The Collaborative Fund blog authors pointed to an older column containing some of the truest words ever written about investing.
“Investing is not the study of finance. It’s the study of how people behave with money… managing money isn’t necessarily about what you know; it’s how you behave. But that’s not how finance is typically taught or discussed. The finance industry talks too much about what to do, and not enough about what happens in your head when you try to do it.”
The column was written a year ago, but it might become extremely relevant in the weeks ahead if Nomura quantitative strategist Masanari Takada’s forecast is accurate. In a recent research report entitled “Potential second wave sell-off,” Mr. Takada noted the distinct possibility of another significant downdraft in global equity markets.
“Our basic stance is that investors should be focused on the potential downside for global equities in the near term, given that sentiment is still pointing down.”
Investors do not need to believe Nomura’s predictions to prepare – both tactically and mentally – for an eventual sell-off.
As the Collaborative Fund piece emphasizes, it’s not difficult to learn the rules of successful investing but it can be very difficult to act on them. Smart investors will be looking for undervalued opportunities in a potential sell-off, but no one rings a bell at what Sir John Templeton called “the point of maximum pessimism” – a market bottom that vastly improves the odds of future profits.
The prevailing sentiment during significant market sell-offs is fear that the investing environment will get worse. During a downdraft, it is a severe emotional challenge to overcome this fear and take advantage of market bargains.
Preparation is the best way to combat excess market pessimism. Investors who identify investments they’d like to add to their portfolio ahead of time, and calculate a purchase price that represents strong value, will have an easier time ignoring base emotions while uncovering promising opportunities in volatile markets.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Badger Daylighting Ltd. (BAD-T). Have you ever heard of a hydrovac? Unless you’re in the construction or energy business, probably not. But more investors are looking at a Calgary-based company called Badger Daylighting Ltd. that’s in the business of – wait for it – digging holes! And doing it with hydrovacs. Gordon Pape takes a look at the stock, which has been volatile, but is now on the rise. (For subscribers).
The Rundown
Solving the problem of well-intentioned investment advisers who give bad advice
If you want better investment advice, ask tougher questions of your adviser. That’s the idea behind the latest book by John De Goey, an investment adviser who advocates for investors. Mr. De Goey believes most advisers are trying to do good work for clients, but they often fail because of misguided thinking. Selling high-cost investment products and chasing investments with great returns are all part of it. The best way for investors to deal with these and other aspects of bad advice is to press their adviser with questions, says Mr. De Goey, a portfolio manager and certified financial planner (CFP) at Wellington-Altus Private Wealth. His book is a manual on how to do this. Rob Carrick has a Q&A with Mr. De Goey. (for subscribers).
What’s making the Toronto Stock Exchange an ‘undercover high-yield market’
After more than six months of shrinking bond yields, the stock market has again become the clear choice for Canadian income investors. With few attractive fixed-income alternatives, a limited domestic corporate debt market and high-yield options in short supply, the yield-oriented investor has little choice but to turn to dividend-paying equities. The Canadian stock market serves as a kind of “undercover high-yield market,” with the S&P/TSX Composite Index currently offering nearly twice the yield of Government of Canada 10-year bonds. Tim Shufelt reports (for subscribers).
The U.S. economy is slowing abruptly. Here’s why there’s no need for investors to panic
The U.S. economy is slowing abruptly, with knock-on effects sure to be felt in Canada. How worried should investors be about this decelerating trend? The answer, rather surprisingly, is not very. There is less of a link between economic growth and stock-market returns than most people think. The real threats to today’s market comes from high valuations, political uncertainties and growing trade tensions. They could combine to take down the market. But slowing growth, by itself, is not a huge reason for concern, despite grim numbers published on Friday. Ian McGugan reports (for subscribers).
Why investors should be looking Down Under for a seasonal trade
Seasonal influences for the Australian equity market are about to turn positive. Their period of seasonal strength on a real and relative basis is from mid-June to mid-October. Australia’s equity market seasonal pattern is unusual. Most equity markets in the world reach a seasonal peak early in May and a seasonal trough in mid-October. And after Australians recently voted to re-elect a centre/right-leaning government with a majority stocks rose. Don Vialoux explains (for subscribers).
Here is an investor ‘say on pay’ vote checklist
The federal budget earlier this year contained a provision requiring prescribed corporations to develop an approach to remuneration with respect to directors and employees who are “members of senior management.” The regulations have not yet defined “senior management," but we are apparently heading toward a “say on pay” vote similar to that which exists in the United States. These votes are advisory only, but if many shareholders express discontent it will be difficult for the board to ignore. Robert Tattersall explains what this means and what investors need to know.
Others (for subscribers)
‘Second wave sell-off’ in global equities ahead: Nomura
Monday’s Insider Report: Presidents are buying these two stocks on price weakness
Monday’s analyst upgrades and downgrades
Monday’s small-cap stocks to watch
Others (for everyone)
The Globe’s stars and dogs for last week
Ask a question of CIBC economist Benjamin Tal
Ask Globe Investor
Question: I’m trying to find out how much I am paying in fees. I’ve been with the same firm for 20 years – with three different advisers in that time. They tell me I’m paying 1 per cent. How can I verify that this is correct?
Answer: John Heinzl chose this reader’s e-mail (which I’ve paraphrased) because it illustrates an all-too-common problem: Many investors have no idea how much they are paying in fees. Nor do they understand the huge impact that fees can have on long-term returns.
If you’re someone who has fee blinders on, this reader’s story might shake you out of your complacency. It turns out he’s been paying more – a lot more – than 1 per cent.
I initially suggested that the reader dig through his records and try to find a disclosure of his investing costs. When he couldn’t find any information in his statements, I recommended that he e-mail the firm’s compliance department. The firm has a duty to explain his fees in writing, I told him. That he was still in the dark about this after 20 years with the same firm was unacceptable.
Read the rest of John Heinzl’s answer via this link
– John Heinzl
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
Morgan Stanley strategist Andrew Sheets’ highest conviction trade idea is that the S&P 500 will underperform the rest of the global equity market. For Canadian investors, this is even better news that it appears on the surface. Scott Barlow will explain.
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Compiled by Gillian Livingston
Scott Barlow