Is Basic Income the answer to a new AI world?

I am so glad that I am a retired senior. I don’t have to worry about a robot taking my job. Since I have lots of time on my hands to think, I wonder what a new AI world would look like. For example; will my 2 year old granddaughter even need to get a driver’s licence? Will the Uber or cab that she orders even come with a driver?

Now I have always been a big fan of science fiction movies. There is a scene in the movie “Logan” where Wolverine has to dodge driver-less trucks to cross the highway to help some people. Installing AI in 16 wheeler trucks could replace the need for a lot of truckers.

Fast food restaurants have been the training ground for teenagers and young adults.  I used to tell my kids that they better get a good education or you will end up using the phrase “would you like fries with that” while working at MacDonald’s. However, even MacDonald’s are installing new self-serve kiosks. Now you can even order your Starbucks coffee using your phone. Where will young people get work experience?

Everywhere I look, jobs are slowing disappearing, the new AI technology seems to have very few limits.

“For example, Australian company Fastbrick Robotics has developed a robot, the Hadrian X, that can lay 1,000 standard bricks in one hour – a task that would take two human bricklayers the better part of a day or longer to complete.”

Japan has the highest percentage of people over the age of 60 and their population is shrinking. As a nation, there is a shortage of workers and they have embraced the use of robots in the work place. This trend could be coming to North America sooner than you think.

As a baby boomer, I worry about the future cost of health care. The world population is aging and health care costs are raising. I hope that science fiction turns into reality and my caregiver looks something like this.

   or this 

Why universal basic income may be necessary

A 2013 study by Oxford University’s Carl Frey and Michael Osborne estimates that 47 percent of U.S. jobs will potentially be replaced by robots and automated technology in the next 10 to 20 years. Those individuals working in transportation, logistics, office management and production are likely to be the first to lose their jobs to robots, according to the report.

For many, basic income sounds like a free ride or welfare. Economist believe that masses of people will not just sit at home but will make a contribution by continuing to work. The basic income would allow recipients to explore other options not available to them if they are struggling just to survive,  such as retraining or to find new job opportunities.

In theory, new opportunities would spring up to replace jobs done by machines. However, there are some practical problems, like where will government get the money if less people are working to pay for a basic income program? The North American education system would require a major overhaul to put more job training skills into the curriculum.

Some additional information to consider

The government of Ontario just announced a three year basic income pilot project to help low income earners in three cities. A single person can apply to receive $16,889 a year and couples will receive $24,027. Recipients who are employed will keep what they made from their jobs but their basic income would be reduced by half their earnings. For example, a single person earning $10,000 per year from a part-time job would receive $11,989 in basic income ($16,989 less 50 per cent of their earned income), for a total income of $21,989.

Is basic income just a pipe dream or a future reality?

 

 

 

 

 

Baby Buffett loses 4 Billion on Valeant shares

Hedge fund manager Bill Ackman first came to my attention when he invested in Canadian Pacific railroad. As an activist investor, Ackman started a lengthy proxy battle with the board of directors to remove Fred Green as CEO and appoint Hunter Harrison in his place. Not only was Ackman successful but it was very profitable for his hedge fund since the value of CP shares more than doubled under Harrison’s leadership.

In early 2015, Bill Ackman invested in Valeant, another Canadian company. His hedge fund purchase shares around $196 and recently sold all of them at $11 a share. He accelerated his losses by buying call options and selling put options.

Hindsight is of course 20-20, are there any investment lessons that we can use?

 Lesson: Intelligent people are capable of doing very dumb things.

Bill Ackman is clearly a smart man otherwise his Pershing Square hedge fund wouldn’t manage pension fund money. But if you asked the average investment professional /your grandmother whether it is a good idea to stick over a quarter of your assets into a highly levered pharma roll up the answer would tend to be a firm “no”.

Lesson: Position sizing is very, very important.

Always be aware of your risk of ruin, no matter how much you are convinced the odds are in your favor. Regardless of how amazingly smart and brilliant you are and how many hundreds of hours of research you have done, it is perfectly possible that you will lose money on any given investment. Pershing Square had too large a position to simply sell its stake and walk away when things started to go wrong.

Lesson: Highly incentivized management teams can still blow themselves up, and take you down with them.

Part of the original appeal of Valeant to the hedge funds that backed it was how the CEO’s stock options had been structured to make him highly incentivized to get the share price as high as possible. Having management teams with “skin in the game” is clearly important but this does not mean they will not do something very stupid.

Lesson: Auctions are not usually very good places to find bargains.

Ackman admits that he now believes Valeant “substantially overpaid” for Salix, its last big acquisition before things fell apart. A big problem with a role up strategy is paying high prices for third rate assets that no one else in the world is willing to buy.

Lesson: Beware of political risk.

Valeant used aggressive drug pricing to help pay for their acquisitions which got the attention of American lawmakers. Bill Ackman had to testify at a hearing held by the U.S. Senate aging committee which was reviewing escalating drug prices. It also became a big issue during the U.S. 2016 presidential election.

Lesson: Take a loss, don’t let your Ego get in your way.

There is no doubt that billionaires tend to have large egos. Being labeled “Baby Buffett” on the cover of Forbes is quite the ego booster. But there is an old saying, “the bigger they are, the harder they fall”. Ackman’s buying call options and selling put options on a losing position is a clear sign that his ego wouldn’t accept taking a loss on Valeant shares.

Postscript: The share price of CSX railroad jumped up 35% on rumors that Hunter Harrison would be the new CEO. Harrison got the job but can he deliver another turnaround? It may be too early to tell. However, I bought some shares of CSX for my investment club. 

 

Canadian Marijuana bill gives a new meaning to Happy Easter

On Thursday, Liberal Prime Minister Justin Trudeau introduced a bill that would legalize marijuana for recreational purposes. It would be the first developed country in the world to fully legalize pot since the international war on drugs began in the 1970s. The government hopes to clear the parliamentary and procedural hurdles to make pot legal by July 1, 2018.

The bill would allow people to own up to 30 grams of dried or fresh cannabis and sets the minimum at 18 years of age, though provinces and territories can set a higher legal age. Consumers can grow up to four plants at home or buy from a licensed retailer. The federal government will handle licensing producers while provincial governments will manage distribution and retail sales.

Speculators have dived into Canadian marijuana stocks raising concerns of a green bubble. Only two marijuana producers are showing any profits. Most companies are spending money to increase their production facilities in anticipation of increase recreational use. None of the players know the exact size of the recreational market, with sales estimates ranging from nearly $5 billion to roughly $10 billion.

The Canadian marijuana index which contains 12 stocks already has a market cap of over 5 billion.

Marijuana Index Ticker Market Cap
Canopy Growth Corporation WEED 1.61b
Aurora Cannabis Inc. ACB 903.73m
Aphria Inc. APH 898.84m
Cronos Group Inc. MJN 411.54m
Supreme Pharmaceuticals Inc SL 293.17m
OrganiGram Holdings Inc OGI 285.50m
CanniMed Therapeutics Inc. CMED 274.54m
Emblem Corp EMC 205.47m
Hydropothecary Corporation THCX 174.94m
Emerald Health Therapeutics I EMH 126.65m
THC Biomed Intl Ltd THC 77.32m
Naturally Splendid Enterprises NSP 20.90m

Beware that insiders have been selling according to Bloomberg!

“Since March 1, five directors, officers and board members with Canopy Growth Corp. sold 3.2 million shares worth at least $7.5 million, including Chief Executive Officer Bruce Linton, who sold $3.7 million worth of his holdings, according to data compiled by Bloomberg. Between March 1 and April 10, eight executives and the chief cultivator for Aurora Cannabis Inc. sold a total of 4.9 million shares worth $11.8 million, data show.”

A found two companies listed on U.S. exchanges that are in the medicinal marijuana field that look interesting.

 

AbbVie (ABBV) is ahead of the field in medicinal marijuana because its cannabis-based drug Marinol has already been approved by the Food and Drug Administration and is currently being marketed. Marinol relieves nausea and vomiting in patients undergoing chemotherapy. It is also used for AIDS patients who have lost their appetites.

GW Pharmaceuticals (GWPH) could be a growth play in the medicinal marijuana field. With a market cap of $2.16 billion, the company has researched marijuana-based medicines since 1990 and has a promising drug called Epidiolex. The drug has not been approved by the Food and Drug Administration, but it is showing effectiveness in treating epileptic seizures. It is cannabis-based and could gain wide acceptance quickly if approved.

On a personal note, my 84 year old mother suffers from high levels of anxiety. Her doctor prescribed a number of different anxiety drugs but she couldn’t tolerate the side effects. Out of desperation, I convinced her reluctant doctor to refer her to a cannabis clinic for assessment. She has been approved and is currently ingesting small quantities of cannabis oil. It is still too early to tell but I have noticed some improvement.

Happy Easter

Disclaimer: I do not own any of the above mentioned stocks. This post is for educational purposes.

Active or passive investing? Why I now use both approaches

There is perhaps no controversy in the investing world more contentious than active versus passive equity investment management. Members of both camps constantly argue that their way is unequivocally the best, despite real-world results that support one side’s argument one year and the other’s the next.

Blackrock, the world’s largest money manager, is overhauling its actively managed equities business. They are cutting jobs, dropping fees and relying more on computers to pick stocks. This is a clear indication how difficult it has become for humans to beat the market.

“BlackRock  CEO Larry Fink has sometimes expressed disappointment in the performance of the company’s actively managed stock funds, and he has pivoted increasingly to focusing on the company’s data-driven “Scientific” equity teams.”

Most investors seem to be in either the active or passive camp, few use both methods. For years, I have been in the active camp because I use options to make money during up and down markets. However, providers of exchange traded funds (ETF’s) have evolved beyond just offering low cost sector and index funds.

The growing popularity of ETFs have increased competition among providers to attract investors to purchase their products. I have notice an increase in the number of products that include covered call and also some put right options.

                               A Partial list of Covered Call ETFs

Advisor Shares STAR Global Buy-Write ETF (VEGA)
CBOE S&P 500 Buy Write Index ETN (BWV)
Credit Suisse Gold Shares Covered Call ETN (GLDI)
Credit Suisse Silver Shares Covered Call ETN (SLVO)
First Trust High Income ETF (FTHI)
First Trust Low Beta Income ETF (FTLB)
Horizons S&P 500 Covered Calls ETF (HSPX)
Recon Capital NASDAQ 100 Covered Call ETF (QYLD)
S&P 500 BuyWrite Portfolio ETF (PBP)
BMO Covered Call Canadian Banks ETF (ZWB-TSX)listed on the Canadian TSX stock exchange
BMO Covered Call Dow Jones Industrial Average Hedged to CAD ETF (ZWA-TSX)listed on the Canadian TSX stock exchange
BMO Covered Call Utilities ETF (ZWU-TSX)listed on the Canadian TSX stock exchange
BMO US High Dividend Covered Call ETF (ZWH-TSX)listed on the Canadian TSX stock exchange
First Asset Can-60 Covered Call ETF (LXF-TSX)listed on the Canadian TSX stock exchange
First Asset Can-Energy Covered Call ETF (OXF-TSX)listed on the Canadian TSX stock exchange
First Asset Can-Financials Covered Call ETF (FXF-TSX)listed on the Canadian TSX stock exchange
First Asset Can-Materials Covered Call ETF (MXF-TSX)listed on the Canadian TSX stock exchange
First Asset Tech Giants Covered Call ETF (CAD Hedged) (TXF-TSX)listed on the Canadian TSX stock exchange

A key advantage of ETFs with covered call option writing is investors have some downward protection during these uncertain times. Plus you don’t have to be approved by your financial institution to trade options. Keep in mind that the management expensive ratios are going to be higher than index funds and these ETFs are also fairly new so it may be difficult to evaluate their past returns.

 

Disclaimer: These are not recommendations, do you own research before investing.

 

 

 

 

Still doing tax returns for my adult children & their spouses

Every year I ask myself, should I continue to offer to do tax returns for my adult children and their spouses? All of them have university degrees and are smart enough to file their own tax returns. My daughter was willing to do it one year using tax preparation software with only a little help from me.

Part of my problem is Canadians are not even aware of how much tax they pay. Plus we keep voting for governments that buy votes using our tax dollars. The average Canadian family will pay 42.9% of their income in taxes imposed by all three levels of government in 2016. (Federal, provincial and local) Tax freedom day was June 7, 2016 if Canadians paid their total tax bill up front. Our U.S. neighbours tax freedom day was April 24th and they will only pay 31% of their income in taxes.

There are a number of reasons why I continue to offer to do tax returns for the whole family. Having worked as a financial advisor, tax planning is a key element when putting a financial plan together. My tax knowledge and skill comes from working many years with accountants and tax lawyers ensuring that my whole family pays the least amount of tax.

Plus, the Canadian tax system is very complicated and is constantly changing with every federal and provincial budget. For example: many tax credits that were given by the Conservative government have been taken away completely by a new Liberal government.

For the 2015 tax year, the Liberals cancelled income splitting for families, a maximum tax credit of $2,000 for transferring up to $50,000 of income to a spouse with a lower income if they had a child under 18 years of age.

Some changes for 2017 include the elimination of the following credits:

  1. Education and textbooks credit
  2. Children’s fitness credit
  3. Children’s arts credit
  4. Public transit tax credit

Now, most retired Canadian seniors who don’t have a pension from their former employer are not even aware of a $2,000 pension credit. It requires opening a RRIF account, transferring $2,000 from their RRSP and then taking it out. They don’t have to wait until they reach the age of 71 in order to open a RRIF account. Plus, RRIF income can be split with your spouse if both of you are 65 years of age which could potentially add up to $4,000 of income tax free per year.

The Federal Liberal government will introduce a new budget on March 22 and there are rumors of more tax increases. Three things that Canadians should worry about;

  1. Higher capital gains inclusion rate from 50% to 75%
  2. Reducing the dividend tax credit
  3. Taxing your principal residency 

I will end this post with two well known proverbs. ” In this world nothing can be said to be certain, except death and taxes.” & “A penny saved is a penny earned.”

 

20 Seconds of fame on the National News from a blog post

rico-dilello

One of my blog posts that I wrote back in September of 2015, caught the attention of a T.V. producer at CBC News which is a division of the Canadian Broadcasting Corporation. On Feb 24th I received the following email:

Rico,
I`m a National TV News producer at the CBC and I just read your article “Why I quit being a financial Advisor” we are working on story about the trend away from “active investing” to more “passive investing” and think you might be a unique and interesting voice in our item. Can you give me a quick ring so we can have a chat?

I immediately gave him a call and answered some questions about my views on both active and passive investing. He asked if I was willing to be interviewed at my home which I agreed to but I wasn’t given a confirmed date.

To my surprise, I received a phone call while I was at an indoor golf driving range to do an interview. Not actually camera ready, but they were willing to send out a senior writer and cameraman to the driving range. They couldn’t wait because it was going to air the next day before the RRSP contribution deadline of March first. The producer was kind enough to send me a copy of the story. Click on the link below to view my 20 seconds of T.V. fame:

https://drive.google.com/file/d/0B62hJdYjW6psU3Iwam5JTzRKN0k/view?usp=sharing_eil&ts=58b6e6d5

 

Please reframe from making any comments on my golf swing! It has been three months since I swung a golf club.

 

Is joining an investment club a good idea?

Now, you can learn about investing in countless books, magazines and Web sites, but you may enjoy the learning process more by joining an investment club. After all, most of us are social creatures by nature, so we like being with other people.

A blogger that I follow “Bear With The Bull” belongs to a club that just shares investment ideas. He was kind enough to answer a few of my questions about his club.

How many members are in your club?

“We currently have 36 members on Meetup, not all are active. We use Meetup.com as our internet platform and we have a Facebook group page as well.  We have a 6 month activity clause. Basically we remove anybody who is inactive for 6 months.”

How often to you meet?

“We meet once a month at a local Denny’s. We try to keep the meeting short less than 2 hours. We usually have anywhere from 3 or 4 to a dozen or more show up for the monthly meetings.”

What are the experience levels of the membership, any newbies to investing?

“We have all different experience levels and investment styles. It was surprising to find out that we have pure Chartists, option traders (mostly selling), IBD folks, and people who followed other systems and sites. This past meetup we had 4 new members.  1 newbie, 2 experienced traders but new to IBD (Investor’s Business Daily), and a retired couple who had just consolidated their retirement portfolios into one.”

Is every member required to bring a stock pick or ETF to the meeting or do you take turns?

“A week before each meeting we send out an email asking for stocks and investment topics of interest. Basically this is a solicitation for topics and stocks to discuss and forms the basics of our agenda. We generally give each person the opportunity to talk about their suggestions during the meeting.”

Do you find the information useful and have you invested in any ideas that were presented?

“Generally I and others in the group find the information interesting and informative. Sometime members invest in others watch lists but for the most part I think people use it as a learning experience.”

Are recommendations review at the next meeting?

“We keep a list of all stock suggestions and track their performance. We do keep an informal tally of whose stocks are best or not.”

Thank you “Bear With The Bull” for sharing information about your investment club!

Now, do you lack the confidence or discipline to invest on your own? There are also investment clubs that you can join where members’ pool their money, study different investments and the group decides to buy or sell based on a majority vote. Most of these clubs require a small monthly investment anywhere from $50 to $100 a month.

Some Advantages:

  • Investment clubs can be fun.
  • It is a good way to get your feet wet.
  • Clubs provide an affordable way to invest. (Sharing the costs)
  • Investment clubs, by their very nature, tend to have a long-term focus. Members are interested in following investments over time, not buying and selling at a frantic pace.
  • You can find wisdom in a group

Some Disadvantages:

  • Unregulated – You have to have a high degree of trust. (Income & tax liability is calculated correctly)
  • Disagreements – Democracy is great but you could disagree with the direction of the club or with some of the investments choices.
  • Risk tolerance – Make sure that you’re comfortable with a club’s investment philosophy and the amount of investment risk.
  • Difficulty leaving – Make sure that the club has a reasonable exit time for members who want to leave.

Did you know that Warren Buffett’s wealth to acquire Berkshire Hathaway in 1965 was created primarily from his investment partnerships? The first of which was Buffett Associates, established out of his bedroom in May 1, 1956, at the age of 25. It started with $105,000 from seven partners, all of whom were close family and friends.

He was solely responsible for managing a significant amount of other people’s money with investors agreeing to pay a fee for strong investment performance. These investment partnerships eventually fell under the umbrella of Buffett Partnership, Ltd., which was the entity that bought a controlling stake in Berkshire Hathaway.

I would classify “Buffett Associates” as a legalized type of investment club.  

On a personal note: My investment club just celebrated it’s 15 year anniversary.