Nouriel Roubini, arguably next to Ben Bernanke, is the world’s foremost media darling economist (to the extent any economist is appealing to the masses). It was Roubini who predicted the end of the global real estate bubble in 2006 and continues to believe that the worst is yet to come.  In March 2009 he predicated that the Dow Jones Industrial Average would fall below 7,800. It ended 2009 at 10,300.

Harry Dent predicated Japan’s economic fall and America’s boom in the 1990’s. Since then, he has sold a lot of books making widely inaccurate predictions based on his research. In 2006, Dent predicted the Dow Jones Industrial Average would hit 40,000 by the end of 2009 (it hovers around 10,000). After the bubble burst, he changed his tune and called for a great depression ahead.

Roubini and Dent are but two of the industry predicting our imminent economic doom. Not to be outdone, the U.S. government warned in 2001 that if 5 nuclear reactors were not built every year for the rest of the decade, the country would experience rolling brown outs. Yet the U.S. Energy Information Administration of the U.S. Department of Energy reports electricity prices are falling which contradicts price movement of a supposedly scare resource (not to mention the small detail that it takes many years to build a plant).

The fact of the matter is that even a broken clock is right twice a day. This is not to downplay the fact there are serious economic issues which need to be faced and the immediate future does not look so rosy as the not so pre-2008 past. However, lest one forgot, people do not attract media attention because they are right per se but because they are outrageous in their claim.

Underlying all these claims meant to attract headlines and stoke our fears is a call to action to do something. Typically, that something has to with the self-interest of the person predicating doom. We will run out of energy! Build nuclear plants cries the politician in the nuclear power’s pocket. The world is ending! Buy gold (oh, by the way, this television show is sponsored by a gold producing company). The demographics say bad things will happen! Here’s a mutual fund sponsored by me which will make you rich.

And, therein, lies the problem. The dooms day predictors either give terrible financial advice or are peddling product which enriches them at the expense of the investor. Roubini has been quoted as saying he is 95% in cash and 5% equity. He gets paid in USD as a professor at NYU. Assuming his cash holdings are in USD, and one of thesis is the American economy is shrinking, it seems like a strange asset allocation to concentrate holdings in a depreciating currency. Even if he is not substantially all in USD, this is a strange allocation for a 50 year old man.

Dent has a very spotty record peddling products associated with his research. In 1999, the AIM Dent Demographic Trends mutual fund was launched to great fanfare. Its investment philosophy would be based on Dent’s demographic trending and analysis (Dent acted as sub-advisor to the fund). Five years later, the fund was merged out of existence, partially due to poor performance.

Since we have short memories, Dent has launched an actively managed ETF (a walking misnomer) with a total expense ratio of 1.65%- well above many ETFs; one can only conclude that Dent’s research found that investors are suckers. True to form as a inaccurate predictor, the sucker/investor did not bite.  Its trading volume is so small (3,882 shares traded yesterday) that, barring a major turn-around, the ETF will likely be closed.

Sprott Asset Management may be one of the exceptions to the rule. But, even then, some of its mutual funds are charging management fees of 2.5%.

If the fundamental thesis of the doomsday industry is the economic system will collapse upon itself, why exactly do they need to make all this money?

If money has no value upon collapse,  what exactly are they accumulating it for? If our economic world was to end tomorrow, I am not sure I would be listening to the person telling me to buy gold or their mutual fund. Instead, I would be listening to the person telling me to find my family and friends and to cherish and protect them now and in the future. But I guess no one ever made money giving that advice.

Value is generally a subjective concept. What may be worth something for one person may mean relatively less to another. In the workplace, it is especially hard to prove value unless you are a salesperson, judged solely by how much money you can bring into the business, or recover money, measured by how much money you save the business. More practically speaking, your boss may, frankly, not have much time to think about you on a day to day basis. In economic down-times, many supervisors end up having too many people reporting to them or carrying out both managerial and operational roles at the same time.

How then do you prove your value in the workplace?

I recently handed my employees a blank piece of paper with two headings on it. At the top of the page, there was heading stating “skills learned” and on the middle of the page a heading stating “projects worked on.” My instructions for my employees was simple. Save the sheet on your computer and update it at your convenience. However, I fully expect at performance review to be completed.

It is not a complicated concept but the point of this exercise from the employee’s perspective is as follows:

1. Employee are tracking their development. Employees tend to stagnate for a wide variety of reasons. One reason is that they are no longer engaged at work, doing the same thing over and over again for a long period of thing will make even the best of employees perform poorly.  A simple log of skills learned and experiences can tell the employee whether they are growing or just going sideways.  It can be used to show your boss that (a) what you have done; (b) assuming you have mastered the skill, you need opportunities to spread your wings which, hopefully, aligns with the business as well.
2. Employee prove value to the employer. Skills and experiences not in your job description, working on projects above your pay grade or above what your contemporaries are doing, showing how you saved money or made money, are important in focusing the employer on your value to them and the business as a whole. As I indicated before, do not assume your boss is keeping track of your career development. They may appreciate you but until you show them (see below), they may not be focusing on your worth to them.
3. It shows you actually care. A friend once described his co-worker as follows: “she actually cares about the business. How many employees can you say that about?” In my experience, more employees are indifferently carrying out their job than those who display a passion for what they are doing. An employee who is actively engaged in improving themselves and logging how they are helping the business will tend to separate themselves from their peers (the key is not to pitch this log as purely a cash grab but as wanting to contribute to the business for fair compensation).
4. It makes it easier to update your resume. I am very realistic that my employees will not be life-time employees so my deal always is my employees should work hard and, in return, I will make sure they learn enough to make themselves employable in case they do leave; it creates goodwill, potential referral opportunities and it is just the right thing to do. But part of the issue for most people who have never written a resume, or not written one for a long time, is that they forget what they did.
5. Quantify the feeling you are providing value. This is most likely the largest disconnect between employers and employees. Employees feel they are under-appreciated or valued poorly. Employers look at statistics (the larger the company, the greater the reliance on “objective” factors). A work log showing that you are carrying out the job of 1.5 employees for the compensation of 1 employee may turn your boss’ mind towards your value.

Obviously, value also depends on “soft-skills” as well. For example, do you get along with your co-workers, do your customers ask for you or does your boss like you as a person? But with so many businesses trying to do a lot with a little, you need any edge to show your value and separate yourself from others. Good luck.

Many of my friends and colleagues have young children. Since the parenting industry looks at all new parents as walking dollar signs, they are often sold the latest magic bullet solution to raise perfectly well-adjusted, intelligent and healthy children; after all, if you buy the wrong thing for junior, he’ll grow up to be a juvenile delinquent or, worst, never move out of your house!

But, instead of buying Baby Einstein DVD’s, how about spending time with the kids? I am not a parent, and do not presume to give parenting advice, but, as a general observation, the most well adjusted people I know did not grow up in the most affluent of households but received the riches of time with family.

A similar argument can be made for personal finance. Personal finance is not a black box where you input magic bullet products and it outputs above market returns. Instead, it is a process of spending time thinking about your life desires and planning your financial decisions accordingly.

In fact, one could argue that the magic bullet product in personal finance is actually spending time on personal finance. Specifically, there appears to be a positive correlation between the amount of time spent on planning personal finance and household net worth.

The time spent is not substantial. Instead, it appears that the bar for what an average investor spends thinking about personal finance is shockingly low. In a 1997 paper, two researchers surveyed the habits of staff employees at the University of Southern California (USC) who were enrolling in its defined pension plan. 75% of employees did NOT answer the background questions. Nearly 60% of the respondents spent less than an hour on picking asset allocations in their plan (their plan allowed participants to allocate funds based on risk tolerance).

One would assume that employees at USC  are moderately well-educated. Thus, you cannot cite lack of education as a factor. Perhaps they are too busy, have too much responsibility or they do not want to think about money because of some negative connotation it provokes.

Whatever the reason, the less time one spends on personal finance, the more likely such indifference will be costly in the long run. The book the Millionaire Next Door found that financially prudent households spend 8.4 hours a month, or 100 hours a year, planning their investment decisions.  The under-achieving households spent only4.6 hours a month planning their investment decisions. As a result, those households that spent more time planning investment decisions had over 5 times the net worth of their under-achieving counterparts.

8.4 hours a month may seem like a lot of time for most young families. However, consider this is 1.2% of the number of hours in a year. Compare 8.4 hours a month with how much time spent watching television, mindlessly surfing the internet or playing video games.

If planning investment decisions is daunting, I would suggest three tips:

1. Set aside a designated time every week to review your bank statements, portfolio summary etc. with your spouse and kids (if they are old enough to participate).  Decentralized decision making is often a cause for unnecessary spending.
2. Budget. If you feel you are too busy to budget then I suggest the Seymour Schulich’s approach to budgeting: is there more cash in the bank this month than last? If so, you are on the right track. If not, you best to start making decisions on what to cut back.
3. If it feels bad emotionally to talk about money, remember that feeling. If you never want to feel that again, then do something about it as opposed to sticking one’s head in the sand.

A special thank you to the Globe and Mail for naming this blog one of the five sensible yet entertaining blogs to help build wealth. The other blogs are thoroughly entertaining reads and readers should take time to explore them. If you are reading this blog for the first time, please browse around and, if entertained, please subscribe to my RSS feed. Thanks.

Everyone is gunning for the investment advisor. There are now articles on whether to sue investment advisors, how to leave them and whether they provide any value. Some investment advisors have even turned on their own.  I am not much for overly broad generalization. Like any other industry, there are good, bad and indifferent members and timing makes a real difference. A good investment advisor hired in August 2008 could have only minimized damage but, without the benefit of context, a loss is a loss in the rear view mirror.

Assuming you have an investment advisor, how long should you give them before deciding to dump them for another or to walk down the DIY road? I am not sure there is a definitive answer but let’s assume that a relationship with an investment advisor is like any other relationship.

If communication issues occur immediately- for example, their advice is not geared towards your stated risk tolerance levels-it may be a sign that perhaps, to using the dating analogy, it is not worth getting past the third date. One hopes in this situation, your entire portfolio has not been handed over to them. Just like dating, one should always keep some secrets.

If clearly stated goals and intentions are communicated and a plan put in place, it would be imprudent to pull the plug quickly on the investment advisor (assuming she is following an agreed upon and reasonable strategy). Study after study shows that low investor return is caused by, among other things, switching strategies quickly. As Jason Zweig commented recently, discount brokerage customers with higher trading volume tend to do worse than their low trading counterparts. With the investment advisor, throw in possibly higher transaction costs and a quick trigger finger initiated by the client may actually not be a reason to dump the investment advisor. Perhaps it is the clients own sense of impatience which is to blame.

Assuming a reasonable strategy is put in place and neither party gets impatient, one would have to give at least 3-4 years to assess the true value of an advisor. Three to four years may seem like a long time but remember my assumptions: (i) a reasonable strategy is in place (built into my assumption of what is reasonable is low cost so the advisor is not eating 3-4 of unreasonable fees); and (ii) neither side gets impatient. I would add one more point, the parties have to agree to meet at least once a year to review and adjust, and not gut, a reasonable plan.

Having sat on the other side of the advisory table, it is a little unfair to criticize the advisor if the client never communicates clearly what they want, the client rarely communicates except when things turn badly and the client has unrealistic expectations. Now, if communication is quite clear and the advisor acts in their own self interest to the harm of the client, the advisor should be punished accordingly. But if a plan and communication is clear, one has to give enough time for a strategy to fully mature.

But, to return to the dating analogy, one cannot be passive aggressive about what you want. The other party are not mind readers and, in a vacuum, will act in their own self-interest. If the investor has no idea what they what then perhaps no advisor should be hired at all and time spent on a little soul searching.

Management incompetence and dividend paying stocks are not mutually exclusive concepts. Even though research shows that dividend paying stocks tend to consist of the majority of stock market returns during down markets, it cannot be concluded that all dividend paying stocks will ride out all economic cycles smoothly. A 24 month period of dividend decreases and dividend freezes has made most dividend investors all too aware of the fact that dividends do not always go up.

As we settle into a year of the unknown, what warning signs should dividend and income trust investors look for to determine if a dividend paying stock or income trust may be going down the wrong path. The following are 3 real life examples:

Moving away from organic growth to new business lines. Kingsway Financial Services is a mid-cap company which became successful providing insurance to higher risk drivers and truckers. At its very peak, it was paying a 7.5 cent dividend per share a quarter; a respectable dividend for a mid-cap stock. However, in many respects, its success sowed the seeds of its own destruction.

Flush with confidence, it started a rapid expansion into the United States, a market which it had little experience in, and into other business lines (it bought a hurricane insurance company at one point which stretches the concept of synergies). The company, at its peak, had 9 operating units- quite a lot for a mid-sized company. Then, the bottom fell out.

The company’s downfall was partly due to declining economic conditions and partly due to bad underwriting. Underwriting mistakes, which means you underestimated the risk of loss, often happens if a new entrant under-prices itself to gain market share or does not understand the business well.

In 2008, it began to divest of assets. So much so, it gave away the shares of one of its subsidiary to a charity to avoid taxes (this transaction is now under investigation). The stock traded in the mid-teens five years ago. It now trades for less than $2 and it pays no dividend.

Kingsway is a good example of how empire building can destroy shareholder value.  Investors want dividend growth but one has to be careful how a business is pursuing this growth. If the company begins moving away from its niche, it can be seen as a warning sign. Kingsway is but a recent example. TransCanada’s dividend cut of 1999 was the end result of a business moving out of its core competence to empire building. The silver lining for TransCanada was it had a significant economic moat in its main business line to recover from this error.

The company is over-generous in its pay-out policies. This warning sign is unfolding as we speak to Riocan REIT.  Many have wondered whether Riocan was overly generous in its distribution policies during good times. In particular, its distribution policies seemed to be premised on the assumption that profits from the sale of properties would supplement regular rental income.

This led to the unusual situation of Riocan’s occupancy rate increasing in 2008 and 2009 but increasingly distributing more than it brought in; the lesson being fluctuations in earnings, especially premised on big transactions, coupled with high payouts can be warnings signs to dividend investors.

According to Riocan’s financial statements, for fiscal 2008, it paid out 102.9% of adjusted funds from operation (adjusted funds from operations, or AFFO, is a non-GAAP measure that is a “true” measure of cash flow in a real estate concern). For fiscal 2009, it paid out 127.2% of AFFO or it took in $1.00 and paid out $1.27.2.

This situation is mitigated somewhat by the fact Riocan offers a dividend reinvestment program which allows the company to pay distributions in shares rather than cash. The result is that in 2009 it took in $1.00 and paid out $1.04.5 in cash and the remainder in shares.

One wonders how much longer this situation can be sustained. Alternatively, economic prospects brighten and the increase in cash flow puts the company at a cash flow even position. In this situation, does management push the company back to an unsustainable payout betting on a long term recovery? Cautious investors would probably say no and want to pay it safe.

The lesson being watch out for a company that pays out dividends and income trust distributions generously as a means to entice new investors. It could be building a house of cards that may fall in bad times.

A change in management philosophy. Too much debt is the enemy of the dividend investor. Lenders can force dividend paying companies to slash its dividends through covenants found in loan agreements or, more subtly, force companies to slash dividends as a condition of maintaining credit facilities.

As we work our way through the recovery, a dividend investor in a high debt company may face a double whammy. A difficult re-financing market for some industries may force the company to free up cash by slashing the dividend or there may be a change in philosophy about risk tolerance levels.

Manulife Financial is perhaps one of the more (in)famous example of a change in management philosophies about risk and debt. Under a CEO that attracted a lot of press, a company which managed risk for a living began to take risks itself. In the beginning, such risk taking was rewarded by the market and earnings translated to increased dividend payments to investors. However, the risk taking lead to the company incurring  large annuity related obligations it will have to pay in the future-with the underlying assets to pay for such obligations reliant on the performance of the market (some of this exposure is unhedged).

The CEO who oversaw the creation of this situation had a much more liberal view of assuming debt than his successor and some believe that he was more interested in creating an asset management company than operating an insurance concern (see my first point above). The new CEO slashed the dividend- twice- in order to give the company financial flexibility and appears to have a very conservative view of incurring any new liabilities.

This factor bears special attention since the super star CEO who thought he was an i-banker may be giving way to more custodial type management. American banks notwithstanding, the accountants and operational people seem to be taking over from the deal making CEO’s (see Walmart, Rogers, CN).

The lesson being be careful of the company that increased dividends by taking greater than normal risks. It some point, its corporate culture may kick back in and revert back to its more conservative ways at the cost of the dividend.

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None of these factors alone spell trouble for a dividend paying company but they should be warning signs and signal to an alert investor to keep a close eye on the situation.

Professional investors or bloggers often say  or write that the stock market or the real estate market is over-valued or under-valued.  What exactly are they basing this analysis on? How do you know if you paid to0 much for stocks or real estate or whether you got a deal?

Share prices are an expectation of future return. If a share price is high, this means the market believes the future is bright. If the share price is low, and sometimes the share price can drop below the value of the assets of the company, the market has low expectations of the future growth of the company.

The typical (although not a perfect) manner of measuring this expectation is the price to earnings ratio (p/e ratio). The p/e ratio is calculated by price per share/annual earnings per share. In plain English, it measure how many years it would take for an investor to get back their money (removing the time value of money). For example, a p/e ratio of 20 means that a $1 invested today would take 20 years to return.

Is there such a thing as an ideal p/e ratio? On an individual basis, an ideal p/e ratio is a relative measure. For example, the p/e ratio for a consumer staple stocks tends to be relatively modest (typically under the mid-teens). A supermarket trading for less than the industry standard may indicate that it is in trouble or has little growth potential left. Conversely, a supermarket trading for well above the industry p/e ratio may be a market darling but will eventually come back down as it reverts to the mean.

The S&P 500, arguably a good sample of how the stock market is doing as a whole, is often a good gauge of whether one may have overpaid for a stock (or an index fund if you are an ETF investor) and whether the market as a whole is too hot, cold or just about right.

The p/e ratio of the S & P 500 is approximately 14 at this point which most experts believe is a reasonable valuation, bearing in mind that perception of risk is subjective. The typical rule is that a p/e ratio of over 20 means the market is over-valued (the p/e ratio of the S & P 500 during the tech boom reached 24 at times) whereas a p/e under 10 may mean there are bargains to be had (the p/e ratio before 1985 was in single digits).

My rule of thumb is that if a stock or an index has a p/e ratio over 16, I tend to shy away from buying (I am not a small-cap investors and, hence, the ceiling of my p/e ratio tolerance is relatively low).

Real estate valuations tend to influenced by more subjective factors. For example, a young couple with kids may pay a premium to live close to their parents. However, stripped of these subjective factors, what is a fair price to pay for real estate?

William Bernstein formula probably pleases no real estate agent.  Taking as an assumption that the opportunity costs of investing in real estate would be a 6.7% nominal return on stocks and bonds, Bernstein determined that no homeowner should ever pay more than 15 years worth of fair rental value for any residence. For example, a 3 bedroom house which rents out at $2,000/month should not be purchased for more than $360,000.

To state this another way, Bernstein has placed a p/e ratio of 15 on real estate; in the abstract, a fair valuation if you believe real estate is an investment (which it is not for your principal residence).

The other way of looking at real estate valuations is not if you paid too much but can you afford what you paid for your home?  The rule of thumb tends to be never take out a mortgage which is twice your salary. Last time I wrote this rule, there were several comments about how unrealistic this was. Since no one can tell the future, it remains to be seen whether this is an out of date rule or we continue to  live well beyond our means as real estate consumers.

Retailers tell you that retail is a brutal business. Trends shift. Consumers are bargain hunters. Expenses are high. Several years ago, retailers began to shift into the credit card business to pursue higher margin lines of business.  The rationale being that traditional retail was making so little money but, with such high traffic into the store, the retailer might as well sell something a little less labor intensive and with higher margins. Hence, Walmart attempting to obtain a banking license and retailers like Canadian Tire and J. Crew issued credit cards.

Yet, you hear about Nike shoes being manufactured for under $10 and selling for over $150 and wonder if the retailers are pulling your leg. Are they making a bundle but crying poor?

I took a look at a completely random sample of public traded retailers to see who is zooming whom.

Walmart is the largest retailer in the United States.  As a discount retailer, its margins should be low since it works on volume and not margin. For the quarter ending January 31, 2009, its operating income (which is earnings before interest and taxes so think of how much the store itself brings in) was 5.6%.

The Gap Inc. consists of a mixture of low end (Old Navy), mid-market (the flagship Gap store) and higher end (Banana Republic) clothing stores. I could consider this a middle-class retailer since it has a little bit of everything thrown in- low, medium and high. When you mix it all together, the Gap reported operating income of 13.9% in Q3 2009.

Lulu Lemon Athletica has convinced all of us that paying $90.00 for track pants (albeit stretchy ones) is not only acceptable but trendy. Most would consider Lulu Lemon on the high end of the retail market and, unlike the Gap Inc., is not dragged down by any lower end lines. For the quarter ending November, 2009, its operating income was 18.5%.

For mature businesses, a profit margin in the high teens is respectable. However, this is a far cry from the belief that retailers have a huge mark-up on their product. Is this an urban myth or is there truth to this?

It depends on how you look at the numbers. If you looked at net sales minus cost of goods sold- in other words, the retail price minus the direct cost of making the good (the materials and labor to make the good)- the margins tend to be outrageously high. For example, the Gap’s margin is approximately 42% while Lulu Lemon’s is approximately 50%. So, yes, developing country workers are sharing very little based on the profit made at the counter.

But add in operating expenses- the rent, the store employees, the warehouses, transportation etc.- which are not related directly to the cost of the goods and that margin gets reduced significantly. How significant? Try going from 40-50% gross margins to the teens.

Thus, there is some nugget of truth that retailers are making a killing selling us goods.  Alas, they cry, if only we could do it without all that overhead!

Hence, retail e-commerce is hailed as a savior for retail. Now, if only they could sell their goods on-line significantly cheaper than at the store…

Multiple listing service (MLS) is short-hand for a system that co-ordinates the orderly buying and selling of real estate. One of the key components of the MLS system is a centralized database of listed homes for sale. Owned by real estate associations like The Canadian Real Estate Association (CREA), it can effectively shut out competition by setting their own rules on membership and deny the flow of information to non-members.

Battered by the internet’s race towards to the bottom and a DIY niche, MLS fought back and their tactics struck were seen by some as uncompetitive. As with all things having to do with consumer protection, Canada, better late than never, acted on the allegations of MLS’ uncompetitive conduct, with the Competition Bureau announcing it was challenging how MLS does business.

What exactly is the problem?

MLS is, in practice, a totality of real estate services. For the real estate agents, it is a way for listing agents to publish its compensation along with the property description. For the public, in order to list real estate on MLS, one typically has to buy the bundle of services which includes hiring a real estate agent, using the standardized agreement of purchase and sale forms, negotiating the deal, registering the sale etc.

There are two primary ways around this traditional model. Flat-fee MLS describes a real estate agent posting a property for sale on MLS for a customer with no other services provided; The compensation is paid immediately. Think of the investment advisor paid to render an opinion on your portfolio rather than to sell you the full gauntlet of products.

Others attempted to set up internet-based businesses outside of the MLS system. Typically, these allowed customers to search a separate database downloaded from MLS themselves rather than having a broker do it. For the time saved, brokers could, and often did, charge less commission. These types of sites are sometimes known as virtual office websites (VOW) because they operate without traditional bricks and mortar operations.

Various MLS’ prohibited flat fee MLS to prohibit real estate agents competing on price (according to the Canada Competition Bureau, CREA engages in this practice). In other cases, real estate brokers simply did not deal with brokers who set up VOWs or information from MLS was not provided in a timely manner to VOWs.

What has been the solution?

In 2008, the U.S. Department of Justice settled with the National Association of Realtors (the equivalent of CREA) after an investigation of its practices in connection with VOWs (here is the press release). As part of the settlement, VOWs will be treated no differently than the traditional broker. A real estate broker operating a VOWs must be accepted as a member of MLS regardless if she is operating a non-traditional business model. The VOWs shall be provided with timely information and MLS members who do not operate VOWs must treat VOW brokers the same as a non-VOW broker.

Two things strike out at me reading the settlement:

• First and foremost, the settlement really speaks to real estate association conduct against its broker members. In many respects, the Department of Justice is settling a civil war between agents who uphold the status quo vs. agents who want to provide different service offerings.
• The settlement protects the proprietary intellectual property of MLS. VOW must take precautions against any customer misappropriating MLS information. The settlement is not about smashing MLS; it is about defusing the information in a responsible way which acknowledges the capital costs of building and maintaining the MLS.

In many respects, the settlement acknowledges that real estate agents can chose to race to the bottom on fee or provide traditional services with traditional compensation. The question comes down to what the customer perceives as value.

What does this all mean to me?

MLS’ get big for a reason; they are smart and ruthless. What did some MLS’ do in the wake of the Department of Justice settlement? They set up their own VOW to compete with the existing VOWs. More service offerings to the consumer is not such a bad thing. After all, a MLS owned VOW can always up sell a customer to full brokerage services.

In Canada, the Canada Competition Bureau has most likely dissected the Department of Justice settlement in a thousand different manners. I would not be surprised if it took a similar approach and, in addition, force CREA to allow flat fee MLS. In many respects, the solution has already been presented to the bureau and, absent a made in Canada spin, it is hard to imagine the bureau taking a substantially different approach. Of course, this is speculation on my part.

The ultimate effect may be a choice between a quantity based model (low margins, high volume) of a VOW and flat-fee MLS and a quality based model (high margins, lower volume). This is not altogether bad for the consumer.

Canadian Capitalist has a post on the MLS’ alleged uncompetitive practices. I found some of the comments have a sky is flying tone to them and others believe this will alter the real estate industry for good. The result will be somewhere in the middle.

Real estate associations and MLS are analogous to the legal profession: an insular, self-governed body which guards its intellectual property like a jealous lover. In the 1980’s, Jane Harvey opened a pure retail law firm to the horror of the profession. All her offices were in malls and she advertised her prices; advertised was prohibited by the Rules of Professional Conduct. In 1987, the Law Society of Upper Canada allowed advertising due in part to Jane being a ground breaker.

Jane Harvey & Associates caused waves in the profession. But, contrary to many people’s beliefs, she did not destroy the legal profession. She merely recognized that there was a niche for cost-effective legal services for the retail market and filled it.  Jane also did nothing to stop fee creep in many lawyers. In other words, the sky has not fallen and Jane may have merely filtered out the weaker market players who could not provide value to their clients.

In some cases, vendors and purchasers will require a full set of real estate brokerage services just like some smaller clients may need a larger law firm to represent them (if your civil liberties are at stake, you really don’t want to hire the lawyer on a fixed price schedule). In other cases, a flat-fee MLS may do them just fine.

However, at the end of the day, you get what you pay for in life and, if given a range of choice, one picks a choice which costs them money because it is unsuitable for their individual context, they live with the consequences of that decision. You cannot deny the option of that person to make that choice  and that mistake and policy-making should not be around this concept.

It will be interesting to see when and how the Competition Bureau rules.

Job seeking is not unlike other aspects of life. It is the small things that count. As someone who hires, a pool of job applicants can be classified into three broad categories: definitely interview, maybe interview and just not a good fit. In the “definitely interview” pool, in most cases, the difference between the job seekers on paper is small if non-existent. Similarly, how one moves from high up on the maybe interview pool to the definitely interview pool is quite small. What moves a job applicant from one pool to another or higher in a pool comes down to the small things.

Here are three to think about if you are looking for a job.

Customize your application. Word macros now make it very easy to insert a wide variety of potential employers’ details in the same cover letter. Generally, avoid doing this since it is easy for an employer to pick these out. For example, I once hired for an administrative position and received a resume that kept highlighting customer service skills.

Effective cover letters are customized, speaking to both the employer’s business and the position being sought. For example, if you apply for a  sales position in an IT company, highlight your technical skills and your success in previous sales positions.  If you do not have a large amount of experience, re-characterize your experience in an honest manner. The above-referenced customer service applicant could have told me about all the paperwork they had to process or they had to deal with their book-keeping and accounting department.

The interview begins before the formal interview. Assistants and receptionist tend to be good judges of character having to greet so many people every day. They also tend to have the ear of the boss (never ever under-estimate the worth of a good administrative assistant- they are not “mere” secretaries). How an interviewee treats the office staff has a critical bearing to an employer especially if an employer is finding any reason to cut a deep pool of qualified applicants.

For example, when I worked for a larger company that regularly hired summer students, an applicant showed some attitude to the person giving them a tour of the office. They were cut the second the employer was told about this incident. The morale of the story is be nice to everyone.

Follow up. In the last ten interviews I have conducted, two applicants actually followed up thanking me for my time, indicating they were interested in the position and they were a good fit. Think about that for a second. 80% of the “definitely interview” pile failed to take that one extra step to move one step closer to getting a job (or they were all not interested which I can confirm is not true). As an interesting observation, the two who did follow-up were both younger applicants which seems to dis-spell the myth that younger workers are apathetic job seekers.

Job seeking is like working your way up to the top of a pyramid. You begin at the bottom with lots of other people and other job seekers keep getting cut as one moves up to the next level. Where there are equal candidates on paper, it is often the small things that get you ahead.

Good luck.

If you are a condo owner or a condo real estate investor investor, or are contemplating investing in a condo, there are a few key factors to consider in 2010.

Maintenance fee escalation on new units: In the last 5-7 years, there have been a staggering number of new condos built in many major urban areas. As recently as 2008, 100,000 condo units were being registered a year in Toronto. In the first few years, maintenance fees can be kept low but in year 2-4, they tend to escalate as reserve funds and repairs begin to occur; condos are like new cars. They run fine for the first few years then you have to start putting money into them.

How great is the maintenance fee increase? I pulled this historical data from my own condo (which is now more than 10 years old). Here are the year to year increases in condo maintenance fees for the first 5 years: 0%, 2%, 15%, 7%, 0%. The spike in year 2-4 (I did not live here then) is probably due to reserve fund contributions given there is no pool, golf simulator or other perks to maintain.

Maintenance fees are typically included as part of rent in our local condo rental market. Thus, in newer condo units, owners may find their cash flow decreasing as maintenance fees go up. It is difficult to make up these increases since: (i) it is a renters’ market in most places and tenants can vote with their feet; and (ii) in rent control jurisdictions, an owner’s ability to increase rent is limited (for example, rent caps in 2010 are 2.1% in Ontario and 3.2% in British Columbia).

HST: Related to the first issue, HST will affect both condo owners and condo investors. The Globe and Mail summarized the issue with HST and condos very well. If you have bought a new condo which has not been occupied (i.e. you bought on plans), it may be worthwhile to consult your lawyer about the “material adverse change” or “material change” clause referenced in the Globe article.

Vacancy rates. In the U.S., rental vacancy rates rose to 8% nationally in Q4 2009- the highest in 8 years.  In markets where the vacancy rate fell (New York City), the average rents also fell. In Canada, the national apartment (includes condo) rental vacancy rate according to CMHC was 2.8% in October 2009 but, in terms of local effects, there were large increases in Alberta (3% increase) and B.C. (1% increase).

In other words, it is a renters’ market on the whole but all real estate is local in nature so please do investigate  the local vacancy rates and average rent in your market (preferably without a real estate agent who has a bias in the outcome; CMHC stats is a good start).

The above does not mean that one should not become a condo investor. Instead, it should frame an expectation of return for 2010. The one issue which is constant in condo investing is that cost control is not completely your own. The condo board sets the annual maintenance fee.

Thus, as a few practical steps, one should consider the cost side of the condo investing equation carefully by: (i) being active on the condo board; (ii) looking at the cost of financing carefully (there may be a stronger argument for condo investors to lock in mortgage rates  to give certainty of expenses especially in a rent control environment); and (iii) budget maintenance fees 5%-10% higher than they are in running your cash flow analysis.

Good luck.