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Why you can't emulate the investing greats, a stock worth its dollars, and the challenges investors face in the Trump era Add to ...

A quick profile of Stanley Druckenmiller, one of the best speculative investors of all time, argues that great investors can be admired by investors but shouldn’t be emulated.

Mr. Druckenmiller rose to prominence as a protégé of George Soros at Mr. Soros’  ‘beat the Bank of England’ peak, but in truth he’s been a financial prodigy since 1978, becoming head of the Bank of Pittsburgh’s equity research department at 25 years old.

The Wealth of Common Sense investing website recently detailed Mr. Druckenmiller’s total about-face on market strategy in 2016. In April of this year, the manger could not have been more bearish, “ I guess ‘Get out of the stock market’ isn’t clear enough,” he told the audience at the annual Ira Sohn conference.

This week Mr. Druckenmiller had changed his market outlook dramatically:" 'I sold all my gold on the night of the election,' the founder and former chairman of Duquesne Capital said in a Squawk Box interview. He said he’s betting on growth by shorting bonds globally and he likes stocks that respond to growth. He also likes prospects for the dollar, especially against the euro," the profile stated.

For Ben Carlson, the author of the profile, the 180-degree strategic return shows a degree of confidence, intelligence and expertise that investors should forget about trying to copy.

“Druckenmiller and his former boss, George Soros, are one-of-a-kind traders… I’m stating the obvious here, but you are not Stanley Druckenmiller. You are not George Soros. You don’t run a hedge fund that makes macro bets and you aren’t a billionaire. You likely don’t have the temperament or the skill set to pull this off. This is not how regular investors manage their money… When he makes these types of calls you have no idea what’s really going on in his head or when he’ll decide to change his mind again in the future.”

Investors should adopt a process suitable to the time and effort they’re willing to commit to the market, using an objective assessment of their experience buying and selling. Humility is important – none of us will develop Michael Jordan’s skill at basketball and trying to be Stanley Druckenmiller is almost certainly as unachievable. 

-- Scott Barlow

 

Three big numbers to note

Nearly 5% The amount oil prices jumped Tuesday on bets that OPEC members will agree to cut output when they meet on  Nov. 30. U.S. crude was up as much as 4.9 per cent at $45.46 (U.S.) a barrel.

$14-billion (U.S.) The amount of cash that has flowed into the SPDR S&P 500 ETF since last Tuesday's election. That's the biggest five days of inflows since September, 2015. That's also more than three times the net amount invested from the start of the year through the election.

91% The odds traders are pricing in for an interest rate hike by the U.S. Federal Reserve next month, according to CME Group’s FedWatch tool. That's after Boston Fed President Eric Rosengren said on Tuesday in a speech that  only “significant negative news” could derail the Fed’s high expectations for a rate hike.

 

Stocks to ponder

Dollarama Inc. This stock has top and bottom line growth and 11 ‘buy’ calls, writes Jennifer Dowty. While the downtrend remains intact for this stock, further downside may represent a buying opportunity, as has been the case during periods of previous price weakness.

Badger Daylighting. Is the mother of all short-covering rallies shaping up in the stock of Badger Daylighting? The much-loved company’s shares have attracted the attention of short sellers, and they’re not merely dabbling, writes Fabrice Taylor. More than a quarter of Badger’s stock has been borrowed and sold into the market by hedge funds hoping the company stumbles, allowing them to buy the shares back at a lower price and return them to the rightful owners. After speaking to the company, analysts, Badger investors and a firm that is shorting the stock, Fabrice Taylor says his money is on the long investors, not the shorts, who could be in for some serious financial trauma.

Alimentation Couche-Tard Inc. This consumer stock has 14 unanimous ‘buy’ calls and a 25-per-cent upside forecast, writes Jennifer Dowty. The share price has declined over 6 per cent in the past four trading days, since Donald Trump was declared the winner of the U.S. presidential election. Further downside may represent a future buying opportunity. The stock is trading in-line with its five-year historical price-to-earnings multiple average of 16.1 times.

 

The Rundown

Trump awakens the bond vigilantes. Is danger ahead?
Beware what you wish for, Mr. Trump, writes Eric Reguly. On Labour Day, Donald Trump, then a long shot for the White House, now president-elect, decried ultralow interest rates. They have created a “false economy,” the Orange One bellowed, and that “at some point, the rates are going to have to change.” They’re changing, fast, maybe faster than Mr. Trump wants.

What investors are ignoring: Trump can't make America young again
Listen up, investors: The problem with trying to make America great again is that you can’t make it young again, writes Ian McGugan. Until someone discovers a miracle rejuvenation formula, the nation’s greying work force is one reason the current market surge looks overdone. In a recent report, Moody’s Corp. drew attention to the rapid slowdown in the growth of the prime-age workforce. The credit ratings agency calculated that the number of working-age Americans will inch ahead by only 0.5 per cent a year over the decade ahead.

Canadian banks have more in common with Wells Fargo than investors realize
Without their ambitious international expansion plans, Canada’s biggest banks would be constrained by their large size in their home market, their dependence on domestic economic activity and the direction of interest rates, writes David Berman. That is, they would look like a Canadian version of U.S.-based Wells Fargo & Co. – which isn’t a good thing, according to Hamilton Capital Partners, a Toronto-based investment manager that specializes in financial services companies.

The value of a momentum approach to investing
A great chasm exists between value investors and momentum investors, writes Norman Rothery. The former like to hide behind huge corporate walls and deep moats while the latter take direction from the mob and go along for the ride. As a result, they inhabit very different corners of the market. Like warring political factions, value and momentum investors rarely mingle and can be scornful of each other’s methods. But the argument for considering both is made by money managers Wesley R. Gray and Jack R. Vogel in their new book Quantitative Momentum.

U.S. stock market as safe haven? Portfolio manager makes his case
Donald Trump’s America suits Canadian portfolio manager Keith Dicker just fine, writes Rob Carrick. Mr. Dicker, who holds the Chartered Financial Analyst (CFA) designation and is the president and chief investment officer of Halifax-based IceCap Asset Management Ltd., thinks Mr. Trump’s tax policy could be good for the U.S. economy in the near term, particularly if it allows U.S. multinational corporations to move billions in offshore earnings back to the United States with a minimal tax hit. But that’s not why his firm is buying U.S stocks and other investments denominated in U.S. dollars. The real reason is that he sees the United States as a haven from the economic upheaval that Europe will unleash on the world over the coming six to 36 months.

Wake up, markets - Trump is not going to be another Reagan
Whoa there, folks. A lot of people are looking at U.S. president-elect Donald Trump and seeing a new Ronald Reagan, writes Ian McGugan. A MarketWatch columnist lists three ways Mr. Trump could turn into the next Reagan, while the website Politico asks, “Will Trump follow in Reagan’s footsteps?” The Reagan parallel appears to be one reason for the post-election surge on Wall Street. After all, if one tough-talking Republican president can light up the economy and boost stocks by running big deficits, why can’t another? Well, there are many reasons why not, Ian explains.

Larry Berman: Why the Trump-fuelled rally is misguided
Larry Berman says he thinks the generally positive market response to Trump’s election is misguided. I understand the volatility move because a Trump win was not priced in, and a Republican sweep was not on anyone’s what-if list. The fast money players are re-adjusting positions, throwing trillions of dollars into motion. But there’ a bigger problem here, he says: the world’s growth challenges are deep — too deep for traditional monetary or fiscal policies to fix.

How to profit from the divergent views of Fairfax and Brookfield in the new Trump era
When two of the world’s top investors take opposite views of the market on the same day, copycats get confused. But here’s a simple solution: Just buy the two investors, writes David Berman. On Friday, the chief executive officers of Brookfield Asset Management Inc. and Fairfax Financial Holdings Ltd. released strong statements on where they see opportunities ahead – and while one executive sounded noticeably bullish, the other took an unusually bearish turn.

Tired of wild market swings? Here’s a more pastoral approach to investing
With both bonds and stocks making wild swings recently, investing is getting more and more stressful, writes Rob Carrick. How to calm the anxious investor? Perhaps a more pastoral approach to portfolio-building. Literally. In recent years, farmland has gained some currency as an asset for high net worth investors. One firm using it in client portfolios is Nicola Wealth Management in Vancouver. Investments that are uncorrelated to stocks are in high demand right now, especially with bonds looking shaky in recent days. As packaged in the NWM Farmland LP, investors get access to acreage in Alberta, Saskatchewan, Manitoba and Ontario that is purchased and leased back to farmers in return for rental income (there is no exposure to the crops being grown). Mr. Nicola considers this investment to be fairly low risk because the land is not mortgaged. Rents can fluctuate, however.

These 10 TSX stocks are vulnerable to a short squeeze
When an order is submitted to sell a stock short, a broker borrows the shares from their loan desk and sells them on behalf of the client. The short-sellers pay a lending fee that varies according to the demand for a company’s loanable shares, writes Larry MacDonald. If short-sellers feel certain enough about the prospect for a decline in the price of a stock, they may be willing to bid up its lending fee. The cost of borrow thus provides way to gauge bearish sentiment on a stock, in addition to those based on short interest (number of shares sold short). The table accompanying this story shows Canadian companies with the highest borrow rates.

The pain is getting a lot worse for investors in Alberta REITs
Commercial-property owners in Alberta are reeling from the energy crash, a phenomenon that is accelerating as the economic pain from weak oil and gas prices spreads throughout the province, writes Tim Kiladze. The problems are spelled out in the latest batch of quarterly earnings from publicly traded real estate investment trusts with heavy exposure to the province.

Why Canadian investors need to be worried about the sell-off in emerging markets
Canada is home to a proudly modern, diversified economy that is also attached to a currency and equity market that resembles a developing country far more than any other member of the G7. This is not a good thing in the midst of a major sell-off in the emerging markets, writes Scott Barlow. The U.S. election was the catalyst for a 5.9-per-cent drop in the MSCI emerging-markets index, in U.S. dollar terms. The president-elect’s anti-trade campaign rhetoric – including a pledge to wall off Mexico and slap a 35-per-cent tax on Chinese imports – caused immediate selling pressure throughout the developing world. The Canadian dollar and asset markets followed lower – and not just because Donald Trump vowed to “tear up” the North American free-trade agreement. Economic optimism regarding the new administration’s planned $1-trillion (U.S.) infrastructure spending initiative resulted in a rise in future U.S. economic growth expectations, which pushed U.S. bond yields and the U.S. dollar higher.

The amazing math of dividend growth
In his latest Yield Hog video John Heinzl explains the glorious math of dividend growth, and why you want to reinvest your dividends.

This investor splits his portfolio into four buckets
Retired IT professional Gary Milne divides his portfolio in to four with safety, dividend companies, stocks and ETFs, and stocks with growth potential, writes Larry MacDonald.

 

Number Crunchers

Ten strong stocks in an outperforming Canadian industrials sector

 

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What’s up in the days ahead

Dividend stocks have been getting whacked since the U.S. election. John Heinzl is going to take a look at the biggest sectors that have been affected by the sell-off and share his thoughts on how yield investors should be reacting. George Athanassakos will argue that the rise in ETFs and robo-advisers is actually good news for value investors. And David Berman will have some advice for investors looking to juice up their portfolios with high-yielding preferred shares.

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Compiled by Gillian Livingston

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