Issue #35 - You can only save your way to zero. Also, don't listen to short term forecasts & 2024 REIT Sector Performance update

Read time: 3 minutes

Hello everyone!

Don't know about you but I seem to get the best ideas precisely at the wrong time and then forget them immediately. So yesterday I went and got myself a notebook and a 0.5 mechanical pencil so I can jot things down as they come to mind, or remember when someone shares a great idea.

Yes, this weekly Journal is a great way to get thoughts on paper. But it's less structured than you may think. Typically I just sit down for an hour or so and go to town on the keyboard and see what happens. Let's see if this new notetaking process adds - or detracts - from the process and result.

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1. Personal Finance

Mj sent me an interesting Instagram reel by Cody Sanchez. Excerpts below:

What are the things that broke people think they are supposed to do to get wealthy, that will never work?

Save.

I one hundred percent agree. 

First of all, saving is meaningless in an inflationary world. If you had $10,000 in 1980 and did nothing, today it would only buy $2,382 worth of stuff.

On the other hand, if you invested $10,000 in 1980 in the stock market, today you could buy $662,640 worth of stuff.

Obviously, past performance doesn't guarantee future performance. And most readers haven't been above the 'investing age' for 44 years anyway. Though I caution you not to get caught up in these caveats, or you will definitely be broke.

And in an economic system that literally targets inflation, endless government spending backed by fiat currencies and printing presses, if you don't invest your money at higher rates than inflation, you've doomed it to hell. 

Cody then goes on:

It's never going to get you to rich. You can only save your way to zero. Meaning, you can save your way to not spending anything, if you don't need to eat or live or have fun. But its way easier to earn more than it is to save everything. Spend less, sure. But once you learn how to earn, you're unstoppable. 

Another banger.

Actually, when I first listened to that second part, I slightly disagreed. I wouldn't say it's easy to earn more. Work requires time, and that is the hardest tradeoff known to mankind. Because today you might be working; tomorrow you might not be alive.

But, with some pointed efforts and harnessing your inner human capital - talent or ability to do something that another person values - is the real way to financial freedom.

Like Mj and her sisters creating a wonderful Jewelry Brand called Casa Maria. Three sisters, each with diverse skills but a shared passion for lifestyle and jewelry, have teamed up to create something unique, where 1+1+1 = 4 and they deliver a ton of satisfaction to customers. I have first hand proof because 18 months later I am seeing an astounding amount of repeat clients. 

As an aside, what I love most about people from other cultures compared to the "privileged west" is that when they have an idea, they actually put it into action. If a Canadian told their parents they were going to start a jewelry business, the majority of responses would go like this: oh don't bother with that, jewelry is very competitive, barriers to entry are too low and the margins are tight, etc. Cue the never ending hamster wheel. 

At the end of the day, Cody is right. Like a stock can only decline 100%, you can only save your way to zero. 

But on the other hand, for stocks and your incomes, the upside is theoretically unlimited. Think about that for a minute.

Thank you Mj and to all other contributors for inspiring weekly writings.  

2. Stock Markets

The S&P 500 Index is forecast to return 6% in 2024 - Goldman Sachs 2024 Outlook Report, November 2023.

Actual performance for the S&P500 has absolutely crushed that paltry forecast and is sitting at +17% this year.

Moral? Don't listen to short term forecasts or talking heads predicting where the stock markets will be in one week, one month, or one year from now.

Stock markets in the short term are an indicator of short term human emotions, based on fear and greed. And these can swing extremely quickly.

But in the long term, companies earn profits and return on equity invested. This is what makes the prices of these business (in the aggregate) go up over long periods of time.

Come November and December, all the major investment banks are going to start reporting their outlooks for 2025.

Do not make big bets based on these 100 page reports or headlines on the front page.

The only reliable thing about these reports is they will be reliably wrong.

Instead, rely on yourself to consistently allocate to your long term investment portfolio.

Note - forecast reports are extremely comprehensive and useful in many cases, with research based on empirical analysis that projects things like industry trends, upcoming capital expenditures in various sectors and growth prospects. I simply caution against making bets on their near term market forecasts. They may get the trend right, just not on time.

3. Real Estate

For anyone watching, stock performance for Canadian Real Estate Investment Trusts (REITs) has turned a corner. 

Since Real Estate valuations are sensitive to interest rates, rate cuts by the BOC and expectations for Fed cuts as early has next week has lifted the beleaguered sector after a challenging couple of years. 

Below I show a selection of publicly traded REITS in Canada.

What do you notice?

A few things jump off the page for me:

1. The Average Return for all of these REITS was 9.0%. Meaning, if you bought equal amounts of each publicly traded company on January 1st, you would have gained approximately 9% so far during 2024. 
2. Not surprisingly, the REIT Index itself is also up 9% YTD. Like the S&P500 index is made up of 500 of the best companies, all one needed to do was buy the overall REIT Index with one click, instead of 15-20 individual purchases to replicate the exposure - gotta love ETFs for this easy access. 
3. I also notice a lot of choppy bars and numbers. This is called volatility, and highlights the importance of diversification. The only thing I can say with certainty is that, next year, this chart will look different.
4. Stock selection is extremely difficult. Boardwalk REIT has had an incredible two years. Hindsight is 20-20, but man oh man some lucky people that chose to bet exclusively on this one stock are making out like bandits. On the other hand, one might have bet that Allied Properties would have rebounded after a troubled 2023. Nope, it declined even further, another -11%. Also, remember when the Industrial sector was bullet proof? Dream Industrial is up a paltry 1% YTD, lagging all major indices and inflation, too. In fact, only half of those listed in the chart actually beat the index. 

To conclude, I've seen some very thorough reports from respected fund managers about value in the REIT sector. This may be true, and I don't doubt their expertise. But for most readers of this relaxing investment Journal, who aren't dedicating their day jobs to research and analysis, trying to pick one individual REIT to outperform next year is more risky than the roulette table. 

1 Quote

"Lean into what you value" - Derek Mazzarella

A Question

Do you use a notebook/journal? 

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Thank you

Eddie Gudewill, CFA
 

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