Saturday, May 30, 2009

A Conversation with Larry McDonald of the Globe & Mail

30 May 2009

I recently received an e-mail enquiry from Larry McDonald, co-author of the Globe & Mail's "Me and My Money" column. The following discussion is preliminary only, but I felt that some of the material covered might be of interest to the readers of my blog. My responses to Mr. McDonald's questions follow below:

What investments do you have in your portfolio (name of stocks, mutual funds, etc.)?

Primarily gold and/or silver mining companies, with larger holdings in Goldcorp, Yamana Gold, Minefinders, Northgate Minerals, Pan American Silver and Franco Nevada, and also quite a few smaller cap explorers and miners, such as Rubicon Minerals, Premier Gold, Jaguar Mining, ATAC Resources, etc. I also often invest in warrants in many cases, where they are available, including Goldcorp, Yamana, Minefinders and New Gold, for example.

What is your investment approach?

While I do some active buying and selling depending upon factors of relative valuation and timing, for the most part, I am a long-term buy and hold investor, meaning that my portfolio has varied dramatically in market value over time. For example, the market valuation declined over 65% in the fall of 2008, and now we've gained 130% since the November lows. The market valuation was highest in March 2008, and lowest in November 2008. Also, the majority of my investments are held in registered accounts, meaning that I buy and sell equities rather than physical metal (gold, silver).

Brief history of investing path, e.g. how got started, etc.?

I started out very conservatively, holding bonds through the investment bubble of the late 90s. I was then a late arriver to technology investing, which was of course disastrous, and then began to research why I had become drawn into an investment bubble. I thus missed the real estate bubble, and believe that last year’s commodity blow-out was not a bubble.

In the background, my wife invested primarily in income trusts, and thus I am furious with Carney and Flaherty for blowing up Canadian small investors and forcing the western natural gas trusts in particular onto the international investment market (at depreciated values) at the expense of Canadian small investors. I'm single issue against the Conservative Party on their dismantling of the income trust program, and will never forget the betrayal of trust – as well as stupid and short-sighted policy – on that “single” issue. (Don't get me going!)

What were some of your best and worst investment moves?

Worst – investing in technology companies in the early 2000s. Best – shifting my portfolio to the precious metals sector in 2003.

What advice would you offer to other investors?

Look beneath the surface to secular trends (large trends that span decades). Study history to view these trends in perspective. Be aware that financial markets are undergoing a period of massive manipulation based on misconceived government interventions – almost all of which have been counterproductive. Understand why Federal Reserve policy is now of greater interest to the financial community than analysis of underlying economic fundamentals (the markets have become increasingly distorted by short-sighted and increasingly disastrous government and central bank policies, dating back in particular to the advent of the Greenspan era in 1987). Be wary of efforts at market timing. Invest based on underlying, long-term value against the backdrop of a macro environment of inflation, debt promotion and capital misallocation. For longer-term investors, give greater weight to fundamental value than to market price when making investment decisions. Seek the advice of wise and experienced professionals (I rely on Ed Bugos in Vancouver, Bill Fleckenstein in Seattle, John Doody – the Gold Stock Analyst, in Florida, and the Aden sisters in Costa Rica).

By the way, while I view government policy broadly as unbalanced and disastrous, I'm not a conspiracy theorist. It is simply that government is over-intervening to save the market from itself, which has never once worked in history, and the intervenors operate from a very short-sighted perspective, with no acknowledgement and/or awareness of the consequences of their actions.

I do also buy into the notion of a power shift away from the United States towards Asia, and this is due moreso to the departure of Americans from their long-term commitment to free market policy than to the inherent strength of Asian economies. In brief, Asians have been saving while Americans have been borrowing, and, as Warren Buffett illustrated in his classic “Squanderville” story (published in Fortune and other places), the long-term consequence is to shift wealth from borrowers to savers. This is what is now happening globally.

Finally, I view Canada as uniquely well-positioned due to the balance of our economy towards commodity production. However, I view our national Conservative Party leadership as largely blind to the implications of this reality, with the result that they are attacking small investors (through their anti-small investor income trust policy) and throwing money at declining industries (obviously but not only autos), rather than providing support to small investors and to investment in Canada’s capacity to lead the world in commodity production (I once read that we have more mining and mineral exploration companies in Canada than in the rest of the world combined, though I've never verified that statement by “counting”). That is, Canada has everything we need to be global leaders in the 21st century, but our elected officials are looking backwards rather than forwards.


  1. Laurence:

    Are you as singularly furious with the Globe and Mail and their dutiful and constant repitition of Flaherty's abd Carney's lie that income trusts cause tax leakage?

    The press is 80% responsible for this income trust fiasco and their inability to sort out fact from fiction. Probably has a lot to do with their owners, Just look at the Globe's owners and tell me they didnt benefit from killing income trusts, or at least thought they would.....BCE, Tecahers, Torstar and Woodbridge.

    Brent Fullard

  2. Brent,

    Thanks for your comments.

    I've made note of your web address. I'm all for what you are doing:

    I agree that the press has generally failed on the coverage of this issue, with the exception of Diane Francis (and others) in the National Post:

    The oil and natural gas income trusts were capital intensive projects in mature Canadian production zones, and benefited from the tax exemptions (1) to generate capital investment in relatively marginal assets, and (2) to involve small Canadian investors in investment at home. In my view, this was a model program for achieving Canadian-based capital investment in Canadian projects.

    In brief, the abolition of the special tax structure of the trusts was as quintessentially anti-Canadian as is possible. The irony is that after decimating Canadian investors, the Conservatives have allowed many of these assets to go up on the international auction block (see my post:

    I have often posted on the income trust topic, and hope I have been able to contribute to awareness of the issue. After waffling, the Liberal Party have now included reinstatement of the income trusts in their platform. I have joined the Laurier Club based on this Liberal Party move. If Mark Carney doesn't like reinstating the income trusts (I hear that abolition was his idea), he can certainly go looking for another job, in my opinion!

  3. very nice..................