The signal versus noise issue – the filtering of market information that matters to portfolios from the misguided and self-serving flotsam and jetsam from media sources – has always been a vital one for investors. The task has become harder in recent years because of a clearly over-supplied financial media market with incumbent and upstart business news outlets becoming increasingly desperate for reader attention.
Morgan Housel from Collaborative Fund has a terrific rule of thumb when deciding which investing stories to read, asking himself “Am I going to care about this topic a week from now?”
I have a different strategy. The question is “How many asset prices is this news going to change?” OPEC statements on production quotas, for instance, are always important. OPEC policy affects not only the oil price, but also oil futures values, and energy stocks across the globe.
Central bank statements, though often boring enough they could be used as a sedative, are also noteworthy because they move bond prices, dividend stock values, and the present value of future cash flows for equities.
On Wednesday, the Canadian government blocked the sale of industrial firm Aecon Group. Obviously this was vital news for holders of Aecon stock, but for non-holders the news wasn’t that big of a deal.
Even stocks from similar firms like SNC Lavalin were unaffected, so the event was stock specific, affecting only one asset price. In this case, the average investor can recognize the political trend of limiting China’s international ambitions, and move on.
Investors are probably best served by absorbing financial news in two stages. The first stage, using one of the rules above or other suitable filtering method, is to uncover the ‘must see’ stories, the ones that will directly affect their portfolio values, and focus on those. The second stage is going through everything else depending on investor interests.
Be skeptical about sources – I am absolutely ruthless about whose analysis I take seriously and recommend this policy for everyone. Mentally, my responses to a lot of media headlines is “maybe true, but how would you know?” and “Is that person quoted in the report motivated towards that view?”
I think it’s important for investors to be purposeful about their financial media consumption. No matter what rules are applied – and they can definitely evolve – a disciplined process to sort signal from noise will definitely improve portfolio performance over time.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Zymeworks Inc. (ZYME-T). This small-cap health care stock appears on the positive breakouts list with its share price closing at a record high on Tuesday. The small-cap stock has seven buy recommendations and a potential near-term catalyst. This security may be best suited for consideration by investors with a high risk tolerance given the risks associated with the company’s early stage in developing its products. Eli Lilly and Company is its largest shareholder, holding over 15 per cent of the shares outstanding. Celgene Corp. is also a large shareholder with an ownership position of 6 per cent. Vancouver-based Zymeworks is a clinical-stage biopharmaceutical company that is currently developing several potential therapies aimed at treating cancer. Jennifer Dowty reports (for subscribers).
Boyd Group Income Fund (BYD.UN-T). This stock appears on the positive breakouts list. It has delivered positive returns to unitholders over the past 11 consecutive years, and remains on track to provide a gain to investors for yet another year. Year-to-date, the unit price is up 13 per cent. Analysts have positive outlooks on the security with 11 buy recommendations. Winnipeg-based Boyd Group operates a network of non-franchised collision repair centers across North America, mostly in the U.S., under banners such as Boyd Autobody & Glass, and Gerber Collision & Glass. Boyd also operates auto glass shops across 31 U.S. states under banners such as Glass America, Auto Glass Service, and Auto Glass Authority. Jennifer Dowty reports (for subscribers).
Great Canadian Gaming Corp. (GC-T). Analysts are increasing their bets on the share performance of Great Canadian Gaming Corp. after the casino operator reported first-quarter results that blew past expectations and was set to churn out more cash from new operations in the Greater Toronto Area. Shares of the Coquitlam, B.C.-based company – which runs 28 gaming, entertainment and hospitality operations in British Columbia, Ontario, New Brunswick, Nova Scotia and Washington State – are up more than 35 per cent since it reported first-quarter revenue rose 62 per cent over the same quarter last year to $230.5-million. Analysts were expecting revenue of about $148-million. Brenda Bouw reports (for subscribers).
The Rundown
Seven reasons why the Bank of Canada won’t raise rates and send the loonie higher
The Bank of Canada’s next policy decision is on May 30, but don’t expect many fireworks or big moves higher in the Canadian currency. David Rosenberg outlines seven reasons why the bank won’t raise rates next week and why the loonie isn’t going to climb. (For subscribers).
Sorry high-yield investors, your stocks are still really expensive
Dividend stocks are in a slump because of rising interest rates and bond yields. But here’s the shocking news: The stocks are still expensive. That’s the conclusion from strategists at Bank of America Merrill Lynch. And if they’re right, dividend stocks may continue to struggle as central banks raise rates, forcing income-loving investors to make a difficult decision: Whether to void big dividend yields and embrace dividend growth instead. David Berman reports reports (for subscribers).
What BlackRock’s chief investment strategist is predicting for the TSX and loonie for the rest of this year
Is the Canadian market ready to recapture another record high? Kurt Reiman, BlackRock’s chief investment strategist for Canada, thinks so. In an interview with The Globe and Mail, he shared his latest thoughts about equity markets, Canada’s currency, and how investors should position themselves. Jennifer Dowty reports (for subscribers).
Add these ETFs to your list of ways to protect a portfolio against rising rates
Preferred share ETFs are showing signs of being a refuge for income-seeking investors worried about what rising rates will do to their portfolios. Preferreds as a group were at one time as vulnerable to rising rates as bonds and utility, pipeline, telecom and real estate stocks. But the preferred share world is now mostly made up of rate-reset shares, which adjust their payouts every five years to keep up with interest rate ups and downs. Rob Carrick reports (for subscribers).
This indicator will signal big problems ahead for Canada’s housing market
Canadian consumer spending and housing prices continue to climb, but at rates suggesting retail sales is resuming its role as a leading indicator for the residential real estate market. Consumer spending is more sensitive to short-term changes in economic growth because trips to the mall are at least in part discretionary and mortgage payments are not. We can expect that retail sales will weaken significantly before a major housing correction. Canadians struggling with high debt loads will first reduce spending in order to continue making mortgage payments. Scott Barlow reports (for subscribers).
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What’s up in the days ahead
Aecon Group Inc. didn’t work as a takeover target. Perhaps the stock will work better as a long-term investment now that Ottawa blocked its takeover by a Chinese firm, sending the shares skidding. David Berman will explore the investment case.
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Compiled by Gillian Livingston