All fired up

Globe Investor Magazine, May 22, 2008

Continued from Page 1

During the corporate governance craze, everyone was complaining about the family-controlled companies in this country. Is that such a bad thing these days?

Everyone went on about governance because you had some crooks -- Tyco, Enron, WorldCom. But, see, regulators are always behind the curve. Those guys are in jail, and they're still enacting laws. So, you have this overreaction that actually kills America's capital market. Canada has a phenomenon of voting and non-voting shares, and we have a company like that in Urbana Corp., which invests in exchanges. I'm not interested in building a company and having somebody take it over. I think that's a good thing in the Canadian experience, being next to such a massive capital market. Because we have companies that just would not exist up here otherwise -- Canadian Tire would be Dallas Tire Corp. It's preserved a lot of iconic companies.

Where does Canada's future lie?

It goes back to when regulators allowed the banks to come into the brokerage industry. Banks don't build industries; they destroy them. If you want to finance a company for $20-million, you have three companies to go to in Canada. Thirty years ago, you had 40. You've starved the market significantly of underwriters so the deals get done elsewhere. The only thing regulators have in their brain is, "More is better." I was on the board of the Investment Dealers' Association on several occasions, and I told staff to come to board meetings every quarter and find a regulation that we can remove or combine with another one, to simplify our regulations.

The problem in Canada is that we're next to such a large capital pool, and we've ended up losing head offices. And head offices are critical to building the economy. I was on a panel to see whether head offices are important. And I said, here's a good way to do it: Rent a plane and fly to Manhattan and circle the island for a while, and see if you see any drill rigs or manufacturing plants on Manhattan. And recognize that you have the highest concentration of wealth in the world, and of science and of intellect and services of every variety on that little island. Then go to, say, Sudbury. Fly around Sudbury. You don't have to do a study or build a model. It's really simple because everything from the arts to charities to legal firms, spin off from head offices. End of story. Full stop.

Which stock exchanges are you most interested in now?

We like India a lot. It's growing very fast -- who would ever believe Tata would take over Jaguar and Rover? -- and it has a rule of law underpinning its economic growth, so you have recourse if something doesn't work out. The problem with places like China, which is a wonderful economy, is that it's still a very arbitrary environment. We're also talking to other exchanges, in Cairo and southeast Asia. We don't have any problem getting the capital to pay for these acquisitions. It's getting the proper products we worry about.

What investing rules do you live by?

When I started our firm, there were three things I said were very important. No 1: No margin accounts. I don't want people borrowing money to buy securities. I was a professional trader. In one year, five guys I knew took their own life. I know what it's like when you want to throw up in the wastebasket when you're down. No 2: We don't do any underwriting. I don't want the compulsion to sell an issue because it's on our books and we have a commitment to do it. No. 3: Whenever we buy fixed-income securities for our clients, we only buy Government of Canada or Province of Ontario bonds or Treasury bills. We never buy corporate bonds, ever. So we make 50 basis points less-who cares? So any of [that] asset-backed commercial paper [was] just irrelevant to us in terms of our clients' holdings.

If you had $50,000 to invest right now, where would you put it?

I'd put it in our balanced fund right now, period. Because we do have some exchange properties and we do have some financial services, and I think fin services are an attractive area, period. If I were buying a specific stock, I would say NYSE stock.

I read that you recently received an Arabian horse from a Saudi sheikh.

I haven't received the horse, and I'm not pushing it. In Saudi Arabia, they can either give you a jewelled sword or a horse -- these are the top gifts [a sheikh would give] to some perceived potentate. Would that he had given me the jewelled sword because walking around Bay Street with a sword commands a certain respect. He has his own 767, and the Sheikh said he'd fly it over. One of my greatest fears is getting a call in the wee hours from the airport saying there's an Arabian horse waiting for me.

Caldwell's Rules for Investing

On Eliot Spitzer
"What a moron. That's part of the American phenomenon: You grow by tearing others down. And Spitzer clearly did it with a vicious sense of careerism. And that's unforgivable. You gotta be consistent in what you say and what you do."

Buddy, can you spare a toonie?
Caldwell carries around a pocketful of tiny bible tracts with toonies taped to them. When someone asks for spare change, he hands one over. "I know all the guys downtown. They call me
the Bible Man."

First investment
"I put $6,000 into a jockeyshorts maker. It went out of business but I saved money, because every time the founders popped up, I would warn people."

Investing idol
Himself. "Most money managers are egomaniacs who feel no one can do it as well as they can. And they're all mistaken, because it's me."

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