There Is No Such Thing as a “Self-Made” Man

If you trace the careers and business ventures of successful men and women, many have one thing in common: they had support.

Very few people become successful entirely on their own. We all need help. Arnold Schwarzenegger emigrated to the US with $20 in his pocket. As a young, broke bodybuilder it was his friends that helped him get on his feet.

Arnold was lucky. Many people in his situation – regardless of talent – would not have experienced his success. He could have easily ended up as a personal trainer or supplements salesperson. He could have had a pretty average job and pretty average life, like most of us.

Perhaps the support from his friends made all the difference in his life. Support can help open doors for people, but the true benefit isn’t the opportunity that is created, it’s the safety net that’s provided.

    Imagine for a second that you won the lottery but decided to keep working. Assuming you retained a sense of professionalism, how would your behaviour at work change? You’d probably be a lot more bold and take more calculated risks. Money is a safety-net that enables one to push beyond the safety zone. Of course, this is exactly what’s needed to become highly successful.

    Most people I know who have led successful careers or built great businesses were not self-made. In fact, they had a lot more support than Arnold Schwarzenegger. Most of them came from middle-class families, at a minimum. Many had their educations fully-funded – thus, didn’t graduate immediately into indentured servitude. Most had early career breaks or internships opened up by family members. Alternatively, if they created a business their first clients were family and family friends.

    Starting early in life, their parents taught them how to succeed, gave their first breaks and, most importantly, if all else failed provided a financial back-stop. These people could take calculated career or entrepreneurial risks and know they would always have a bed to sleep in and table to eat at.

    Unfortunately, few of these people recognize their privilege. I have friends who think they were self-made, yet lived in apartments paid for by their parents, had access to whatever they needed (e.g. computers, working space, cars) and could ask for money whenever needed. Almost everyone I know who had that level of support is now highly successful, either at a big corporation or as a business owner.

    In contrast, I know plenty of people who were literally on their own from high school. They had minimal parental guidance, zero financial support and no fall-back. In other words, past a certain age, if they screwed up they would be homeless.

    Everyone I know who had this kind of foundation is middle-class at best. Most lack confidence and have had to struggle to overcome hurdles just to keep their heads above water. Few were brave enough (or stupid enough?) to take career or business risks, instead sticking to a working class lifestyle to quickly become self-sufficient. Some were lucky enough to become middle class professionals by following well-worn paths such as accountancy, law or medicine.

    In this sense, I agree with Arnold’s premise that there’s no such thing as a self-made man. So next time you compare yourself with someone more successful, bolder or more confident remember they probably got there because they had a lot of help dating back to a well-supported childhood.


    35 Covid-19 Bankruptcies and Store Closures List

    We’re 8 months into the Covid-19 economic crisis and the retail bankruptcies keep rolling in.

    The latest in Canada: Le Chateau.

    It’s easy to forget the economic carnage caused by the virus. So I thought I’d create a list of big retail brands that have announced mass store closures, filed for bankruptcy or sought creditor protection over the past several months. Frankly, it’s depressing so I stopped at 35.

    1. Le Chateau
    2. David’s Tea
    3. Ann Taylor
    4. Toys, Toys, Toys
    5. Microsoft
    6. GNC
    7. Starbucks
    8. Reitmans
    9. Victoria’s Secret
    10. Pier 1
    11. Bed, Bath & Beyond
    12. Aldo Shoes
    13. J Crew
    14. Gold’s Gym
    15. Neiman Marcus
    16. JC Penney
    17. Hertz
    18. Tuesday Morning
    19. 24hr Fitness
    20. Chuck E Cheese
    21. Lucky Brand
    22. Brooks Brothers
    23. Lord and Taylor
    24. Men’s Warehouse
    25. Muji USA
    26. The Paper Store
    27. Century 21
    28. G-Star Raw
    29. Roots USA
    30. True Religion
    31. Sur La Table
    32. John Varvatos
    33. Modell’s Sporting Goods
    34. Papyrus
    35. Stein Mart


    49% Seriously Considering Quitting Job

    With the benefits of working from home now crushed for most workers, many people are working longer hours and unable to compartmentalize their work and home lives.

    Consequently, many people are on-call and on-line 24/7. As I’ve written previously, companies have learned that work-from-home staff suddenly have an extra 1-2hrs a day to work (because they no longer have to commute). Furthermore, many employers believe staff will do anything to keep their jobs in an uncertain economy, and are therefore piling on the work. Many of these same companies have reduced headcount and are unwilling to pay for the resources necessary to take on the extra workload.

    Every single private sector office worker I know is putting in much longer hours than before the pandemic started. Moreover, with the comingling of home and the office, many are unable to separate themselves from their work. This is consequently creating tons of stress for the average worker.

    Meanwhile, as year-end approaches most workers are being ‘prepped’ for a shitty bonus and meaningless salary increase. After all, the way many employers currently view it these people are lucky to have a job.

    It might come as a shock when workers start to voluntarily quit in this economy. Unfortunately, that’s where we are likely headed.

    New research by Hays finds that 49% of Canadian employees are seriously considering leaving their jobs, a nine percentage point jump from last year. That number for Ontario: 52%!

    According to Travis O’Rourke, president of Hays Canada:

    “Canadian employers are navigating difficult headwinds but the growing number of employees who want to leave their role, even in the face of a tentative job market, is a big problem. COVID-19 has left everyone exhausted and while many businesses are improving, staff are waving a white flag. Employees expect a company to have their best interests at heart and we’re now seeing evidence that unsupported teams look for better opportunities. Once we turn a corner on the pandemic or see more signs of job market strength, those employees are gone.”

    Canadians are overworked, stressed and see little help coming their way from their current employers. Indeed, only 64% of employees are positive about their well-being, down from 81% early in the year. At the same time, 54% of employers admit they have done nothing to support employee wellness or mental health.

    I’m already seeing more people being easily lured away by attractive competitor offers. It appears that people are losing hope that their career will grow at their current place of employment.

    Additional Hays 2021 Salary Guide highlights

    • Where is employment optimism highest? ON (77%), QC (77%), BC (74%). AB trails at 50 per cent
    • How about raises? 46% of AB employers plan no salary increases, followed by QC (33%), ON and BC are tied at 23 per cent
    • Where are employees most ready to leave? QC (54%), ON (52%), AB (48%), BC (41%)
    • What do employees want from a new role? Benefits (53%), career development (44%), work-life balance (40%)
    • What’s affecting people’s well-being? Lack of social interaction (45%), isolation (27%), increased workload (25%)
    • What about hiring plans? Over the past 12 months 35 per cent of employers decreased permanent staff. Looking ahead, 36 per cent plan to add headcount

    Small Business Work

    Start Your Business Tomorrow

    Many of my readers desire to work for themselves, either by building a business or starting some kind of side hustle. However, out of 100 people who say they want to start a business, maybe 1 actually does.

    The problem is people put too much pressure on themselves. They look at their desired end state from miles away and fail to take the first step. Frankly, it’s daunting. Where do you start?

    A business is formed by pushing an idea into the marketplace and adjusting based on feedback.

    People also over-think what it is they want to do. Instead of thinking like a startup, they think like an established business with 50 employees. Instead of starting with a single action, they ruminate over the 100 things they’d like to do.

    Often, the best businesses start off as a single simple idea. Forget the plan for the future. Instead, choose your mission and pick a single task to help bring that mission to life. Most importantly, take action. Don’t strive for perfection – there’s no such thing. At the beginning, action is your success metric.

    Here’s the thing: businesses aren’t built on a linear path. Many successful businesses end up being quite different from the original idea. A business is formed by pushing an idea into the marketplace and adjusting based on feedback. Of course, I’m not saying someone doing web design for local retailers will end up manufacturing next gen batteries. There has to be some continuity around the mission. Instead, it’s the delivery that adapts.

      A web designer providing services to local retailers exists to help small businesses. Perhaps they start by offering web design services, but discover that sole proprietors need full marketing services or staffing assistance or who knows what else. Or perhaps the web designer starts by providing customized services to local retailers, but then builds pre-made DIY templates that can be used to drive world-wide ecommerce.

      Of course, none of that would happen without taking the first step of approaching the local sushi shop that lacks a basic web presence.

      Stop thinking about the business you want to build. Instead think of the purpose you want to serve, the skill you want to share or the mission you want to accomplish. That becomes your centre of gravity. Allow the supporting activities to evolve as you test out your idea.

      Now pick your mission and identify one way to move your mission forward. And do it tomorrow.


      Work-Life Balance Pandemic Gains are Over

      When the pandemic began and office workers were sent home to work remotely, things slowed down dramatically. Companies spent the first several weeks scrambling to build the work-from-home infrastructure they lacked. By “infrastructure” I mean VPN networks, conferencing solutions, etc. For companies with tens of thousands of employees this takes a significant amount of time and effort.

      Once the infrastructure was set up, it took employees time to become accustomed to working in a virtual environment. Employees were conducting business, but at a slower pace than normal as they learned to navigate Zoom, virtual meetings, remote work, and so on.

      For a few months people were enjoying the work-from-home lifestyle. Those who remained employed suddenly had way more spare time and extra money. No more commutes, lunches, dry cleaning or travel costs. We all had more money and time to spend with family and enjoy life. Many of us said we’d never go back to the office.

      But then the blood-sucking corporate world woke up. It realized that not only could it save money on office space, it could argue that employees just received a defacto raise – all while businesses actually did nothing for employees. Then, when businesses realized that remote working was actually productive, they found ways to soak up the extra time workers had gained by eliminating their commute.

      Today, EVERY SINGLE PERSON I talk to that works for a major corporation is working longer hours than ever before, even when including their previous commute. Employers have piled on the work knowing that employees have extra free time and are afraid to lose their jobs.

      Work life and home life have blended together and people have completely lost balance. Work-life balance is dead. People are now working from the second they wake up to the second they go to bed, with a little time for family in between.

      It’s unhealthy, exploitative and unsustainable.


      Lessons From The Dot-Com Collapse

      200 comments and counting in my latest Seeking Alpha article!

      In this article, I look back at the post-2000 dot com collapse that sent the Nasdaq down almost 80%. There are many similarities to today, unfortunately. Remember Nortel? Once a symbol of progress, it eventually landed in the dustbin of stock market history.

      This article includes an excerpt from Warren Buffett’s 2000 investor letter and comments from Sun Microsystem’s former CEO on investor irrational exuberance.

      Article Summary

      • We’ve seen this show before. In 2000, unrealistic expectations eventually burst, sending the Nasdaq down almost 80%.
      • While growth scarcity and lower discount rates justify higher prices, many stocks currently trade at huge valuations.
      • The recent 30% drop caused by Fastly’s 5-6% revenue guidance hints at the risks growth investors are taking.
      • History repeats itself. While money can be made riding a bubble, investors should remain humble and take actions to mitigate downside risk.

      Read the full article

      Master Class

      Masterclass: Danielle DiMartino Booth Interviews Economics Guru Rosenberg


      David Rosenberg is the chief economist & strategist of Rosenberg Research & Associates, an economic consulting firm he established in January 2020. He received both a Bachelor of Arts and Masters of Arts degree in economics from the University of Toronto. Prior to starting his firm, he was Gluskin Sheff’s chief economist & strategist. Mr. Rosenberg was also chief North American economist at Bank of America Merrill Lynch in New York and prior thereto, he was a senior economist at BMO Nesbitt Burns and Bank of Nova Scotia. Mr. Rosenberg previously ranked first in economics in the Brendan Wood International Survey for Canada for seven straight years, was on the US Institutional Investor All American All Star Team for four years, and was ranked second overall in the 2008 survey.

      Danielle DiMartino Booth is CEO & Chief Strategist for Quill Intelligence LLC, a research and analytics firm. She spent nine years as an advisor to Richard W. Fisher at the Federal Reserve Bank of Dallas. Danielle left the Fed in 2015 to found Money Strong, LLC, an economic consulting firm and launched a weekly economic newsletter She is the author of Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America. DiMartino Booth began her career in New York at Donaldson, Lufkin & Jenrette and Credit Suisse, where she worked fixed income and the public and private equity markets. Danielle earned her BBA as a College of Business Scholar at the University of Texas at San Antonio. She holds an MBA in Finance and International Business from the University of Texas at Austin and an MS in Journalism from Columbia University.

      ETFs and Funds Investing Wealth

      88% of Canadian Equity Funds Underperform

      It’s a stock picker’s market, right? Investment manager earn their keep during down markets, right? Actively managed mutual funds can take advantage of market dispersion and volatility to pick outperforming stocks, right?


      Yet again – through up markets, down markets, calm markets and volatile markets – Standard and Poors (S&P) proves that the myth of active investment management is pure bullshit.

      S&P periodically releases the SPIVA Scorecard, which compares the performance of active mutual funds against their benchmarks. Whether looking at Canada, US or UK, this report has repeatedly shown that active managers underperform.

      The SPIVA report is probably the most accurate of all mutual fund evaluations because of what it doesn’t leave out. The SPIVA Scorecard accounts for mutual fund survivorship bias. This adjustment is critical to understanding the true extent of manager underperformance over time.

      Here’s how S&P explains this important adjustment:

      Many funds might be liquidated or merged during a period of
      study. However, for a market participant making a decision at the beginning of the period, these funds are part of the opportunity set. Unlike other commonly available comparison reports, SPIVA Canada Scorecards remove this survivorship bias.

      Standard & Poors SPIVA Canada Scorecard

      Facts (from the SPIVA Canada Scorecard- ending June 30, 2020):

      • 88% of Canadian equity funds underperformed their benchmarks over the past year, in line with the 90% that did so over the past decade
      • On an asset-weighted basis, Canadian Equity funds returned a dismal 7.9% below the S&P/TSX Composite over the past year.
      • U.S. Equity funds posted the highest returns over the past year, with a 6.7% gain on an equal-weighted basis and 10.8% on an asset-weighted basis. Both of these metrics fell short of the 12.1% gain of the S&P 500 (CAD), with 84% of funds failing to clear this hurdle over the past year.
      • U.S. equities offered the best returns over the past decade, with the S&P 500 (CAD) gaining 16.9% per year, but active funds were unable to keep up: 95% fell short, by an average of 4.1% per year on an equal-weighted basis.
      • 53% of all funds in the eligible universe 10 years ago have since been liquidated or merged.

      The performance tables below compare mutual fund categories (e.g. ‘Canadian Equity’) against their benchmarks (e.g. ‘S&P/TSX Composite’). The first table shows equal weighted returns (average fund return) and the second shows asset weighted returns (average fund returns weighted by size of assets in a fund). As you can see, there is significant underperformance across all time periods and categories.

      This is not just an issue with the Canadian mutual funds industry. Here are some facts about the performance of mutual funds sold in the US:

      Facts (from the SPIVA US Scorecard- ending June 30, 2020):

      • In 11 out of the 18 categories of domestic equity funds, the majority of funds continued to underperform their benchmarks.
      • 67% of domestic equity funds lagged the S&P Composite 1500® during the one-year period ending June 30, 2020.
      • In 13 out of the 14 fixed income categories, the majority of funds failed to keep up with their benchmarks.
      • Fund liquidation numbers across segments regularly reached into the 60% range over a 15-year horizon.

      The equal and asset-weighted performance comparisons for US mutual funds are equally bad and just as significant as fund underperformance in Canada.

      Why do most mutual funds underperform?

      It’s simple.

      1) Mutual funds charge a fee that can be as high as 3% in some cases (most are probably closer to 2%). Just to perform in line with the benchmark a fund manager has to outperform by the fee charged. They are starting from behind.

      2) Mutual fund managers are trying to outperform against millions of other professional investors, all with the same public information. By the very nature of the market, there will be people who are wrong and people who are right. It is very difficult to be repeatedly right about something impacted by an infinite number of variables. Hence, the chance about being right about a particular portfolio (relative to a benchmark) at any point in time is about 50/50. Those odds are reduced over longer periods of time (the odds of flipping heads once is 50%, the odds of flipping heads twice in a row is 25%).

      In that it provides no value added, investment fund management is therefore a commodity. An allocation to diversified portfolio of stocks has value, but the overlay of ‘active investment management’ provides no additional value (actually, it subtracts value as shown above). Investors should not pay for something that isn’t delivered. Therefore, investors should not pay active management fees, which are significantly higher than passive fees. This difference in fees could mean the difference between retiring well or retiring broke.


      Q&A: A Lazy Man’s Guide to Portfolio Construction and Stock Selection

      DumbWealth Reader Question:

      What is your approach to portfolio management, adding or closing particular investments, and evaluating particular companies when you are looking to add one?


      There is quite a wide range of things I consider when constructing my portfolio and adding or removing particular holdings. My aim is to build a portfolio that doesn’t require a lot of tending to over time.

      My first overall consideration is the overall allocation to various asset classes and sectors within those asset classes. As my time horizon is fairly long, my portfolio is more heavily weighted to risk assets, like stocks and high yield bonds. I do own some investment grade bonds too. And from time to time I will have an allocation to gold. Since I have a long time horizon, it makes sense to hold assets that will grow over long periods of time. Stocks tend to fit that description.

      I consider my job and sources of retirement income when choosing how much risk I can take. I currently work in a cyclical industry that is directly impacted by the markets. This reduces my risk tolerance because my income would be at risk at the same time as my portfolio. In contrast, I have a small defined benefit pension plus standard government retirement benefits (i.e. a guaranteed source of income at retirement), allowing me to take on more portfolio risk. On balance, I think these variables offset each other.

      When selecting stocks to hold, I take the lazy route. I don’t want to trade in and out of holdings. Instead, I prefer to buy companies that I hope to own forever. I want to own well-run survivors. Good companies with sustainable, inimitable competitive advantages in industries that can’t easily be displaced by new competitors.

      The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.

      Warren Buffett

      Many investors refer to these sustainable, inimitable competitive advantages as ‘wide moats’. Essentially, these advantages protect companies from the advancing army of competition. Wide moats can take several forms. The following examples are provided by Morningstar:

      Network Effect. The network effect occurs when the value of a company’s service increases for both new and existing users as more people use the service. For example, millions of buyers and sellers on eBay EBAY give the company an advantage over other online marketplaces. The more sellers there are on eBay, the more likely buyers are to find what they’re looking for at a decent price. The more buyers there are, the easier it is to sell things.

      Intangible Assets. Patents, brands, regulatory licenses, and other intangible assets can prevent competitors from duplicating a company’s products, or allow the company to charge a significant price premium. For example, patents protect the excess returns of pharmaceutical manufacturers such as Novartis NVS. When patents expire, generic competition can quickly push the prices of drugs down 80% or more.

      Cost Advantage. Firms with a structural cost advantage can either undercut competitors on price while earning similar margins, or they can charge market-level prices while earning relatively high margins. For example, Express Scripts ESRX controls such a large percentage of U.S. pharmaceutical spending that it can negotiate favorable terms with suppliers like drug manufacturers and retail pharmacies.

      Switching Costs. When it would be too expensive or troublesome to stop using a company’s products, the company often has pricing power. Architects, engineers, and designers spend entire careers mastering Autodesk’s ADSK software packages, creating very high switching costs.

      Efficient Scale. When a niche market is effectively served by one or a small handful of companies, efficient scale may be present. For example, midstream energy companies such as Enterprise Products Partners EPD enjoy a natural geographic monopoly. It would be too expensive to build a second set of pipes to serve the same routes; if a competitor tried this, it would cause returns for all participants to fall well below the cost of capital.

      What you’ll notice about these characteristics is that they can’t easily be summed up by a single number. Data points like standard deviation, Beta, p/e ratios serve their purpose but they don’t tell you about the long term prospects for a business. Before diving into the plethora of data points, it is critical to first have a qualitative understanding of what the business does, what sets it apart and how it is insulated from competitive forces.

      Once I’ve done this there are some data points I pay attention to:

      Revenue: If a company isn’t growing revenues over time then something is fundamentally wrong with the business or industry. Revenue flows through to earnings and cash flows, so a company with declining revenues can only engineer good shareholder returns for so long. If a company can’t grow its customer base and earn more from each customer over time, I don’t really want to own the stock.

      Growing Dividends: I don’t chase yield. Instead, I prefer to invest in companies that pay consistently growing dividends. I like companies that can grow dividends above the rate of long-run average nominal GDP so that my income stream grows faster than inflation. (This, of course, requires growing revenues.) Many of my holdings have dividend growth rates closer to 7%+, doubling my dividend income every ten years. While I agree that technically it’s total returns that matter, a consistent and growing dividend payout overlays a level of discipline on management. It also implies that company executives – i.e. those who know the most about their business – are confident in the company’s ability to generate cash. Some research has shown that companies that pay growing dividends outperform companies that don’t pay dividends over the long run. Of course, there are great examples of the opposite. But as a lazy investor, I want to buy good companies at fair prices and that often means investing in proven businesses that are able to pay dividends. Moreover, the psychological benefit of seeing dividends paid into my account regardless of the daily, weekly, monthly stock price fluctuations keeps me from making irrational sell decisions.

      Sustainable dividends: Not all dividends are equal. This is important if one is to avoid value traps. Sometimes a yield is high because investors expect dividends to be cut. The classic measure investors use to evaluate dividend sustainability is the payout ratio – the proportion of earnings paid as dividends. Over the long run, a company cannot pay more than it earns. Personally, I prefer to look at the dividend as a proportion of free cash flow, since earnings can often include various non-cash items. Dividends are paid with real cash, so ultimately it’s the cash flows that matters.

      P/E and P/S: These valuation metrics provide a good snapshot of whether a stock is expensive or not. While P/E is often the first valuation metric people use (share price per dollar of earnings), I also look at P/S (price to sales). Again, because earnings can include non-cash items, one-time items, etc. I feel it is helpful to have a valuation metric that compares against a more stable accounting measure (revenues). When looking at valuation metrics, it’s important to recognize what you’re paying for. A fast growing company will cost more…and that’s OK. In contrast, a dying company might have a single-digit P/E ratio and 5%+ dividend yield, but over the long run it might be a losing proposition. I would rather pay a fair price to own a slice of a company I know will outrun its competitors and have a viable market (via its wide moat) for decades to come.

      Income Investing

      The Case for MO

      Today I came across this Twitter thread by @soloprosperity explaining the pros and cons of dividend king Altria (MO). I thought it was a great summary so I’ve included it below:

      Some quick notes.


      1.Addictive Product: Pretty steady ~2% Rev Gr Last 10 Yrs
      2.Extremely Profitable: ~28% CFROCE
      3.Low Reinvestment Requirement: FCF = 96% of OCF Last 10 Yrs
      4.Margin Expansion Last 10 Yrs: Gross 53% -> 61% & CF 33% -> 48% 5.Dividend Seems Fairly Safe: Dividend Coverage is at 84% Last 5 Yrs
      6.Regulations: Essentially no new competition. It is a wonderful business unless you have moral issues re: the product, but there are some ?s and reasonable reasons why multiples have compressed back to ~2011/2012 levels despite a very strong overall market during that ensuing period… 


      1.Organic Growth: # of smokers continues to decline.
      2.Accrual Build-Up: Net Income > Cash Flow for a decade. 
      3. Capital Allocation: JUUL & Buybacks. Largest buyback year in the last decade was the year the stock was trading at it’s most expensive. 
      4. Future Shareholder Yield: Dividend is safe, but when you factor in buybacks, Total Shareholder Yield has outstripped Free-Cash Flow over the last 5 years (Taken on Debt). Indicates buybacks could slow moving forward. 
      5. Valuation: Yes, today’s levels bring it back to the 2011/2012 levels on various metrics, but the firm has traded at much cheaper valuations in the past (99’ 02’ 08-10’ etc.) and so lower is always a possibility. 

      Again, wonderful business, but there are some legitimate questions about the company and the accrual build-up, JUUL acquisitions & capital allocation in general (Poorly timed buy-backs), cyclical topic re: # of smokers in the U.S. and so the price today is valid IMO. 

      I do own the stock despite the concerns because the core business is so easy. At a cyclically-adjusted FCF Yield of around 8.7% today, plus 1-2% in growth, that alone gives me comfort in earning ~10% over the next 5 years. A possible re-rate could add to that. 

      Lastly, I think there is a low-potential right-tail event in terms of marijuana federal legalization. Not something I am betting on happening with certainty, but I think Altria’s distribution network is a potential valuable asset if that happens.