Last week, I had the privilege and opportunity to speak with a fund manager whose name and fund I can’t share because I haven’t gotten permission and don’t want to be exiled to Cuba. His firm specializes in fixed income, and with that alone I didn’t think this conversation was going to be that valuable. But of course, being the naive brat I am, I was wrong. And to my surprise, I learned quite a bit. Now, the whole meetup was originally planned by my brother-in-law, who’s been doing construction work at his property for a few years, where I even worked as a labourer back in 2022. But it wasn’t until this year that I asked for his contact and whether we could set up a time to talk stock. And even with a full calendar, he made space to have a quick chat over coffee. And chat, we did… for nearly 2 hours. I wanted to briefly share some of the interesting lessons I learned from this conversation (some obvious, some interesting). Because even if you’re not a fixed/passive income investor, there’s always something to learn from a different perspective. 1. Bonds aren’t just a way to hold short-term cash This is a more obvious specific insight I got from the talk. But near the beginning of the conversation, we started by talking about fixed income. (This is also his specialization so I figured it was worth including regardless.) And I’d say about 10 minutes in, he brought up fixed income via bonds as a core strategy and explained the ins and outs. Bonds, of course, are another asset class and they can be used as a short-term cash holding, but also as a core holding. For example, if you’ve read The Intelligent Investor, you’d be familiar with the different bond portfolios that are still talked about today (like 60/40). And that’s essentially the same thing. It also doesn’t just have to be government bonds. You can play with the risk profile of different types of bonds (corporate, government) to create a different end product for a portfolio. And there are entire industries built on this alone. Bonds can be a way to mitigate volatility, give some predictability to a person’s returns, etc. And even though I don’t think I’ll be using bonds in this way anytime soon, I thought it was interesting to learn about. 2. Insurance companies are superhero businesses He obviously didn’t say this line. But he did spend a good time talking about insurance companies and pension funds, and how they extraordinarily deploy capital. An insurance company takes in premiums, does some math on how often they need to pay out in claims, and invests the rest into bonds, stocks, etc., to earn a return. And that’s literally the entire business. Which you may already be familiar with. For pension funds specifically, he talked about how they act almost like an alternative fund manager, investing in bonds and equities. But also buying physical infrastructure (like CPPIB buying Ports America) which acts like fixed income, paying distributions. Now, I thought this whole part of the conversation was interesting specifically because it reminds me a lot like my $BN investment. Brookfield is a large asset manager with many different investment avenues, using capital it gains from distributions to deploy across different sectors to maximize returns. In other words, Brookfield is essentially a glorified pension fund. 3. Every investor has a different strategy, different approaches, different wants This is an obvious takeaway from the conversation, but I think it’s especially important given Blossom’s unique history with “strategy battles.” I’ve had my fair share of arguments with people on certain strategies because some of them do seem irrational. But the reality is that people are different and their takeaways of that strategy can be too. Or not even that, their goals and approaches can definitely be different. Him being an investment manger in finance obviously knows this better than anyone, since finance as a whole is just hearing someone’s perspective and wants, and applying that to a strategy they’re comfortable with. Definitely worth remembering for the future, even if you disagree with people. 4. Investing has so many different strategies and just sticking to one can limit you I’m a big proponent of honing in on one thing. Because I believe focus is what creates great return (not just financially). And he said for me that it’s good I’m interested already in a strategy and want to pursue it and learn from it, etc., but finance and the investment world is so large that there are plenty more strategies out there to learn from. I don’t think he said this as in “have 13 different strategies at once,” but more be open minded as you grow in your knowledge because there may be a different strategy you like in the future. He was into options and derivatives for most of his career, and only recently shifted to fixed income. Hence why he shared this lesson. Your opinions will change, so be open to change, essentially. Technically I’ve already put this into use, because I have experimented with swing trading and obviously, I’m now holding a large bond position. But it was a great reminder nonetheless. 5. AI is, in fact, changing the job market (especially finance) Now, possibly the most interesting takeaway from the conversation was our talk around AI. Which I was very interested in hearing about from someone in the industry, as someone investing in AI. I just asked him whether all of the headlines saying “most entry level white collar jobs will be gone within a couple years” are true. And whether finance will be hit hard specifically. And to my surprise, he said yes. At his firm specifically, he said they’re not firing, they’re just not hiring as much. And specifically not hiring entry level work which can now be done by AI. He said in the past all the entry level finance-specific jobs would be “slave laboured” for the admin work as a way to learn the basics of the industry before advancing in their career (similar to the legal industry). But now there’s no need for them because of AI. His firm is also building an agent to help with their specific offerings, and he said plenty of other firms are likely doing the same and that’ll lead to needing less specialized employees as well. He also said that with AI being used to sift through job applications too, grads are going to have a hard time landing interviews. However, to combat this, he said that showing true curiosity and differentiating yourself to employers goes a long way. And if you can be personable and interested in the industry, that’s incredibly valuable amid the growth of AI. Overall, I really enjoyed the conversation and I’m very grateful he took the time for it. Because learning a new perspective from an expert in the field is always worth it. And to end this post, I’ll just say what he said to me when we finished our conversation: “I like to talk, Jacob, so with everything I said, keep what’s valuable, and bin the rest.” Happy investing, folks.
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37 Comments
Jacob B@jacobb · 17dEdited
PS: Thank you so much everyone! A big virtual hug to those who voted for me. And an even bigger hug to the Blossom platform. Creator of the Year?! I definitely don’t deserve that. Sucks I missed BlossomCon, but looking forward to meeting some of you in the future when the time’s right! 🙂
Jared LaMarsh@nettspend · 17d
dude this is such a good POST. man this was very valuable and something i needed to hear. i love that you got to have this conversation!! dude this is why you’re the creator of the year.
ETF Go@etf.go · 17d
Anyone downplaying the usefulness of bonds hasn’t been around long enough. Many use cases so people should definitely keep an open mind. You don’t need to have a permanent allocation at all times but nothing wrong with making them part of any portfolios risk dial. 👍
Clantosa @clantosa · 17d
I've thought about a 10% bond allocation to my portfolio with the goal of reducing volatility and having "dry powder" in the event of a 20% drawdown but I can't justify doing it. The opportunity cost of having a large sum of money on the sidelines is too high and even if I get that 20% drop it likely won't matter since that discount doesn't make up the lost opportunity throughout the year or longer before that drop occurs. The reduced volatility is nice but the lost opportunity is too high of a risk to implement this strategy. So idk that I'll ever use bonds
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