U.S. investor Meb Faber is the founder of a self-named asset management company and a prolific writer on markets. The performance numbers in his 2016 column with the eye-catching titled "How To Beat 98% Of All Mutual Funds" are dated but the lesson holds.
Mr. Faber found that had an investor had allocated their assets to Berkshire Hathaway's largest 10 positions, rebalancing each quarter, they would have outperformed the benchmark and 98 per cent of U.S. mutual funds. His article was not recommending this as a strategy, however, it was about why most investors would be incapable of staying with the plan.
"[The investment strategy] crushes the market. But notice something else. It would have underperformed U.S. stocks seven out of the last nine years! When would you have fired this manager? 2009? 2010? Certainly by 2013… So, as you think about your strategy, are you willing to give it 10 years? 15? 20? Now understand why all of the academic studies show people are so bad at timing….they're human."
In a separate column called "Blind Spots" written over the weekend, Michael 'the Irrelevant Investor' Batnick expresses his belief in an even more serious investment problem than not following a portfolio strategy.
"I suspect that people persist in failure because they don't even know that they are failing in the first place. And they don't know they're failing because they don't record and track their results. It's easy for investors to subconsciously inflate their track record because our memories mislead us. Memory is one of investor's biggest blind spots."
Investing advice is usually doled out in individual portions – 'buy low valuation stocks,' or 'don't sell temporary market bottoms' for instance – but the investing challenge is more of a holistic, multi-part challenge, and most of the severe tests are psychological.
It's problematic to identify a portfolio strategy that works and suits an investor's temperament. Mr. Faber's article suggests it might be even harder to stick with it during the inevitable periods when it underperforms. And as Mr. Batnick emphasizes, keeping ourselves honest when no one's looking and our egos could be at stake is a tricky dilemma in itself.
It's not that difficult to learn investing techniques that others have used successfully. Developing the discipline, patience, honesty, objectivity and emotional control described above is, however, the work of an entire investing lifetime.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Blackline Safety Corp. (BLN-X). This stock is up 17 per cent in 2018 with a forecast for a further 40-per-cent gain this year. This technology company may soon appear on the positive breakouts list. Currently, its market capitalization is just below the $200-million screening threshold (at $187-million) and the stock is not in the S&P/TSX Small Cap Index, otherwise, it would appear on the positive breakouts list. The company's share price was resilient during the recent market sell-off. Calgary-based Blackline Safety manufacturers safety monitoring products providing live-monitoring and wireless gas detection devices. The company products are used in various industries including the energy sector, utilities, industrials, and the engineering and construction market segments. Jennifer Dowty reports.
Hydro One Ltd. (H-T) Hydro One Ltd. is in a slump and even enthusiastic analysts are cutting their target prices on the stock – a double whammy of bad news if you're a shareholder, which David Berman is. But the utility is doing everything it should, from cutting costs to boosting dividends to expanding its footprint, which is why the stock looks to be a wonderful bargain right now. He outlines his three reasons why he's sticking with the stock amid its recent downturn.
Which online brokerage is best? Rob Carrick ranks the Canadian firms
The best online brokerage firms are the ones that have travelled the farthest since their early days as order takers for investors who wanted to trade stocks for cut-rate commissions. With commissions mostly in the $5 to $10 range, cheap stock trading is still a big part of the appeal of investing through an online broker. But the best firms offer much more than that. Think of them as a personal assistant for investments that helps you set goals, choose stocks and funds, monitor performance and make adjustments as required. Online brokers are strictly prevented from providing advice, but the best of them give you the tools you need to make your own smart decisions. The broker that best exemplifies this is Qtrade Investor, which takes top spot in the 19th annual Globe and Mail ranking of online brokers. The next tier of firms includes Questrade and Scotia iTrade. Rob Carrick outlines the reasons in his 19th annual ranking of online brokerages.
Two Canadian bank stock buying strategies that have produced amazing returns
Staying loyal to one Canadian bank stock has its advantages. So does owning them all. But if you want to get the most out of an investment in this sector, try buying a fresh bank stock each year. Which one? That depends upon which of two stock-picking strategies you employ. But number crunching for both strategies, going back to 2000, points to market-beating annualized returns of 20 per cent or more. Not bad for something that is dead simple to employ. And if the strategies work in 2018 – and there is a good chance they will – then Canadian Imperial Bank of Commerce or Bank of Montreal should be on your radar today. David Berman reports.
U.S. equity bounce masks rising risks
The S&P 500 had its best start to the year since 1987 through to Jan. 26. Then it embarked on an unprecedented 10-per-cent slide in just nine sessions. It then magically bounced off its 200-day moving average and then, last week, the index staged its biggest one-week advance since 2013 (up 4.3 per cent). The Dow is coming off six straight winning sessions, a streak we last saw in November. Half the correction is over and now the blue-chips are up a grand total of 2 per cent for the year. From deeply oversold to deeply overbought. And all we are really left with is a ton of volatility. And the David Rosenberg also explains how the strong economy isn't as strong as everyone has been saying.
The rewards – and risks – of restaurant royalty funds
Restaurant royalty funds can be high-yielding securities. Fund, Pizza Pizza Royalty Corp.), to casual dining (Boston Pizza Royalties Income Fund) to higher-end establishments (Keg Royalties Income Fund, SIR Royalty Income Fund). When you invest in a royalty fund, you aren't buying into the restaurant chain itself. You're acquiring a stake in an entity that owns the restaurant's trademarks. These trademarks are licensed to the operating company in exchange for a royalty based on a percentage – usually 4 per cent to 9 per cent – of sales by stores in the "royalty pool." John Heinzl explains how they work and if they're a good investment.
These bond ETFs are providing a leaky defence for investors
So much for the go-to strategy for playing defence with your bonds in a rising rate world. Short-term bonds are supposed to be preferable to longer term bonds when interest rates are rising. The price of bonds maturing in one through five years can certainly fall as rates edge higher, but longer-term bonds should do worse. Oddly, this hasn't happened amid the interest rate increases since last summer. Rob Carrick explains and examines some bond ETFs.
After former CEO's death, is Shaw's executive pension plan fully funded?
When Jim Shaw died in January, the tributes focused on his crucial contributions as CEO of Shaw Communications Inc. during a period of growth for the company. Another legacy of Mr. Shaw's tenure, however, was a massive pension, generated by a compensation plan that racked up hundreds of millions of dollars in obligations to just a handful of executives. Shaw Communications' board chose in 2010, as Mr. Shaw left the chief executive job at the age of 53, to pay him an annual pension of nearly $6-million. At the end of August, 2011 – the most recent pension data available on Mr. Shaw – the obligation to him, alone, was $85.1-million, likely the largest single amount owed to a plan member. it is a matter of distinct importance to Shaw's shareholders. With Mr. Shaw's death, it's possible that the company's executive pension plan is fully funded, or at least close to it, and the company need not plan on injecting tens of millions of dollars more in cash into the plan, as it has in recent years. David Milstead examines the issue.
Let a disciplined approach be your guide when determining whether to sell
With the recent market turmoil and increased volatility, investors may be tempted to rush to push the sell button. However, a sell decision should be based on a disciplined investment approach. And selling a stock in panic, impulsively following the crowd – when the market declines or when market psychology changes – is not part of a disciplined approach. George Athanassakos outlines some common-sense rules and a check list of when to sell.
Amid market volatility, GICs can provide a much-needed refuge
Whenever markets are as volatile as they have been in recent weeks, investors yearn for stability in their portfolios. Cash is a safe haven, but you're not likely to earn more than 1.5 per cent on savings accounts these days. And while bonds can provide ballast when stock markets are roiling, their prices can be volatile, too. If you want zero volatility and a respectable yield, you need to turn to GICs. Dan Bortolotti explains.
Ask Globe Investor
Question: In January, A&W Food Services of Canada Inc. filed an "early warning report." Should this concern me?
Answer: No. Because A&W Food Services (the operating company) owns more than 10 per cent of the royalty fund (24.7 per cent, to be exact), it is required to disclose when its ownership changes by 2 per cent or more. This typically happens when restaurants are added to the royalty pool annually, which results in A&W Food Services receiving units that effectively increase its stake in the fund.
-- John Heinzl
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What's up in the days ahead
Brenda Bouw takes a look at meal-kit delivery company Goodfood Market Corp., the Contra guys look at a stock that tanked, and John Reese looks at three stock picks based on simple investment models.
Weeks ago, the share price of dividend stock New Flyer Industries Inc. (NFI-T) rallied to a record high. Will the stock price continue to soar to new heights? Investment reporter Jennifer Dowty attempts to uncover if management has a strategic plan in place that may unlock further value for investors and drive the stock price higher. She will be having a conversation with the company's President and Chief Executive Officer Paul Soubry later this week and will bring subscribers the highlights in an upcoming report. Should you have a question for Mr. Soubry, you can email Jennifer at email@example.com or Tweet her your question @jennifer_dowty. Jennifer regrets that due to time constraints, she will not be able to pose all questions to Mr. Soubry.
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Compiled by Gillian Livingston