Michael 'Irrelevant Investor' Batnick from Ritholtz Wealth Management provided an entertaining discussion of 'chart crimes' – investment data presented in ways that deceive investors. There are 10 examples of graphics-related malfeasance listed, ranging from unfair choices for start dates, comparing real and nominal assets on the same chart, using percentages for changes in bond yields and using technical analysis on economic data.
There are charts on every non-newsletter piece I write so the topic is, for me, an important one. I have no ambition to trick anyone, and usually I'll post charts to social media before they're published in case the profession portfolio managers who follow me have concerns with how the information is presented.
A lot of these charts have two vertical axes and once or twice a year I get dismissive e-mails with accusations that I'm tricking readers for my own entertainment. I don't usually respond. I've been through the issue 1,000 times and besides, I calculate (or more accurately, get Excel to calculate) correlations for all charts so I know exactly how related two data sets are no matter how they're displayed on a chart.
"Correlation is not causation" is a phrase that is no doubt true, but it's also used frequently by people who don't like what the data says and want it to go away.
For the record, I think correlation is an example of what in philosophy of logic is called a "necessary but not sufficient condition." This means that if you want to prove a relationship exists, correlation has to be there, but just because it is there doesn't mean you've proven a connection – more information is needed.
Charts can lie, though, that's a certainty. I've seen some terrible things. Particularly in marketing material, investors looking at an apparently-compelling chart should always ask themselves questions like, "why would it start in that year?" and "Is there a reason those two asset prices move together, or is it just a coincidence?" If it doesn't make sense, it doesn't matter how pretty the chart is.
Watch out for chart crimes, they can turn up when investors least expect them.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
The Bank of Nova Scotia. Several bank stocks appeared on the positive breakouts list on Monday. Scotia reports its fourth-quarter financial results before the market opens on Nov. 28. The Street is anticipating the company will report fourth-quarter earnings per share of $1.66. Recently, three management executives were sellers in the market. Jennifer Dowty profiles the stock.
Enbridge Inc. "I am fed up with Enbridge," one disgruntled reader wrote last week. "I know we have anti-pipeline governments but can you explain the stock's performance this year?" It wasn't the first unhappy e-mail about Enbridge that Gordon Pape has received. Many readers have wondered why what used to be such a dependable stock has fallen so quickly. As a stock owner himself, he shares their concern. Gordon Pape examine's the stock's slide and shares his advice on what investors should do.
Fund managers have an aversion to pot stocks
The resurgence of marijuana stocks over the past three months ought to be giving a nice boost to actively managed mutual funds that have made a big bet on the sector. But are there any? Canopy Growth Corp., the biggest name in the cannabis industry and the sole marijuana producer to gain inclusion into the S&P/TSX composite index, has seen its share price rise more than 100 per cent since the end of August. Revenue at the medical marijuana producer has been growing at an impressive clip, more than doubling over the past year. Popular Canadian equity indexes aren't benefiting much, if at all, from Canopy's rally; nor are actively managed mutual funds that have been downplaying pot stocks. David Berman examines why many funds are steering clear of pot stocks.
Five things to do if you're nearing or in retirement and fearing a market pullback
It's become a cliché to say that stocks are now overvalued. The problem is what to do with that fact, especially if you're in retirement or nearing it. The next market downturn, whenever it comes, will hurt everyone, but it will hit retirees and near-retirees with particular force. Unlike mid-career investors, older investors have less time to recover from setbacks. In many cases, they have to keep tapping their portfolios to cover their living costs despite a falling market. That means they can be forced to sell investments at a loss, which may dig such a deep hole in their savings that they never fully recover. Ian McGugan looks at five things investors can do if they're currently nearing retirement.
The sad truth of why self-managed investors usually do worse than the pros
Money manager Lou Simpson recently talked about the negative correlation between the number of people making an investment decision and the results. He noted that if a lot of people are involved, the tendency is for the least competent person to effectively make the decision when a consensus is required. Think of it as a dark reflection of the notion that two heads are better than one. Norman Rothery explains.
This self-taught investor has outperformed Warren Buffett. Here's his top holdings right now
When Christopher Rees left home in 1966 at the age of 16, his parents thought he would be back in time for dinner. But he ended up wandering the world for several decades, working at jobs in difference places, including as a tailor in Afghanistan, a cook in India, a carpenter in Switzerland and a charter-boat captain in the Caribbean. The thrifty Mr. Rees is also a self-taught investor who has invested his savings well enough to establish a track record better than his hero, Warren Buffett. Larry MacDonald reports.
How to effectively use tax-loss selling to lower your tax bill
Tax-loss selling, also known as tax-loss harvesting, can be an effective way to lower your tax hit. But you have to follow the rules or you could find yourself on the wrong side of the Canada Revenue Agency. John Heinzl covers the basics about tax-loss selling.
These 10 unloved dividend stocks have outperformed
You can hardly go wrong with dividend stocks these days. Even less-favored names are producing solid or better returns. If you're a dividend enthusiast, you should be wondering how long this run of success can continue. Rob Carrick takes a look at list of dividend stocks selected by the Dividend Advisor newsletter.
Payouts from these two big TSX REITs aren't as safe as you may think
David Milstead examines why the payouts from Canadian Apartment Properties Real Estate Investment Trust, or CAP REIT, and Boardwalk Real Estate Investment Trust, may not be as secure as they seem.
A new way for high net worth investors to assess their adviser's work
We're part of the way there in helping investors fully understand how their portfolios are performing. Disclosure rules now require investment firms to provide personalized rates of return to clients, as well as the dollar amount of fees paid for advice. What's missing from the return disclosures in many cases is context. Great, you made 10 per cent over a one-year period. But how does that return compare to what everyone else made? For high net worth investors, one alternative is the no-cost Performance QuickCheck from Suggestus, which is part of a global investment consulting firm called Asset Risk Consultants. Rob Carrick explains.
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Ask Globe Investor
Question: I hold some Bank of Nova Scotia shares in a Dividend Reinvestment Plan (DRIP). The administrator of this account does not allow for these to be transferred into a TFSA. What's the best way to draw down on these to minimize tax implications? This pays a neat dividend.
Answer: I assume you can't transfer the shares to your TFSA because it is not a self-directed plan. If it were, you could move them as a contribution in kind, although you would have to pay tax on any capital gains to that point.
Holding the shares in a non-registered account enables you to take advantage of the dividend tax credit plus only 50 per cent of your capital gains are taxed. That's very favourable tax treatment but if it is not enough for you, set up a self-directed TFSA and transfer the BNS shares to it (the administrator can handle that). But remember, you'll pay tax on any gains to this point.
-- 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
Is it time to take the gamble and buy Home Capital shares, now that the worst appears to be over for the mortgage lender? David Berman shares his advice in Wednesday's Globe Investor. Meanwhile, John Heinzl looks at three stocks dividend investors should consider.
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Compiled by Gillian Livingston