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Will 2024 be a financial disaster? Jonathan Wellum, CEO of RockLinkc Investment Partners joins Wealthion host Eric Chemi to discuss what to expect in the financial landscape of 2024, Wellum’s startling predictions on how the Fed could impact your money, how the upcoming 2024 presidential election could reshape the investment landscape and more!


Jonathan Wellum 0:00
The Canadian investors probably spend 80% of their time looking at the US and an international maybe about 20% In Canada, just simply because that’s where the opportunities are, those are where the companies are to invest, the interest rate set by the Federal Reserve have the biggest impact. Also, on Canadian interest rates, we really cannot detach from the US market that much we can detach a little bit and we can sort of be a little bit different, but not not too much. Or we’ll run into problems with our currency or valuation relative to the US dollar and so forth.

Eric Chemi 0:37
Here we are at the turn of the year. And it’s time to look at so many people’s forecasts predictions of what was going to happen in 2023. Many of those were dead wrong. So here we are now, at the beginning of 2024. Trying to figure out what predictions are accurate. How do I make money? How do we make money in a world where maybe the economy is going to collapse? Maybe there’s a soft landing, maybe there’s a hard landing, maybe there’s no landing, a lot of confusion right now. But there are always opportunities to make money no matter what the environment is. So today, I’m really happy to bring on Jonathan Wellum, CFA, he’s the I think the President, the CEO, the CIO of Rocklinc up in Canada. And of course, his reminder, rock link is our Wealthion endorsed partner for Canadian citizens. If you live in Canada, and you’re looking for an investment advisor, Rocklinc is the firm that we endorse. Jonathan is the guy that you get to work with. And so Jonathan, thank you so much for joining me. And it doesn’t look like you’re in Canada right now. Because I’m looking at gray, cloudy, rainy skies on the East Coast. And you look like you’re enjoying a golf shirt and sun there. Where are you today?

Jonathan Wellum 1:41
Yeah, right now, I’m actually in on Grand Cayman. So part of the Cayman Islands and just enjoying a week or two down here with the family over Christmas. But I’m all hooked up and following the markets and able to do my trades down here also, if I have to.

Eric Chemi 1:56
Have you changed your philosophy on anything, let’s say over the past 12 months, was there anything that that you saw in the global economy in your in the Feds behavior or even people’s behavior, consumer behavior AR I like if there’s something that all of a sudden you think something’s different now that my three decades of work, I need to throw something out the window in terms of how I was approaching this, or I need to make a different kind of allocation? Or we need to dump some of the stocks in our 20 to 25? Basket? Was there some massive shift or learning lesson that you have in the last 12 months?

Jonathan Wellum 2:30
No, there wouldn’t have been a massive shift anything that occurs? In our view, we haven’t seen anything that would cause massive shift to answer the question specifically, generally what what I have seen over the last 34 years, or I’ve talked to other longer term investors, is you just slowly shift your opinion on certain things, as you see trends move or opportunities move in the marketplace. And it’s basically an evolution. And so our portfolio is generally having like a 10% turnover, maybe 50% turnover, they kind of evolve. But there isn’t anything too radical now. I mean, something could come I suppose that would cause a radical change. But you know, most of the businesses that we own, you know, the it’s more of an evolution and the portfolio’s evolve. And you you trim this and you trim this and you add this stock, and we find, you know, greater opportunities in this industry over another industry, we, we had a fair bit of position over the years and Honeywell, which is done a great job, they’ve, you know, they’ve they’ve added a lot of value, we did well on the stock, we go and owned it for about eight years. And then we said to ourselves, okay, there’s there’s a few challenges ahead for Honeywell, it’s, it’s, it’s done well, and we saw better opportunities in Schneider Electric, which would get us some opportunities into the electric grid, and you know, the whole green transition and some of the digitization and things like that. So we’ll often just see an evolution where we say, okay, that business has done well, but growth might be not as not as heavy as it used to be. And let’s find a better opportunity. So we’ll trim one and then we’ll go into another business looking at it in the next five to 10 years, it looks like the growth prospects are a little bit better. That’s generally what happens in terms of our view. I mean, 10 years ago, I would have been or say 15 years ago, before the financial crisis, I wasn’t as focused on all of the debt. But I think the financial crisis really woke up a lot of people in terms of that, I think the biggest surprise for us, and certainly for myself as an investor is that we’ve just continued to pile on debt since 2009, with apparently, no adverse reaction. And that’s what you know, is I’m focused on now is at some point, you know, that this debt bubble will come back to haunt us and I want to make sure I’m in businesses that can weather that take advantage of it, and invest through that because that That, to me, is probably the biggest challenge.

Eric Chemi 4:55
That’s where I was gonna ask is, now that you’re focused on the debt, and the debt was Much smaller back 15 years ago, the crazy thing is we thought it was a lot then. And then it’s just gone away the idea of in 07′ 08′, we thought, okay, imagine now the debt is 10x what we are now like, couldn’t even imagine because it was so high at the time. And here we are. So that was my question is, are there certain kinds of companies that you’re looking at now there to avoid or to focus on in a world with this kind of government debt out there?

Jonathan Wellum 5:25
I think to two areas that we wouldn’t be have minimal exposure to these are broad areas would be consumer discretionary businesses, we’re not big fans have a lot of discretionary businesses, because consumers can easily shut down their spending. And we’re seeing a little bit of that even last week, we saw with Nike, I mean, there’s, they’re having a tougher time, people don’t have to buy as many Under Armour shirts, or actually Under Armour by Nike shirts, at their stores or whatever, or there’s running shoes, they can hold on to it longer, but it’s consumer consumer discretionary, we’ve, we’ve been cautious for some time, we’d rather have consumer staples and essential businesses. And then we also have been light on banks. The last couple of years, I just spent, you know, in Canada, and from the Canadian context that the Canadian consumers incredibly leveraged, incredibly leveraged, our real estate market is much worse than yours in terms of valuation. And so our view is, why do we want to own the banks who own all these mortgages, which, you know, in some cases are gonna have to go underwater at some point, they’re going to have larger credit reserves have to come up with so we’re cautious about highly leveraged consumer debt, and organizations that would be that would be exposed to that. And so that means on the flip side, we will look at harder assets, essential assets, long lived assets, we do have some in gold, precious metals, through mostly royalty companies. And and so yeah, so it has affected our overall asset allocation. And we try to look for longer term trends. So the green transition, more electric suffocation, the need to rebuild our grids, are there opportunities there to find longer term investments in the service sector, their growth opportunities there in the manufacturing space. So, yeah, so we’re, we’re trying to look down the corridor of time and trying to minimize the risk of, you know, a debt blow up, that that’s, that’s a concern to us, it’s going to happen at some point, we’re just we just can’t predict it, we’re not going to be telling people, we can predict it, but we just know that it’s, you know, you look at the American budget. I mean, my goodness, you, you might bring in $5 trillion, less than $5 trillion, you have a debt of 34 trillion, you know, these numbers just don’t add, we’re concerned that the central banks will have to be back in printing money at some point to fill the gap. And we think that addiction is just too strong to get away from. And so again, we’ve we’re investing through that we have to find the businesses that we think we can least weather that to better than others.

Eric Chemi 8:01
Is there. Is there a concern that at some point, the debt will, will be so big that all businesses will crumble? Or is your idea that hey, we’re trying to pick 20 to 25 companies that we think will do? Well? If and when this this debt collapse happens?

Jonathan Wellum 8:16
Yeah, it’s a good, it’s a good question. Of course, you, we try not to let the negativity grab us too large, grab us by the neck, I guess. And so we are making the assumption that it will be ugly, it will be painful, but we’ll also have to invest through it, we just can’t run to the sidelines. And, you know, it can be quite honest with you, you could be sitting in cash, you could be sitting in the wrong currency, the currency could be devalued, significantly, also, and you’d probably be better into hard assets and things that are scared, you know, there’s scarcity, and there’s need. And so that’s the way we are approaching it. And so we always want to at least have a positive view where there’s opportunities in the marketplace and how we can we can take advantage of that. So but yes, I mean, if they’re, you know, you can always pay in a catastrophic situation. But I don’t think money is earned by thinking in those terms. It’s by thinking, I think wise, prudent, disciplined investing through the challenges rather than trying to think you can avoid them completely pampered and hide your money under a mattress, which could be ended up being the worst thing you can do.

Eric Chemi 9:20
Right, exactly, they inflate it all. And that’s not going to be worth much. So I mentioned, you mentioned the green transition electric grid, obviously, Canada’s big big oil and gas, big energy sector there. But we’re seeing this forced agenda on the world. Hey, we all have to shift to green we all have to get off the grid. We all got to do this and that but at some point, it’s not economically ready yet, right? The oil and gas cars, the emission on cars is like way less than they used to be 30 years ago, right? Like they’re much better. But yet there’s this whole thing of like, Oh, they’re all bad, right? But people don’t want to buy these expensive As batteries, right, a car battery on electric current $20,000. Right? There’s it’s crazy numbers, that it feels like we’re not ready for this right? It feels like we’ll get there eventually, but right, not right now, how are you dealing with that in your investments? Because you mentioned it, are you? Are you moving forward ahead with I’m gonna focus on the companies that are part of the transition? Or are you playing a little more defensive that, hey, I don’t think this is ready. And I’m going to stick with maybe some of these oil and gas names for now.

Jonathan Wellum 10:25
Yeah, excellent question. Yeah. And so what we’re doing is, it’d be the first perfectly frank with you, I don’t even buy the argument of the climate change agenda anyway. I mean, I think it is grossly overstated. Having said that, it is being pushed by some very powerful people. I and I also agree that it’s being pushed at a rate, which is not not possible to execute on. And so there’s going to be all sorts of challenges. So the issue that we’re doing is we’re saying, okay, they say they’re going to get rid of fossil fuels, we do not believe that at all it’s going to take and if they do get rid of fossil fuels, it’ll be decades and decades and decades from now. And so what does that mean, especially in a country like Canada, but also in the US, we do have some exposure to oil and gas companies, because we think that by regulating them to death, limiting the new developments and drilling and, and so forth, that you’re going to restrict supply. If you restrict supply, then the prices are going to go up. And the companies that have long tail reserves already in place and are are extracting those oil and gas reserves, reserves and putting them into play are making a lot of money. And they’re not allocating as much capital into the future. So they can pay dividends and buy back stock. I mean, you look at Buffett buying Occidental and so forth, I mean, the cash flow on these, these, these oil and gas companies are amazing, especially the oil company. So we do own make energy MBG make energy, we own some Suncor. We own some Canadian natural resources in the portfolios, not huge weights, but probably six 7% of client’s portfolio. And we love the cash that’s coming off of these businesses. And as they pay down debt, it’s there, all they’re going to do is buy back stock and give dividends to shareholders. So we think that there’s a lot more life in the oil and gas industry than then our so called global elites are the Davos boys and girls are telling us, right, so that’s one way we’re investing on the other side of it. Yeah, they are pushing this green agenda. And so we’re looking at companies that can take advantage of that. And so companies I mentioned Schneider Electric before we spent a lot of time looking at the electrical grids. Now, the electrical grids basically are in terrible shape anyway, I mean, they’re not, these are not in great shape. So they need to be rebuilt, regardless of you know, how many EVs are going to be plugging into the system and, and how much gas you’re going to be shutting down and you’re gonna have to have more electrical appliances, and so forth. All these things that they’re trying to push on us. The electrical grids are in bad shape. And so there are some companies that are well positioned to provide the parts the materials, the engineering, the development of the concepts, new technology to help rebuild these grids and companies like Eaton, which is big US based company Hubble, Schneider Electric, also, which is European based are great ways we think the play The this trend over the next 10 plus years. And there’s there’s a number of things going on in these companies. It’s not just about green transition, but we need to build up our electrical grids anyway. And we need to be more efficient and more effective. So that’s one way we can play we can say, okay, there’s this push, yet it’s, it’s doubtful, it’s going to take place as fast as they say, this is ridiculous is going to cause massive inflation and tremendous dislocation in our economies. If we if they push it at the agenda that you know, newsone or our prime minister in here in Canada, I mean, again, they’re they’re linked at the hip in terms of the thought process. You know, Gavin Newsom in California if they are think they can get rid of all you know, I you know, internal combustion engine cars, there’s just no way but it is mean there is that transition taking place, albeit slowly, then we can profit from that on that side. We can also profit on the oil and gas site. You know, we own Brookfield, the Brookfield companies, and they’re big on decarbonisation digitization, D globalization and they’ve got a lot of assets now invested in the whole decarbonisation area also, but they also work economically. I mean, they make economic returns on them now in this market. So we want to be in companies that are not being subsidized adapted require government subsidies that could disappear overnight. Companies that can allocate capital and make high rates of return. And so that’s the way we’re we’re sort of straddling and I think, because we are somewhat cynical of what’s taking place. We question it heavily. We do not buy it. Another area that we’re looking at we have not made direct investments although Berkshire number Shire. Brookfield has some investments is a whole new killer area. And so we have exposure a little bit to some of uranium. But tell we’re also spending a fair bit of time looking at the Nuclear area, because I do believe that that area is basically become accepted, both left and right on the political spectrum are agreeing that nuclear is going to play a bigger role, too. So there’s going to be some opportunities there. Of course, in Canada, we have chemical, which is the massive uranium player in terms of the actual commodity itself. And so we’re looking at that spaces, future opportunities, but we don’t have a lot there right now.

Eric Chemi 15:34
Yeah, I think that’s a good a good breakdown of how you’re looking at some of these energy plays. I did want to ask, too, because so many of our guests in the last few months have been talking about AI, right? And that AI is going to change the nature of these companies, or it’s going to make certain companies obsolete, or it’s going to change the way that labor gets done. You know, how you hire people, all of this stuff? What’s your perspective on it? I know we haven’t you haven’t mentioned yet you did mention the Brookfield that digitization. So that’s what made me think about it. Are you looking at that as a real true game changer for your your investment paradigm? Or is that just just one little factor? How important is that to you?

Jonathan Wellum 16:13
Yeah, and for us right now. We’re still studying and looking at it, seeing what the implications are, we have owned and do have some Microsoft on the book, which has exposure. I mean, we’ve owned Amazon for many years, bought a lot more last year, when it what got hammered in 2022. They have they’re going to utilize it. We have not owned a Vidya, which that would have been a great place to own the beginning of the year. But so we’re kind of watching it, we think clearly, it’s going to have an impact on businesses. But we’re more interested in how to businesses use it to drive productivity and increase profitability rather than AI. Investing in it specifically, as as you know, the companies that are a pure play in it. We haven’t come to a conclusion exactly on that side of it. We’re more interested in businesses that will utilize it and just help cut costs, increase margins, you know, drive profitability, things like that. That’s the way we’ve approached it. We do believe, again, history tells us to be careful about overpaying for these highfalutin trends. When we look at some of the numbers, have you taken a video, for example, again, I haven’t reviewed in the last month or a couple of months, but you know, it’s a great company and so forth. But it mean, it’s priced to perfection, absolute perfection. And that doesn’t mean you can’t make money on it. Yeah, it can go higher, and people can chase it higher. But as value investors, we could not allocate capital good conscience to it anywhere near the kind of valuations that we see today. And so we go to the sidelines and look at other ways that we can play the AI space. And that’s more businesses that can use it in the way they do their business, the way they run their business, the way that they you know, administer the business to drive increased profitability, and we are seeing companies talk about it more, and, and so forth. So we’ll we’ll continue to learn but we’re not we don’t like to be the first person to jump on a on a trend and just sort of run with it. Well, that Kathy wouldn’t do that.

Eric Chemi 18:12
Anything else that you’re excited about for 2024? Maybe you can’t share it yet? Because you’re still doing the research on it. But is there an area in industry, a type of product that that you think might be the next, the next member of your 20 to 25? Stock club?

Jonathan Wellum 18:28
Yeah, I can’t see, I can’t say that there’s something that jumps out specifically that I put in that category. But we do have a number of businesses that we’ve added over the last couple of months that we like, I wouldn’t put them in the category as sort of revolutionary, but I think good values, good opportunities, and well positioned to make some some some good money over the next next the next year or two type of thing. But yeah, nothing that would that could say that’s going to be earth shattering the way that you the way, you talked about it there. I think it to me, it’s blocking and tackling, just making sure all your businesses are well positioned doing well priced. appropriately. I do think there’s one area that I think has not caught up to the underlying commodity and that would just say be gold, and we’re not big gold bugs are in that but we do run I’d say 13 to 15% of our total equity portfolio would have gold, precious and silver and some base metal exposure to it in those areas, especially gold, silver, the underlying commodities have done quite well and 2023 and we’ve got gold today. You know, it’s we’re talking, you know, before you know this, this Arizona a little a few days later, but trading pretty close to record highs almost $2,100 And yet a lot of the gold miners and I’m talking here, the elite ones, the best ones Agnico Eagle in particular, which we own in their trading 40% and below where they were previous highs, and Franco Nevada, some of the big royalty companies, they’ve had some challenges in some, some jurisdictions that they operate in, and they’re trading 30 40% off their highs. And so I think there’s some opportunity there, because I do believe that, you know, gold could do quite well in the next number of years. And these companies are well positioned. So, again, if we do run into financial problems, any of these economic issues, monetary problems, you know, I think gold would do just fine.

Eric Chemi 20:31
As you as you leave Canada, because I want to talk a little bit about this international difference, do you get better perspective, when you think about, okay, I’m always in, you know, Canadian, Canada or the states and I’m dealing with all of this stuff, and then I’m gonna go to the islands, I go somewhere else do you change your perspective on the global economy, the you know, the direction that things are happening, and because you’re around different people, you’re having different conversations, you’re out of your daily habit.

Jonathan Wellum 20:56
I think it broadens you a little bit. I mean, Grand Cayman still heavily influenced by the UK and the United States, about 70% of offshore funds are registered out of Grand Cayman. So I come down here, we have an offshore fund also. And I talked to the players down here. See, I think he gets a little broadening of the perspective. But it’s still heavily centric, in terms of the US North America and also the UK and into into Europe. But so a few, a few ideas. My neighbor here is, is one of the head fellows with a large bank down here and asset management. So we have good conversations. And there’s always just the concerns of what’s going on in the marketplace. The things that you we all know about just trying to manage money, protect capital and try to grow it in the midst of a lot of what would certainly appear to be insanity.

Eric Chemi 21:49
Insanity. And I’m curious, then, you know, mostly, you know, most of our audience, they live in the United States, they think about the US market, you’re looking at US Treasury bonds us, s&p 500, all of them, when you’re based in Canada, how much of that American focus the American impact changes your perspective, right? Are the Canadian investors? Are they looking more at how do I invest in Canadian indices, Canadian bonds? Are they looking at both countries? What is that perspective, when you’re domiciled there.

Jonathan Wellum 22:16
Canada really does focus an awful lot in the United States, it’s impossible for us not to focus on the US. So when you’re in the US, and you mentioned and you start talking about Canada, eyes glaze over, most Americans do not understand what’s going on in Canada on in Canada, unless they’re investing in say the oil and gas industries for this specific industries. But Canadians are very much focused on the United States, we have to be it’s 10 times the market, it’s much broader market, more depth to the marketplace. The reserve currency of the world, of course, is the US dollar implications are for understanding the US are very important for us as investors. So I’d say actually, the Canadian investors probably spend 80% of their time looking at the US and an international maybe about 20% In Canada, just simply because that’s where the opportunities are, those are where the companies are to invest, the interest rate set by the Federal Reserve have the biggest impact. Also, on Canadian interest rates, we really cannot detach from the US market that much we can detach a little bit and we can sort of be a little bit different, but not not too much. Or we’ll run into problems with our currency or valuation relative to the US dollar and so forth. So I think we really do understand the US market quite well.

Eric Chemi 23:33
It’s like the job they say, you can talk to whether it’s Canadian or foreign or someone from a different continent, then they can name all 50 states in America, but you can ask an American and they can’t name all 50 states. Why

Jonathan Wellum 23:44
our youngest daughter who is took a classical education, she’s just finishing high school. She could tell you every single US president, everything she could rattle them off, She memorized them all. She read the original documents of the founding of the United States. And so that’s in Canada. So it is interesting. We do we have to understand the United States is such a large, important market and country to us.

Eric Chemi 24:08
So what’s the perspective then for you right now, as we end the year start the new year? On on what do you think about the fence impact of rates? And what does that mean, in terms of soft landing Heartland in terms of I want to get really the main question is, are you generally bullish? Are you generally bearish on the macro perspective right now? Then we can talk about the Feds impact on that, right, because the Fed itself can change the direction of the economy. And then from there, how are you investing in because I know your approach is different. You’re not just looking at let’s just sit in ETF and sit in index funds. I know you’re looking for value in very specific areas.

Jonathan Wellum 24:43
Yeah, so we look at the broader market. The macro picture is very important to us, but trying to predict every little move here and there and tried to take trying to make money off of short term moves in the marketplace is not our focus, but we have to you have to contextualize your investments. So even though we’re value investors, we’re looking at specific businesses, we have to put them in some kind of context in order to value them. So our concern or in terms of the broader marketplace is, yeah, we’d be a little bit more bearish, we’re concerned with the with the growth in the economies, interest rates have come up an awful lot, as we know, record amount, we certainly thought 2023, it’d be a little tougher going in the US market in terms of capital growth, it turned out to be a much better year than we anticipated. And so that was a bit of a surprise. And but going forward, we’re still very, very cautious, very concerned about the debt build up about the budget deficits. You know, the the inflation picture is not all solved yet. Everybody’s so excited and think it’s all disappearing. And then the inversion of the yield curve certainly are telling us that we’re in for a slower growth, economy and potentially, of course, a recession. In Canada, we already are in a very much of a significant slowdown, if not a recession already. If you look over in Europe, it’s already basically, you know, quasi recession, if you’re looking at China, they’ve got problems. So the US has been really the bright spot, if you will. But when you look at it to 2 trillion plus budget deficits, which is completely unsustainable, and a $33 trillion, you know, debt, unfunded liabilities, all of the things I could rattle off, that makes us cautious, and certainly not throwing caution to the wind, and just putting all of our money into the market without really being careful about allocating the capital and trying to protect our investors money.

Eric Chemi 26:38
So how are you positioned them right now? Because we know that right, we know that the rest of the world is not doing great. I struggle with the idea that the US is at all time highs right now on equity markets. That feels odd to me. And who am I I’m not I’m not the world’s greatest stock market expert. But it just seems odd that we’re not in the strongest economic place. I think we can all agree on that. So why are we the strongest market? Probably that seems odd. So I see your point about there’s global recessions generally happening? How can the US be insulated from that? We’re looking at these budget deficits. I agree with those facts. So how are you positioned it because you’re not short the market, but you have to participate? You still have to be long. Are you underweight? Are you in more cash? Are you a typical 6040 Stock Fund? Well, how do you position in a world where my guess is you’re a little nervous that I don’t really want to be buying the top right now.

Jonathan Wellum 27:27
Yeah, of course, we look after family wealth, and so it’s going to vary by the family and their wealth and their risk tolerances. So overall, in terms of our total book of business, we’re actually pretty close to that 6040 split, but that’s almost coincidental. So 60, it’s normal, 68 60%, equities, 40% short term, very short term, interest bearing securities. But we do have clients, that would be 80% equities, but those would be younger clients, professionals putting money into the market, dollar cost averaging on a regular basis, and so forth. And then we have older clients that are very, very much concerned about wealth preservation, and they would have a higher wait waiting. So it would vary across our books are ideal. Right now, if a client comes in, we are not going to just slam them into the marketplace, we’re going to work them into the market. And it might take a number of months, to even get to the allocation that we feel comfortable with in terms of equities and fixed income. Because, you know, the market is not inexpensive. We’re not trying to predict, you know, the next move in the market, but we value businesses. And so when we’re valuing businesses, what the discipline that gives us is that if even if it’s a great company, if it’s paying, if it’s too expensive, and it’s not worth what we think it’s you know, it’s overvalued, and we’re not going to be buying it. And so that provides the discipline for us. And so that’s, that’s really where we focus our attention on, you know, more value investors over Warren Buffett type of approach, where we’re trying to find companies where, you know, we wouldn’t mind buying the whole business at today’s price kind of thing. So we have to be very selective, very picky. But we do understand that the market could back off quite a bit. So that just keeps us with a little extra powder dry so we can dollar cost average. I was on the program Wealthion You know, about two months ago when we were talking about the utility kind of stocks and infrastructure stocks, they had just been hammered, just hammered because interest rates have gone up so quickly, especially they peaked in October, and some of these stocks down 40% and more. So our view is we become really bullish on certain names. When we think that we can take advantage of the the downstroke in valuations even though we might be very cautious about the broader market we can again try to find specific opportunities.

Eric Chemi 29:44
So So dig into that a little bit more for me so when you get let’s give me an example that for 64 Let’s say your your medium, your medium portfolio, right not the 8020 Younger investor, maybe not the the older one was looking at wealth preservation, but that 6040 investor that’s sick Steve percent is that the 30 individual stocks that you’re really value investing on? Or is that general market funds? How do you put together that? Let’s call it 60% equity side of things? Because I know that like you said, you focus on that Warren Buffett type of approach, you don’t want to just go, you know, when they say, a spray and pray, or you’re just gonna buy 500 stocks and see what happens. So how are you actually finding these opportunities?

Jonathan Wellum 30:25
Yeah, and I think that look, a lot of index funds out, I think index investing has gone too far. But that’s my own personal opinion. I’m a value guy. So I’m biased that way. And but I think, as Buffett also points out, if you don’t really know where you’re investing, you probably shouldn’t do more index investing. In other words, you should be more diversified, the more ignorant you are about where you’re investing. So, for us, we target 20 to 25 stocks to answer your question specifically, so if a client comes into us, they’re going to end up with about 20 to 25 securities, we might go 30, if it’s, you know, for the trust, or if it’s, you know, we look after some endowment money, something that, you know, they want a little less volatility insurance portfolio of a small insurance company, you know, we run things like that. But basically, it’s 20 to 25 stocks, and that will generally cut across six, six different industries. So we we aren’t just focusing on say, one industry, we’re going to build big positions, we understand the importance of adequate diversification, proper diversification, and then really understanding those companies well, and then putting discipline valuations on them and then picking them off. But no, so definitely very much focused portfolios, because 20 to 25 stocks is definitely very focused. But you know, many of the companies we own are involved in many different countries, many different products, different products and services that they’re creating. So they themselves are fairly diversified. So by the time you put a basket of those, you know, 2025 companies together, you’ve got a lot of exposure. And as Peter Lynch used to say, you know, we do not want to divorce of Fi by going everywhere, if you do that, then pay the lowest piece and just buy an index fund, right? So our view is if we’re going to add value, we have to study the company, talk to management, understand the business, well value them and then build a good portfolio. Diversify.

Eric Chemi 32:20
I haven’t heard that one before. I didn’t realize that there was a Peter Lynch D worse fit. You talked about that a little bit cuz you do see these, these indices where it’s like, oh, you can get the Wilshire 5000, or the global world market, you can get every stock that’s available. And we know a lot of those are dogs, right? We know a lot of these investments are just not scams, but like these are going nowhere. Most, most stocks actually don’t make any money in the long run. So So talk a little bit about deep versus diversified diversify and the difference between those two and and when you want to just throw your hands up and say, Fine, just give me the lowest cost index fund or ETF and I’m just going to not even bother.

Jonathan Wellum 32:56
Yeah, I mean, in the book that Peter Lynch wrote many years ago, he was the manager of Fidelity Magellan Fund, which back in the late 80s, was the fund. I mean, Peter

Eric Chemi 33:06
was like the first celebrity, the first celebrity fund manager.

Jonathan Wellum 33:10
Absolutely. But that book, one up on Wall Street, which is probably still available is a wonderful read, I really encourage readers to go and pick that book up. It’s an easy read. It’s a fun read, Peter Lynch was a engaging, engaging person and incredibly successful manager. The thing that was interesting about Peter Lynch, though, is that he ran the Magellan Fund, one of the most successful mutual funds at the time, the compound rate of return was high teens, if not close to 20% a year, don’t quote me on that. But when they did an analysis on the investors in the fund, the investors in the fund would return they would they ended up with about 15 to 20% of the return of the fund. And that’s because they would buy high, sell low, don’t stick, don’t stay with the investment over the long term, and so forth, which is quite interesting. So I think that, again, if you’re a retail investor, and you don’t have a stomach for the market, and you don’t trust the people that are managing the money, yeah, you probably just buy an index fund, if you’re not going to do the research and the work. Our whole whole reason why we exist is okay, let’s delve into businesses. You know, the person I started to work with in the industry back in 1990. He said to me, right off the bat, he said Jonathan, the wealthiest people in the world are business owners, you’ll look at the fortune 5500 list of the wealthiest people, they’re all business owners, and they’ve generally owned two or three businesses. And that’s because they focus and then they they compound on a tax deferred basis and so forth. So what we’re trying to do is just emulate business people understand the companies by handful of businesses. And But that takes time it takes research and then there’s there’s four of us that do research all day long. Three of us are CFAES. And we talk to companies and if we’re going to really understand the companies While we can’t invest in 200, companies, 300 companies, there’s no way we can keep up with them. So we zero in and understand the companies that we like. And I think investors also need to realize is they don’t have to own every company to do well. They don’t have to own the company that their neighbor owns, as long as they own a basket of good businesses that they understand, then you can do quite well in the market over time. And envy is a is a very bad characteristic. If you if you want to make money, you want to know the FOMO Fear Of Missing Out and chasing what other people are doing. No, no, don’t worry what other people are doing. Know what you’re doing. That’s the key when it comes to investing.

Eric Chemi 35:39
That’s a great point. The wealthiest people are business owners. It’s they’re not short sellers. That’s for sure. Right? They’re not they’re mostly not traders, although you see us do see a few, you know, hedge fund guys in there, but they’re typically the owner of the hedge fund. Right. And they turn it exactly.

Jonathan Wellum 35:54
They made money by owning the hedge fund. Right. And being Asset Management owners.

Eric Chemi 35:59
Yeah, So but you’re right. It’s it’s not just your day trader, right. The day traders not going to be on that, on that, you know, Forbes 400 list, certainly not. And especially people who have been short the market, right, the bears out there. It’s hard because like right now I feel bearish. But But bears in general, don’t make money, right? Because the market is up 75 80% on an annual basis, right, like three out of four, four out of five years, it’s going to be up. If you just don’t have a clue, you’re gonna make money most years.

Jonathan Wellum 36:28
And it’s difficult. Even a professional. I’ve been doing this for 34 years, it’s still difficult to go in and out of the market in a really disciplined way. I know, I realized there are some people who are they, they you know, they they’ve seemed to do okay, it does do more stock trading. But the emotion, it’s easier if you can focus on Warren Buffett used to say, focus on the playing field and the scoreboard will take care of itself. If you focus on the scoreboard all the time into the home or down or down down, what’s going to happen. Now that’s not going to change the game, what you want to do is understand what’s happening on the playing field. And if you focus there, and that’s where we focus on the businesses over time, even though you might be off, you know, a year, it might be off two years, you might have some volatility, if you’re buying good companies run by great people in good industries, and they’re reinvesting back in that business and compounding. Over time, you’ll do much better by staying in good companies rather than jumping in and out. And in countries like Canada in the United States to you’ve got 3030, high capital gains taxation, but in Canada is very high. If your every time you make a gain, you’re you’re parting with, you know, half of that gain or you know, quarter the gain in Canada, then you’re giving up a lot of your return. And you’re not, you’re not compounding on a tax deferred basis, which is really powerful over time. And that’s why business people who can stay in a company, own it for an extended period of time not pay taxes until the end are far far, far further ahead in terms of their their situation.

Eric Chemi 37:59
And then lastly, how concerned are you obviously to US presidential election year, you’re coming up within 12 months? Does that? Does that color your perspective on on what you’re investing in for the year 24? Or is it again, I got these companies, I think you’re going to work no matter what or does the election give you pause on on what might happen? How you might have to pivot?

Jonathan Wellum 38:19
Yeah, good question. Um, the the number one focus is always the businesses, businesses, businesses. But as I said, right at the outset, we do contextualize what’s going on. And so we do have concerns about the US election, as we do in our own country, and Canada and many of our western countries. I mean, we’re capitalists, we’re free market folks. And the increasing size of the state and regulatory regime and control over the economy that we’re seeing take place is a concern that the Biden administration has been exceptionally heavy handed. And as we see in Canada, and we don’t think that is good for the overall capital markets. But so my view would be I’d be much more excited if we would have a much more free market, free enterprise leadership in all of our countries. And that I think, would provide an unlocking and unleashing of even greater opportunities in the marketplace. So we watched the election from that perspective, how much more interference where tax rates, regulatory issues, how far are they going to push this green agenda, how fast they’re going to push it that will have inflationary issues. And so that’s the way we look at the economics and we just try to arrange our businesses accordingly, that can weather as best as possible, even bad decisions, even bad governments and governments that are not really looking out for the, we believe the benefit of the overall population, but as they say, not just in the US, but we see that in many of the countries around the world that governments are too large, they’re too big, they’re taking the tax taxes are too high, the deficits are too high. And when you get government running You know, debt to GDP of 120 130%. Plus, this is not a recipe for economic growth. And when you have economies, where the government’s spending more than 50% of the GDP like we have in Canada, this is this is problematic. So we keep our heads down trying to find the right businesses, and then hope and pray that we have a change in government policies to to back off and give more more capital back into the free market.

Eric Chemi 40:28
This is this is great. I appreciate Jonathan, you walking us through your thought process and how you’re investing in. And I agree, there’s always going to be good companies out there. Despite that governments bad economies are always they’re always good companies, you just have to do the research and find them or don’t do the research. And that’s Jonathan to do the research for you. That’s the other way to go. John, thank you so much for joining me here on Wealthion. Once again, Jonathan Wellum, the CEO of Rocklinc Investment Partners, of course, you can connect with got a short form there. So especially if you’re living in Canada, or you’re Canadian citizen, we can connect you with him directly. It’s he’s, he’s our Canadian endorsed investment partner. And if you’re not in Canada, we’ve got others, depending on the country that you’re in, that we endorse that we vetted. So if you’re trying to figure out what to do with your finances, your family’s investments, short form, fill it out, there’s no commitment, there’s no obligation, you can have a conversation, see if that’s somebody you want to work with. If not, it’s no problem. It’s, it’s a free public service that we provide to help as many people as possible. Of course, if you liked this video, if you liked this podcast, please like it, share it, forward it comment, engage with it, all those things, help get it out to more people so they can enjoy and learn as well. And then finally, check out every Friday at 11am. Eastern Speak Up with Anthony Scaramucci, the live call-in show, where he’ll take your questions, answer them, chat about it, all of that he’s got his own guests as well. And you can submit your questions. Anthony, so we got a lot going on here in the new year at Wealthion. Thanks again for listening for watching. I’m Eric Chemi. We’ll see you next time.

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