John Nicola’s Investment Outlook Ranges Home and Abroad - Nicola Wealth

John Nicola’s Investment Outlook Ranges Home and Abroad


 

By CGA News

Read original blog post online.

Every day seems to bring more bad news from the global financial markets. Greece is imploding and threatening to take down much of Europe with it. The U.S. economy is not recovering as fast as many hoped, and with an election looming, important decisions are being put off until 2013. Here in Canada, things seem better but we are warned of our high levels of personal debt and risks in our real estate markets.

With all the bad news it’s not surprising that more than 70 CGAs convened at the Coast Coal Harbour Hotel for CGA-BC’s Market Outlook and Investment Strategies seminar featuring one of B.C.’s leading investment managers, John Nicola, Chairman and CEO of Nicola Wealth Management. The breakfast seminar drew a big crowd because there was more than bacon and eggs on the menu. Nicola’s presentation offered a buffet of food for thought. Here were some of the nuggets from his 90-minute session.

The problems in Europe, Nicola explained, stemmed from the fact that even though the Euro has existed for 12 years, it is solely a currency union because the EU never implemented a fiscal union. This has allowed countries such as Greece to borrow money at costs that they would not have enjoyed outside the union. Today Greece’s debt has become unsustainable and in exchange for bailout loans, the European Central Bank is forcing the Greeks to accept austerity measures. Austerity leads to lower GDP, however, so debt-to-GDP ratios go up, which in turn leads to calls for greater austerity. The challenge now is how Greece extracts itself from this vicious cycle.

While Europe has a financial problem, the U.S. has a political problem. The Americans have the tools to reduce their debt-to-GDP but there is a Congressional failure to act. Nicola pointed out that if the U.S. implemented a seven per cent GST, it would not have a deficit. In essence, the U.S. has the capacity (if not the will) to deal with its debt, which can’t be said for most of Europe.

Closer to home, Nicola spoke at length about our housing market. He referenced the recent Maclean’s headline, ‘You’re about to get burned’ but also countered the ‘bubble’ risk argument with a case for why it might be a ‘balloon.’

Nicola was clear from the outset that he did not have much good news to share in terms of the macroeconomic picture, but he did have investment strategies that could negate bad news.

First, he stressed the importance of portfolio attribution. If a client’s portfolio generated a return of 6 per cent, they needed to know where that return came from so they could ensure the best possible after-tax return. He also illustrated how a diversified portfolio is the best way to build wealth. In fact, he noted that diversification not only reduces risks, but under today’s conditions it actually improves return.

While John Nicola answered many questions that were on CGAs’ minds, he did have one of his own for the audience: “Investment advisers are not perceived as trustworthy—we rank somewhere near used car salesmen—but CGAs rank quite high, so I want to know what you are doing right?”

CGAs are doing many things right, it seems, including keeping their skills as well as their portfolios diversified through professional development.