Growing the “Perfect Business”; Competitive Advantage in an Intangible World
Businesses emerge to fill a need in a marketplace. This article showcases two different solutions to a common problem. That these two businesses (and many others) can exist, flourish even, is testament to the solid savings habits of Canadians in general and the mass wealth produced by Canada’s entrepreneurs.
Business executives find themselves juggling all sorts of responsibilities that may not have been thoroughly examined in their academic years. Hopefully this article can relieve many of the time vampires that consume the aspects of financial planning for swamped titans of industry. We explore the web-enabled investment strategists (ie Newsletter) “D-I-Y” crowd to the total solution that embodies the CFA Code of Conduct, Fiduciary manager relationship. Essentially, this article may help you navigate the world of investment finance with what you retain after your toil and taxes.
Rarely do you see an investor services company with the longevity in the Canadian marketplace, as that nurtured and grown over the past nearly 35 years by C. Ross Healy, CFA; industry legend and chairman of Toronto-based Strategic Analysis Corporation. Simple in principal, yet highly proprietary in practice: hold a select number of North American equities with efficient balance sheets trading at attractive valuations.
Strategic Analysis Corporation – Balance Sheet Analysis! In 2012 Chris Healy, MBA accepted the CEO title bestowed upon him by the Board of Directors. For industry participants and on-lookers, this marked a major watershed moment in the evolution of Strategic Analysis Corporation’s history. For 18 months Chris Healy has been at the helm shedding tired areas of the research service, modernizing and simplifying the subscriber’s experience and pursuing a path to enhance the output and to be that unique, niche provider in the North American equities space and international index landscape. Indeed, the firm has improved key measurables and has done so with technology, resulting in leanest staff-count in over 30 years.
In his own words during our interview, Chris mentioned goals such as keeping Strategic Analysis Corporation “relevant” to current subscribers (they are not called clients under IIROC regulation). He aims to deliver better product, more powerful and simple, to the VMAS (Value Management Advisory Service) subscribers. “I believe what we’re doing is valuable”, said Chris Healy, CEO. Keen execution of this vision and a logical conclusion is new subscribers are bound to follow, perpetuating the legacy of Healy Sr. and solidifying the tenure of Chris Healy. I spoke to Chris and asked the question, “Does your money invest according to your trading list?” “Yes, 100%,” was his reply. That is a confident statement for the CEO. Asked if Ross Healy (now only holding the Chairman title) has liquidated any of his equity in SAC, the answer was, “No.” Directors, “No.”
Investment advice and newsletters in 2013 and beyond are an endangered species – they deal in intangibles and the public’s attention space is limited to a nugget of advice – the hard work that is proprietary analysis – if de-valued succumbs to the delete button. Value for such online service is often perceived to be $0. The vast majority of fee-for-advice it would appear has been gobbled up by the banking incumbents. Independent research is an oxymoron and misunderstood. Too often bias is interlaced into research, which can be released by analysts daily and perhaps is not cogent but rather may back a “bought deal” or other institutional relationship. Other providers would be the web or the former book authors whom often quickly fade into history.
In an industry that has low barriers to entry, Chris – well educated and sage beyond his years – is passionate about driving his company to be the “transformative shift” in the marketplace. In his own words, “It is incumbent upon professionals in the industry to help them (customers), the sum total of the industry’s efforts to achieve the client’s goals, how to read the market, how to be a better investor”. Chris continued discussing the conundrum that investors are, “lost in the natural variance of the market – prices go up and down all the time; seeing the bigger picture and cutting through the noise is necessary”. Healy elaborates, “Balance sheet first!” Sometimes an investment professional can be the guiding light; self-management is not for everybody. Many top advisors pay the monthly subscription of $209 – $399 to utilize the advice in Strategic Analysis Corporation’s Value Management Advisory Service for their client’s benefit – as this provides salient investment selections as well as a proven brand and reputation that helps control the reactionary behaviour that permeates professional and amateur investors alike. Recently Strategic Analysis Corporation formed a symbiotic relationship with MacNicol & Associates Asset Management, but financial control of Healy’s firm resides in previous shareholder group.
Ross is a legend in the North American investment landscape and to step into the shoes of Ross, takes not just a person of significant understanding of advanced portfolio dynamics but also business acumen that can pivot, dissect, analyze and identify opportunistic synergies in a marketplace that is dictated by the ticker and often long careers but short-lived fame.
Ross admittedly, has been a hero of sorts to me since 1998 when I was introduced to him via my mentor Nigel Potts, whom I gained valuable work-experience from since 1989, and worked with over the evolution of the Canadian brokerage scene.
What I have come to realize is this generation of gurus we have come to respect have deservedly earned their rest but in true high-achiever character they will never retire – just pick and choose where they can dispense their wisdom to their disciples. C. Ross Healy can be found speaking to groups of retail investors, institutional portfolio managers, academics, financial planners and industry experts. Ross’ greatest opportunity going forward, in my opinion, is to dispel the myths of investment management, be the brand of Strategic Analysis Corporation and every now and then (weekly perhaps) take in a mid-week game of golf.Chris Healy, CEO can be reached at 1-877-214-5641 or [email protected]
The second group I chose to focus on is at the other end of the spectrum – a full-service, affluent or institutional market solution, Pacifica Partners Capital Management in Surrey, British Columbia. Pacifica Partners offers a full complement of CFA-accredited Portfolio Managers. This is not a succession story, but rather a new generation of portfolio managers, having seen enough market cycles and industry evolution to be able to confidently open shop and build an impressive following.
Pacifica Partners Capital Management has very solid footing in the University-client space. In a very short time, they were able to parlay their strong personal relationships within academia and also now offer solutions for endowments and pension plans.
I have been able to discuss the changing investment landscape with the entire team at Pacifica Partners – but moreover see a solution for investors that seek the steady, dedicated wisdom of a team truly invested in their clients best interests (CFA Code of Conduct). Any customer of a traditional brokerage/mutual fund/insurance firm would be well counseled to see what the investment process looks like from the Investment Counsel or Discretionary Portfolio Manager side of the equation.
The team at Pacifica Partners recently launched this Institutional Fee Calculator for Institutional and Non-Profit Endowment Portfolios. When using the Pacifica Partners Institutional Fee Calculator, you will not be required to provide any contact information for you or your organization and use of this fee calculator is completely anonymous:
Serious high net worth investors and institutional-size portfolio will want to input their fund MER or total advisor compensation into this calculator to see how fee friction can be reduced. Aman Bhangu MBA CFA BSc (Math) Vice-President Research can be reached at 1-877-576-8908 [email protected]
R. Brent Lang, CIM FCSI, is active in the fields of finance & philanthropy. He has received recognition as subject-matter specialist in finance, philanthropy & social enterprise. Brent can be reached at [email protected]
The Perfect Business
by Richard Russell
AH PERFECTION: Strange, but the most popular, the most widely-requested, and the most widely quoted piece I’ve ever written was not about the stock market — it was about business, and specifically about what I call the theoretical “ideal business.” I first published this piece in the early-1970s. I repeated it in Letter 881 and then again in Letter 982. I’ve added a few thoughts in each successive edition. But seldom does a month go by when I don’t get requests from subscribers or from some publication or corporation to republish “the ideal business.” So here it is again — with a few added comments. When I was a young man and just out of college my father gave me a few words of advice.
Dad had loads of experience; he had been in the paper manufacturing business; he had been assistant to Mr. Sam Bloomingdale (of Bloomingdale’s Department store); he had been in construction (he was a civil engineer); and he was also an expert in real estate management. Here’s what my dad told me:
“Richard, stay out of the retail business. The hours are too long, and you’re dealing with every darn variable under the sun. Stay out of real estate; when hard times arrive, real estate comes to a dead stop and then it collapses. Furthermore, real estate is illiquid. When the collapse comes, you can’t unload. Get into manufacturing; make something people can use. And make something that you can sell to the world.
But Richard, my boy, if you’re really serious about making money, get into the money business. It’s clean, you can use your brains, you can get rid of your inventory and your mistakes in 30 seconds, and your product, money, never goes out of fashion.”
So much for my father’s wisdom (which was obviously tainted by the Great Depression). But Dad was a very wise man. For my own part, I’ve been in a number of businesses — from textile designing to advertising to book publishing to owning a night club to the investment advisory business.
It’s said that every business needs (1) a dreamer, (2) a businessman, and (3) a S.O.B. Well, I don’t know about number 3, but most successful businesses do have a number 3 or all too often they seem to have a combined number 2 and number 3. I spent a lot of time and thought in working up the criteria for what I’ve termed the IDEAL BUSINESS. Now obviously, the ideal business doesn’t exist and probably never will. But if you’re about to start a business or join someone else’s business or if you want to buy a business, the following list may help you. The more of these criteria that you can apply to your new business or new job, the better off you’ll be.
The ideal business sells the world, rather than a single neighborhood or even a single city or state. In other words, it has an unlimited global market (and today this is more important than ever, since world markets have now opened up to an extent unparalleled in my lifetime). By the way, how many times have you seen a retail store that has been doing well for years — then another bigger and better retail store moves nearby, and it’s kaput for the first store.
The ideal business offers a product which enjoys an “inelastic” demand. Inelastic refers to a product that people need or desire — almost regardless of price.
The ideal business sells a product which cannot be easily substituted or copied. This means that the product is an original or at least it’s something that can be copyrighted or patented.
The ideal business has minimal labor requirements (the fewer personnel, the better). Today’s example of this is the much-talked about “virtual corporation.” The virtual corporation may consist of an office with three executives, where literally all manufacturing and services are farmed out to other companies.
The ideal business enjoys low overhead. It does not need an expensive location; it does not need large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc.
The ideal business does not require big cash outlays or major investments in equipment. In other words, it does not tie up your capital (incidentally, one of the major reasons for new-business failure is under-capitalization).
The ideal business enjoys cash billings. In other words, it does not tie up your capital with lengthy or complex credit terms.
The ideal business is relatively free of all kinds of government and industry regulations and strictures (and if you’re now in your own business, you most definitely know what I mean with this one).
The ideal business is portable or easily moveable. This means that you can take your business (and yourself) anywhere you want — Nevada, Florida, Texas, Washington, S. Dakota (none have state income taxes) or hey, maybe even Monte Carlo or Switzerland or the south of France.
Here’s a crucial one that’s often overlooked; the ideal business satisfies your intellectual (and often emotional) needs. There’s nothing like being fascinated with what you’re doing. When that happens, you’re not working, you’re having fun.
The ideal business leaves you with free time. In other words, it doesn’t require your labor and attention 12, 16 or 18 hours a day (my lawyer wife, who leaves the house at 6:30 AM and comes home at 6:30 PM and often later, has been well aware of this one).
Super-important: the ideal business is one in which your income is not limited by your personal output (lawyers and doctors have this problem). No, in the ideal business you can sell 10,000 customers as easily as you sell one (publishing is an example). That’s it. If you use this list it may help you cut through a lot of nonsense and hypocrisy and wishes and dreams regarding what you are looking for in life and in your work. None of us own or work at the ideal business. But it’s helpful knowing what we’re looking for and dealing with. As a buddy of mine once put it, “I can’t lay an egg and I can’t cook, but I know what a great omelet looks like and tastes like.”