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My uncle was a Texan neurologist and a very blunt man. He'd recount cases where patients were advised to lose weight to alleviate symptoms, and they'd tell him, "I don't know what the problem is, I'm following my diet but still gaining weight." His reply was, 'The food no one sees you eat counts too, you know.'
In finance, it is not uncommon for some aggressive investors and brokers to use a similar tactic to diet cheaters – crowing about the 'five bagger' and neglecting to mention the other stock that went to zero. Both count, however, in portfolio returns.
There are, in my opinion, a lot of similarities between good nutrition and good financial planning, and not only because books on the two subjects are perennially the top sellers in non-fiction. Both involve day-to-day consistency, moderation and damage limitation after making a mistake.
These seemingly disparate topics are also alike in that neither diet books or financial literacy work very well in my experience. In general, people know what they should be doing – the fact that spending less than you earn is a good idea comes as a surprise to exactly no one -- but have trouble following the plan. We all have busy lives and stresses that make ice cream, lottery tickets, expensive vacations and highly speculative penny stocks irresistible at times.
The good news is that while sustained fasting isn't an option, the best thing to do with investment portfolios is usually nothing. Market history shows that patience is almost always rewarded and performance declines in accordance with the amount of portfolio tinkering. As long as investors don't binge on risk, significant returns are usually just a matter of time.
-- Scott Barlow
Stocks to ponder
Chartwell Retirement Residences. Investors in this REIT are making big returns from Canada's aging population, writes David Berman. If you want to invest in our older folks, try real estate. Demographics has emerged as a compelling investing strategy as the population ages, and focusing on the rising demand for retirement residences and long-term care facilities is a remarkably direct approach to the aging theme. It has also been working well. Chartwell Retirement Residences, for example, is up 72 per cent over the past five years (to the end of 2016). That's significantly better than the 28-per-cent gain for the S&P/TSX composite index over the same period.
First Capital Realty Inc. This stock appears on the positive breakouts list. First Capital Realty develops and manages properties across Canada with a focus on retail properties located in urban areas. The share price has been quietly climbing higher and rallied on unusually high volume on Tuesday. The stock offers investors a 4 per cent yield combined with double-digit upside potential in its share price over the next year, writes Jennifer Dowty.
Cargojet Inc. It is a stock with a history of rallying sharply after reporting its quarterly results, writes Jennifer Dowty. According to Bloomberg, for the past five quarters, the day the company released its quarterly results, the share price rallied between 2.7 per cent and 7.8 per cent. The fourth quarter is generally the company's strongest quarter given the higher volume of shipments occurring over the holiday season. The company will be reporting its seasonally strong fourth-quarter results before the market opens on March 9. The company's dividend yield is 1.4 per cent, with a dividend of 70 cents annually. The average one-year target price is $55.60, suggesting the shares may realized a potential price return of 11 per cent over the next 12 months.
The Bank of Nova Scotia This stock appears on the positive breakouts list, writes Jennifer Dowty. Most of the 'Big 6' banks are on the positive breakouts list. The company pays shareholders a quarterly dividend of 74 cents per share or $2.96 on a yearly basis. This equates to an annualized dividend yield of 3.8 per cent. The consensus one-year target price is $80.29, suggesting the shares are almost fully valued, with just 2 per cent upside potential over the next 12 months.
The Rundown
The Dow at 20,000 has left investors in a precarious state
Now what? That's the natural reaction after the Dow Jones industrial average surged above 20,000 for the first time on Wednesday and Canada's benchmark index flirted with a similarly impressive record high, writes David Berman. The natural answer: It's time to look for cheaper alternatives to North American stocks. You can dismiss the Dow as an antiquated index that reflects the fortunes of just 30 U.S.-based companies. Nonetheless, its remarkable gain over the past three months suggests rising optimism over the health of U.S. economy and corporate profits – at the same time as a number of observers point to swirling market uncertainty.
TSX near record high: Why it's time to adjust your portfolio as optimism reigns
The near-record highs in Canada's most-watched stock index is the most promising sign yet that we're finally – finally – starting to emerge from the financial stagnation of the past eight years, writes Rob Carrick. There are still many risks to the outlook, but Canada's stock market is ignoring them. Investors are either delusional or looking ahead to better times for the global economy.
Is the TSX peaking or is there more upside?
On Wednesday, while major U.S. stock markets were closing at record highs and the S&P/TSX composite index was within striking distance of closing at its own all-time high, the VIX Index slumped to an 18-month low, writes Jennifer Dowty. The VIX Index, or Chicago Board Options Exchange (CBOE) Volatility Index, is a measure of the 30-day implied volatility of S&P 500 index options. This index is commonly called the "fear gauge." So is this market exuberance indicative of a market top, or does the bull market have room to rally further? Will buyers keep buying, pushing major equity indexes even higher? Jennifer shares some surprising insight.
The high-flying TSX: More a reason for caution than celebration
The S&P/TSX composite index was in record territory Wednesday thanks to strong recent returns from the materials and energy sectors, writes Scott Barlow. The market as a whole remains expensive, however, and without a widespread surge in profit levels the new high could more reason for investor concern than celebration. Materials and energy stocks have led the way, generating remarkable 12-month simple returns of 66.3 per cent and 35 per cent, respectively.
BMO reveals its top REIT picks for 2017
On Friday, BMO Nesbitt Burns real estate analysts Heather Kirk and Troy MacLean released their eight top real estate picks for 2017, writes Jennifer Dowty. They noted several headwinds for the group such as rising bond yields, earnings deceleration, and reasonable valuations. See their list of picks here.
Ten TSX stocks with notable insider buying and selling
The S&P/TSX composite index is within striking distance of a record high, writes Jennifer Dowty. As the stock market continues to steadily climb higher, what actions are company insiders taking? Many are scooping up shares. Listed here are 10 companies that have experienced notable insider buying and selling activities in the public market through their direct and indirect ownerships.
The week's most oversold and overbought stocks on the TSX
The S&P/TSX Composite leapt 1.4 per cent for the trading week ending with Thursday's close, and, as a result, there are currently no oversold, technically attractive stocks in the benchmark according to Relative Strength Index (RSI), writes Scott Barlow. Look at the list of stocks here.
Invest like a legend
This month's ROB Magazine gives advice from investing and business experts on how they invest their cash in the 7th annual Invest like a Legend issue.
Metals mania raises hopes – and concerns
Metals mania is back, writes Ian McGugan. Since the start of January, the Toronto Stock Exchange's mining sector has surged to double-digit gains, led by the likes of Ivanhoe Mines Ltd., HudBay Minerals Inc., First Quantum Minerals Ltd. and Teck Resources Ltd., each of which has rocketed ahead by 27 per cent or more in less than four weeks. The big gains reflect a growing consensus that global growth is picking up, fuelled by solid growth in China, an improving outlook in Europe and enthusiasm about U.S. President Donald Trump's spending plans. However, the leaping share values also raise questions about whether investors may be getting ahead of themselves.
Bad adviser behaviour coming to light thanks to new disclosure rules
New disclosure requirements for investment returns and advice fees seem to have energized people to take a closer look at their finances, writes Rob Carrick. Statements arriving this month should include an account in dollar terms of fees paid for investment advice, and personalized returns for at least the past year. People in the investment industry are expecting this new information to leave some investors agitated, and early indications suggest this is happening in a very broad sense. Everything advisers are doing is being scrutinized. He outlines a few examples from e-mails he's received from readers.
Six aggressive ETFs for your RRSP
Exchange-traded funds offer an easy way to save for retirement. ETFs provide instant diversification, like a mutual fund, but also the trading ease of a stock, writes Shirley Won. These funds tend to have lower fees, so investors can keep more of their gains. And ETFs listed in the United States can avoid having their dividends taxed as regular income if they are held within a registered retirement savings plan (RRSP). We asked three experts to pick ETFs for an RRSP that would be suitable for risk-tolerant investors or millennials who have time to ride out market volatility. Here are their picks.
Where high-net-worth investors are putting their money right now
As much as we may wish otherwise, there is no data point, no computer algorithm, no secret knowledge that can tell us what's to come in the market or in the economy at large, writes Thane Stenner. The best we can do is to pay attention to what the "smart money" is doing – portfolio professionals, hedge fund managers, famous investors such as Warren Buffett, George Soros and others. What are they preparing for? How are they positioning their portfolios? What assets are they moving into – and out of? He also recommends watching the members of TIGER 21, a North American peer-to-peer network for investors with a minimum net worth of $10-million (U.S.). Every three months, members answer an anonymous survey about what they're buying, selling, and holding. Tracking how these allocations change over time can give you a sneak peak into what successful investors are thinking about and responding to current market events.
Star stock picker Will Danoff now accessible to Canadian investors
One of the biggest names in the U.S. mutual fund industry has crossed the border, writes Tim Shufelt. Will Danoff, the stock picker behind the $100-billion (U.S.) Fidelity Contrafund – the world's largest actively managed fund run by one person – is now accessible to Canadian investors. The Fidelity Insights Class, a new Canadian fund launched on Thursday, will be based on the growth-stock-picking style that has made Mr. Danoff one of the world's best-known market-beating fund managers. "The new fund is going to be the very best ideas I have. It's a best of Fidelity. No holds barred," Mr. Danoff said at a Fidelity event in Toronto on Wednesday.
Expect these TSX dividend stocks to hike their payouts very soon
Got a case of the winter blahs? Well, cheer up, writes John Heinzl. We're fast approaching February, one of the most unpleasant months weather-wise, but for dividend investors, it's actually a wonderful time of year. That's because several Canadian-listed companies – including three members of his Strategy Lab model dividend portfolio – have historically chosen the dark days of February to hike their dividends. Dividend hikes aren't official until the board approves them, but he's expecting all of these companies to come through with increases again next month.
New fee-disclosure rules may hinder apples-to-apples comparisons
New disclosure rules on investment fees may make it difficult to compare costs among financial advisers, writes Tim Shufelt. The fee and performance disclosure framework known as CRM2 aims to clarify what Canadians pay for investment advice. The new statements that many investors will be receiving early this year, however, exclude other kinds of fees, particularly management fees on mutual funds. That means that those advisers disclosing the full costs of ownership to their clients, either by regulation or by choice, may unfairly appear less competitive than higher-cost peers.
My mad flyer on Valeant stock
By the time you read this, Ian McGugan says he'll have a much better notion of just how big a fool he is. He wrote this column for ROB Magazine in early December, shortly after buying a stock the rest of the world hates. His own take is more optimistic, although guardedly so. The stock is risky, for sure, but if everything breaks just right, he thinks it could double in price over the next two to three years. Interested? Don't get too excited. The name of the stock is Valeant Pharmaceuticals.
Research Reports
Echelon Wealth's top stock picks for 2017
Number Crunchers
A scorecard of 10 Canadian ETFs with momentum
Looking for top performers among last year's 'dogs'
Eight Canadian dividend stocks primed for the Trump era
Ask Globe Investor
The Question:
How many stocks do I need for proper diversification?
The Answer:
There isn't a clear-cut answer to this question. The late value investor Benjamin Graham argued that a portfolio of 10 to 30 carefully-chosen stocks provides all the diversification you need. Other studies have concluded that, if you're picking stocks at random (which you should obviously never do) you'd need 50, 100 or more in order to have volatility similar to the market as a whole.
"The academics disagree over how many separate stocks are required to secure the benefits of diversification, but most professionally managed equity portfolios have at least 30 or so individual securities in them," U.S. fund manager Daniel Peris wrote in his 2011 book, The Strategic Dividend Investor.
If you're a do-it-yourself investor, you have to balance the need for diversification with the ability to monitor your holdings. For most people -- except perhaps those who can devote several hours a week or more to investing -- staying on top of corporate developments for 30 or more stocks is going to be a challenge.
It's also important to remember that owning a large number of stocks won't, by itself, guarantee diversification. A portfolio of 30 banks, for example, doesn't provide adequate diversification. You should aim to own companies in a variety of sectors.
In my own portfolio, I own about two dozen companies -- including banks, utilities, pipelines, power producers, consumer products makers, insurers and real estate investment trusts -- plus a handful of low-cost exchange-traded funds and mutual funds that provide exposure to other sectors as well.
The easiest way to achieve excellent diversification -- and dramatically cut down on the work required to monitor your holdings -- is to devote most or all of your portfolio to low-cost index funds. If you don't have the time or expertise to monitor individual stocks, this is a great way to go.
--John Heinzl
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What's up in the days ahead
The do-it-yourself investors of the baby boomer generation will retire in droves over the years ahead. A critical milestone in their journey will be the conversion of their registered retirement savings plans into registered retirement income funds. So this Saturday, Globe Investor presents the Portfolio Strategy RRIF Guide, designed to help with the mechanics of this shift away from accumulating retirement savings and into drawing upon this money. The guide looks at questions like how, exactly, the conversion is done, and how to set up income payments from your RRIF.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston