It’s easy to get caught up in noise and panic right now. From market performance to when we’ll see a recovery, predictions on what will happen are coming from all around us. But none of them can give the type of expertise and insight that comes from more than half a century in the investment business.
In this conversation, Purpose founder and CEO, Som Seif, talks with portfolio manager Barry Morrison about how his 52-year career has informed his views on:
- what the hardest thing to predict in the market is right now
- what the major opportunities to win are right now and how he takes advantage of them
- what’s different about COVID-19 from past crises and what that means for investors
Read the transcript:
Hi everyone. It’s Som, founder and CEO of Purpose Financial and Purpose Investments. I’m here today with my friend and colleague, Barry Morrison, who runs our pension and institutional portfolios for many of our clients.
One of the things I’ve commented on before is that many people industry in our industry are fairly young, and very few of those participating in it have experience going back more than 30 or 40 years. Most of those in the industry right now were born in the 80s, and it’s very hard to find people who have the experience that spans in the ‘70s and even beyond that.
Barry has one of the great long-term careers, and he’s been in the business for 52 years. He’s our elder statesman at Purpose — he’s been running dividend portfolios for over 23 years and brings a strong, unique perspective. Particularly at moments like this, as he’s gone ups and downs before: Recessions, economic cycles, wars, financial crises, Black Monday and countless other moments that were troubling, even fearsome, for individuals and portfolio managers.
I thought Barry this week could give us some great perspective and let us know how he attacks his job every day, especially right now with the noise and information that is difficult for all of us right now.
A little bit about Barry before we get started. He’s been in the business since 1968 when he joined a business called Dominion Life Insurance Company after he graduated from the University of Waterloo with a B.A. in Economics. He’s been a part of many different iconic Canadian firms, and in 1992 he set up shop with his partner, Les Williams, his own company, Morrison Williams, to run institutional money for ultra-high net worth families and institutional clients across the country.
I was lucky to bring Barry into our team a number of years ago, and having his perspective and guidance around the organization and in the portfolio management room gives a sense of calm, at both the difficult and good moments.
Barry, it’s great to have you here.
I’ve got three questions so let’s get right into them. As I said, you’ve been investing for several decades, and I’d love to hear your insights on how this crisis compares to prior moments. What does this current situation remind you the most of and how are you navigating it?
It’s a great opportunity, an amazing opportunity, right now to buy your favourite investments. They’ve gone on a massive sale program on your favourite securities.
I lived through the peak in interest rates on September 30, 1981, when you could buy long-term Canada bonds at 18.3% yield to maturity and they were non-callable. I thought I might have lived through the bottom in interest rates, but then on March 9 this year, Canada bonds when down to 1.3% at the bottom. That’s unusual in a career.
To us, doing the research, working with securities, the evidence to us pointed to that if you could identify the companies that paid dividends, and where the dividends would grow longer-term, we started our fund in 1997, we still manage it for Purpose.
As of February 15 this year, our 23-year anniversary of the fund, the compound interest over the years was just under 9%, and almost 75% of the return came from dividends. It’s very powerful. Now, it’s slipped down with the market, we’re down to 7.5% compound and about 95% of the returns come from dividends.
I think it’s a major, major opportunity and the reasons are always different, Som, as you know. It’s not about the financial class this time, it’s people not working — we’ve never been through that before. It’s always different: It was the tech crack at one time, housing collapse, it’s always a different reason that causes these great opportunities in the market.
We’re in there with both feet. One of our long-term clients that we manage actually gave us a large amount of money in the last month because they see it as an opportunity to re-invest. Pick your favourite investments and put your money into it. We won’t bottom, we will come out of it, and life will go back to maybe 80% of normal by this time next year.
The hardest thing in the markets I find is figuring out how far the markets are looking ahead. I can tell you that in February and March the markets were only looking ahead to the next day, maybe the next week. But then they switch and start looking out further, maybe a year or two to the recovery. That’s the toughest thing to figure out in the markets right now.
That’s a great perspective on how the market sentiment shifts.
You were investing in ‘87 during Black Monday. Tell me a bit about how in those moments you keep your head straight. Is it really just focusing on how the world isn’t going to end so this is an opportunity? How have you learned that over the years that you’ve been investing?
There were no circuit breakers back then, we just sat back and watched things evaporate. It was crazy, what was happening. And you just throw up your hands, step back and wait for opportunities when it settles down. Then you start going back in and committing money to the market again.
I’ll also say, a couple of weeks ago the whole important thing to me was how the Fed would react, how the Bank of Canada would react, and they’ve gone through great extremes to settle the markets down. The Fed is even going to buy investment-grade bonds that get downgraded from high-yield bonds — that’s unprecedented, but it calms the market.
The most critical part to me is that central banks are there to support activity.
That’s exactly right. On that, I know that going into this whole environment pre-COVID 19 that you were feeling a bit cautious and being more balanced in how you were managing your portfolios. We had a long bull market and one of the things is the bond bull market that we’ve had since the ‘80s. So lots of people have been calling for a recession for a while now.
Is COVID-19 just the catalyst for what was inevitable? And the second question, how much has your perspective changed because of the government and central banks positively supporting the markets?
I’ve got great confidence from how the central banks reacted, and how the federal government reacted with the fiscal stimulus and so on. That makes me feel better.
The key thing this time around, versus other times, is that interest rates are extremely low. In Germany, at one point they were all negative. Maybe the negative rates in Europe were telling a story for a couple of years that something big was coming.
I thought on March the 9th that by noon on March the 10th we’d have negative rates in Canada, but it didn’t happen. They started going back up and they’ve moved through the lows of March. We cancelled our negative yield forecasts and moved back to positive yield again.
I think without the Federal Reserve buying every bond in the world, and without the Bank of Canada, rates would be a lot higher than if they hadn’t acted.
So the last question, you’ve learned through many decades and it sounds very much like you’ve become an advocate for dividend or income-oriented investing. Your experience of the returns and the compounding is very much in line with the experience of most equity investors, that the majority of your return does come from dividends over time.
How are you taking advantage of the situation right now? Tell us a bit about the things that, discipline-wise, you’re trying to take advantage of. Buying good companies, sustainable incomes, talk about that and also how you’re using cash strategically.
Right. In 1997, when we set up the high-yield income fund to invest in dividend-paying companies we bought a stock where we sat down with and Ontario company and I was very impressed by the management and their gameplan. To me, the whole secret in the business is the management.
You can’t quantify this, a computer can’t do it for you. You sit down and ask a lot of questions to get an idea of how they think, how they manage, how they’re going to invest your money. And then you either come out of the meeting with a good feeling or a bad feeling.
Of course, some times it changes and you make mistakes. But in this case, the company had a long-term plan and government contracts that impressed us. We still own that stock today, in the fund, it’s one of our biggest holdings. They reached $1 billion this year and are expanding to $2 billion. This February we bought some more.
I wish I had 30 of these companies, it would make my job so much easier. But, you can always identify other good companies, too. It’s the management of these companies that’s so important and the fundamentals have to be there.
It’s amazing, these stories are the kind of examples we look at and say “of course this makes sense.” When you see a company you love and say of course that’s a business that I want to own.
In this business, hindsight is 100% correct (laughing). And we should have all put all our money into Amazon. But seriously you don’t do that. You have to diversify your risk, and you’ll make mistakes. You have to have enough different industries, enough different types of companies.
But we’ve found the yield saves you over time. When you’re really concentrating on whether a company can return dividends and raise payouts, that means so much to me, the growth over time.
This is great, sound advice. We say internally, the stock markets are the only place where things go on sale and everyone runs away screaming. This is the type of experience, and you’ve got the type of expertise, that we all need — investors, advisors, all of us. We need to be sharing this more with all of our clients, partners and friends. Thanks for these amazing points, Barry, and I appreciate the time.