5th Annual

INVEST LIKE A LEGEND

Silicon Valley VC
Timothy Draper

W
at a boardroom
table made from
part of a 747 engine
Featuring
ROBERt SHILLER
larry sarbit
With our fifth annual guide to making money,
don coxe
we sought advice from a Nobel-winning econo-
timothy draper
mist, the papa of all bears, a guy who plays an
david rosenberg
investor on TV (and actually is one in real life),
hanif mamdani
a diehard gold bug, and possibly the wackiest
jim leech
venture capitalist in Silicon Valley. Included
photograph timothy archibald

Leslie lunDquist
in their advice: Never invest in anything that
seymour schulich
eats. Go big or go home. Hunt for companies
david chilton
with huge barriers to entry. Buy gold. Oh, and
start building a nuclear fallout shelter—fast.
Interviews by David Berman, John Daly, Darcy Keith, Brian Milner, Sean Silcoff and Shirley Won

february 2015 / REPORT ON BUSINESS  29

 5th Annual INVEST LIKE A LEGEND

Robert Shiller
The famed Yale economist’s research led to warnings about the dangers
of both the dot-com stock mania and the debt-inflated U.S. housing

T
bubble. At 68, Shiller—who won a share of the 2013 Nobel Prize—is still
seeking to explain why people and markets behave the way they do.

The first edition of your book
Irrational Exuberance came out
just before the dot-com bubble
burst in 2000. The second
edition in 2005 warned about the
collapse of the U.S. housing boom.
The third edition comes out in
February. Should we be worried?
I’m calling the current boom the
“New Normal Boom.” The Mil-
lennium Boom was driven in
part by very enthusiastic think-
ing about the new millennium
and the Internet. That’s not what
I see happening now. Instead,
the economy is inherently weak.
Wages aren’t growing, and peo-
ple are fearful of the future. That
has caused them, apparently, to
bid up prices of assets. It’s not
your classic bubble.
You have said that even past bub-
bles were often associated with a
lack of investor confidence. Yet,
people take the plunge anyway.
That’s right. Typically in a bub-
ble, there are doubts expressed
a lot. People will go through
a period of staying out of the
market, and it keeps going up.
Eventually, they get regretful of
having missed out, and they just
decide: “I’m going to go into it.”
And it might be at the worst pos- I like to read everything and look
sible time for some of them. at all indicators. I’m particularly
Favourite...
metric least useful metric
CAPE (cyclically adjusted Price-earnings ratio—
Where are you putting your
money these days?
I’m still in the market, but I’m
not heavily committed to it. The
fundamental dilemma is that
everything looks pricey. Real-
estate prices in the U.S. have
gone up. The stock market looks
high, and the bond market looks
high. There are some low-priced
countries. China looks interest-
ing, because it has low price-
to-earnings ratios. On the other
hand, people are uncomfortable
about putting a big share of their
investment dollars in a country
with which our relations are iffy.
What percentage of your portfolio
is in equities?
It’s changing all the time. It’s
something like 50%. I still have
a lot in fixed income, and then
housing—I have two houses.
What are you avoiding?
I haven’t been in long-term
bonds, although I don’t have an
ironclad case to stay away from
them. But they have very low
yields. People are willing to take
nothing for 10 years.
What do you pay closest attention
to, in terms of economic data,
earnings, trends and the like?
interested in confidence
indicators. I have my
own conf idence indi-
cators for the U.S. and
Japan on my website.
investors, to the lowest level
since 2000. So there’s a general
perception that the market is
highly priced.
What does that say about where
the market is heading this year?
There’s the puzzle. The lowest
my valuation confidence index
has ever been was right at the
2000 peak. It was much lower
than it is now, so maybe it has a
ways to go. We don’t have enough
data on these things to know how
to time the market. That’s why
I’m still in the market. It almost
looks as if it’s about time for a
correction—there are people
saying that, but that’s totally
unscientific. When a market is
highly priced and when people
don’t trust the value of it, that
becomes a hallmark of a bubble:
People are buying it even though
they think it’s overvalued. And
that’s what we’re finding.
Any concerns about the markets
or the economy that keep you up
at night?
Unless there’s a horrible crash,
I’ll be all right. I’ve invested con-
servatively, so I have no reason
to lose sleep.
Were there times in the past
when you suffered from slumber
interruptus?
I remember losing sleep in 1987,
but it was for a different reason.
Oct. 19, 1987, was the biggest one-
day drop in the world’s markets In his spare
in history. I didn’t get much sleep time—you
know, between
photograph gabriela herman

price-earnings) ratio—
which he created—is the
real stock price divided
by the 10-year average of
real earnings. “It’s almost
27 now, very high,” he says
the price divided by
12 months of reported
earnings. “This chart gives
many false signals, since
one-year earnings are
terribly volatile”
What do they show?
The most notable thing
is that what I call valua-
tion confidence has been
plummeting. This is con-
fidence that the market
is not overpriced. It has
fallen, for individual
the next few nights. I wanted to winning a Nobel
study the phenomenon, and I and teaching
at Yale—Shiller
was organizing surveys to go out
studies star
to individual and institutional charts to ogle
investors right away, because celestial bodies
I wanted to know what people like HR 6669,
a sister to our
were thinking. I was up all night own sun
working. /Brian Milner

30  february 2015 / REPORT ON BUSINESS february 2015 / REPORT ON BUSINESS  31

 5th Annual INVEST LIKE A LEGEND
Larry
Sarbit
The 62-year-old founder
of Winnipeg-based Sarbit
Advisory Services has spent
25 years running U.S. stock
funds—using a Buffett-
inspired value approach—
H
and now oversees
$1.5 billion in assets.
How easy is it to find cheap stocks?
It’s more difficult to find bargains. But
valuations are nowhere near the begin-
ning of the century, one of the most
extraordinary periods in financial his-
tory, when stocks, on average, traded at
40 or 50 times earnings. More recently,
they have been in the high teens. We like
great businesses trading at low double-
digit or single-digit price-to-earnings
multiples, but we have no problem paying
up if we have a high degree of certainty
that a company is going to be worth a lot
more in the next three to five years.
Where are you finding opportunities?
We own 12 stocks in the U.S. equity fund.
Satellite radio service Sirius XM is our
largest holding. It’s a business with a
high degree of predictability. The num-
ber of subscribers keeps growing—about
68 million cars today, and the estimate
is about 120 to 130 million in five years.
We love repeatable revenue companies
with huge barriers to entry. That’s why
we also own stocks like Microsoft, QVC
and Twenty-First Century Fox.
You run a fund of companies targeted by
activist investors. How risky is that?
Activist involvement produces better-
than-average rates of return. The prob-
lem is, there is no certainty they’re going
to succeed. So, why not wait until the
activist gains control, convinces man-
agement to do what it wants, or gets on
the board? You don’t miss a lot of the
returns at all. To us, an activist is an agent
of change. We don’t care if the changes
come from inside or outside.
What was your best investment?
One was private student loan provider
Sallie Mae. When Bill Clinton came in
with a program to issue loans directly to
32  february 2015 / REPORT ON BUSINESS
Don Coxe
Don Coxe is chairman of Coxe Advisors LLC in Toronto
and provides strategic advice to several commodity funds.
A historian by training, he has been engaged at senior
levels in global capital markets through every recession
and boom since the onset of stagflation in 1972 and
has managed both bond and equity portfolios.
What were your best
and worst calls?
The best investment was
after eight years of running
investment management
sections for pension funds,
we sold our gold and oil
stocks, and bought zero-
coupon government bonds.
And we did that in the early
1980s, so we basically got
the bottom in the bond
market. The worst call—
which very nearly cost me
my career—was in late 1999,
telling people to get out of
tech stocks. I kept saying
it over and over, and the
Nasdaq doubled. I should
have realized that there was
so much momentum there
that telling people to get out
was an excessive response.
They should have just been
trimming. I lost a lot of
credibility with investors.
What keeps you up at
night?
The basement I worry about the situation
of Sarbit’s between Iran and other
Winnipeg home Middle East countries, and
is filled with what I believe is behind
family photos. the Saudis driving down oil
That’s a wee
Larry just over prices—bringing Iran and
Vladimir Putin to heel. If Iran
his left shoulder
(and yes, that’s a remains unwilling to satisfy
wooden bow tie the world that they are not
he’s wearing) going to get nuclear weapons,
Favourite...
the Saudis will have no choice
but to continue this. And then
students, Sallie Mae’s stock got slaughtered. Investors were afraid this was going photographs: (sarbit) Thomas Fricke; (coxe) Larry MacDougal we’ll start to see devastating
METRIC
to be the end of the company. However, we did calculations and found that if Sallie
Free cash flow. effects on Canada. Lots of
Mae just ran with loans it had on the books, the company was worth more than the people in the oil and gas
“This is the end
stock price. But Sallie Mae continued to grow. We made multiples on that stock. game for all industry will be hurt. And
What was your worst investment? once Iran announces it’s got
We lost money in Smart Technologies, a rare Canadian investment in the current
businesses”
the bomb, all the other Arab
countries are going to have
U.S. equity fund. It makes whiteboards aimed at replacing chalkboards in schools.
We thought it had a sustainable, competitive advantage. But we did not foresee
investing to get it, and we are going to
book have a monstrous mess. We
the extent of problems, such as tight state education budgets. The stock got hit Psychology and could have nuclear war within
and has yet to recover. the Stock Market: a year. I didn’t lie awake
What advice would you give investors? Investment during the Cold War—both
Think about return of capital. We try to find a few terrific companies that we Strategy Beyond sides were too sensible. But
know are going to be worth more in three, five and 10 years. You can make a Random Walk by
when you are dealing with
the Iranians, I don’t know.
lot of money in a few companies. It is not done by spreading capital over 100, David Dreman
What are the biggest
200 or 500 stocks. On the other hand, when everyone around you is terrified investing-related risks
and dumping their stocks at bargain prices, you should see this as a wonderful right now?
opportunity to buy. /Shirley Won
We have an investment
consensus that interest rates
have to go up, which has
been wrong for two straight
years. And I get a sense that
people are starting to throw
in the towel on this. The U.S.
economy most recently was
growing at 5%, and retail
sales have been terrific. So
what I am concerned about
is that there are only 20 big
bond fund managers in the
world now, and they have a
gigantic amount of holdings
of marketable bonds. When
they are forced to change
their strategy because
economic growth comes
back, I don’t know who’s
going to be at the other
side of the trade. The bond
market could actually be the
source of the next big sell-off.
The investment dealers on
Wall Street and Bay Street
have the lowest exposure
to corporate bonds in their
modern history, because
they’ve been reined in by
regulators saying they must
cut back on risk. So we don’t
have the cushions in place.
What would you do with
a $100,000 windfall?
I would keep 25% in cash
against this risk in the bond
market. I think I would buy
Japanese stocks in particular
Investing guru
“Margaret Thatcher.
The evening I spent with her in
1978, she laid out that she’d be
elected three times and Ronald
Reagan twice, and that we’d win
the Cold War without firing
a shot. She predicted everything
of any importance”
february 2015 / REPORT ON BUSINESS  33
and equities generally,
but not as much emphasis
on American equities,
because that market has
been so much outperforming
the rest of the world. I am
becoming more confident
about the global economy,
if we can get through this
nuclear risk. What I don’t
see is the kind of excesses
in the market that I’ve seen
in the past, and that’s a big
difference.
What advice would you give
to investors right now?
As far as Canadian assets go,
they shouldn’t be listening
to all the bearishness. The
Canadian dollar isn’t going
to go to 75 cents (U.S.). The
sell-off already occurred in
Canadian equities relative to
the U.S., so given the dividend
tax credit that you get in
Canada, if I was a Canadian,
I would be buying quality
Canadian equities, particularly
those where the dividends
were reliable and rising.
What is your investing
motto?
Think in five-year terms about
what you want to buy and
what the world will be in five
years. If your view on the
world in five years is negative,
then you should apply that in
your investing. /Darcy Keith
 5th Annual INVEST LIKE A LEGEND
"

Draper (in front entrepreneur with big ambition and some

of a caricature of quality—high imagination or whatever.
himself) at Hero
City at Draper Like Elon Musk with SpaceX—he says we’re
University—a going to Mars. He gets people motivated.
sort of incubator What about your losers?
for promising
entrepreneurs It usually has to do with the entrepreneur
not thinking big enough or not having
unique enough technology. Or the entre-
preneur could just run out of cash. The best
advice is: Always be raising money until
your company starts earning money.
If you were an average guy with a $100,000
windfall, what would you do with it?
I’d buy Bitcoin. There are only a certain
number of them, and there’s a whole eco-
system being built around it. The Boost
accelerator [backed by Draper] has gen-
erated something like 100 companies, so
probably hundreds more around the world
are planning their businesses on Bitcoin.
How should average investors approach
Silicon Valley?
The great thing is that they can now do a lot.
They can go to AngelList or FundersClub
and participate in start-ups. My advice is to
diversify heavily, because our business is
one where you really need a lot of shots on
goal. Or they can invest in funds like ours,
which have consistently shown they’re
good at it. I do believe that venture capital-
ism is in for another major run, by the way.
Based on what?
Because of the markets we participated in.
The Internet has made big changes. Bitcoin
is changing finance. Massive open online
courses are changing education. Govern-
Favourite... ment is being changed. Identity is being
investing Movie changed. These are trillion-dollar markets.
Sabrina (1954). “It’s Do you follow any standard rules for VCs, like
one of the few times eight out of 10 of your companies may fail?
Hollywood honoured Oh, when I invest, I expect all of them to
the industrialist, instead make it. But what actually happens is 50%
of making him the to 60% of them don’t make it. There are
antagonist. Bill Gates, usually another 10% that make so much

W
Larry Ellison, Elon
money, that overcomes it.
Musk—these people
What about exit points?
are heroes”
Every time I’ve gotten out, I think I would’ve
What were your best investments? been better off if I never sold anything.
METRIC
Hotmail, in 1995, was a defining company for So why did you sell?

Timothy Draper
“Market size. How big
us. It was sold to Microsoft in 1997. Another Lots of things. When there’s a relative peak.
could the company
become if it took the great one was when my daughter’s friend, When the entrepreneur is ready to sell.
photograph timothy archibald

whole market?” Elizabeth Holmes, said she was dropping When we think the market is overvaluing a
out of Stanford at 19 to transform medicine. company—although that’s usually the time
investing book
At age 56, Draper is one of the grand middle-aged men I gave her the first half-million dollars, and I should not be selling.
“The Startup Game of Silicon Valley finance—he founded venture capital firm she started Theranos in 2003. The company When investors read that Uber has a $40-bil-
is now worth $9 billion. lion valuation, what are they to make of that?
(2011) by William Draper Draper Fisher Jurvetson in 1985. His most successful early What were your worst? If it’s me, I think, Oh, I should sell. But now,
III, my father”
investments have included Hotmail, Skype and Baidu. There were a lot of worst. with 20/20 hindsight, I want a lot of those.
Over the past year, he has been a prominent buyer of Bitcoin. Do your winners have common traits? It would be, “Just hold on, baby. There’s
The good experiences always surround an more there.” /John Daly

34  february 2015 / REPORT ON BUSINESS february 2015 / REPORT ON BUSINESS  35

 5th Annual INVEST LIKE A LEGEND

David Rosenberg
Rosenberg made his formidable reputation as an early and consistent bear. When he quit Hanif Mamdani
Merrill Lynch in 2009 to return to Canada as chief economist at Gluskin Sheff, he raised

W
Mamdani oversees one of the largest hedge
eyebrows for switching to the buy side, where chronic pessimism can be bad for business. funds in Canada—RBC Global Asset Manage-
ment’s $1-billion PH&N Absolute Return Fund,
Rosenberg at The which has a 10-year annualized net return of
Chase, a fish and 15.6%. That’s almost 1,500 basis points better
oyster resto around than the HFRX Global Hedge Fund Index.
the corner from
What’s your assessment of the current Gluskin Sheff’s Bay
state of the equity market? Street offices Is it hard to manage yield and investment- What keeps you
I will refer specifically to the S&P 500, money from grade credit, and up at night?
Vancouver? opportunistically You want to be
since that is a real market, as opposed to positioned correctly
Being in Vancouver investing in special
the TSX, which is a resource-financial often gives you the situations involving for the eventual turn in
barbell. I think the bull market remains perspective to make Canada and U.S. the credit cycle. That’s
intact. The only thing that will ultimately better long-term equities. It could be a something I lose a lot
bring it to an end will be a return to a tight was connected with that: I stayed bearish decisions. In 2002, merger arbitrage trade, of sleep over. When we
money policy out of the Federal Reserve, too long. In the future, I plan to do a much for instance, Telus like the Bell-Astral deal. see a normalization of
was downgraded to We didn’t play it the interest rates, a wide
coupled with an economic recession… better job at calling sunnier weather. swath of capital markets
below investment first time around, but
which is probably years away. Were there times when you lost sleep over grade; everyone was the second time, we could be re-priced.
What do you pay closest attention to, market developments? freaked out about did. So many people What is the most
in terms of economic signals, market My first day on Bay Street was Oct. 19, how institutions with got burned on the first underappreciated
data, central bank pronouncements 1987. I’d left my cushy civil service job in investment-grade go-round, I don’t think asset class now?
and the like? Ottawa to become the financial econo- accounts couldn’t hold they appreciated that We’re putting a lot of
the bond any more, and Bell would not come focus into what I call
If I were alone on a desert island—and mist of the Bank of Nova Scotia. I’ve lived the baby-with-the-
were selling. On the back without ensuring
there are a few people who wish I was— through it all. I saw the collapse of New corner of King and Bay, they had dotted their bathwater trade in
and I had just one indicator at my dis- Century Financial and Countrywide. everyone kept talking i’s and crossed their t’s. energy. There’s been a
posal, it would be the yield curve: how I saw Bear Stearns, Lehman, AIG and about this. Sitting We captured a wide risk wholesale liquidation of
short-term interest rates interact with my own firm, Merrill Lynch, go down in here, looking out at the arbitrage premium. It energy investments due
long-term rates. It’s a very important, flames. And I can tell you, nothing was Pacific, you just stop was a big winner for us. to this sudden decline
and think, “Does it make What is your worst in the price of oil. Senior
forward-looking economic indicator. more frightful than Oct. 19, ’87, because debt issued by some
sense for a bond that investment trait?
And when it flattens and inverts, trouble the view back then was Armageddon. I will repay you par in four I sell too early and take high-quality Canadian
is usually on the way. spent the entire night pacing in my bed- years to be trading at profits often too quickly. energy companies yields
Any thoughts on the theory that a strong room, saying: “What the hell did I do?” 60 cents on the dollar?” But we’ve never been 9% to 11%. These are
housing market can be detrimental to Yet you, and the market, recovered. We purchased about down in a calendar year solid companies with
economic growth because it diverts so It was the mother of all corrections, $500-million worth since inception. very reasonable balance
of Telus paper. We did What investment sheets. Many generate
much bank capital into the sector from, not a bear market. I should have known extremely well. free cash flow even at
decisions do you
say, commercial lending? that, because we didn’t have a recession. Why are many regret? current crude prices.
Housing is a very emotional topic. Most The market was back to an all-time high hedge funds Being heavily invested They’re run by extremely
people associate high ownership rates within a year. The real bear market didn’t underperforming in U.S. financial competent managers
with a better society. But there are start till 1990-91, when the Fed tightened while yours has company debt in 2007 who have been through
plenty of European countries that have money and inverted the yield curve, and done well? ended up being not a many cycles and have
Many hedge funds seek great investment in their own wealth
high rates of rental that are equally we replayed the movie all over again. instant gratification. invested. There are
2008. During the depths
stable as those with high rates What should we be worrying about If something doesn’t of the crisis, I had the some real bargains.
of home ownership. Building a Favourite... this year? work quickly, they move strong conviction that What advice would
house has greater GDP multiplier It’s a terribly difficult question, because on. In this attempt to high-yield leveraged you give investors?
metric generate consistent loans were probably the Make good long-term
impacts than building an apart- what you would lose sleep over is really
Year-over-year performance, you end best risk-reward trade choices based on
ment complex. But remember that the Rumsfeldian “unknown unknowns.”
trend in the up with flattish—or, anybody had seen. We quality, valuation and
a house is just a big-ticket con- three-month
And if these unknowns come calling,
in some cases, exploited other markets, diversification. Be
sumer durable item. It does not moving average where do we hide? disastrous—returns. and our hedge fund was opportunistic. Don’t
add to the productive capital stock of core durable- There are two things I’ve learned: Don’t We know the types of up 50% in 2009, so no let today’s headlines
of the economy. goods orders put all your eggs in one basket, and trades, strategies and regrets. But I wish we make you do things
photograph raina+wilson

What are the best and worst calls there is no such thing as a sure thing. So markets we’re good had participated more you’ll regret tomorrow.
you have made? long as you are diversified and invest- at, and we stay in U.S. leveraged loans. /Sean Silcoff
chart within our circle of
The best and bravest call, espe- Relative strength ing around themes that make sense, and competence.
cially given the institution I was so long as you’re disciplined—in other
working for [Merrill Lynch], was
of the financials
words, know when to cut your losses,
What is your Investing motto “Hubris kills”
both in the sweet spot?
calling for the recession and credit corporate bond know when to take your profits—then North American high-
crisis of 2008-2009. My worst call market and the everything will be fine. /B.M.
equity market

36  february 2015 / REPORT ON BUSINESS february 2015 / REPORT ON BUSINESS  37

 5th Annual INVEST LIKE A LEGEND Lundquist
communes with
the squirrels in
Calgary’s Prince’s
Island Park

Jim Leech
By the time Leech retired from the Ontario
Teachers’ Pension Plan at the end of 2013,
after six years, it had become a global leader
in private equity investing, with assets of more
than $140 billion.

Should small shutting it down. looking abroad

investors be envious A retail investor can more than they
of an institutional just sell the stocks. generally do?
investor’s ability to Where do you see We do need to think
tap private equity? the biggest risks in more internationally.
Size is an advantage. today’s market? The Americans can
Since private equity There are two big risks. get it by buying the
investments aren’t One is geopolitical: We big multinational
public, you’re not have a major country companies, like Kraft.
dealing with thousands with nuclear weapons, We don’t have as many
of owners. There’s backed into a corner of those in Canada,
usually one or two or and led by a guy who so it’s harder to get
three large owners. The is unpredictable but international exposure
other advantage is the very popular. That’s by buying just Canadian
time horizon. Teachers not a great recipe. stocks.
doesn’t have a liquidity The other big issue Is there a particular
requirement tomorrow is the imbalance in metric you lean on?
morning. It can devote wealth. Inequities It’s funny, the whole
a certain amount of its have led to a massive time I was at Teachers,
portfolio to non-liquid number of people being if you asked me on
assets, or assets that unemployed. any given day what
may take a few years Do you have an the stock market had
to cash out of. investing motto? done, I wouldn’t have
Are there advantages When Claude been able to tell you.
that small investors Lamoureux retired But in terms of meaty
have over the big and I became CEO, he economic analysis, I
guys? left a sign for me on put some weight in
One problem that my desk: “Remember, the World Economic Favourite...
institutions have is a fool and his money Forum in Davos. That’s
that they build up an is invited everywhere.” probably where I got METRIC
“Cash flow. It’s the basis of all

I
expertise and overhead When you’re running the information that
in a particular asset an institution the size influenced my decision- profitability, all valuation.”
class. That asset class of Teachers, it’s a very making. But as CEO,
may go out of favour good thing to keep I was trying to figure movie

Leslie
or go through years of in mind. You’re being out how to position I’m guessing 2014 wasn’t your best year ever. that two-thirds is not energy. If you Working Girl (1988). “I’ve
bad returns. So what invited not because ourselves five years
Our absolute return was negative. That’s really can’t stand a blip in your dividend seen those people all through
do you do with all those people think you’re from now, as opposed
hard to do when you start with stocks with stream, find something like a bank or a my career. I’ve probably had

Lundquist
people? Sometimes it’s smart, but because to what stock I
hard to shut it down, you have $140 billion. should buy today. a high dividend yield. bond, but realize that you’re probably elements of both of them”
when you should be Should investors be /David Berman Did the downturn in energy scare you? How going to get very low returns from that.

photographs: (leech) Jaime Hogge; (lundquist) Hubert Kang

much volatility can you stand? Have you ever lost sleep at night?
Lundquist became manager of I don’t want to pretend that I’m too brave The one time I remember was the income trust announcement in 2006 [when
Best real-life Wall Street character the Franklin Bissett Canadian to ever notice bad performance. And some Jim Flaherty proclaimed he would eliminate tax advantages for trusts]. I run
companies are announcing reduced divi- an income trust fund, and I wondered: What’s the doomsday scenario? Then I
“I’ve always found Ace Greenberg, the High Dividend Fund in 1998. dends and capital spending. But we live in realized, well, there is value to these companies. There are still cash streams.
She now co-manages it with
former chairman of Bear Stearns, to Calgary, and we’re kind of familiar with the What was your best investment ever?
Les Stelmach, and they aim to boom-and-bust cycle. We’re pretty confi- The best ones are the ones you buy when the market doesn’t appreciate them.
be one of the more entertaining guys. generate regular income from a dent that selling now is not in any way max- They’re perceived as being sleepy little businesses that have a dividend stream,
imizing value. If ever there was a time to stable cash flow, but not much of a growth profile. Keyera Corp. [which stores
I particularly remember his book of portfolio with a large weighting buy energy, it pretty much has to be now. and transports natural gas liquids] was one. We bought in the mid-teens and it
in energy stocks. At times, that But what do you say to a retiree who’s peaked out at $95. We sold well in advance of that. The bad thing for a high divi-
memos to staff, which was fascinating. has been tough—like when counting on dividend income? dend fund is that the dividend often can’t keep up with the share price. They
He didn’t have an office—he sat on the world oil prices plunge. Remember that a fund is different from a stop meeting our mandate.
specific stock. The difference is diversifica- And the worst?
trading floor” tion. Our largest sector is energy—about Ones where I got greedy. I bought something that looked cheap. I should have
one-third of our portfolio. But that means bought quality. /J.D.

38  february 2015 / REPORT ON BUSINESS february 2015 / REPORT ON BUSINESS  39

 5th Annual INVEST LIKE A LEGEND

David Chilton sat on

that folding chair
for eight months,
What was your best public play?
More than 10 years ago, a col-

Chilton
at his house league kept pushing me to invest
near Waterloo, in this oil company in Gabon—
while writing Pan-Ocean Energy. I was skepti-
The Wealthy
cal. I tended not to get involved
Chilton, 53, is an Barber—by hand,

Seymour Schulich in that kind of high-risk security.

on legal pads
entrepreneur and I examined the company closely,
Schulich, 75, spent 22 years with Beutel Goodman in Toronto and bestselling author of and it didn’t appear to be trading
co-founded Franco-Nevada, a gold royalty firm acquired in 2002 The Wealthy Barber. close to proper value. Despite
by Newmont. His foundation has donated $300 million so far. the risks, I started buying Pan-
He’s also a cast member Ocean at $5 to $11 a share. A cou-
on CBC’s Dragons’ Den, ple years later, it was taken out
You made most of is, “Go big or go home.” in cash, 30% in gold and
your money in gold where he has closed at $58 a share. There was a lot of

W
What was your best 30% in gas. I have five
and energy. What’s investment? stocks. Birchcliff and more than 20 deals. luck in that one, too.
your outlook for these Franco-Nevada. I owned San Juan Basin Royalty What’s your worst investment?
sectors now? it for 22 years, and it Trust are my gas plays. Many years ago, I talked some
As far as gold goes, I definitely made a lot I also own shares in What’s the secret to getting your friends into buying a standard-
believe one needs to of money. But I made Teva Pharmaceutical
attention on Dragons’ Den? bred horse—18 guys putting in
consider that the real 60% of Franco-Nevada’s Industries, the world’s
level of inflation is profits in the Canadian largest generics Key is the ability to get “The $2,500 each to buy a gorgeous,
running more like 9.5% oil sands over seven company. I own physical Meeting” with a buyer like American horse named Dash.
to 10%. I think the years, and in BlackRock gold through the Royal Loblaws or Home Hardware, or The first day we owned him, he
number—2%—given Ventures over five. Canadian Mint’s bullion the best potential supplier. Do broke a leg stomping his foot in
by North American Birchcliff is probably exchange-traded they have the tenacity, charisma the trailer. We eventually sold
governments is absolute going to be the biggest receipts. I own one
and infectious energy to get in Dash to a fellow in Detroit who,
nonsense. Some reports of them all. It is among gold stock—Barrick.
suggest that major many energy firms I think it has the five front of people? Secondly, I am a I believe, used him for birthday
governments have been that could be acquired best gold mines that numbers guy. Too often, an idea parties. Don’t invest in anything
printing money at a rate over the next couple of I know of, and I can see seems good on the surface, but that eats. It’s the old Billy Rose
of about 15% per year years. It has two huge how it can dig out of the numbers don’t work. Are the line, and it is bang on.
since the 2008-2009 advantages: It owns its current problems. gross margins significant enough What advice would you give to
financial crisis. and operates close to It has to reduce its debt
to allow for proper marketing? the average investor?
I think you are going to 100% of its wells and by about $3 billion, and
see gold selling for at gas plants, and it is can probably do so by Can they stave off competition? Investors need to get better
least $3,000 an ounce one of the lowest-cost selling a piece of its You are not going to get perfect informed—it’s crucial. People
within the next three to producers. Pascua-Lama project, answers, but you try to draw on have a perception that personal
five years. On energy, I What was your worst so I am not worried. your own experiences to do the finance is exceptionally difficult
am no longer bullish on investment? Describe one of your best you can. Typically, angel to grasp. It isn’t. They can cer-
oil, but I am convinced Starfield Resources, key philanthropic
investing is really risky, and tainly understand the things that
that these B.C. liquefied a copper-nickel “investments.”
natural gas projects exploration play in My main focus now is often not overly lucrative. work—like paying down debt,
are going ahead. There Nunavut. I lost $50 a $100-million project What has been your best building up an RRSP or a tax-free
are only about four million. I learned a lot called the Schulich investment from the show? savings plan, and buying low-
companies, including of lessons. Leader Scholarships, Steeped Tea has been spectacu- cost index funds. It’s the things
Birchcliff Energy, that What advice would which go to students lar. The company is in the high- that don’t work that are tricky,
have major reserves to you give investors? pursuing science,
end, loose-leaf tea business like options strategies, and trad-
supply those projects. I can only tell you what technology, engineering
That’s why I own 26% I am doing. It’s pretty and math studies. The and sells its products through ing in and out of futures mar-
of Birchcliff. My motto simple. I am about 30% scholarships amount Tupperware-style parties. It kets. Secondly, people should be
to $80,000 over four was one of the first pitches I careful about investment costs.
years. You can’t believe saw, when they had just gone If you are buying products like
Favourite...
these kids. They are through $1 million in sales. They funds that charge 200 or 300
going to be the future
were incredibly knowledgeable basis points a year, it’s very dif-
INVESTING MOVIE of this country.
What keeps you awake and persuasive. Jim Treliving ficult to overcome that drag and
Wall Street: Money Never Sleeps, the
sequel to the 1987 classic Wall Street at night? and I put in $250,000 for 20%. A post superior performance over
Nothing keeps me little over two years later, they the longer term. /S.W.
photograph raina+wilson

awake, because we live are doing $20 million in sales,

INVESTING BOOK by my family’s motto and it’s going to get a lot bigger.
Get Smarter: Life and Business and creed: “Often
There was a lot of luck involved Investing motto
Lessons by Seymour Schulich wrong, but never in
in that one. You are not going
(with Derek DeCloet) doubt.” That is how I
operate. If you live that to get many investments where “Pay yourself
way, life is good. /S.W. you catch a company just before first, of course!”
it takes a steep growth curve.

40  february 2015 / REPORT ON BUSINESS february 2015 / REPORT ON BUSINESS  41