Everyone Has a Plan Until…
Written by Paul Siluch
February 21st, 2024
“Everyone has a plan 'till they get punched in the mouth.”
-Mike Tyson
Years ago, a client lost his wife far too early. She was just 54 and he was 63. He was supposed to die first because her mother, still alive, survived until 102. You don’t plan for things like this. They certainly didn’t.
He carried on for 14 more years, although “shambled through” was a more appropriate term than “carried on.” Money was not a concern, but his days were long. He never really got over the loss, with life more existence than experience.
We all have weaknesses and his, unfortunately, was alcohol. Loneliness and the bottle are not good companions – or they are excellent companions, depending on how you look at it – and those dependent on alcohol seek out others with similar traits. He moved through a succession of partners over the years until finally settling for a woman far younger with an even worse drinking problem.
It was his life, so I can’t judge. His estate planning choices I can judge, though.
They were not good.
Because he genuinely cared for this woman, he left half his estate to her. She was just 47 so it made some sense that she would need financial support for many more years.
His children were not consulted. They should have been.
He died two years later at 77. In a dark twist, his common-law partner died just 30 days later at the age of 49. The plan to support her for decades turned into a sudden windfall for her brothers and sisters, none of whom had spoken to her for years because of her alcoholism.
They won. The man’s children lost.
If you hadn’t guessed, this is the story of my own father. He was a brilliant surgeon and a good man, but one who succumbed to the demon in the bottle. He fought it all his life. It still came for him in the end.
We did try to break the will. It was constructed soundly based on his wishes. I can’t fault him for wanting to provide for his partner, but it should have been set up as a lifetime income with the capital being left to the children. Our mother’s half of the estate went to a woman’s family we didn’t know.
It left scars that are still a little raw.
The point of this personal revelation is that estate planning is more and more important because the assets and wealth passing on to the next generation are often going to split families. Every contingency needs to be thought through because what could never happen is often exactly what ends up happening.
Gather your professionals and your family together and have a frank discussion about what you want, what they want, and how to plan accordingly. Preparations can be made. My dad didn’t. Unforeseen circumstances happened.
Raymond James now has a trust services division – something I have pushed the company to open for twenty years. It was not easy to set up. Canada’s banks guard their turf extremely well and they regard trust services as their turf.
Under our new Solus Trust banner, we can now function as executors in a will, trustees for trusts (set up in life or upon death), and in a variety of other roles in between.
If you would like to discuss what to do or how to do it, ask. Then if your will needs updating based on these discussions, do it. We can arrange a meeting in person or over Zoom.
Our estate plan got punched in the mouth. Don’t let it happen to you.
“You have to be a romantic to invest yourself, your money, and your time in cheese.”
– Anthony Bourdain
We bought shares in Saputo for our managed portfolios last week. Saputo is one of the largest dairy producers in the world, encompassing everything from milk to cheese to yogurt and all the lactose family relatives that live between.
Cheese goes back to our earliest beginnings. The ancients either experimented or stumbled their way into the earliest forms of cheese, which is created from milk curdling when bacteria create lactic acid. This became a way of preserving a food that went bad very quickly.
It was, perhaps, the first packaged food in humanity’s existence. Cheese kept without spoiling, giving it a long shelf life before shelves were even invented.
The Egyptians made cheese, the best of which was wrapped and buried with the pharaohs in the Valley of the Kings. The Mongol horde lived off small balls of fermented mare’s milk wrapped around bits of meat. They rode non-stop for days, sleeping on their horses and eating these tiny protein-packed cheese packets. Attila was able to cover hundreds of miles quickly with such a mobile army and they descended on the Romans and Persians with a speed never seen before.
Cheese came into its own in the Middle Ages as religious orders perfected agrarian methods. Crop rotation, cross-pollination, as well as advances in cheese flavouring using beer, hazelnuts, and butter took off under the experiments of nuns and monks.
Saputo is Canada’s largest cheese maker and second largest dairy producer, and a top 3 cheese producer in the U.S. Its products sell in 60 other countries across the world. We know Saputo best from the Dairyland brand here in western Canada and every store from Kroger to Wal-Mart and Whole Foods carries their various brands.
Milk is a tightly controlled business in Canada. Most dairy farms and co-ops sign exclusive agreements with producers like Saputo, giving them a strong moat against new competition.
Sounds like a recipe to make money, right?
Not always. Saputo and competitors Agropur and Danone don’t operate their own stores. They are at the mercy of grocery giants to stock their products. Wal-Mart and Costco drive a hard bargain to secure shelf space and so profit is measured in pennies rather than dollars.
All milk products spoil and even cheese only lasts so long, despite the miracles the Mongols and monks did with it. Potato chips and dry foods, like cereals, have a distinct advantage in warehouses. Cheesemakers must carefully gauge every aspect from the milking of cows to production, and to final packaging when determining every transaction.
The biggest headwind, however, is not shelf life. It is people drinking less milk. When I was a kid, milk was served at every meal. My mother made powdered milk for four children because we drank up to two gallons a day. Families are smaller now and lactose intolerance is an issue with many immigrants from countries – like Asia – that don’t have cow-centred cultures. We get calcium from other sources, even as the modern diet is calcium-poor for many.
Saputo has diversified their revenue to combat this. The company sells about a third of their cheese directly to restaurants (think pizza chains), hotels, and other food service operators. They introduced lactose-free milk and enriched it with protein and vitamins to increase its appeal. They have created yogurt in every flavour and every style, from creamy to the stiff Greek style. They sell milk by-products like whey as a protein and fitness supplement.
But there is only so much a company can do to sell to a static market. Dairy companies have merged to gain market share even as they battle to steal sales from one another. Saputo closed three older facilities in the U.S. while investing in new lines, such as string cheese. Saputo’s sales have been increasing for the last five years but profits have stagnated, resulting in a laggard stock price.
It is down around 40% from its all-time highs in 2016, while sales are up 50% in that same period. Profitless prosperity, we call it.
It can’t last and we think it won’t.
Saputo is taking steps to cut costs and grow profits. As mentioned, they are closing older plants and adding new products. They are paying down debt and have raised their dividend every year but one in the past twenty-five years.
Saputo is never going to be the next Apple Computer, bringing out a new-and-improved cheese every year. It is, however, an undervalued giant quietly improving in a slow-growth industry. We think, given its current multi-year low valuation, the market is too pessimistic on Saputo’s future prospects. Our base case is a 20% improvement in the share price over time.
Like Saputo’s finest cheddar, we hope this investment ages well.
