The best investment analyst on the planet will fail if they're looking at the wrong information. This is the overriding sentiment of a column by the indispensable Psy-Fi website, which also serves as an homage to the late data scientist Hans Rosling.
Behavioural investing expert and book author Tim Richards is the writer of Psy-Fi. In the most recent post, Mr. Richards uses the work of Hans Rosling – an academic who spent his entire career interpreting statistics – to offer four lessons for investors.
The first observation is an optimistic one: 'Most things improve.' Mr. Rosling was criticized at time for being an optimist, but for investors looking at a long-term chart of the S&P/TSX Composite or S&P 500, it's obvious that he is generally correct.
The second lesson is a bit tougher to swallow – most people have average skills, at investing and everything else. Mr. Richards refers to surveys showing that a majority of drivers, particularly males, believe they are above average, which is of course impossible.
The third piece of advice is macroeconomic. Mr. Rosling concluded that wealth follows health. The regions where aggregate health is rising and birth rates falling are those offering the best returns for investors as the society moves from subsistence to productivity development.
The fourth lesson is likely the most important for investors: 'Sharks kill few people – we exaggerate the risk of things we're personally scared of.' Most people fixate on rare, horrific outcomes while avoiding more probable outcomes. Mr. Richards writes, "the world of investment is full of sharks, often played up by news channels who know that nothing sells like a good scare story. But investors should try to operate on a fact-driven basis, not an emotional one."
The issue of finding and interpreting reliable data, and ignoring the market equivalent of shark attack stories, is a huge one for investors in an Internet age when facts are everywhere and trustworthy sources are hard to find. Cited in the Financial Times, historian Tom Nichols from the U.S. Naval War College argues that "Technology has encouraged us to confuse access to information with knowledge."
The struggle is real – uncovering quality information and analysis is often like trying to find the proverbial needle in a haystack. But it is central to investing success.
-- Scott Barlow
Stocks to ponder
Sierra Wireless Inc. This may be Canada's hottest stock, writes David Berman, but analysts and investors appear to be at odds over whether the rally is here to stay. The company, which develops wireless technology for use in cars, smart meters and other applications, has seen its share price surge to $39.69, up 89 per cent in 2017. That makes it the best-performing stock in the S&P/TSX composite index since the start of the year. Most of the gains followed the release of surprisingly strong fourth quarter results in February. Analysts had been expecting a profit of 16 cents per share, but Sierra Wireless wowed them with a profit of 27 cents a share (after making some one-time adjustments). The stock did a major hit this week already.
Automotive Properties Real Estate Investment Trust. This REIT has a unanimous 'buy' call from five analysts, double-digit earnings growth expected, and an attractive 7 per cent yield. The REIT is just shy of appearing on the positive breakouts list, writes Jennifer Dowty. The average one-year target price is $11.50, implying there is 6 per cent upside potential in the unit price over the next 12 months. The REIT holds a portfolio of over 30 properties located in major cities across the country, specifically the Greater Vancouver Area, Calgary, Edmonton, Regina, the Greater Toronto Area, and Montreal.
Integra Gold Corp. This stock is on the cusp of appearing on the positive breakouts list, writes Jennifer Dowty It is a top-performing stock with 14 'buy' calls and 39 per cent upside. forecast. Integra is an advanced-stage gold exploration company with its high-grade Lamaque project located in the prolific Val-d'Or gold district in Quebec, just 550 kilometers northwest of Montreal. The average one-year target price is $1.21, implying there is 39 per cent upside potential in the share price over the next 12 months.
Three securities to consider for a jittery stock market
The stock market rally is losing some of its fizz, and that has bargain hunters anticipating better buying opportunities ahead. But what should they consider? Stocks have hardly fallen into the bargain bin just yet, writes David Berman. Canada's benchmark S&P/TSX composite index has retreated about 3 per cent from its record high in February, while S&P 500 is down even less from its record high earlier this month. That's nothing more than a few jitters next to the full-blown correction that many observers are expecting. Here are three stocks consider as the market volatility increases.
Pot stocks soaring
Canadian pot stocks soared on Monday amid reports that Ottawa is readying to announce legislation to legalize the recreational use of marijuana before April 20, considered a celebratory day in cannabis culture. But analysts still warn it's a risky play for investors, given that it's not yet clear what new regulations will look like and how well individual companies will grow and expand in a new recreational market to meet demand.
Rob Carrick's 2017 ETF Buyer's Guide: Best bond funds
Bond ETFs are a real problem-solver for investors who prefer not to have 100 per cent of their portfolio in the stock market, writes Rob Carrick. Almost everyone needs bonds for those years when stocks get hammered, but buying them is complicated. You can buy individual bonds, but the commissions built into the price you pay are huge and you'll need to buy bunches of bonds for proper diversification. You can also use guaranteed investment certificates, but they can't easily be sold before maturity. Bond ETFs offer a low-cost way to acquire a liquid, well-diversified bond portfolio in a single purchase. Bond ETFs don't mature and hand you your money back as actual bonds or GICs do. But they do otherwise behave as if they're bonds, rising in price when rates fall, falling back when rates move higher and paying interest on a regular basis. Rob presents the bond ETFs every Canadian should consider.
Asset allocation is not as complicated as it looks
Providing good advice to investors that have relatively little money has always been a tricky affair. After all, the price of a good adviser can be too high for those of modest means. In practice, small investors find themselves left to their own devices or paying through the nose for the little advice they can get, writes Norman Rothery. Robo-advisers try to address this underserved segment of the market by, largely, cutting out the expensive human advisers and serving up advice via computer programs. The precise asset allocation decision appears to be complicated, but it doesn't have to be and, for experienced investors, it's generally not worth paying money for. Building a simple balanced portfolio of index funds isn't rocket science and picking one that fits your risk profile is relatively straightforward. Unless you have money to burn, it doesn't make sense to pay for something you can easily do yourself.
This chart helps explain the abrupt shift to bearishness on the loonie
The swing of record proportions in global investor sentiment toward the Canadian dollar last week – from bullish to bearish – may be best explained by similar patterns in crude futures markets, writes Scott Barlow. The chart included with this article offers what is at least a partial explanation for the abrupt shift to bearishness on the loonie. Using data from the U.S. Commodity Futures Trading Commission, the lines represent net futures positioning – contracts betting on price increases minus those that benefit from price declines – for the Canadian dollar and West Texas Intermediate crude. The "non-commercial" designation indicates futures contracts held by asset managers, and this data is used as a proxy for hedge funds.
Four dead-simple solutions for DIY investors
Here's what newbies should not do: Open a discount-brokerage account and start picking individual stocks. Managing a stock portfolio requires a fair bit of knowledge and emotional discipline, and while John Heinzl thinks most people can do it if they put in some modest time and effort, it would probably overwhelm most beginners and could lead to costly mistakes, he writes. That's why he has deliberately chosen what he considers to be the easiest, lowest-stress DIY investing methods. All of these options will give you a nice combination of diversification and low costs – two of the most important ingredients in a successful investing plan.
Gordon Pape: This aggressive TFSA portfolio has gained over 8% annually
Gordon Pape created this Aggressive TFSA Portfolio in March, 2012. It invests exclusively in stock-based ETFs and is designed for readers whose goal is to maximize tax savings in their TFSAs and who are willing to accept a higher degree of risk and volatility. This is not a model to use if you are saving for retirement, a child's future education, or a major purchase to be made within a few years.
Twenty-two companies with recent insider buying activity
Jennifer Dowty outlines 22 companies that have experienced recent insider buying activity in the public market through their direct and indirect ownerships. Many purchases are relatively small with insiders making modest investments. They include Boston Pizza Royalties, Calian Group, Gran Tierra Energy, Kingsway Financial and others.
Sixteen stocks insiders are selling
Several of the stocks in this list are trading near multi-year highs or record levels. Coincidentally, insiders are trimming positions and locking in attractive profits, writes Jennifer Dowty.
What to do when you don't get any investment advice
There's chatter in the investment industry that new rules requiring better disclosure of advice fees and portfolio returns have been a non-event with investors. That's wrong. Rob Carrick says that in the 18 years that he has been personal finance columnist at The Globe and Mail, he had never received as many queries from readers about fees and advice. And this one reader's query shows that there are ways to ensure you get the advice you want, or what action you can take if you don't.
Investor's stock picks guided by the 'Graham number'
This investor chooses undervalued stocks using an approach based on Benjamin Graham's book, The Intelligent Investor. Specifically, he looks for five-plus years of dividend growth, 10-plus years of earnings-per-share growth and "a Graham number that indicates undervaluation," writes Larry MacDonald.
Upcoming live chat:
Q&A: Odlum Brown's Stephen Boland on stocks with upside potential
Join the Globe and Mail's investment reporter, Jennifer Dowty, in a live chat with Stephen Boland, an equity analyst with Vancouver-based Odlum Brown Ltd., as he highlights the upside potential for several stocks he covers. Join us for a one-hour live chat on Wednesday, March 29, starting at 11:30 am (ET).
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What's up in the days ahead
Andrew Hallam, our index investing pro, will explain why he thinks TD missed out on an open goal when it launched its Managed ETFs Portfolios. John Heinzl, our dividend investing pro, will explain why investors may want to spice things up with McCormick stock. And Ian McGugan, our mining investing pro, will explain why it might finally be time for gold miners' to shine.
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Compiled by Gillian Livingston