I was going to write about a M.I.T. undergraduate lecture available online that I felt was extremely useful to investors. That, however, sounded too much like an unpalatable "eat your vegetables" column, so I'm taking a different tack.
"Investing is a probability game, not a certainty game" is a portfolio manager quote I've used before, but it bears repeating. Developing the knowledge required to successfully estimate the probability and extent of success or failure for a prospective investment is basically the entire task. The M.I.T. lecture, "Probability Models and Axioms" is more approachable than the title suggests and provides investors with all the basic tools and concepts they need to build a deeper understanding of probabilities, market risk and maximizing long-term returns.
But watching the lecture made me anxious and not because it over-stressed my math skills (although that would have happened quickly in subsequent lectures). The stress came from the realization that there's no excuse for not knowing things in the Internet era. There are hundreds of Harvard University and Stanford University lectures available online in addition to M.I.T.'s and other major schools -- and this discovery felt like strapping on a boulder-weight of expectations and pressure. How much am I expected to learn? In what order? What should I sacrifice to make the time?
I don't have full answers for these questions but I do know it will involve careful thought about identifying and prioritizing the most important concepts of investors -- probability is definitely among them – and carving out time to take advantage of the free online resources.
The Internet was supposed to be fun, I'm not sure what happened. Somehow, access has turned into responsibility.
-- Scott Barlow
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Stocks to ponder
Cenovus Energy Inc. Is a pristine balance sheet a means to an end, or the end onto itself? It seems that many shareholders of Cenovus Energy Inc. felt the latter. Ever since the company announced its transformational deal to buy $17.7-billion worth of oil-sands assets from ConocoPhillips, the company's stockholders have headed for the exits. Thursday, Cenovus hit a 52-week low of $12.41, down nearly 30 per cent from pre-deal prices, writes David Milstead. Is now a time to buy?
High Arctic Energy Services Inc. This company has seen its share price rally 11 per cent over the past two weeks, but it still has a ways to go before appearing on the positive breakouts list, writes Jennifer Dowty. However, analysts' expectations are high for this stock, calling for 40-per-cent upside over the next year. Given the sharp move higher on relatively modest volume, the share price may retreat and retest the $5 support level before climbing higher. A positive attribute is the company's steady dividend and attractive 3.8 per cent dividend yield.
No advice but still a price: Fund fees for DIY investors draw fire
The majority of mutual funds sold through online brokerages are charging clients millions of dollars in fees for advice they are not receiving, an issue regulators are being pressured to reform. About 83 per cent of mutual funds sold through discount brokerages in Canada include trailing commissions that are typically charged by financial advisers for the advice they provide. Of the total $30-billion in assets held in mutual fund products in discount brokerages, more than $25-billion remain in fund series that bundle an advice fee within the product, according to a paper released in January by the Canadian Securities Administrators. Clare O'Hara explains.
A beginner's guide to coping with market mayhem
Congratulations on deciding to invest some of your money in stocks. Owning a portfolio of blue-chip companies or low-cost funds is one of the best long-term investments you can make. Over time, you will be amazed at how much wealth you can build. That's the good news, writes John Heinzl. Now for the bad news: There will be days when you think owning stocks was the stupidest decision you ever made. At times, you might even feel like throwing up. But here is some key advice on what to do when markets tank.
Rob Carrick's 2017 ETF Buyer's Guide: Foreign dividend funds
We have a fine crop of Canadian dividend stocks, but you're missing out as an investor if you don't consider U.S. and international dividend payers as well, writes Rob Carrick. In the sixth and final instalment of the 2017 Globe and Mail ETF Buyer's Guide, he looks at dividend and income funds that hold stocks from U.S., global and international (outside North America) markets. Results from these funds over the past one- and three-year periods have been exceptional in many cases.
Don't bet against time with actively managed mutual funds
Rocky Balboa probably said it best. In his 2015 movie, Creed, Sylvester Stallone's character identified every boxer's nemesis. Time. "Time takes everybody out. Time's undefeated." It's much the same with actively managed mutual funds, writes Andrew Hallam. You might think you've found a winner. It might beat the index over a three, five or 10 year period. But the index is much like time. Eventually, it wins.
Up close and personal with Home Capital GIC investors
You're not alone if you were scared senseless by the fact that your supposedly safe guaranteed investment certificates were issued by troubled Home Capital. Rob Carrick writes that his interactions with readers in recent weeks suggest some investors were so jolted they looked into selling GICs with a penalty charge, even though they're backed by Canada Deposit Insurance Corp. Here are some examples.
Is it risk-off for the summer?
Larry Berman says he has a handful of indicators that help him evaluate if we are in risk-off mode. When assessing risk in equity markets, you need a set of tools that have both correlation and causation. Here's his explanation.
Ask Globe Investor
Question: Is there a price-to-earnings (P/E) multiple that you consider a "buy" signal when evaluating stocks for potential purchase?
Answer: No. The P/E multiple -- which is calculated by dividing a stock's market price by its earnings per share -- should never be looked at in isolation. It must be examined in the context of other factors including a company's financial health, P/Es of other stocks in the same industry and -- perhaps most important -- the earnings growth rate of the business.
Generally, companies with higher-than-average earnings growth rates will also have higher P/Es. As an example, Dollarama Inc. trades at a P/E of more than 28 times estimated earnings for the current fiscal year. That would be a very high number for most companies, but Dollarama's earnings are expected to grow by about 15 per cent this year and about 16 per cent next year, so a higher-than-average P/E is warranted.
By contrast, BCE Inc. trades at a P/E of about 18 times estimated 2017 earnings, reflecting expectations that BCE's earnings will rise only slightly this year while growing about 6 per cent next year.
A low P/E stock isn't necessarily better -- or worse -- than a high P/E stock. Some investors believe a low P/E indicates that a stock is a good buy, but it's not that simple. Most people would not call Dollarama's stock cheap, but its returns have crushed those of most other companies, including BCE.
The main danger with high P/E stocks is that, if the company does not live up to the market's lofty growth expectation, the P/E could contract, sending the shares down sharply. That hasn't happened to Dollarama -- at least not yet -- but it's a risk worth monitoring for all stocks with high P/Es. Low P/E stocks, on the other hand, may in some cases offer more downside protection, but they are also less likely to deliver huge gains.
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What's up in the days ahead
Rob Carrick examines whether well-intentioned parents giving their millennial children cash to buy a home are doing the right thing, and Brenda Bouw looks at dollar cost averaging for young investors.
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Compiled by Gillian Livingston