In search of investing magic bullets, what your adviser isn't telling you, and the gold market explained

In investing and life, it's tempting to believe in magic bullets – a set of rules and habits that, if followed, guarantee success. The book 7 Habits of Highly Effective People sold over 20 million copies by appealing to this common sentiment.

The Harvard Business Review, however, almost begs readers to avoid temptation in the March 13 column "Stop Reading Lists of Things Successful People Do." The authors argue that just because certain habits worked for a few people, it doesn't mean it works for everyone. More importantly, they cite the point of Lebanese-American scholar Nassim Taleb that "failure is silent."

In The Black Swan, Nassim Taleb recounts an anecdote Cicero told about the Greek poet Diagoras of Melos. When Diagoras was told that praying saves sailors from drowning, he wondered about those who prayed but drowned anyway. Prayer receives credit for saving sailors because all those who survived prayed. Yet this strategy is utterly useless if those who died also prayed, which is a fair assumption … Taleb refers to the people who didn't survive as "silent evidence." These are the outcomes that we don't get to see; their absence leads to a false sense of effectiveness of certain actions."

The investing world has seen numerous secret weapons in the form of valuation techniques. Jim O'Shaughnessy's What Works on Wall Street touted the use of price-to-sales ratios in combination with other metrics. Legg Mason's Bill Miller, the man who beat the S&P 500, focused on price-to-cash flow ratios. Enterprise value-to-EBITDA also had its day in the sun as a revolutionary valuation method. But in the hands of less talented investors, these tools were often found ineffective.

The belief in investing magic bullets is a belief that markets are a problem in physics, with immutable laws that apply every time. In my opinion, more answers are to be found in biological ecosystems, which are what scientists term a complex adaptive system. This means that not only are there more factors affecting asset markets than we can account for, and that the strength of these influences wax and wane over time, but also that markets adapt - investor buying and selling can change how it functions.

There may come a time when a combination of intelligence and computing power can design an equation that accurately predicts markets. Until then, there are no short cuts.

-Scott Barlow

Stocks to ponder

BRP Inc. Quebec-based BRP manufactures and markets powersports vehicles and propulsion systems. Last quarter, the company reported better-than-expected third quarter financial results that sent the share price soaring over 9 per cent. The stock price has been in an uptrend for over the past year, roughly doubling in value during this period, and making BRP the third-best performing stock in the S&P/TSX composite index consumer discretionary sector in 2016. Despite this, BRP trades at a discount to its historical multiple, writes Jennifer Dowty.

Imvescor Restaurant Group Inc. This stock is benefiting from the ongoing revamp of the franchise operator's brands – and analysts are forecasting more growth ahead. Shares of Montreal-based Imvescor, which has about 260 restaurants including Pizza Delight, Toujours Mikes, Scores, Bâton Rouge and recently added Ben & Florentine, are up nearly 25 per cent over the past year. Both analysts that cover the stock have a "buy" recommendation and an average target price of $3.88, which is about 18 per cent above its current price of around $3.30.

Crius Energy Trust Crius Energy Trust is an energy provider, offering electricity, natural gas, and solar products to its customers across the United States. The Trust pays unitholders a monthly distribution of 6.44 cents (Canadian) per unit, or 77.28 cents per unit on a yearly basis. This equates to an annualized yield of 7.5 per cent. The unit price is in an uptrend, rising 22 per cent year-to-date. If this small cap utility stock, with a market capitalization of $261-million, was included in the TSX composite index, it would be the top performing security in the utility sector so far this year, writes Jennifer Dowty.

Wi-LAN Inc. The Ottawa-based patent company is unique in the Canadian landscape, the only publicly traded firm of its ilk. In December of last year, the Contra Guys bought the stock. They are expecting Wi-Lan to double from here.

Canada Goose The future is unknowable, which is a problem in investing. It's a particularly thorny task when a stock is brand-new and its future sales depend on a significant expansion of the company's sales to new markets, and the extension of its brand to a growing list of products. Yes, we're talking about Canada Goose Holdings Inc., which debuted spectacularly last week on Canadian and U.S. markets, suggesting investors are not terribly worried about these known unknowns. David Milstead takes a look at just how pricey the stock is.

The Rundown

How to profit from the robotics revolution

A recent column in Maclean's magazine warns that "a wrecking ball" is coming for the job market in the form of new technology, while citing an Oxford study predicting that 47 per cent of all workers are at risk of obsolescence and unemployment. A comprehensive economic revolution such as this would cause a lot of unfortunate social upheaval that would need addressing, but should also provide significant opportunities for investors – companies providing robotics should be making money hand over fist. For exchange-traded fund investors looking to benefit from the robotics theme, there's an easy solution: the Global Robotics and Automation Index ETF, writes Scott Barlow.

Watch out for financials overload

The strength of financial stocks in the past year means it's time to look at whether you're overexposed to the sector, writes Rob Carrick. ETF investors should be on the lookout for pairings of funds that can give you an alarmingly high weighting to financials.

Why gold is marooned between U.S. rates and India demand

So, why is the gold market being sanguine about rising U.S. interest rates? Part of the answer may be that investors are taking a view that the rise in real yields may not be as dramatic given U.S. inflation is also on an upward trend. There also may be a U.S. dollar effect, with analysts at JP Morgan noting that it's likely that the greenback has already seen the bulk of its rally in this tightening cycle.

Valeant's rise and fall offers hard lessons from the momentum playbook

Bill Ackman recently dumped his fund's stake in Valeant Pharmaceuticals International Inc., which ended a distressing period for his investors. While it might be tempting to use the opportunity to wallow in an ocean of schadenfreude, it's more useful to step back and to try to learn from his misfortune. Value investor Norman Rothery does just that.

Five things your investment adviser isn't tell you

Whether you're dealing with a bank, broker or other financial institution, there are several things the friendly employee in the suit may not be telling you, writes John Heinzl.

How to beat the investment returns of all those brainy data scientists.

How can the average investor hope to beat the market in an age of real-time, data-driven, quantitative strategies? The secret may lie in one overlooked, contrarian theme: long-term, fundamental investing, writes Tim Shufelt.

Insider buying and selling activity

Jennifer Dowty takes a look at notable TSX buying and selling activity of corporate insiders.

Number Crunchers

Ten Canadian stocks with solid growth prospects

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What's up in the days ahead

John Heinzl will take a look at three stocks that have just announced big dividend hikes, while John Reese looks at stocks that both Warren Buffett and private equity firm 3G Capital hold.

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Compiled by Darcy Keith