Looking ahead to investing in 2018.Tom Young/Getty Images/iStockphoto
Joe Wiggins is a portfolio manager at Standard Life Investments and, thankfully for us, also writes the Behavioural Investment blog. Earlier this week, Mr. Wiggins published a list of "Five simple behavioural tips for better long-term investment decision making."
Each of the tips is backed by research in the behavioural sciences field popularized by Nobel Prize winner Daniel Kahneman and his book Thinking Fast and Slow.
Mr. Wiggins' first four investment tips are: to check your portfolio less frequently, avoid emotional decisions, 'make doing nothing the default,' and choose the right reference points for your portfolio (such as remembering that the price an investor bought a stock shouldn't figure into their decision making, and watch out for professional managers that change their benchmarks).
This advice is an excellent reminder of core principles of investing but the fifth tip, 'Write a pre-mortem before making an investment' is the most novel.
He describes the process as, "prior to embarking on a course of action, you imagine a future state where this action has ended in failure, and then list the reasons why it has gone wrong … The technique is effective as it forces us to engage with the prospect of being wrong (which is often unpalatable) and can serve to puncture the overconfidence that can often plague investment decision making."
The rationale behind this advice is similar to that found in Michael Mauboussin's Decision Making For Investors, a paper that I still consider the best ever written for individual investors. Mr. Mauboussin recommended that investors not only estimate potential upside for each investment, but also the probability and scale of losing money.
Mr. Wiggins is right when he writes that imagining mistakes is 'often unpalatable,' which is why most investors don't do it. This omission in the thought process likely contributes to the proven fact that most individual stock pickers underperform the benchmark.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Cobalt 27 Capital Corp. This stock appears on the positive breakouts list, benefiting from positive sentiment surrounding future growth prospects of electric vehicles. The stock has a unanimous buy recommendation, and for a small-cap stock that trades on the TSX Venture Exchange, it is well covered by the Street. There are seven analysts covering the company, which includes research coverage by two large firms, Scotia Capital and TD Securities. Toronto-based Cobalt 27 owns 2,161 tonnes of physical cobalt. Management seeks to build a cobalt-focused portfolio, providing the company with royalties and income streams. Jennifer Dowty reports.
Intertape Polymer Group Inc. This is a small-cap stock with a market capitalization of $1.25-billion that appears on the positive breakouts list. The company offers investors an attractive dividend yield of over 3 per cent with a dividend that is paid in U.S. dollars. With headquarters in Montreal and Sarasota, Fla., Intertape develops and manufactures products, such as carton sealing tapes and industrial and specialty tapes and fabrics, used in industrial, automotive, and aerospace applications. Jennifer Dowty reports.
The Rundown
What one of the Street's top strategists is predicting for 2018
When Brian Belski speaks, investors should take note: The chief investment strategist at BMO Nesbitt Burns has a successful track record in recent years for accurately forecasting the market. Last year, his base-case forecast target for the S&P/TSX composite index at the end of 2017 was 16,000 and the TSX index is currently right in line with his expectations. The prior year, his 2016 year-end target for the S&P/TSX was 15,300, and the index closed out the year at 15,288. For the upcoming year, he is calling for the S&P/TSX to continue its rally, reaching 17,600 by the end of 2018. Jennifer Dowty reports.
My portfolio of misfit stocks has left the TSX in the dust
Misfits rule. That's one takeaway from a stock-picking idea that we discussed in this space in early April: Find stocks that are down on their heels but have at least one route to recovery, diversify your bets across these high-risk stocks and watch the action unfold. It has been called phoenix investing, based on the idea that near-dead stocks can regenerate – often spectacularly – after the market has given up on them. But David Berman also like to call these stocks misfits.
Gordon Pape: My TFSA income portfolio is up over 12% annually
The cumulative contribution level for Tax-Free Savings Accounts (TFSAs) has now reached a level at which it should be seriously considered as a supplemental retirement plan. It is now possible for a couple to have contributed $104,000 to their TFSA accounts, which could, if properly invested, generate annual cash flow in the $5,000 range. In May 2015, Gordon Pape launched an income portfolio designed for TFSAs. The goal was to generate cash flow in the 5 per cent range. Any capital gains would be a bonus. The securities he selected have above-average yields, so risk is on the high side. So far it's up 12 per cent annually. Gordon Pape explains.
Some of the best options for tracking your portfolio
The Google Finance online portfolio tracker never offered much eye candy for users, but it was easy to use and popular with investors. Nevertheless, it appears to be on the way out. "Google Finance is under renovation," a notice on the website says. As a part of this process, the Portfolios feature won't be available until a later date, the notice continues. Ready to find an alternative for monitoring stocks, exchange-traded funds and mutual funds you own or are considering for your portfolio? Let's look at a bunch of contenders. Rob Carrick takes a look at the options.
It might be time to apply this market-leading Canadian ETF strategy in the U.S. market
The U.S. market is where top performing Canadian-market investing strategies meet their match. The latest example is the low volatility exchange-traded fund, which has been the best performing Canadian market strategy over the past five years for investors using exchange traded funds. For investing in the U.S. market, low volatility funds have been less dominant. Rob Carrick takes a look at the strategy.
This company offers two solid ETF bets for income investors
Here's some good news for investors who have been trying to figure out what to do with their fixed-income money in the face of rising interest rates. Pimco Canada recently launched two bond-based exchange-traded funds that are well worth considering. California-based Pacific Investment Management Co. is widely regarded as one of the world's leading bond traders. It has operated a suite of mutual funds in Canada for several years but only entered the ETF market in October with two offerings. One is the Pimco Monthly Income Fund (Canada), ticker PMIF. It's an ETF version of the Pimco Monthly Income Fund. The second ETF being offered is the Pimco Investment Grade Credit Fund (IGCF). Gordon Pape examines.
As bitcoin scrapes $10,000, an investment boom like no other
Digital gold. The new tulip mania. A virtual currency. Whatever you want to call it, Bitcoin is on an extraordinary run, with the price of a single bitcoin crossing $10,000 on some exchanges for the first time Monday — less than two months after it crossed $5,000 for the first time. It is a bull market with few precedents in recent investing history. The price has been pushed up by a flood of new buyers from around the world who think they have spotted a new kind of investment that could ultimately compete with gold as a place to store money outside the control of companies and governments. Nathaniel Popper from The New York Times reports.
Fund giant Invesco Canada finds way into robo-adviser space
Invesco Canada Ltd., one of the country's largest mutual-fund providers is keeping with the times in launching a robo-adviser tool that will help wealth-management firms and their advisers bring digital advice to Canadian investors. The new platform, titled advisorDUO, has similar capabilities to a traditional robo-adviser, where clients are able to sign up for accounts digitally and receive a recommended portfolio based on risk tolerance and investment goals. Clare O'Hara reports.
Top Links
These stocks will benefit most from the AI revolution
Others
Tuesday's Insider Report: Companies insiders are buying and selling
Monday's Insider Report: Companies insiders are buying and selling
Multiple insiders are buying after Yamana Gold raises guidance
The Globe's stars and dogs for last week
Number Crunchers
A low-volatility strategy that protects on the downside and does well on the upside
Ask Globe Investor
Question: I have been following John Heinzl's articles about Enbridge (ENB). Wouldn't it make more sense to sell soon and wait for a major pullback rather than holding these shares through an inevitable correction, which could be extremely painful? This stock market is just dying to come back down to earth.
Answer: Please let me know when this "major pullback" or "inevitable correction" is coming. Next week? Early in 2018? If you could be more specific, we could both make lots of money.
Sorry to be facetious, but I think it's dangerous to make investing decisions based on speculation about where the market in general may be heading. How long have people been predicting an imminent correction in the U.S. market? Sure, it'll happen one day, but so far, those predictions have been wrong.
That's why, if you're thinking about buying or selling an individual stock – whether it's Enbridge or any other company – I believe you're better off focusing on the long-term outlook for the particular business.
Enbridge has a $31-billion slate of projects planned for 2017 through 2019. Assuming these projects come to fruition – and there are always risks, particularly with pipelines – Enbridge's cash flow is poised to rise substantially. However, in the short term, the company is facing questions about its dividend outlook, credit ratings and how it will fund its growth.
The company has said it will provide more clarity at its annual investor days scheduled for Dec. 12 in New York and Dec. 13 in Toronto. Could the shares fall further? It's certainly possible. Could the shares rally if Enbridge announces some positive news? That's possible, too. It's worth pointing out that Enbridge's shares have already had a "major pullback" – they're down about 18 per cent this year – which indicates a lot of pessimism is already baked into the stock price. As an Enbridge shareholder myself – I own the stock personally and in my Yield Hog Dividend Growth Portfolio – I am willing to ride out the current volatility. A lot of people aren't, obviously. You'll have to make that decision for yourself.
--John Heinzl
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What's up in the days ahead
On Wednesday, John Heinzl looks at three low-yield dividend stocks that are good for your portfolio and Rob Carrick looks at a type of pension fund that could be a benefit to both companies and employees.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston