Venture capitalist Morgan Housel explained how COVID-19 intensified, rather than caused, the major financial and political issues confronting the developed world in the brilliant “Here We Are: 5 Stories That Got Us To Now.”
Mr. Housel’s first two points concern economic inequality and the declining bargaining power of labour. He writes that in the past decades, “people [had grown] apart financially at the same time they became connected digitally, which exacerbates tribal instincts.”
Similarly, the pandemic highlighted the sharp financial divide between physical labourers and those using only PCs and a keyboard. The column cites a recent study estimating that 88 per cent of those with graduate degrees were able to work from home and keep collecting paychecks. Almost two thirds of workers without high school degrees were unable to do the same.
The political pressure to address developed world inequality was already building before the virus hit and the government responses pave the way for further action that will affect investor portfolios. Budget-busting fiscal spending to support displaced workers is now the norm, and almost universally deemed necessary among reasonable experts.
Investors are already benefiting from government spending through higher stock prices. Also, I wouldn’t be surprised if universal basic income-type government support for consumption becomes more prevalent. Eventually, investors will also have to acclimate to a market environment with much higher levels of public debt.
Mr. Housel’s third story – that modern citizens had become complacent in a world where most major diseases had been eradicated, and are reacting more strongly to COVID-19 than previous generations would – is interesting but not immediately applicable to investing.
Similarly, his fourth point concerns the global nature of media “which can make the world feel perpetually broken because there is always a tragedy somewhere.” This realization can inform the perspective of global investors, but is not market-centric.
The author’s fifth story is likely to be the most contentious. He writes, “The Federal Reserve learned how to keep the financial system from falling apart… and ruined a lot of assumptions people had about how the economy works.”
I don’t think we know for certain that central banks have learned to fix any problems that show up. The market distortions caused by central bank intervention in asset markets may eventually create issues (unproductive zombie companies dependent on cheap financing and a shortage of investment income streams to name just two) that central banks can’t fix.
It is undeniably true, on the other hand, that decisive central bank actions in the past 12 years have changed the investing landscape. Mr. Housel cited Josh “The Reformed Broker” Brown for an example of this, “Generations of investors had been taught that, in a bear market, the most gruesome casualties would be the highest-flying, most expensive stocks. This time, the experience has been the opposite.”
The good news for investors is that these broad economic and societal shifts happen slowly and they can go with the flow for the time being. Perspectives like Mr. Housel’s, however, can effectively help portfolio returns and allow investors to adapt to a constantly changing market backdrop.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
GFL Environmental Inc. (GFL-T), North America’s fourth largest diversified environmental services company, recently announced a large, attractive pending acquisition that would rapidly expand the Ontario-based company’s presence in the U.S. market. This could be a near-term catalyst for the stock with analysts’ potentially revaluing their target prices using a higher multiple. Jennifer Dowty has more (For Globe subs)
Good news for REIT investors: Tenants are paying rent
The REIT sector - which is exposed to retailing - is languishing amid uncertainty over the financial health of its tenants. But recent second-quarter results from Choice Properties suggest that there is a compelling bullish case for retail REITs at today’s beaten-up prices. David Berman reports (For Globe subs)
Tread carefully with Brookfield Property’s 12-per-cent yield
As an owner of real estate including shopping malls, office buildings and hotels, Brookfield Property Partners has taken a direct hit from the novel coronavirus. The units have plunged about 37 per cent this year, which has pushed the yield up to about 12 per cent – a level that normally signals substantial risk of a distribution cut. John Heinzl has a look in his recent Investor Clinic. (For Globe subs)
Algonquin Power & Utilities receives big boost to five-year growth plan
Canadian utilities with ambitious growth plans have found a new best friend in Zimmer Partners LP, a U.S. hedge fund that is paving the way for new infrastructure by making serious commitments to stock sales. Algonquin Power & Utilities Corp. is the latest domestic player to benefit from founder Stuart Zimmer’s seal of approval. Andrew Willis has more (For Globe subs)
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Ask Globe Investor
Question: Financial websites such as Globeinvestor.com and Yahoo Finance provide actual share price data as well as historical prices adjusted for dividends. How are these dividend-adjusted numbers calculated and what is their purpose?
Answer: Dividend-adjusted share prices control for fluctuations that are caused by dividend payments as opposed to market forces. The best way to explain this is with an actual example.
BCE Inc. (BCE) is scheduled to pay a dividend of 83.25 cents a share on July 15. The ex-dividend date for this payment was June 12, meaning purchasers on or after this date will not receive the dividend.
In theory, if the dividend were the only factor affecting BCE’s share price, the stock should have dropped by exactly 83.25 cents on the ex-date. But stocks are subject to myriad other forces, and BCE’s price fell by just 56 cents that day.
It’s reasonable to assume, then, that if it weren’t for the stock going ex-dividend that day, BCE would have gained 27.25 cents (calculated by adding back the 83.25-cent dividend and subtracting the actual price drop of 56 cents). This is the dividend-adjusted price change, and it reflects the stock’s performance without the noise from the dividend.
Why is this number important? Well, an investor who looked at BCE’s unadjusted price decline of 56 cents might have concluded that the stock had a bad day, when the shares actually had a positive return on a dividend-adjusted basis. When a stock pays an especially large dividend, the price drop on the ex-dividend date can be upsetting for shareholders who may not understand the reason.
There’s a bit of math involved in calculating historical dividend-adjusted prices.
When a stock goes ex-dividend, financial websites typically use a “dividend multiplier” to adjust prices prior to the ex-date. The multiplier is calculated by dividing the dividend by the closing share price immediately before the ex-dividend date, and then subtracting this number from 1. In BCE’s case, the multiplier is about 0.9856 (1 minus $0.8325/$57.85). Prices before the ex-date are multiplied by this number to get the dividend-adjusted historical values.
BCE’s prices since the most recent ex-date have not been adjusted yet, which is why the actual and dividend-adjusted closing values are the same since June 12. BCE’s next ex-dividend date will likely be in September, at which time the new multiplier will be applied retroactively to BCE’s current share prices. (To see dividend-adjusted share prices on Globe Investor, pull up a stock quote, scroll down, click on “price history” and check the box labelled “dividend adjust.”)
As useful as dividend-adjusted prices can be, there’s no substitute for actual market price data. If you own individual stocks, pay attention to ex-dividend dates so you will know that a drop in the price that day may not be cause for worry.
-- John Heinzl
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Compiled by Globe Investor Staff