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IRA GLUSKIN

Saturday, December 17, 2005

I have decided to share with you some of my recent activities so that you realize how tough this investment management job really is. My biggest priority was to study Canadian Business Magazine's Dec. 5 edition with its detailed discussion of the 100 wealthiest people in Canada.

It may sound elementary, but if you are going to manage money for high net-worth families it is necessary to have some high net-worth families as clients in order to perfect your craft. Fortuitously some of our larger clients were on the list. Confidentiality is of ultra importance in our industry and the only inside information that I can give you about the top 100 is that Montreal money manager Stephen Jarislowsky, No. 25 on the list, is not one of our clients.

Then I began to think about the accuracy of the list and I realized how little the magazine really knew about the land development and home building industries in Canada, as they are privately owned. By contrast in the United States around 25 per cent of homes are built by public companies.

There was a time when many land and housing companies were public in Canada. In my former life I was a real estate analyst for a brokerage firm and followed many of these Canadian real estate companies.

They disappeared from the public world for a variety of reasons, but the essential one is that the Canadian stock market did not like them. Either the profits were too low because the lands were not being approved fast enough for development and sale, or the earnings were too high and were viewed as being non-recurring. My conclusion is that the real estate industry has many more rich people than Canadian Business realizes by a large factor.

Some real estate families have been very lucky. Some relatives acquired the assets and the following generations had the wisdom to do nothing.

Most successful real estate executives are very smart and one of the smartest was Marco Muzzo, an extremely successful Toronto developer, who died earlier this month at 73.

My partner Gerald Sheff, in his prior life, was an executive of Cadillac Fairview and he knew Marco well, which is how I met him.

Marco did not have a degree from a prominent business school, but he was probably more intelligent than almost anyone I have met over the years. He also worked long hours seven days a week, 12 months of the year, which is, in my opinion, a key to success.

Marco and his trusted friends Fred DeGasperis and Rudy Bratty have demonstrated business skills superior to almost anyone in the country and their saga is worth recounting.

Income trusts

Back to my diary. I have avoided writing another income trust article even though there is much new information. The feds conceded on trusts and the securities have been strong, but their appreciation was aided by a strong recovery in oil and oil securities. It became the polar opposite of the so-called perfect storm, I talked about a month ago. I spoke publicly on the topic several times including a presentation at a prominent think tank institute, a university setting, a real estate forum and a Report on Business Television interview. Each time I found myself saying the same thing.

Yes, the trusts look okay for now, but the government is not your friend when it comes to trust regulation. I spoke to two TV reporters who were pursuing the story that a leak had occurred on the day before Finance Minister Ralph Goodale decided to change the tax on dividends and leave the trusts alone.

My argument is that one cannot have very high quality inside information if the government did not know what it was going to do, as was demonstrated by Mr. Goodale's parliamentary secretary, who got the government's position all wrong at 5 p.m. on the actual day.

My final thoughts are very simple. There is a strong recovery occurring in resources and technology. Inevitably investors in these sectors will lose a lot of money. I can't argue that you should not speculate at times in these sectors. I am guilty of speculating the odd time myself, without any great success I might say.

At least don't bet the whole ranch is my only piece of advice. It is apparent to me that we are very close to an explosion of interest in junior gold mining issues. All we need is the slightest bit of exploration success from anyone and anywhere and the market will go crazy. The good news is that commentators will have this sector to worry about instead of income trusts.

Ira Gluskin is president and chief investment officer of Gluskin Sheff + Associates.

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