In 1987 when we started the Allan Bush Investment Team, we made it our standard to invest our clients’ money in securities that would produce what they needed to meet their goals, regardless of market ups and downs. In today’s economic environment, this continues to hold true.
We started to consider a different way of thinking about investing that would be effective in any market cycle. We asked ourselves, “How can we create a strategy that would help even the most conservative investor help lock-in profits and get the income they require?”
We often hear Allan discussing his now famous “Chicken, Rooster and Egg” analogy. In simple investment terms, chickens produce eggs, which you can think of as the income most Canadian investors need to live comfortably. If you were to buy roosters and needed income, you would have to sell the rooster to produce the required income regardless of the price.
At the Allan Bush Investment Team, we want to buy chickens. Here’s why:
Many Canadian investors need to live off the income from their capital. The most effective way to do this is to invest in dividend-paying stocks or fixed income to create steady cash flow – buy chickens and benefit from the eggs they lay. Employing this philosophy, we can be less concerned with the day-to-day price of an individual stock or bond and the impact it will have on a portfolio, as long as that same stock or bond is paying a consistent dividend or interest to the investor.
This leads to predictability, stability and less risk for your portfolio. In contrast, when you’re buying roosters, your day-to-day focus is to buy and sell assets to help pay for the things you need at the right price. This can lead to less consistency, less control and increased volatility.
When you’re buying roosters, your risk is closely related to market volatility, the focus on daily fluctuations and a constant worry about the markets’ decline. Alternatively, market volatility doesn’t matter when you’re buying chickens. In fact, new chickens can be added to the flock by benefiting from this volatility. Risk generally reflects the health of the flock or, to us, the underlying stocks in the portfolio.
Over the last several years, stocks prices have been fluctuating, we’ve experienced economic sluggishness and many investors haven’t been able to make the income they need. For more than 25 years, our investment philosophy has proven successful, and our clients have been able to consistently rely on a predictable and stable component of their total portfolio return that produces what they need, when they need it. And those two things are definitely “Better Together”.