How High is Up?: 2025 Year in Review
Download MP3Welcome back to the Our Family Office podcast. I'm your host, Adam Fisch. We recently published our year in review investment commentary at ourfamilyoffice.ca, and here to discuss it is our cofounder and chief investment officer, Neil Nisker. Neil, thanks for being here.
Neil Nisker:Thank you for having me.
Adam Fisch:Let's start with your own assessment of how you view 2025 from an investment perspective and maybe how it might remind you of some investment eras that you've lived through in the past.
Neil Nisker:Thank you, Adam. 2025 was a great year to invest because so many things hit new highs. Commodities, gold, silver, copper. We had cryptocurrencies, Bitcoin hitting a new high. It was the third year that the market gave more than just a double digit return, which is worrisome to me, but it was a good year to be long stocks.
Neil Nisker:It was the third year in a row. That was great to have equities in your portfolio. So it will go down in history as a positive year from an investment perspective. But and that's a big but, and I'm sure I'll comment on, you know, in some of your other questions what I mean by but.
Adam Fisch:So you- and you use the word worrisome in there. So what is it about a year like this or maybe consecutive years like this, three years like this, that worries you?
Neil Nisker:Well, as I hope our listeners will have take the time to read our year end commentary, the title is how high is up? Stocks don't go up forever. Asset classes don't go up forever. And right now, we can, with humility, talk about what we know and then what we don't know. And every few months or weeks, there is something new. We call it a crisis. Call it a mini crisis. But something new that we have not experienced in our lifetimes, and it reminds me of the expression "as if we don't have enough to worry about." And that includes things like tariffs. We haven't seen them in a hundred years. We know they're inflationary, and the market volatility obviously increased because it's an additive to the unknowns, and that causes us concern.
Adam Fisch:And you mentioned earlier markets, commodities, even Bitcoin reaching new highs in 2025, a number of assets. How do you differentiate a healthy trend from the formation or maybe, you know, the the inflation of a bubble?
Neil Nisker:Thank you for asking that question. Well, it takes me back a long time, almost fifty four years in the investment business when I'm almost embarrassed to say this, I was mentored by Sir John Templeton, one of the great investment gurus at the time. And this was 1972, and we were taught, I was taught to buy bargains, to be a contrarian. When everyone's buying, sell. When everyone's selling, buy. Buy at the height of capitulation when people are saying, I'll never own a stock again. Well, what we've experienced over the last couple of years is the antithesis of that. It's fear of missing out. It's people gambling in the stock market. You have to understand that anyone under the age of 45 has not lived through that decade of investments from 2000 to 2010 when the stock market was down over 40% on two occasions, and it's simple mathematics. The arithmetic is when you're down 40%, you have to be up 66.6% just to get back to where you were. So when I see this exuberance, whether it's rational or irrational, when I see these bubbles inflating, I get concerned. And our business is stay rich, not get rich, and we take very little risk to make sure that we can do well with our family's funds liquidity that we manage on their behalf.
Adam Fisch:So let's talk about some of those big drawdowns, because in the commentary, you mentioned the .com era, 2008, 1929, you know, even the Tulip Mania. Are there red flags today that kind of rhyme with those periods?
Neil Nisker:Yes. And at one time, you could argue, you know, it could be cryptocurrencies. The issue is we are asset allocators, and we look for asset classes that will perform consistently. When you have people chasing the flavor of the month, if you will, it reminds me of times going back to I'm talking, you know, four hundred years ago, tulip mania, when farmers were selling their cows, that provided milk and meat, to speculate on the the inflated price of tulip bulbs, or the Mississippi land company where people in Europe were buying land or stock in this company around the Mississippi Delta speculating, and of course, they all went to zero.
Neil Nisker:It reminds me of 1929, which is a great book to read as an aside. It will scare you, and you may take your foot off the accelerator in terms of owning stocks, but it is an important read. So subprimemortgage bubble, history shows that things don't go up forever, and we have not had a major correction. As a matter of fact, there's only been three occasions in the last hundred and twenty years where we've had a stock market go up four years in a row double digit. We've already had three. I'll let the audience decide what the future holds. We do not have a crystal ball, but it is worrisome to us.
Adam Fisch:Now being sort of playing the other side of that question, if you were looking at things today, you know, AI is the obvious. As you talked about the flavor of the month, it's really the flavor of the decade, let's say. And, you know, if I was comparing that to say the tulip mania, I would say, well, AI is not going to zero. Right? AI is not worthless the way that speculating on Mississippi Delta land or the tulips in Holland were worthless or next to worthless.
Adam Fisch:Right? We know AI has value. It's tremendous technology. It's world changing, all of that. So with all of the investment in that area, both people buying stocks in the companies and then the investment that those companies are making, You talk about return on invested capital. Right? So what would signal that expectations that people have for AI, not as a technology, but as an investment, are becoming detached from the fundamentals?
Neil Nisker:It's an important question. I will try to answer it. AI is here to stay. Just like during the dot com bubble, computers, software was here to stay. 95% of the companies in 1999 that were involved in software didn't exist three, four years later.
Neil Nisker:There are thousands of companies involved in AI. AI will change our life. AI will displace a number of people, and that it will impact the job market. What we don't know about AI, even though it's here to stay, even though it will have positive ramifications, but there will also be negative effects, and no one is talking about the negative effects. Very few people are talking about the trillions of dollars that will be invested in AI.
Neil Nisker:It already has a jump start in terms of people spending money for storage. One of the questions that we can't answer today is how long will those chips last? You know, from an accounting measurement point of view, do you amortize it for twenty years? Do you expense it over three, four, five years? When's the next generation?
Neil Nisker:These are questions that we don't have answers to today, and when you have questions without answers, you need to be cautious. So even though AI is a wonderful tool, we've been using it for over a decade and googling things, There will be competition. We don't know who's gonna survive, and we don't know how many how how much profits will be delivered to those shareholders. Again, when you look at investing in a company, and we are passive. We invest in the S and P 500 and other indices.
Neil Nisker:But when you invest in a company, you must be able to say what is the value of this enterprise. Now, I was taught to buy at a discount to the intrinsic value, to book value, low PE stocks, but today, we don't know what future earnings of these companies are going to be. Therefore, it's hard to say what is the intrinsic value, and it's hard if you don't know what the intrinsic value is to buy at a discount to intrinsic value. What we know is there are a lot of people chasing this flavor of the month with anticipation that they'll make gazillion dollars of profits, and that is what's unpredictable. So I'd rather pay more to know more, and at this point in time in the cycle, given the bubble that's inflating, we're not saying when it'll burst, but at some point in time, bubbles will burst. History has taught us that. It's a time to be cautious. It's not the time to own zero stocks, but it is a time to be cautious.
Adam Fisch:And I think that's an important distinction because I think some people draw a direct line between a forecast about an investment and a forecast about the underlying business that the investment is in. And those don't necessarily need to be aligned because as you said, it's more about, well, what's the value that you're paying for? And in a new industry like this, when the future is harder to see, it's less predictable, it gives us more caution because it's harder to forecast.
Neil Nisker:You're a 100% right. We live in a time now where, as I've said a moment ago, every month or so, there is a surprise. Very few are positive. Think of the news, whether it's Fox, CNN, or CBC. When you listen to news today, what percent of the news is negative? And we can debate whether it's 80 or 90%. Right.
Adam Fisch:But Somewhere around there.
Neil Nisker:The majority of news today is negative. Is that positive for the stock market or not? When you think of geopolitical events, when you think of, you know, United States and what they're doing in Venezuela, when you think of do you remember terms congress and senate? When's the last time that they were front and center in what's going on in America? When you look at the independence of the Federal Reserve being questioned by president of The United States because in his view, interest rates aren't going down fast enough. These are all cause for concerns. Now again, we are in the business of keeping our ultra high net worth families liquid, wealthy. Our goal is to double their money in ten years. That's a 7% return, which is a great return historically. Okay?
Neil Nisker:Compared to a stock market of 10% over the last hundred years or so. If we can double their money in ten years without taking risk, and I'm talking about volatility half of government bonds, then we believe we're doing our job. That is our philosophy. We have a dedicated process to achieving those returns. Historically, we have.
Neil Nisker:We've done very well. Even when the stock market goes down, our our families are up, and that's something we're proud of. Are are we always in favor? Do we get questions once in a while? Why don't we own more equities? Well, of course, we do. Do we feel uncomfortable when the equity returns are higher than our portfolio returns? But you cannot compare the apples to oranges. It makes no sense. What we're looking at is a strategy where equities are important, but they're not the most important thing.
Neil Nisker:You know, I'm reminded of an expression, if you only have a hammer, everything looks like a nail. And all the news about business, it's not about our other asset classes, real estate, mortgages, lending, credits, private equity, venture capital. We're in 13 different asset classes. We have 18 different managers, 21 different strategies. So it's not just about stocks, and that's what the gambling that's taking place on Wall Street and on Bay Street here in Toronto is really mostly about, chasing returns. We don't chase returns. We look for opportunities that make sense to us given the risk profile of our families.
Adam Fisch:And maybe expand on that particular point a little bit because you do talk in the commentary about, you know, our unwavering focus on risk. Why is risk management more important than return generation for our clientele?
Neil Nisker:It's important because no one does it. When you have a- when you meet a stockbroker or a money manager, they're selling their performance. And when I speak at conferences around North America, one of the talks I give is called the other r word, rethinking risk and return. And if you wanna sleep at night, you don't wanna see drawdowns of 40%, as I I mentioned earlier, where you have to be up 66.6% just to get back to where you were. If you have a drawdown of 10%, all you have to do is be up 11% to get back to where you were, and that's easy to do.
Neil Nisker:So we position our portfolios where the drawdown's minimal. Plus, we have families that have exceptional net worths where they don't care. They just don't wanna live with volatility. They're not investing necessarily being you know, a young person making their first or 5,000,000. These are families with 50,000,000, a 100,000,000, half a billion, and all they wanna do is have a portfolio where they can be calm, where they don't have to worry about drawdowns and volatility, and that's the market that we focus in.
Neil Nisker:So we're not everything to everybody. We have a particular niche. We only want families who understand and appreciate our philosophy, and it works historically. You know, the Warren Buffets and Templetons and and Klarmans and Howard Marks of the world, this is the same philosophy, and that's the philosophy that I was taught, you know, as I say, over, you know, five decades ago.
Adam Fisch:So as a final question, as we move into 2026, what gives you confidence, and what keeps you cautious about the road ahead?
Neil Nisker:2026 will be a very interesting year. I don't think it necessarily will be as positive for the stock market, as the previous three years. I'm not gonna bet it's gonna be down or up, but our capital market assumptions, which is a view of the future where I believe we're one of the few Canadian firms that actually have capital market assumptions. In other words, how do we think equities will perform over the next five years in bonds and mortgages and real estate, etcetera? In The United States, almost every money manager or bank uses capital market assumptions because you need a view of the future.
Neil Nisker:And having a view of the future is simply we believe equities will do six and a half percent over the next five years. Goldman Sachs says 3%. Neuberger Berman says four to 5%. So many people are below our what we thought was conservative six and a half percent. The volatility of equities, we can debate, is 16 to 18% given your measurement period.
Neil Nisker:But the point being that if we can get you better than a stock market return over the next five years for less than one quarter of the risk, okay, then we're doing more than our job. We're managing our clients' expectations. We're exceeding expectations, and and I'm comfortable with that. We are participating in the equity market.
Neil Nisker:No, we don't own thirty, forty, 50% of our portfolios and equities. We're closer to 20. The bottom line is that we're very comfortable with our process of not losing money when the market goes down. You know, I joked in our presentation, in the investment commentary, that we serve very demanding families. When the market is up, they expect to be up, and when the market is down, they expect to be up. Historically, we've accomplished the goals of those families we serve.
Adam Fisch:Neil, thank you very much, and it'll be an interesting year ahead. So thanks for being here.
Neil Nisker:Thank you for having me.
Adam Fisch:Thank you so much for listening. Our Family Office is Canada's first purpose built shared family office, and the Our Family Office podcast is produced by Henry Shew. Please visit ourfamilyoffice.ca for more information about our firm, and don't forget to rate, review, and subscribe so you don't miss an episode. And of course, share it with your family. See you next time.
Adam Fisch:The information in this podcast presented as a general educational and informational resource only. While certain participants in this podcast may be registered to provide investment advice as a representative of Our Family Office, Inc, itself a registered firm in certain Canadian jurisdictions, this podcast does not provide individualized investment, financial planning, legal, tax, or insurance advice, nor is it meant as a recommendation to any listener to buy or sell any specific securities or otherwise take any other investment action. Any action you may take as a result of the information presented in this podcast is your own responsibility. Our Family Office, Inc. And each of its representatives that participate in any podcast disclaim that any listeners should rely in any way on any of this content as investment, tax, legal, or insurance advice.
Adam Fisch:Listeners are encouraged to consult with their individual investment advisor and other financial professionals prior to taking any potential investment actions or making any insurance or tax decisions.
