this business. It’s 24 hours in a way. You’re always thinking about it. And, if you’re not passionate, if you don’t love it, you just can’t succeed. So passion is very important, but outside of that, the correlations are much broader in terms of where they came from. I don’t know if it’s worth walking through my path. Because, it wasn’t a typical path. I grew up in Prince Edward Island. I did not know what the stock market was. I was intimidated by business. I didn’t have any family members, honestly brilliant business at all.

So I went into science, did not like science at university and noticed some friends that were taking business courses. And to be quite honest with you, the business students didn’t have Friday classes. That first year student was probably the fascinating thing that I noticed while I was in my physics lab on Friday afternoons. So I was a scholarship student at the university, but I didn’t really have a passion for science and mixing one liquid with another in a chemistry lab, it would turn green and everybody’d be all excited. I’d be like, I don’t really get it. I don’t know why that’s interesting. For me, anyway.

And so by fast forward, there was a couple key events for me, but I think for everybody else it’s different. I had this one course and it was called Finance 2 in my third year. It was my second semester, third year. I had no idea what I wanted to do. And the professor started talking about the efficient market and for those that are familiar, basically what that means is the stock market is very efficient, which means there’s a whole host, there’s all this information that collectively when you add it up together effectively all the information about each individual star is already discounted in the price and there’s no advantage to doing anywhere. There’s no advantage to actually doing analysis if you just own the stock market, the index for example, you’ll do quite well and you’ll do better than the average manager that’s actively trying to do better than people that don’t try.

It was a bizarre concept where the professor basically made fun of active stock managers and he said a monkey throwing darts will do better than these professional managers that spend their all day trying to pick good businesses that will outperform. It just seemed odd to me. So I read a couple books that summer and across that time period I came across a compounding chart. And I don’t know, it’s the most powerful thing to put in front of a young person is what I think Einstein, JP Morgan, many people have quoted with saying the 8th wonder in the world is compound interest and the magic of compounding one’s capital over 30, 40 years and when you’re 20 years old and you look at the magnitude of what compounding capital can turn one’s money into, that in this bizarre concept that you’re telling me that if I dedicate my life to this, I can’t beat a monkey? I can’t do better than a monkey throwing darts.

And if I do better than a monkey throwing darts, then I can compound capital and make millions upon millions upon millions of dollars, even starting out with thousands. The whole thing seemed bizarre to me and from that moment I frankly dropped all interests in almost anything else and just pursued a potential path to hopefully to get in this business then. And from there, there’s a lot of different things that I would say would be a path for a young individual.

For me, it was enrolling in the CFA as soon as I graduated from undergrad. And I think most young people do that now. Back then it was more rare. This had been over 30 years ago now and just ship resumes off like crazy and get in front of people. But that didn’t work. I was in TI and nobody in Bay Street really seemed to care about a resume that had grass cutting and painting experience on it.

So I decided to do an MBA because it was path to maybe just get a bit more maturity and delay having to go into the real world and take a job than I didn’t want. And from there, and if I look at all the people that we hired at Ontario Teachers in the 90s, Trimark for the decade that I was there from the late 90s to 2007. Now where those that really wanted in this business that are truly passionate or continuous learners, they find their way in. Even if we didn’t hire them but we were close, you see them in the business, they get in as analysts because the passion shows up. They write research reports on their spare time and put it in front of you.

I’ll never forget when I interviewed Ty. He’s my business partner now. The interview was cut short. I wasn’t really sure if Ty had all the background necessarily or if he knew enough about the business or if he really wanted to get in for the right reasons, I really wasn’t sure. It was a funny interview. He started reading books and sending me book reports and then Ty would write a research report on a precision drilling. This is back in ’97, I think, and then send me a research report. And those that are persistent, that demonstrate a passion, they find their way in, for sure.

I’m sure if that was directly the question, but there’s no typical path. You don’t need a business degree. There’s so much available for a young person today, so much more otherwise. When I was younger, it was the librarian, some investment books, but there’s no internet. Just think about all the podcasts and the blogs today on top of all the wonderful books and investors you could follow. It’s quite exceptional.

Josh Sheluk:

So that takes my mind in a lot of different directions, Geoff. But I want to come back to one of the first things you said about, you realize that a lot of what goes on in the world and the markets is out of your control. I’m curious, is it like a slap in the face where one day you wake up and you realize, I don’t control any of this. Or is it sort of a slow creeping suspicion over time that you slowly come to realize that when you get punched in the gut enough times then you thought you knew something and you didn’t?

Geoff MacDonald:

Yeah, so I think if you think about the evolution of an analyst, it almost goes back, Josh, to continuing the last question is, okay, you get in the industry, you’re now an analyst, okay, you really don’t know anything. You think you do. That’s the funny thing is, you have more confidence as a 24 year old entering the business than the 50 year old portfolio manager. It’s a bizarre thing that happens in our business. And the reason for that is, you start as an analyst with covering maybe one company.

So when I started I was given one business, I had Ontario Teachers and it was Maple Leaf Foods was the first one for example. And you’re basically sent away for a month. You’re there, but you are given all the access and resources that Ontario teachers had as to analyze Maple Leaf Foods. You are given all the old research reports that other analysts of the history of teachers have written as a model for what you’re trying to look at. And you are given all the access whatever you can get and you’re consuming everything about the industry, old financials, you’re building and model and you’re actually getting to know that company over the course of that month when you’re writing a report, you actually get to a point where that business actually probably better than almost anybody, really, outside of people within the business because you’re doing nothing but one company.

So let’s say a month to create a report. Sometimes it takes longer than that. And again, this is my experience, this is what we have done when we trained the analyst, this was the training that we went through and the training that we put people through at Teachers when I was a PM. And then this is what we do at EdgePoint. So this isn’t necessarily whole industry in terms of how a young person starts out. But when you’re an analyst, you’re focused on this narrow thing and you end up knowing it better than anybody else and you have a confidence level that’s probably higher than it should be.

And not only that, you have this bloody model. I don’t know if everyone listening knows what I mean by a model, but it’s a spreadsheet in Excel which basically has all this historical finances, the revenues, the revenue per widget, the margin per widget or whatever it is you’re making and all the various different returns and you can analyze the history and take a look at it. But the point of the model is to make proforma forecast. What will the business look like in the future and then what will it be worth?

That’s what we’re trying to do. We’re trying to buy a business right today for less than what the stock would be worth in the future. So you have this bloody model. In the model, you put in your base case, you’re staring at it all day and it spits out an IRR, it spits out a future value and you start getting this deserved confidence in a way because the model’s telling you something, it’s telling you what the value is, it’s telling you what the IRR is. And the truth is, it’s telling you nothing other what the IRR is with that one assumption that you put in or the multiple assumptions.

But when you’re an analyst and it’s all you have and it’s all you know, you feel like you’re under control. What you’re doing is actually pretty narrow and small in the whole green scheme of things. Your entire focus is just that one company. So, that’s the beginnings of it. And over the course of time as you have these experiences, time passes, you start focusing on things that you don’t control, which are more important. You realize that you don’t control management of the company. So that model that we had tons of confidence in what the IRR was and it made you almost feel like there was a high chance of that one outcome, which is ridiculous when you think about it, you start realizing that geez, this management team is going to make a succession of decisions and investments and recruiting good or bad people or whatever it might be. And they have competition, they’re going to react or not react to various different things that are totally unpredictable that you don’t have in your model that you can’t control.

And you have to admit that. And if you don’t admit that, you don’t understand that. If you actually think that your model’s telling you… you like it because it gives you that control uncertainty, I think it could be dangerous. So you focus on things like the management team, the quality of the business, change, competitive behavior. You start seeing and looking for red flags that you’ve seen before, right, analogs in the past that start recurring that weren’t in the model, that aren’t in the model, that you just can’t find in the model.

So anyway, that’s probably the best description if I go through that is that as time passes over your career you start realizing that we’re really making decisions. We’re making decisions with not a full picture ever. All the information that’s possible to consume. And even if you did, you still can’t anticipate or predict necessarily everything that’s going to happen in the future. So you have to start relying on process. You have to start relying on processes that keep you away from bad decisions, at least at a minimum, but hopefully start really increasing the probabilities, making the decisions.

Colin White:

So Geoff, just to paraphrase, because I’ve always referred to CFAs lovingly as the smartest, most irrelevant people that I ever talked to, largely based on the fact that they love their models and they get really excited by models and you just done a very eloquent job of describing the limitations of models. So for our listeners, just to maybe summarize that there’s no one equation that you can calculate that leads to a guaranteed outcome that is an investible idea, that’s not a trustworthy way of approaching this equation. Would that be a fair paraphrase?

Geoff MacDonald:

It’s true. I walked through just specific things on business decisions management’s going to make or decisions competitors are going to make two years out or a year out that we just can’t capture. But we didn’t even talk about well what is the economy going to look like or where would interest rates be? And you just start realizing that the world is much bigger than what you could possibly put in any one model. Sure. But when you’re an analyst and you start out, that’s all you have. And then your legs evolves with experiences and that’s the context that you end up having over the course of time, are these series of experiences that can start leading you towards a series of better and better decisions or at least less bad decisions, for sure.

Colin White:

So is there a framework or is that even too silly of a question? When you say about your experience, your experience over time leads you to understanding situations better perhaps and having a process. Is there a useful framework? You still have analysts that are still doing those reports so-

Geoff MacDonald:

You have a model.

Colin White:

There’s some irony there, Geoff. There’s some irony in still doing the-

Geoff MacDonald:

There is. I believe you have to do the model so you can understand the business. You’re trying to understand what the drivers are in the business. So if margins went up a hundred basis rates, how much more is the business worth? Margins go down. You have to have a view with regards to what potentially could happen and more importantly the implications of those various different things. You have to view on a business in terms of what you think it possibly could do in the future.

Of course, I think I probably should step a bit, but our goal is to find ideas about a business but what that business could look like in the future, that isn’t discounted in the price today. So in other words, buying growth for free or just buying a business for less than what it’s going to be worth in the future, however you want to define that. So if we had an idea that a company was going to move into a new market and launch those products and new market belief they had a chance of being successful, then you have to model it to say, well, what would that be worth? Maybe it’s not material. You have to do the work. And, oh gosh, even if they did that, it only adds a buck value to the share in the stocks at $50, it’s not material. So it gives you that insight but it shouldn’t give you the certainty that, that’s what the future will be.

So I think the framework is the process and the process then is a couple things. So our goal certainly is to avoid error, but there’s a process in that. Okay, so let me step back. We are looking to buy a business. So I’m talking about the equity side. We’re looking to buy a business. Okay, well what kind of business do we want to buy? So the first thing is, I know we invest in the stock market but a stock is not stock, it’s an ownership state in a business, part one.

Part two is once you realize it’s not a piece of paper moving up and down, it’s a business, now you’re going to focus on the long term. Who buys a business for two months? I know people buy stocks for two months. Makes no sense. But that’s not a process because it’s a business. That’s not a process buying a business every two months but we can do that. So, okay, now we have a long term view and we’re looking at a business. So now once you have a long term view and you realize it’s a business, over time, you build a process in learnings and understandings realizing that it sounds really silly, a good management team’s better than a bad one. Okay, great.

So who is the management team? What are their incentives? What decisions have been made in the past? What type of talent have they recruited to the organization? And same type of questions about that. What is the business, what are the competitive advantages, over time that if you choose to buy a stock that you’re going to make the exception you don’t necessarily think management’s all that great but there’s these other reasons why you think it should be good? Over the course of time, that’s how bad decisions are made. Okay?

So you could really love the business, thinks it’s cheap and not like management. Be careful. So the process, it’s management, the business, the competitive advantages of that business mode around it so to speak, or actions of competitors. You study all the competitors because at the end of the day they’re competing every day for customers, for your customers, your business. You know that over time that when you fall in love with the business and the management team and you think the competitive dynamics are good but you ignore the price that you pay for that business… you say, Ah, I know what’s expensive but come on, that’s where you get in the trap.

So price matters, right? So the process is everything that you would do, Colin, if you were given millions of dollars, told that’s the last millions of dollars you have to look after your family for the rest of your life and you can buy one business. It’s what anybody would do. What kind of business? Who’s the management team? Can the business grow? Will competitors destroy it? And what is the price? And let’s make sure we buy that wonderful business, wonderful manager team at a price that’s not already discounting all that growth. And that’s really… you need systems, you need to process, you need to reduce the odds and mistakes. And that is I think what works.

The history of capitalism will not ever show you that a business that was purchased with a great management team that had a chance to grow that had competitive advantages that was bought for a low price relative to any reasonable future. You always make money. That’s capitalism. If you can do that right, of course there’s so many uncertainties in there that where you can still make mistakes because you miss-assess quality of management, you miss-assess the business and that’s the ongoing monitoring of the business of its competitors that’s really required.

But we make decisions in a series of decisions and we have to be honest with ourselves. Everybody should. A portfolio manager ever comes to you, they believe they see the future and they have tons of confidence, beware because you never have full set of information, you never have the full context. And it’s why I think you need to have these systems and processes in place that are learned over time that work and they keep you out of trouble. And then we have a good process. Well, history has shown that you can do quite well. You look at us 14 years at EdgePoint. But if you look at where we were before, very pleasing returns and have outperformed over any really reasonable long period of time.

Josh Sheluk:

So Geoff, you’re giving us some insights into the way that you actually think about building your portfolios and making investment decisions. And I had a client ask me not too long ago when you talk to these managers, we’ve had probably a dozen or two dozen conversations with EdgePoint and your team over the years. How much do you guys actually share your secret sauce with us? Because, he’s skeptical. He kind of asked from a point of skepticism, Hey they’re not actually going to give you a look under the hood, aren’t they? So let me ask you the unfair question, how transparent are you and your team with us and other managers like us about how you actually go through your process and make your investment decisions?

Geoff MacDonald:

No secret sauce. Yeah, there’s no secret sauce. That’s what’s so funny about our business. It’s really unfortunate. What I just went through earlier of the process, really, what’s secret about that? It’s the environment that allows one to deploy a time tested approach, which is what I went through in terms of business and that’s theoretically the secret sauce. But are you in an environment or do you have the emotional or behavioral ability to follow that investment approach? And if you do, you will outperform over time and you will do quite well. Look, there should be nothing secret about a stock is not a piece of paper, but an ownership stake a business. That’s what they are. That’s what the stock market is, it’s for business people to meet and exchange ownership shares of a business. So, that’s not a secret. There should not be a secret that a business… you should have a long term review if you own a business.

I don’t know any successful business person that buys and sells businesses every two months or seven months or six months or even every year. Imagine, buying and selling a business every year. If your neighbor did that, you know they’re going to lose their shirt at some point. So there’s nothing secret there. Geez, there’s no secret that we should buy a good management team. Can you imagine if somebody came in and said should buy a company that has a weak management team or a bad business with declining margins, that’s not growing at a dumb price. So it’s kind of funny. So it’s right there. It’s all there for anybody to do. That’s what’s unfortunate about our business, actually. It really is unfortunate. It’s right there. Anybody could do it.

But people can’t. And that’s the reality. And I’d love to go through that. Why we can’t do that? Why so many can’t do it professionally and as individuals? It’s why many individuals probably should have a financial advisor that holds their hand at times that maybe keeps them from making bad decisions. But even institutionally or professionally, it’s just so unfortunate. If you look at so many professional portfolio managers that just don’t work in an environment that allows them actually to do what I just said, they’re just not allowed, they’re not able to. It’s a bizarre set of circumstances as I think our industry has evolved, right?

And you could look at it from many perspectives. You could start with the definition of risk as an example. Okay, what is risk? If you’re a business first, okay, we’re just business people that effectively go out and buy and own businesses for our clients effectively, right? What’s risk? Risk is losing money. The opportunity or the chance that you could be wrong, that you could make a mistake, that your investment could be worth less, that’s risk to any business person. And when you’re approaching life as a business person buying a business, that’s how risks should be defined.

But the investment world, there are two measures of risk that are way more important for some reason and they shouldn’t be. One of them is volatility. Okay? Volatility is how much a star or whatever goes up and down, up and down, up and down over the course of whatever; the day, a month, a year. And it’s just not risk. It is risk if you don’t know the value of what you own. Because, that’s scary. Because something’s moving down but you don’t know what you should do because you don’t know what it’s worth. It is risk if you’re over levered, for sure. If you have a lot of debt and the asset goes down then that’s risky or it’s risk if your time horizon is short but you shouldn’t buy a business if your time horizon’s short.

But if those aren’t the case, volatility is the furthest thing for risk. Remember, we don’t set the price of a stock, other people do. You’re the one that should know what the business is worth, that’s our job. We should know that. So if our job is to know what a business roughly is worth time of view on that and other people are acting crazy, causing the stock to go… say the stock was 30 bucks and you believe it’s worth 60 in a couple years and they want to panic because I don’t know there’s inflation or the feds raising rates or whatever it is, the stock’s going to be 20. But nothing’s changed in terms of your assessment of that business.

Is that risk that you can buy some stock at $20? It’s not risk. So the ups and downs are not risk if you’re a business person that has liquidity. But volatility creates emotions and it causes behavior to work against the deceptively simple approach of what I walk through, right? Good management, good business that can grow, purchased at a reasonable price. And then the next risk is benchmark. And this might be less understood by the average investor out there, but this is the classified risk that almost all professional managers are benchmarked or managed against. Risk is being different from a benchmark. The index, right? The TSS Index, S&P 500.

And this is how portfolio managers are often compensated almost universally, frankly. Not EdgePoint’s. And they’re compensated based on beating the benchmark. And when you’re all of a sudden compensated and your bonus is based on beating a benchmark, your next question becomes, what’s in the benchmark? And so all of a sudden you’re coming to work every day as a portfolio manager and your risk is being different from the index. That’s the risk being different from an index. So if there’s a stock in there that’s 5% of the index and you don’t have a view on it, you’re not sure, if you put 5% of people’s money in it, you now have taken no risk.

It’s crazy as that sounds because now you’re not different from the index. So now that thing that you don’t know that you’re not sure about, you’ve immunized it, you’ve taken it away, it can’t affect your bonus so to speak or your difference. But you just put somebody’s money in it, 5% into something that you don’t even have a [inaudible 00:32:46]. That is our world. That is the world of portfolio management. This bizarre system where the benchmark is deemed to be the measure of risk and deviation from that can be a career risk for an individual portfolio manager. And not only that, but there’s so many big and powerful firms today where if the distribution is just… the money’s just coming in so it’s, don’t be different. My gosh, don’t be too different because the money’s coming in anyway.

So there’s no secret sauce. What I went through, where all day long, we can talk about it and explain what we do, I think importantly, we really do work in an environment where we own this business. We’ve been influenced dramatically in our experience at our previous shop at Trimark with Bob Krembil who’s a co-founder here at EdgePoint but was also a co-founder at Trimark. ’99 and 2000 is a great example where we were very different from index, not only technology companies, telecom and media back then in a crazy bubble. And we had a choice which was, invest money in businesses we didn’t believe in. We thought were expensive so that we can keep people happy so money wouldn’t leave or let people leave who just want their money to go somewhere else because we have to be fiduciaries to those who still trust us.

And that experience of avoiding something that became 50% of the benchmark, the career risk that was involved in that, Trimark was lost, the business was sold because the public shareholders thought that portfolio managers had lost their rate because they were unwilling to buy what was obviously the future, which we couldn’t because we couldn’t justify it based on the process that we bought. The price component wasn’t there on these businesses. But you go through an experience like that and many more and having a strong investor in the corner office and be an investor like we are here where you realize that all that other stuff doesn’t matter.

At the end of the day, your flows don’t matter, your asset levels don’t matter if you don’t do the right thing for the young investor, you’re taking that the biggest risk of all, which is frankly a possible loss for them, which you just don’t want to do. But that’s unique. Our definition of loss is totally different from the industry and if you define loss as the chance of losing money and not benchmark and not at volatility. It’s the first step, but it’s only the first step. It’s something that is not a secret sauce, frankly, but the first step in at least achieving pleasing results over the course of time.

Then past that, it’s so many other series of decisions that by no means are easy. Where it helps to work with a great group of other individuals that all have different perspectives where we all get to question everybody. We all have our biases. But after getting the definition of risk right, you then have to attack the thousands, but let’s just say tens of biases that we all have as investors that could keep us from making good decisions that also get in the way of a very deceptively simple investment approach. There’s no secret sauce to this.

There’s just so many pressures in our business that keeps people from being able to deploy it, whether it’s behavioral biases, the institutional imperative, which is this benchmark risk thing. And it’s why so many people find the stock market confusing where they don’t get losing results is something gets in the way of something that should be much easier.

Colin White:

Well Geoff, the market for secrets outstrips the supply of secrets. So there’s always going to be those who are coming forward with the perceived secret. But as I was once told, a lot of people watch hockey. So there’s a difference between watching something and being able to execute it, which I think is what you’re alluding to. And I knew this is how this podcast is going to go. You’ve drifted deep into the world of EdgePoint, which we love and it’s what you live and it’s your passion. But let me drag you aside of that for a second because you’ve alluded to some of the other players out there and perhaps it takes two sides to make a market. So obviously you’re trading against or you’ve got a party that you’re trading against.

A lot of the industry tends to be based around what people are willing to buy at a moment in time. So there’s a lot of product that gets manufactured, whether that’s cryptocurrency or weed or things of that nature who all have portfolio managers who are hired to fulfill mandates and things of that nature. Do you have a sense sitting from your desk, what percentage of the industry is purpose created just to meet the perceived demand versus the percentage of the industry that is more fundamentally focused as you’ve described your process at EdgePoint?

Geoff MacDonald:

Well, look, they’re great portfolio managers at lots of different companies across this country, but most companies across this country that would be in the mutual effect I guess is a starting point. They’ve all morphed to sales and marketing companies and that’s not a new secret. There was a day when there was a Krembil at a Trimark and a [Condylar 00:38:26] at a condo, a Templeton at a Templeton, a Goodman of the dynamic and go on to the original roots of so many of these businesses and they were investment led. There was an investor in the corner office.

That doesn’t mean that an investor in the corner office of that company can’t make mistakes. But it does mean that when products are launched for dissemination, for sale, that there’s an investor there that says, Yeah, I think that’s a good product, that has a chance of making good money. And so now over the course of this industry in Canada, where did they all go? Where are these companies? Where are they owned by it? It’s not that they are purposely doing bad things, but not suggesting that, but I’m not factually incorrect saying that they’re sales and marketing companies, their financial superstores and the job is to grow assets. The job is to free all public companies.

So the job is to grow assets, get bigger, grow management fees, grow value for the owners, the shareholders of that stock or that business. So then if you imagine what it would be like, you just picture yourself at any of these companies, January 1st of year and beginning of the year and the year starts again and what are you told to do? Grow the business. So it’s like, okay, how do you grow the business? If your background is in sandals or marketing or operations, which is generally runs the businesses, it’s okay… Crypto, everybody wants cryptocurrencies. Maybe we can raise a crypto fund. This is popular or that is popular.

So fund launches are highly correlated to what people will buy. That’s the reality. Why would somebody launch a product if there’s people won’t buy it. That’s how it is viewed, unfortunately. And so the products people are likely to buy historically, unfortunately, are products that have done well recently. And that is just a sad reflection of reality of our business that it seems easier for people to buy something that has gone up recently because it gives them confidence that it’ll keep going up or something, I don’t know. Versus a product that maybe is down where there’s an investment rationale behind it.

You don’t see that in our business where, hey, this entire industry is down 30% or 40% and we think it’s very attractive and we’re launching a fund, who does that? Right? So we’ve done that. We launched an energy fund in the end of 2019 and a Canadian energy fund and the industry because we thought there was an investment rationale. I did.

Colin White:

Didn’t you guys launch EdgePoint in 2008? Wasn’t that the-

Geoff MacDonald:

We did. Yeah.

Colin White:

Okay. I just wanted to point that out.

Geoff MacDonald:

Okay. Yeah. It’s funny, in the fall of 2008, there was obviously the credit crisis and most advice was saying, wait. You’re not going to raise much money right now, so wait. Just wait. Wait until things look better and then that would be a better time. And I said, well, better time for what? That would be a better time to raise money, but prices would be higher so it would not be a better time to make people money. And so it’s a perverse reality of our business that certainly is proliferated industry-wide

Colin White:

Is there anything that you, given an audience of retail investors who still think that you move things with your mind-

Geoff MacDonald:

You’re could probably ask what makes a good portfolio manager? We’ve probably addressed elements of that. Given, there’s a series of decisions that you make as a portfolio manager, there’s how you work with the team and there’s putting in a process to just try to ensure you’re avoiding various different biases. I think we addressed elements of that. We could certainly go deeper or maybe that’ll be for another time on some of those other topics.

Colin White:

Now, that would be thoroughly exciting. So we’ll get some feedback from our listeners on this conversation and see what they feel that we’ve potentially have left out and maybe we could set up around, too. So Geoff, listen seriously, thank you. This has been fun. Oh, I guys want one more follow up question, how are berry prices this year?

Geoff MacDonald:

I actually don’t know. I was PI for both three days this summer, but I’m heading down for Thanksgiving, so I’ll check in then.

Colin White:

Some of the boys here are doing pretty good this year. They’re pretty happy. So anyway, just thought I’d check. But seriously, this is as enjoyable as the first conversation I had with you back somewhere’s around 2010-ish. It’s always a thorough joy to have a conversation. You offer really good stories and insight as to what your world is and we really appreciate that. We’ve been long time fans and thanks for taking the time.

Geoff MacDonald:

Thanks, Colin. Thanks, Josh.

Josh Sheluk:

Appreciate it, Geoff.


This information has been prepared by White Leblanc Wealth planners who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only and do not necessarily reflect those of iA Private Wealth Inc. iA Private Wealth Inc, is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

Colin White:

We’ve noticed something. It seems there are a lot of people who would rather try to figure out their lives with an online calculator than air your finances to a human. Stop doing that. You need to talk to someone who can help direct you, tell you where to start with what you’ve got to make the biggest impact on your future. You can’t figure that out at doIhaveenoughcash.com, but you can figure it out by chatting with us. Call us. It’ll be okay. You’ll see.


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