One of the books that helped me most with investing, Incognito by neurobiologist David Eagleman, rarely mentions markets at all. The premise of the book was that our conscious brains, the part we view as ourselves, is largely clueless – or in Mr. Eagleman's terms 'doesn't have the security clearance' - regarding the vast majority of our thought processes which are handled by the subconscious.
How do researchers know this is the case? Mr. Eagleman writes, "you see evidence of this when your foot gets halfway to the brake before you consciously realize the red Toyota … on the road ahead of you. You see it when you notice your name mentioned in a conversation across the room that you thought you weren't listening to … or when your nervous system gives you a hunch about which choice you should make."
We like to think of our conscious selves as the orchestra conductor controlling our brain's many functions but in truth, our subconscious minds control actions to an astonishing degree, usually without bothering to tell the conscious mind what it's doing.
Not only are we unaware of the calculations behind our consciousness, Mr. Eagleman describes nests of interests competing to direct our actions. For instance, the immediate gratification brain section wants a second slice of cheesecake while the 'long-term best interests' section doesn't want to be overweight in the future, for instance.
As if that wasn't enough, the author writes "when one part of the brain makes a choice, other parts can quickly invent a story to explain why," even when this narrative has little in common with the truth. In effect, we have a built in, backward-looking screenwriter that makes our decision making process look more sensible than it actually was.
This perspective all helped my investing. For one, I developed a deep distrust of narratives which are, by their very nature, sanitized of inconvenient details. A stock that is a 'great story' needs a second or third look for hidden risks.
I also learned to question my own motives when making a decision, re-analyzing to see which part of my brain was being made happy. If it was the impatient, "I'm bored and feel like trading something" voice, then I'd stop.
Investing is all about decision making – what stock to buy, and when, and then choosing the right time to sell it. Incognito is a fascinating, entertaining way of explaining the thought process – which is far more complicated than I ever could have imagined before reading – and can't help but improve investment results.
Stocks to ponder
Toronto-Dominion Bank. Should investors buy TD shares following last week's significant decline? Analysts and some fund managers are urging caution as the bank's valuation could face further pressure, writes Tim Shufelt.
Loblaw Companies Ltd. The grocery giant cracked the TSX positive breakout list based on Monday's closing price, showing an acceleration in positive price momentum. It's share price, however, may soon face overhead resistance, said Jennifer Dowty.
Cineplex Inc. The company's fourth-quarter financial results would be a share-crushing report for almost all of its peers. However, investors have bought into their expansion initiatives, giving them a premium valuation and little weakness in share price to exploit, writes David Milstead.
Descartes Systems Group Inc. The stock is from the top performing sector in the TSX Index year-to-date – the technology sector. Its long-term chart appears positive with the stock price in a firm uptrend, said Jennifer Dowty.
Bracing for near-term 'commodity downside'
Strategists at JPMorgan Chase & Co. believe recent resource sectors selling is only beginning and considerable downside remains still remains as bullish speculative positions are unwound. Scott Barlow believes resource prices are likely to see considerable weakness in the near future as optimism returns to normal levels.
Here's the biggest threat to equity investors (and it's not Janet Yellen)
The stock market shouldn't fear Janet Yellen. It's Joe Sixpack who is the real danger, writes Ian McGugan. Ms. Yellen, chair of the Federal Reserve, is universally expected to bump up the United States' key interest rate on Wednesday and continue hiking it for the foreseeable future. If so, some analysts fear that higher payouts on bonds and savings accounts could undermine Wall Street's long-running bull market by offering savers a more attractive alternative for their money. But investors who are fretting about the potential danger to stocks may want to think again. Rates are rising precisely because the U.S. economy is looking stronger than it has in years. The real danger for investors isn't higher rates but a more insidious and unexpected threat – higher wages.
TSX stocks with recent insider buying and selling activity
At Trump charms Wall Street, Robert Shiller gets dot-com deja vu
The last time Robert Shiller heard stock-market investors talk like this in 2000, it didn't end well for the bulls. Back then, the Nobel Prize-winning economist says, traders were captivated by a "new era story" of technological transformation: The Internet had re-defined American business and made traditional gauges of equity-market value obsolete. Today, the game changer everyone's buzzing about is political: Donald Trump and his bold plans to slash regulations, cut taxes and turbocharge economic growth with a trillion-dollar infrastructure boom. For Mr. Shiller, the power of a new-era narrative helps answer one of the most hotly debated questions on Wall Street as stocks set one high after another this year: Why are traders so fixated on the upsides of a Trump presidency when the downside risks seem just as big?
Why Cineplex investors shouldn't expect any blockbuster returns
Investors in movie-theatre chains know the deal: The business is often only as good as the product pushed out each quarter by the big studios. When the box office isn't so boffo, the stocks can be stinkers. Cineplex Inc. has been unspooling a different yarn in recent years. Using its exhibitor know-how and the cash from being a near-monopoly in Canadian moviegoing, the company has expanded into several new growth initiatives, such as video boards in shopping malls, online gaming and amusement-stocked restaurants. Investors are on board, giving Cineplex a premium valuation to other exhibitor chains. And that has meant when the company disappoints along with its theatre peers, as it did last month, there's very little weakness in the stock price for investors to exploit. Cineplex's muted decline, narrow trading range and expensive valuation combine to mean that buying the shares now promises no gigantic returns – but perhaps very little downside, either, writes David Milstead.
China stock bulls turn wary
Optimism over China's economy has driven gains in the world's second-largest equity market this year. But that budding recovery could also be investors' undoing. Some money managers are turning cautious on Chinese shares on concern the economic rebound will spur the central bank to tighten monetary policy further. While People's Bank of China Governor Zhou Xiaochuan reiterated the bank's neutral course in a rare press conference Friday, and officials have steered clear of boosting benchmark interest rates so far, mainland markets have started to price in a "major hawkish shift" from the PBOC, according to Goldman Sachs Group Inc.
Rosenberg warns of loonie, TSX fall after budget
Gluskin Sheff + Associates chief economist David Rosenberg has fired a warning shot ahead of the upcoming federal budget: "I'm not sure I'd want to be long [on] the TSX or the Canadian dollar heading into March 22." Mr. Rosenberg suggested that the budget could have numerous implications for Canadian investors, such as raising the capital-gains inclusion rate as high as 75 per cent, from 50 per cent. The new tax measures that he's hearing about don't end with capital gains, though.
Rob Carrick's 2017 ETF Buyer's Guide: Best Canadian equity funds
The latest edition of The Globe and Mail ETF Buyer's Guide is leaner and meaner than in previous years. The universe of exchange-traded funds is expanding in a way that makes it ever harder for investors, particularly rookies, to build a portfolio. To combat the clutter, the ETF guide is taking a tougher approach to picking funds for inclusion. Instead of trying to offer a selection of everything available, the guide now uses a screening process to identify core funds for portfolio building. This first of six parts looks at the top Canadian equity funds.
Eleven Canadian industrial stocks geared for growth
Ask Globe Investor
I have recently decided to invest a portion of my portfolio in dividend stocks. You recommend seeking companies that have a long history of raising their dividends. Where do you look to find a company's dividend history?
The investor relations section of a company's website often includes a detailed dividend history. Many companies also provide a general investor presentation that typically contains an overview of the business and detailed financial information, including historical charts for revenue, earnings and dividends. This material, and the company's annual and quarterly reports, are must reads if you are considering an investment.
Sadly, not all companies make historical dividend data easily available. (And aside to these companies: If you're not posting detailed quarterly dividend information going back at least a decade, you are needlessly frustrating current and prospective investors who should be able to find the figures with a quick search. For a model of how dividend data should be presented, see BCE's website. The only thing I would change is that I would list the most recent dividends first, instead of last.)
If you strike out with the company's website, third-party sites can help. For example, if you create a watchlist on Globeinvestor.com and choose the "dividends" view, you'll get a column with the five-year dividend growth rate and another column with the one-year growth rate. You can then click on the company name to get a stock quote, which – if you scroll down – includes a five-year chart of quarterly dividends.
Another source of five-year dividend data is Morningstar.ca. After entering the stock symbol, click on "performance" and then "dividends and splits." Yet another useful site is dividendhistory.org. One of the site's handy features is that it keeps a running list of Canadian and U.S. companies that have recently raised, or cut, their dividends.
Not sure where to start your search for great dividend stocks? My Strategy Lab model dividend portfolio will give you some suggestions. Another source of ideas is the list of stocks held by dividend exchange-traded funds. I recently wrote about seven of the largest Canadian dividend ETFs. Many of these funds publish a complete list of holdings on the ETF provider's website (some only list the top 10). If you see the same name popping up in several different ETFs, it indicates that the company has passed various dividend screens and may be a good candidate for your own portfolio.
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What's up in the days ahead
In Wednesday's Globe Investor, John Heinzl presents part 2 of his look at some of the best performing Canadian dividend ETFs - this time those with less than a five-year track record. Later this week, look for Jennifer Dowty profiling Artis Real Estate Investment Trust. And Gordon Pape will discuss new fund products that can squeeze out more yield from bond holdings.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by David Leeder and Darcy Keith