I get angry e-mails from readers all the time and it confuses me a bit. In psychological terms, anger is a defensive response – we get angry when threatened by someone or some thing – and I can’t see where the threat lies. I’m under no illusions that anything I write affects asset prices and this entails that readers’ future portfolio returns are not at risk.
Ego is likely involved. There are a significant number of people who view opposing opinions as an affront to their self-image and intelligence, so differing interpretations of market action are taken personally.
There are distinct risks to personalizing investments, however. In extreme cases, the emotional commitment can lead to a type of tunnel vision that ignores when market signals contradict the original investment thesis. Investors in these cases have often lost objectivity while also maintaining a fragile type of overconfidence that says ‘I’m a smart person so my trades must be right.’
Kevin Ferry, semi-retired founder of Cronus Futures, is the hardest of hardcore traders I know through social media and a few informative phone conversations. Mr. Ferry spent decades in the open cry Chicago trading pits, buying and selling assets like Eurodollar strips and Fed Fund futures that most investors have never heard of. The fact that Mr. Ferry bought a California vineyard for his retirement is indicative of his success.
Mr. Ferry’s old twitter handle was @fearlicious, to remind him not to get overconfident and to always be just a little bit afraid that his trades were wrong. This kept him alert to signs that he was wrong, and open to changing his mind. This, I think is the better approach as long as it’s not taken to paranoid extremes.
Readers should feel free to vent at me in e-mails, it’s part of the deal. At the same time, however, they should be asking themselves what they’re really afraid of.
P.S. The catalyst for this piece was an excellent column in Psychology Today entitled “Self-Deception II: Splitting.” It wasn’t finance-specific enough to warrant specific attention but it’s worthwhile in my opinion for general purposes.
-- Scott Barlow
Stocks to ponder
PRO Real Estate Investment. This REIT has a 9.7 yield with an average 14 per cent price return forecast, writes Jennifer Dowty. The REIT has not appeared on the breakouts list as its market cap falls short of the screening criteria. The REIT is focused on building a portfolio of properties located in suburban areas, primarily small cities in eastern Canada. The average one-year target price is $2.47, implying 14 per cent upside potential in the unit price over the next 12 months.
Three charts to gauge where and when markets will break
“Never short a dull market” is an old trader saying that aptly describes where we are right now, and they’re not the easiest markets to write about either, writes Scott Barlow. There are always individual opportunities to discuss, but asset markets as a whole are stuck in a grey zone. The reflation trade – outperformance of economically cyclical stocks at the expense of conservative, credit-sensitive sectors such as utilities and consumer staples – that began in July, 2016, and intensified after the U.S. election – has been widely unwound. But the downward momentum for cyclical sectors has also slowed and it feels like most stocks are now just treading water in search of direction. He described three charts he's following to gauge where and when markets will break.
Five reasons to like emerging market stocks right now
Although the developed markets are responsible for the bulk of global economic activity, it is the emerging markets that spin the dial on global growth, writes David Rosenberg. Their more favourable demographic backdrop along with room for further technological convergence will ensure that this will continue in the future. While stocks have been propelled by “animal spirits” in the aftermath of the U.S. election, the reality is that global growth (led by emerging markets) has also improved. This has also provided a tailwind to stocks and can help explain the recent outperformance of the emerging market equities compared to their U.S. counterparts.
With new Canadian ETF, are pot stocks hitting speculative highs?
Canada’s first marijuana-themed exchange traded fund premiered to investor enthusiasm this week, feeding an ongoing fascination with pot stocks that can’t end well, writes David Berman. This new ETF might make pot stocks look as though they have attained a new level of credibility with serious investors. Serious investors, though, should be rolling their eyes.
What the individual investor can learn from big pension funds
Last week, Robert Tattersall attended a conference on pension fund investing in downtown Toronto. During the course of the day, an impressive roster of speakers stepped up to the podium. In total, they represented billions of dollars in pension assets and money management firms, so even if their forecasts prove to be in error, their buying power is enough to move markets. So, what can the individual investor learn from a meeting where the chief investment officer of an $8-billion pension fund can describe his organization as “small enough to be flexible and respond quickly to proposals”? Here's his list.
John Heinzl's dividend portfolio keeps powering along
Now that the first-quarter numbers are in, John Heinzl provided an update of his Strategy Lab model dividend portfolio’s performance. The portfolio is off to a solid start in 2017 after posting strong returns in 2016.
Canaccord reveals its top 20 stock picks for the second quarter
Canaccord Genuity released its top stock picks for the second quarter of 2017. There are 20 stocks that made the cut. The names include seven energy stocks, three gold stocks, three consumer discretionary stocks, two technology securities, two REITs, and one stock from the financials, health care, and industrials sectors. Check out the list here.
The week's most oversold and overbought stocks on the TSX
In technical terms, the benchmark is still in the neutral zone, according to the Relative Strength Index (RSI), but with a reading of 58 it's closer to the overbought, RSI sell signal of 70 than the oversold buy signal of 30, writes Scott Barlow. Recent market strength has left only three technically attractive oversold stocks in the index.
Rob Carrick: Advice on bailing from a ‘fast-talking adviser’
Tim Cestnick's Tax Matters: Ten tax filing tips that could save employees and investors thousands
Video: Inside the Market: Three things investors should pay attention to in Q2, with Som Seif.
Ask Globe Investor
Question: Could you please explain what a covered call option is and how it works?
Answer: Covered call options involve selling someone else the right to buy a stock you own at a specific price, within a set time frame. You receive a payment (premium) for doing this. If the stock reaches the target price before the option expires, it is called away and you receive the agreed upon payment for the shares. If it does not, then the option expires unused and you can sell another one. Canadian options trade on the Montreal Exchange.
For example, let’s consider BCE, which was trading at $57.78 at the time of writing. The bid price for a May 19 call option on the stock at a strike (selling) price of $60 was 16 cents. If you owned 1,000 shares, you could have earned $160 (less any commission) by selling covered calls against your stock. If the shares did not hit $60 by the expiry date, you could repeat the process all over again.
The upside of this strategy is that it generates more cash flow from a portfolio. The downside is that it limits the capital gains potential on a stock to the agreed-upon strike price.
-- Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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What’s up in the days ahead
Thinking about joining the thousands of Canadians getting high on Canadian pot stocks? Then you'll want to read this weekend's Globe Investor, where we take an indepth look at the sector on the eve of potential recreational legalization in Canada. Also this weekend, Rob Carrick presents the third installment of the ETF Buyers' Guide - featuring top U.S. equity exchange traded funds.
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