Lord of the Rings

I was looking through my bookcase the other day for some summer time reading and came across Lord of the Rings and decided to reread it.  

The first time I read it was in the winter of 2006.  If you have read it, you know it is an epic novel running to over 1,000 pages.  I started it during the Christmas holidays and continued reading it every evening in January.  When I turned the last page in late January, I almost felt I was putting a friend away as I had become so engrossed in the story.  

However, the reason I picked it up in the first place was not out of literary interest.  Around that time, when I was still General Manager of Neptune Theatre, I made what turned out to be one of my worst investment decisions.   I invested in the limited partnership associated with the Lord of the Rings musical produced in Toronto.  

That musical, which became the most expensive musical ever produced in Canada, opened in March of 2006 to very mixed reviews and closed six months later.   After reading the prospectus, I made my decision to invest assuming it would run for at least ten years.   Need I say more regarding how much of my investment was recouped?   Other than the tax write off and the great opening night party I attended courtesy of the producers, let’s just say that my return was better measured in terms of lessons learned than ROI. 

In making my decision, I made what I have come to know are typical mistakes many people make when investing their own money.  For example:

·       I invested based on my own emotion and excitement about the story and because some of my theatre friends were investing. 

·       Despite the fact this was a high risk investment which was clearly disclosed in the prospectus; I ignored that caution even though everything else in my risk tolerance profile would direct me to low or moderate risk investments.

·       I thought I knew it all!  After all I was managing the finances of a theatre and I know how to read financial statements and financial projections and compute breakeven yada, yada, yada…. 

When I read the prospectus I thought I was making a very informed decision.  In fact, I knew nothing about the track record of some of the key people involved, did not know if the musical was any good and had no idea of the weekly cash flow requirements of this large scale production.  

Since the last few years of investing have left some people thinking they are on an endless journey through the dreaded realm of Modor, I suggest you take a lesson from my experience and from the Lord of the Rings story.  I recommend you behave like Frodo did on his difficult journey across Middle Earth, regarding your investment decisions: 

·       Find yourself a trusty advisor to bring along.     Someone like Frodo’s reliable companion Samwise Gamgee or Strider (Aragorn), whose counsel and advice you can rely on.  Like Frodo, you can’t successfully complete the whole journey on your own.

·       Be clear about your investment objectives and stick to them.   In my world, we call it an Investment Policy Statement.  It outlines clearly your portfolio objectives, your risk tolerance and your time horizons for investing.   It will help you fend off the occasional Orc that appears, such as yet another disappointing European leaders’ economic summit which triggers more market volatility.

·       Don’t make investment decisions based on fear or euphoria.    There is no one Ring (investment) which unleashes all the power in the world.  While it may be tempting, don’t get caught up in the search for the Ring, when all you really want to do is retire to a nice comfy place like the Shire.

And if you are just looking for a good summer time read, I highly recommend Lord of the Rings.  It still holds its charm on second reading.

Doreen Malone is a Chartered Accountant and Financial Planner with Assante Capital Management Ltd where she aspires to help clients organize and manage their financial affairs to make their lives easier. She can be found at www.doreenmalonefinancialplanner.com

Anne of Green Gables

It is Friday afternoon and I am sitting in the Confederation Centre Library in Charlottetown, PEI.  I come to Charlottetown from time to time for meetings and I often come to the library between meetings.

I like coming here.  I used to work at the Confederation Centre of the Arts and so I know the library has free internet and clean bathrooms; two important things when working on the road!  However, the real reason why I come here is I like being surrounded by books.   There is something almost tactile about literature this close at hand.  

PEI is also the home of Lucy Maud Montgomery, the famous author of Anne of Green Gables; and the Confederation Centre of the Arts is where the musical Anne of Green Gables- The Musical has played for over 30 years.   What better character to write about on a Friday afternoon than that little red haired orphan: Anne of Green Gables?

Most of you know Anne’s story.   Instead of a boy, she was mistakenly sent from an orphanage in Nova Scotia to Matthew and Marilla Cuthbert, the bachelor and spinster brother and sister who lived at Green Gables, PEI. 

When Matthew arrived at the train station, he knew a mistake had been made but being a shy soul, he decided he would leave it to Marilla to tell Anne.   But by the time he had driven Anne from the station to Green Gables, Anne had completely won him over with her vivacious personality and colourful vocabulary.  

Marilla was no so easily enamoured.  She immediately stated that Anne must be returned to the orphanage or at least be given to a more suitable household.  Of course, Marilla eventually relented and agreed to let Anne stay.   After a variety of mishaps (cracked slate on Gilbert Blythe’s head; getting her best friend, Diana Barry drunk on currant wine; and dying her hated red hair green), Anne grew into an accomplished young woman with a wonderful life ahead of her. 

But a few days after her greatest triumph; the winning of the Avery scholarship, Anne’s beloved Matthew has a heart attack and dies.   {The scene in the musical where this happens and crusty Marilla, now heartbroken, sings “ I Can’t Find the Words” to express her grief is one of the most poignant scenes you will ever see in a musical.}

It is also a pivotal scene because Matthew’s death changed everything.  Not only did Anne and Marilla suffer a horrendous emotional loss, they suddenly found out they were financially destitute.   Matthew had placed all their savings in one bank which failed and Marilla had no idea of their financial affairs.   There were minimal savings for Anne’s education; no back up plan in the event of Matthew’s death even though he had a history of heart ailments; and Marilla’s sight was failing.

Anne decided she would not go to Redmond as planned.  To her credit, she decided to stay home with Marilla, teach in the local school and pursue her studies on her own.   An arrangement was made to rent the farm and they were able to stay at Green Gables.   Anne even got over her slate cracking incident and became friends with Gilbert Blythe.

So where is the harm you may ask? It all worked out didn’t it?  Well, yes it did.  But Anne was a plucky girl with a great scope for imagination and Marilla was made of pretty sturdy stuff.  Together they were able to devise a solution to their situation.  

The point of this is that Anne no longer had choice over her education.  Worse still, use your imagination and think about the fear and stress they must have felt.  In addition to losing Matthew, they were faced with the real possibility of losing their cherished Green Gables and having no home of their own to live in.

What should they have done?  More importantly, what should you do to ensure something like this does not happen to you or your family?   You could start by asking yourself these four questions:

1.  Do you know what would happen to your family if you or your spouse did not wake up tomorrow morning?

 2.  Who will you want to help educate and do you know what it will cost?

3.  Do you have all your “eggs in one basket” or do you follow a disciplined approach to investing your savings in a diversified portfolio?

4.  Are your parents living and if so, do you plan to contribute to their care?

If you don’t know the answers to these questions, you might want to improve your financial literacy skills.  You may need to have the “have the knowledge, skills and confidence to make responsible financial decisions around these areas at some point in your lives.

You could start by simply talking this over with your family.   For additional resources or some good practical information, check out websites like www.investorwords.com or www.taxtips.ca  or talk to someone you trust.

The main thing is to do something.   While I admire the characters of Marilla and Matthew, I suggest you shouldn’t be like them when it comes to your financial affairs.   You might not have a kindred spirit like Anne to save your Green Gables.

Doreen Malone is a Chartered Accountant and Financial Planner with Assante Capital Management Ltd where she aspires to help clients organize and manage their financial affairs to make their lives easier.  She can be found at www.doreenmalonefinancialplanner.com

This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada. Please visit www.assante.com/legal.jsp or contact Assante at 1-800-268-3200 for information with respect to important legal and regulatory disclosures relating to this notice.