Seth Klarman, billionaire hedge fund manager and founder of Boston-based Baupost Group, is a revered if somewhat media shy source of investment wisdom. Mr. Klarman recently made a rare public appearance as part of a panel discussion and Adam Grossman of the Humble Dollar blog was there to take notes.
Mr. Grossman came away with four helpful observations from Mr. Klarman’s comments, which he summarized as “Pick your poison;” "When it comes to investments, ‘there’s no such thing as a perfect 10;’ " “Be willing to pay more when warranted;” and “Don’t fall in love with an investment.”
‘Pick your poison’ was the most useful segment for investors by refining the struggles of portfolio strategy design down to one question, “Do you want to trail the market when it’s going up or when it’s going down?”
Mr. Grossman adds, “To a great extent, investment returns are within our control. Many people – myself included – worry about the stock market. Mr. Klarman’s point: It doesn’t need to be that way. If you don’t want to lose sleep worrying about the market, you don’t have to. It’s all about the asset allocation choices you make.”
The advanced age of the post-financial crisis market rally makes Mr. Klarman’s perspective – notably the part about trailing the market when it falls – even more pertinent.
The Monday Financial Times article, Wall Street braces for U.S. earnings recession, contained the following quote from Michael Underhill, the chief investment officer at Capital Innovations, “This is late cycle [market] activity, which is characterized by growth moderating, credit tightening and earnings slowing. The next phase is contraction or recession.”
There’s no need to interpret the statement as a warning that market disaster is right around the corner. It is not too early, however, for more conservative investors to consider portfolio strategies designed to protect against downside risk instead of trying to squeeze every last drop out of the last stages of the rally.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Lightspeed POS Inc. (LSPD-T). This recently listed stock may appear on the positive breakouts list (stocks with positive price momentum) once it has a longer trading history. It is a stock that growth investors may want to put on their radar screens given its strong top line growth forecast (over 30 per cent year-over-year revenue growth is anticipated). The share price has rallied nearly 50 per cent from its initial public offering price. As a result, the share price may need to consolidate, trade sideways, digesting these gains before climbing higher. The share price trades at a slight discount its industry peer, Shopify Inc. Jennifer Dowty reports (for subscribers).
Darkening profit outlook dims chances of indexes hitting record levels
North American stocks are once again within spitting distance of record levels, and this week’s batch of corporate earnings and economic reports could play a key role in determining whether indexes can claim new highs. Given the darkening profit outlook, however, it could be an uphill battle. S&P 500 companies have posted 10 consecutive quarters of year-over-year earnings growth, a stretch that dates back to the first quarter of 2016 and has given legs to the decade-long bull market. But earnings could be headed for a rare stumble as trade turmoil, rising labour costs and a strong U.S. dollar threaten to end that streak. John Heinzl reports (for subscribers).
Cannabis companies are a high-wire act with lofty market valuations, while the reality is less bright
Investors will scrutinize Canada’s high-flying cannabis companies this spring as the fledgling industry delivers its latest quarterly results – and those who fall short of expectations could face a tough reaction. Analysts say it was likely a hard quarter. Cowen and Co., which is bullish on cannabis, suggested there would be a slow start for the sector this year. Scotiabank declared that expectations are “too optimistic” and predicted stock of companies that deliver weaker-than-forecast numbers will “trade sharply lower on earnings day.” David Ebner reports (for subscribers).
John Heinzl’s secrets for building a powerful dividend growth portfolio
John Heinzl compiled links to what he considers to be some of the most useful dividend columns he’s written over the years. Whether you’re just starting out with dividend stocks or you’re an experienced investor who wants to refresh your understanding of the dividend tax credit or dividend reinvestment plans, there’s something here for you.
The hot stock picks that made the rounds at this week’s gathering of value investors
Value investors who want to bulk up their portfolios may want to check out gym operators in emerging markets. African investments and an edible-oil shipper are other potential bargains, according to speakers at this week’s annual value investing conference organized by the Ben Graham Centre at Western University. The conference, now in its 14th year, brings together financial heretics – people who disagree with the prevailing academic viewpoint, which holds that the stock market is an efficient calculator of what individual stocks are worth. Instead, value investors insist that Mr. Market is more like a moody sports fan, prone to swinging between irrational extremes of optimism and pessimism. Conference speakers said the stock market is now going through one of its periodic patches of exuberance. Some believe a reckoning is due. Ian McGugan reports (for subscribers).
ETF Buyer’s Guide 2019: The complete series
The popularity of exchange-traded funds continues to accelerate in Canada at a record-breaking rate. Last year alone, more than $26-billion flowed into ETFs, with 11 new providers in the Canadian market alone. The options for constructing a low-cost, effective portfolio using ETFs have never been greater, and fees are continuing to come down. To help investors navigate the crowded field, Rob Carrick has dissected the world of ETFs with the 2019 Buyer’s Guide series. These six instalments include only established funds, which means a five-year track record at least. Access is exclusive to Globe subscribers.
From penny pinchers to tightrope walkers: A look at ETFs for your investment persona
The ETF market continues to grow. Nine new exchange trading funds were launched in March, bringing the total in Canada to more than 700. Originally, ETFs were supposed to be a low-cost way to track the movement of major indexes such as the S&P/TSX Composite or the Dow. Those plain-vanilla ETFs are still available and popular, but, in recent years the industry has introduced new products of increased sophistication. That pretty much sums up the direction in which the ETF industry is heading: more specialization and greater complexity. So how do you decide which ETFs to buy? Start by assessing your own investment personality. You need to know what your goals are and your degree of risk tolerance before making a choice. Here are some suggestions. Gordon Pape explains (for subscribers).
Others (for subscribers)
Others (for everyone)
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Ask Globe Investor
Question: Dividend investing sounds wonderful but what happens to dividend income in a recession. Don’t the stocks go down quite significantly as well as their dividends?
Answer: If you own stocks, their prices are going to fall at times. Rather than try to avoid this, successful investors learn to roll with it. If you hold well-established companies with growing revenues and earnings, such slumps should be temporary. Yes, companies occasionally cut their dividends – commodity producers, highly indebted businesses and companies facing fundamental threats to their long-term profitability are especially vulnerable. But cuts are rare for banks, utilities, power producers, blue-chip consumer stocks and other conservative dividend payers. During the last recession, many companies continued to raise their dividends.
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What’s up in the days ahead
Are you tempted to hold nothing but a portfolio of Canadian bank stocks? You’ll be thinking twice about it after Ian McGugan looks at the historical returns of sectors on the TSX.
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Compiled by Gillian Livingston