Skip Navigation

Contact Us

Robert Chalanchuk
Sahar Farajollahi
Nathalie Miljkovic
Michelle Blaine

Fax: 604-443-1530

Address
BMO Nesbitt Burns
885 West Georgia Street
18th Floor
Vancouver, BC
V6C 3E8
Map

A Recipe for Returns

Posted on: July 25, 2019

A Recipe for Returns



In my last piece, I suggested that “the holy grail of every investor is to have an investment process

that’s fluid enough to change a portfolio’s positioning as the business cycle and sentiment is

changing.

I know what you’re thinking, “did Robert just quote himself?”
 

The answer is yes—yes, I did. But, you may also be looking for a little context to this essential

investment principle. So, let’s put a real world spin on the importance of “the process” that relates

to all (or most) of us, cooking.
 


Now, I won’t profess to be a whiz in the kitchen. I know enough to follow a recipe for the best

results, which in a way is the overarching point of this comparison. But, to better prepare our palate

for what I’m serving up, I want to make an important distinction:
 

Investment Process = Recipe

Investor Risk Tolerance = Taste

Investing Sentiment = Temperature
 

Follow a recipe.
 

First and foremost, not all of us can be Gordon Ramsay (or in our case Warren Buffett). To become

a Masterchef® you need to learn how and when ingredients should interact in order to prepare a

composed dish. Most recipes start with a base ingredient, something sturdy that allows other

ingredients to shine through and aligns with our initial plan. Much like investing, we don’t just start

cooking—it starts with a plan like “I feel like steak tonight,” or a goal like “I need to lose 10 pounds

in the next two months.” Once we have this framework, we start to assemble a set of

complementary holdings that accentuate our base before seasoning to the investor’s willingness

to take risk.
 

Fine-tune tastes.
 


Let’s say we start with a base like chicken. This is a staple of many diets and, like chicken, certain

holdings provide the same level of stability to portfolios. From here, we assess two things. First,

investor risk tolerance and then investing sentiment (which we’ll get to) in order to establish the

desired flavour profile. In the case of investor risk tolerance, a spicier spin on our base ingredient

will produce a volatile range of responses. Some may like the heat of a jerk sauce while others are

sure to hate it; this is the repercussion of high-risk, high-reward. On the other hand, a safer (some

might say “bland”) approach will produce more certainty. Cordon bleu may not be as exciting, but

it’s less risky and more likely to appease your goal of generating long-term return.
 


Know your temps.
 

Taste is two-fold. There’s the flavour profile of the investor and then there’s the temperature of the

economic climate. Investing sentiment considers to what degree we’re willing to pursue returns.

This might be the most pivotal piece in the entire process because you can’t dictate sentiment or

policy. In some cases, you might want to “kick it up a notch” (shoutout to Emeril Lagasse) to ride

the wave of a prevailing industry segment. I’d equate this to cooking on a skillet with hot oil—it’s

likely that you’ll get burned if you’re not paying attention. In other cases, political factors like the

threat of a trade war might require a more conservative approach. This would be like a simmer,

intended to control what might be boiling over between trade partners.
 


* * *

What’s my recipe for success? The short answer is, “it depends.”
 

For me, like cooking, investing is like a well-composed bit of chaos. There are a number of ways to

configure a portfolio that tempts the tastebuds, but the true art is in remaining disciplined. Control

what you can, anticipate what you can’t and adjust along the way.
 


Cooking is like painting or writing a song. Just as there are only so many notes or
 

colors, there are only so many flavors - it's how you combine them that sets you apart.
 


—Wolfgang Puck


Next

Blog Archive