I'm happy with the majority of the columns I wrote in 2015, but in the cruel world of investing, there's always more to be learned from mistakes than successes. Here's a look at two columns I wrote in 2015 that, if time travel were possible, I'd go back and wipe them from the face of the earth.
It's been three months since At long last, domestic oil stock prices look attractive was published and I still wince every time it comes up. In 500 misguided words, the piece argued that domestic energy stocks were attractive based on forward cash flow estimates.
The problem was not that the prediction turned out wrong – market timing is difficult and even the best investors are only right two times out of three – but because I should have known better.
Another more recent column, Strategy advice for 2016: Analyze yourself first, not markets, used numerous sources to point out that investors should study their own specific psychological tendencies and how they limit investing returns. I admitted that for me, I had to guard against impatience when making investing decisions.
In writing the piece recommending oil stocks, I fell victim to impatience yet again. Like a lot of Report on Business readers, the 'outlook dims for the energy sector' and 'crude glut set to worsen' stories got boring and I was looking for a change, forgetting that markets don't care about my feelings or anyone else's. Without realizing it, I was using an emotional heuristic or rule of thumb that says 'things have been so bad for so long that they must be about to turn' without looking closely enough at the data.
That column undid some early-year successes. Time after time, I warned investors that energy stocks were unlikely to recover sustainably until the North American oil glut conditions eased through declining production. Headlines like 'Investors buying energy stocks: what are you, nuts?' on Feb. 13 and 'Inexplicably, energy investors are still too bullish' in August bluntly drove this home.
The second most regrettable 2015 column, Risks are rising for REIT investors, is far less maddening in hindsight. The report argued that approaching U.S. central bank interest rate hikes threatened returns for investors in dividend-oriented market sectors like REITs.
It turned out that interest-rate fears did contribute to a difficult year where the S&P/TSX REIT Total Return Index dropped 4.3 per cent. What I missed, however, was that the oil prices and the economy were becoming a bigger risk to real estate investments than interest rates. At this point, rising office vacancies in Calgary are a more immediate danger than rising bond yields attracting investor assets away from dividend-paying equity sectors.
I encourage investors to frequently review their investment decisions and pay more attention to the failures than the successes. This is a good way to make sure that mistakes in methodology and emotion are repeated less often over time.
Scott Barlow