Garth Turner may shout louder than anyone about a housing bubble in Canada currently, but he should know really, being as he was helping salespeople to sell mortgages and HELOCs to leverage into Mutual Funds at high pressure sales seminars as far back as 1997.
"A common complaint against financial seminars is that investors are encouraged to leverage themselves heavily to invest, either via a loan or the equity in their home. Duff Young, once a familiar presence at seminars-he's cut back appearances-and now a marketer of his own software programs for financial advisers, notes that seminars promoting leverage can be substantial moneymakers for sponsoring brokers or financial advisers.
"If the adviser gets 100 people [to attend]," Young explains, "and just 10 of them go along with the idea, each borrowing $100,000 to invest, that's $1 million in mutual-fund sales, or $50,000 in commission for the adviser. Not bad for an evening's work."
Young questions the penchant at these leverage-oriented seminars for promoting lump-sum investments. Seminar salespeople rarely propose equal monthly investments to benefit from dollar-cost averaging, Young says, and he claims to know why.
"With a lump sum [the salespeople] make all the commissions upfront. Ask about dollar-cost averaging and they say, 'Listen, the client might chicken out if he only puts 20 grand in this month and the market drops.' But if the client has invested 20 grand, and you can't convince him to buy more now that the price is lower, I want to ask, 'What are you getting paid for, anyway?'"
Stan Buell, president of the Small Investors Protection Association, recalls one seminar he attended just before the current bear market struck. "The core of the presentation was to use the equity in your home," Buell says, "to borrow money on it and invest in the market.
A lot of the people attending this seminar were older people. I'm sure many of them would have invested that way, and many of them would have lost a substantial part of their equity.
The lead speaker at the seminar was Garth Turner.
Criticism of his work ignites a fire in Garth Turner's eyes. People don't understand what financial commentators are trying to do, he suggests.
"It's so easy to sit on the sidelines and take a shot at the guy on the stage." We are seated in a small office near Turner's Bay Street TV production studio. "And you guys [the media] do it so well. I'm not complaining for myself. I've got a thick skin. I proved that in Ottawa."
(Turner served as Revenue Minister in Kim Campbell's short-lived 1993 Tory government.) "Go out and hear what people are saying," he instructs. "Determine whether we are doing a public service of education, or whether it's sales. That's a huge distinction. People who go out to motivate the public, that's great. People who go out to sell product, and they're not licensed-that's wrong."
Turner may not directly sell investment products, but he clearly associates himself with them. He speaks at seminars sponsored by banks and financial advisers, and has appeared in television "advertorials" for CIBC and AIM Funds with the tag line,
"Looking out for your financial health I'm Garth Turner."
As in his advertorials, Turner elides the distinction between advertising and information as principal owner of Millennium Media Television, which produces 250 shows annually, many of them broadcast on the Global and CTV networks. As the CBC-TV program Disclosure revealed, some of Turner's shows-company profiles-do not make clear that they are paid for by the featured companies, the aim being to enhance their investment appeal.
Duff Young recalls speaking at a seminar in October, 1997, "and the financial adviser who hired me had previously used Garth Turner. He said he'd had excellent results, which meant he earned a ton of commissions. Turner had proposed leveraged purchases of mutual funds, using home equity as security to borrow the money."
What disturbed Young was not Turner's recommendation, nor the opportunity for the broker to make a substantial gross from his own appearance, but the presence of a third party that was aggressively marketing leverage. "An hour before my presentation, I'm horrified to see a mortgage lender setting up a booth at the back, and someone placing mortgage applications on every chair in the place."
Young demanded to know if the seminar operator was recommending real estate-backed leveraging for everybody. "And he says, 'No, of course not. That wouldn't be appropriate. I only recommend leveraging for homeowners!'"
Turner says he covers about 35 different investment strategies during a seminar. "The idea is to get the juices flowing, so they think, 'I'm not a victim, goddammit. I'm not going to be a victim of this economy or this stock market or my bank. I'm going to be proactive and seek solutions.'"
Turner promulgated his strategy of pulling equity out of one's home and plunging it into diversified mutual funds in his book The Strategy: A Homeowner's Guide to Wealth Creation. It includes some quite pointed advice.
Turner writes: "If your real estate falls in value, to the point where the home equity loan is greater than the worth of your home, you can always take a walk. Then it's the bank's problem." But it's not just the bank's problem, as any real estate lawyer or banker will confirm. In Ontario and most other provinces, a homeowner continues to be liable for mortgage debt.
To be fair, Turner warns readers in the "Caution" at the front of his book, "If laying your paid-for home on the line will keep you awake and in a sweat at night, put this down." And when he discusses investment strategies at his seminars, home-equity leveraging may receive no more than a minute's mention, Turner says. But he's adamant about the strategy's premise. "Everybody thinks real estate is a good investment," he says. "Are you kidding? You buy an asset with 90% leverage and you think it's a safe investment? We've got to get out of this mindset."
It takes an unrepentant bull to propose Turner's style of real-estate leveraging. Which raises the question: Just how prescient has Turner been in recent years?
In a Canoe "Money" chat room back on Sept. 27, 2000, Turner assured participants that the stock market was undergoing a mini-correction, that the Dow would hit 30,000 by 2006, and that "Nortel [then trading at $96.60] is a wonderful company and, given the recent decline, I think it is a strong 'buy.'" That day, the TSE closed at 10,250.
Barely two months later his enthusiasm refused to wane, despite a TSE index of 8,945 and a price for Nortel stock of $56.35. "Will the Nasdaq again reach 5,000 and the TSE attain 11,000?" Turner asked. "Will it be warmer again in April? How about clipping this column and taping it to the fridge?"
Those who did would have noticed that, as of March 26, 2001, the TSE had slipped to 7,686 and Nortel, at $25.60, had begun its slide to penny-stock status. Turner remained confident: "By the time the flowers bloom in Saskatoon, the back of the bear market will have been broken. We will see sustained gains in Toronto and New York, and those who fled from stocks and equity funds into cash and money-market funds, taking a loss in the process, will be sorry indeed." The bull was still charging.
It's true that plopping a lump sum on Nortel in 1995 and selling the stock in the first half of 2000 would have earned a major chunk of profit. Not so later. This sort of brinksmanship is not what the average homeowner's investment strategy is made of.
Turner is not registered by the OSC or any provincial securities commission, nor does he intend to be. "I'm not in the business of selling product. I'll write a book and they'll market my book, but I don't want to be a mutual fund salesman. I don't want to stand in front of a crowd and say, 'Go and buy XYZ Income Trust.'
That's not my thing. I don't want to cross the line from information to sales."
Now it is true this was a while ago, and having been advising people to leverage their real estate equity into the tech bubble, Nortel etc, doubtlessly hurting and wiping out many who followed his schemes, and then re-emerged and reinvented himself, surely he would have learnt from his mistakes, and not do that again?
It is difficult to be certain, although ten years later this blog post was only several months before the two real worst years in recent stock market history
Turner has deleted all the /columns/ entries from his old site, and prevented search engines from spidering what is still there with his site's robots.txt file
But as the domain was registered in 2000, but only seems to have any content from 2005-2009, it would appear a reinvention and/or cover up or two may have taken place along the way. The books should help shine some light and establish a clearer forensic investment chronology, watch this space.
Edit. This post was quite early in proceedings, articles from the 2006 era have since surfaced and yes, indeed, Turner was doing exactly the same thing, yet again.
As he still is to THIS DAY, in fact.
Edit. This post was quite early in proceedings, articles from the 2006 era have since surfaced and yes, indeed, Turner was doing exactly the same thing, yet again.
As he still is to THIS DAY, in fact.
No comments:
Post a Comment