E32: Fourth Quarter Letter 2023 - The Coby Edition

This podcast is brought to you by Gensler Wealth. The information discussed today is meant to be general in nature and not tailored to your specific investing circumstances. This means that you should talk to your regular Ginsler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation, and past performance does not guarantee future returns. This podcast discusses the current war in Gaza and other wars involving Israel. If you don't like what I have to say, you can turn it off. Today on the unlimited podcast, I read my 2023 Q4 client letter where I share the story of another Israel war, an Israeli tank commander, and how Israel and its soldiers conduct themselves. And there's a moral to this story. Let's go. Hi everyone. Welcome to the Unlimited podcast. This is what I do four times a year, which is I read read my quarterly letter to our clients. So this is the 2023 fourth quarter client update. I call this the Kobe Edition 2 Gensler Wells clients. My last quarterly letter was released on the evening of Friday, October 6th. By the following morning, that letter couldn't have been less important given the horrific atrocities occurring in Israel and the resulting last three horrible months for Israel, Jews around the world and innocent Palestinians, wholly and solely a result of Hamas's atrocious attack on Israel and its citizens and Hamas's continued holding of hostages. Because my last letter was just an evening too soon to address and discuss the above, I wanted to use this year end letter to share a story about another Israel war, an Israeli tank commander, and how Israel and its soldiers conduct themselves. 1967 the Six Day War In June of 1967, Israel launched a preemptive strike on three of its neighboring Arab states to counter what it perceived was an imminent threat from Egypt, Jordan and Syria. Egyptian forces were caught by surprise by Israeli airstrikes, and nearly all of Egypt's military aerial assets were destroyed, giving Israel air supremacy. Simultaneously, the Israeli military launched a ground offensive into Egypt's Sinai Peninsula. After some initial resistance, Egypt's President Nasser ordered an evacuation of the Sinai Peninsula. By the sixth day of the conflict, Israel had occupied the entire Sinai Peninsula and in brackets I say Israeli provisional control over the Sinai peninsula ended in 1982 following the implementation of the 1979 Egypt Israel Peace Treaty, which saw Israel return the region to Egypt in exchange for the latter's recognition of Israel as a legitimate sovereign state. An endnote here just basically says that the source of this information is Wikipedia, with a little help from Chat GPT actually, and I won't list all the endnotes on a go forward basis. I would just encourage you to go to our website ginserwealth.com and you'll see this letter and all the accompanying endnotes and disclaimers. Part of the ground offensive included the Armored Corps of the Israeli Defense forces or the IDF, and that's IDF's tank division. During the Six Day War, Israeli tank Commander Yaakov Susher led a battalion of tanks in the Sinai Peninsula. They were successful in defeating the Egyptian forces and had captured several Egyptian soldiers. With the heat of battle still raging and sensing the tensions between his IDF troops and the captured Egyptian soldiers could easily escalate, Commander Sucher climbed to the top of his tank in full view of his troops and ordered that no Egyptian soldier shall be harmed from that moment forward and any IDF soldier doing so would answer to him. Six years later, during the Yom Kippur War, Commander Sucher would fight for Israel once again, this time in the Golan Heights. Yaakov got married, had two daughters in Israel, and then immigrated to Canada where he had a son. With his engineering degree from the Technion University in Tel Aviv, he eventually became certified as an engineer in Canada. Almost 30 years after the Six Day War, Yaakov went to pitch his engineering services to an architecture firm in Toronto. Upon seeing Yaakov, the Egyptian Canadian owner of the firm said to him, I know you were you in Sinai in 1967. You saved my life. 20 years later, upon Yaakov's passing in 2017 during the Shiva, which is the seven day mourning period following a Jewish funeral, that same Egyptian Canadian architect knocked on the door of my father in law Kobe's, which is the nickname for Yaakov house, to pay his respects for the man who saved his life by doing the right thing. This is how Kobe protected his enemies lives during war and how I believe the world needs to view the actions of Israel and its army today, which embraces life as opposed to terror and death both then and now. So yes, the twist Kobe Commander Susher was my father in law do the right thing. The work that we do managing your wealth is in no way comparable to Kobe's or any soldier's actions during wartime. But Cobe's clear example of doing the right thing is applicable to every action we take. Ensuring we act in your best interest is our guiding principle, even if it means we don't look good in the short term, as illustrated by the example below. Structured notes in your portfolios over the past year. Basically from the time interest rates started to rise dramatically, we have been investing on your behalf in securities called Structured Notes. I have previously written about these in my There's a There's notes to or links to two previous letters, 2023 Q2 letter and 2022 Q3 letter. You can find those online. The specific type of structured notes we invest in are called contingent income notes and they pay a high interest payment, for example 9 to 13% with our client average being approximately 11%. As long as a certain reference index does not fall by more than 30 or 40% and that's called the barrier level. We will only buy structured notes where the reference index is an index of the Big six Banks or Canada's large utilities companies as both indices tend to be reasonably stable and have a history of almost never falling below the above noted barrier levels. Based on almost 40 years of back testing of historical returns of the Big six Banks index, the historic probability of missing out on coupon payments has been less than 4% over the life of the structured note. Similarly, based on the same data and history, the probability of losing money. In other words, any impairment of one's principal investment on this type of structured note held until it is culled or until it matures has been zero percent. That's zero. And in the in the article online you will see a chart that describes the numbers and details that I've just explained. In short, in the current volatile economic and market environment we are able to generate for you a high rate of interest with dramatic downside protection. But because of how these structured notes are well structured, even though they will return to par over time shortly after they are purchased, they tend to trade below their purchase price. So although you may be collecting the high income rate, those holdings almost immediately show a loss on your statements and drag down your reported short term performance. Put another way, we bought you a security that we know is likely to go down temporarily and we earn less in fees. Since our fees are based on the value of your accounts, it would be easier for us to find something else to buy or stick to only traditional asset classes or heck, even just hold GICs. But that wouldn't be doing the right thing. We are willing to show weaker performance and earn less fees in the short term to ensure your long term investing success. This is because we are confident that these structured notes will deliver double digit returns with dramatic downside protection which is not easy to find these days. Now, I said I wasn't going to mention any endnotes, but of course I always have to say past performance is not indicative of future performance. Some of these things are not appropriate for all clients, so they're not in all client portfolios, et cetera, et cetera. Again, check the footnotes online Jomo and FOMO Speaking of short and long term, the end of this calendar year may be a good time to reassess your appetite for risk by reviewing the short and slightly longer term performance of the US Equity market. There's a chart that we've inserted here and it shows that 2022 was a terrible year for US equity investors, with a volatile ride ending in a negative 18% return. Aside from continuing volatility, 2023 was precisely the opposite of 2022, primarily driven by the big seven technology stocks, which I explained in my last quarterly letter that you can find online with the S&P 500 index up 26%. Sounds exciting, but what this means for most investors who are Invested in the US stock market from the beginning of 2022 and through to the end of 23, their annualized return was about 1.7%. Ginser wealth clients likely experienced Jomo. That's the joy of missing out on dreadful equity performance in 2022, but conversely may have experienced some FOMO in 2023, missing out on the full upside of 2023's US equity performance. Given the much more diversified portfolios clients tend to have here at Gensler wealth going into 2023, we were concerned about the resilience of equities. That concern hasn't abated as we enter 2024. We believe the right thing to do for you is tactically diversify across numerous asset classes and strategies to first, protect against losses and second, to grow your wealth prudently. If Kobe taught me anything during my time spent with him, it is to always do the right thing. And now more than ever, it seems like we need more Kobe's in this world. Wishing you unlimited health, happiness and peace in 2024. Thank you for your trust, support and confidence. We are available 24. Seven should you need us. Sincerely, me, Brian Gensler, President and CEO so that's the 2023 fourth quarter client letter. Looking forward to what I hope will be a more peaceful and calm 2024. Lots of ups and downs no doubt, as is the case every year. And we look forward to sharing with our clients and speaking with our clients more over the course of 2024 and sharing with everyone some interesting podcast guests that we have lined up for this year. So all the best for 2024. Happy New Year and look forward to speaking with you soon. Bye bye.

The unlimited podcast is hosted and produced by Brian Gensler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on social media. Insularwealth thanks for listening and see you next time.

Sam.