Skip to main content

Investment Ideas Investor bets Canadian housing is a bubble set to burst

Nigel D'Souza

Occupation

Hedge fund administration

Story continues below advertisement

The portfolio

Includes short positions in the Canadian banks and Tesla Motors Inc.; long positions in gold mining companies and Smith & Wesson Holding Corp.

The investor

Before becoming an investor, Nigel D'Souza read widely on economic and financial topics. His favourite investment book is Hedge Fund Market Wizards by Jack Schwager.

Mr. D'Souza is a founding member of an investment club (Quadrant Skew Capital). He is also studying to become a chartered financial analyst.

How he invests

Mr. D'Souza prefers to have a mix of long and short positions in his equity portfolio. "It enables me to generate a return in bull and bear markets," he says.

Story continues below advertisement

Avoiding big losses is important. "If you lose 50 per cent of your capital, you will have to generate a 100-per-cent return on your remaining capital just to get back to where you were."

His short position on Canadian banks reflects a conviction that the Canadian housing market is a bubble about to burst. Prices have just run too far ahead of household incomes. The catalyst will likely come in the form of higher mortgage rates and/or a downturn in household incomes.

The Canadian financial system is not as safe as many think, Mr. D'Souza believes. "The Big Five Canadian banks have a higher amount of leverage … than the subprime mortgage lenders that went bust during the U.S. financial crisis."

He's not fazed by Bank of Canada measures to avoid a crash – such as cutting interest rates. "Some of the best trades were bets against … central bank policy." For example, hedge-fund guru George Soros made $1-billion (U.S.) off the Bank of England's defence of the pound in 1992.

Mr. D'Souza owns shares of firearm manufacturer Smith & Wesson. He bought when it "was undervalued relative to its peers and his discounted cash flow model showed that the company was undervalued by more than 20 per cent."

Best move

Story continues below advertisement

"Buying shares of Apple when it was trading in the low 400s, prestock split."

Worst move

"Shorting Amazon … without realizing that the stock price was driven by the narrative of growing revenue … instead of traditional valuation metrics."

Advice

"Understand how to manage risk before you start to manage money."

Want to share your strategies? E-mail mccolumn@yahoo.com

Story continues below advertisement

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter