Lunch and Learn – June 2018

June 15, 2018

By: Dennis Ensing

Our SWO Angels Winter/Spring session wraps up next week with our monthly Investor Meeting on Thursday June 21 before a summer recess. However, this week we had our long-anticipated Lunch & Learn – “Managing Your Angel Investment Portfolio”.

This was our second members-only educational session this year, originally scheduled for February but rescheduled twice due to other very interesting opportunities that arose including the February session “Character Matters” with Dr. Mary Crossan and April’s joint event with GTAN and Angel One on Artificial Intelligence.

The session was hosted this past Wednesday by Voices.com in downtown London. Thank you to David Ciccarelli for making the their forum available to us – and joining in with us – and to his EA, Mel Whilloughby for all her assistance with logistics!

Members Peter Mastorakos and Hank Vander Laan shared presentations slots with me. The essence of the session can be summarized by these observations made by Steven Gideon in his book “Practical Guide to Angel Investing” published by NACO Canada:

“Good news – you are wealthy enough to make private investments. Bad news – most of your investments will be complete losses! The reality – you should invest in a portfolio of as many as 20 or more companies in order to gain average investment returns of 27%.”

So, our presentation was designed to provide an overview of the opportunity, help members manage the risk and improve their potential for a good return.

Peter kicked us off with an overview of the historical risk and potential return from various public investment asset classes and the merits of diversification and continual rebalancing in your portfolio. He summed up with two schools of thought on effective diversification:

“The late-value investor Benjamin Graham argued that a portfolio of 10 to 30 carefully-chosen stocks provides all the diversification you need.

Alternatively, you can always follow the adage that ‘if you can’t tie a good knot, tie a lot of them’!”

I then talked about the portion of your net worth that might be allocated to angel investing and how the same principals apply – but with even more volatility due to the nature of the asset class – so a portfolio approach is imperative. Research shows that that just over half of all angel investments never return their original capital or fail completely. In contrast, 10% of exits produce 90% of total returns. Investing in only a couple of deals over several years (ie “dabbling” at being an Angel) is a weak investment strategy.

We also talked about a good process to set your own goals and objectives, and stick to them as well as the portfolio benefits of being in an Angel Group.

Finally, Hank capped the session off with the approach he and his wife took to engage with his family from a very early stage on all aspects of their wealth management, including their angel investment portfolio. He emphasized the need and benefit of professional tax and legal advice, but also maintained that full transparency in an annual family meeting provides fertile ground for learning, effective succession, and engagement.