When ex-journalist, now venture capitalist, Morgan Housel writes bullet point lists of investing wisdom, they are always, always worth reading. The most recent edition “When Things Get Wild” is no exception.
The majority of the post discusses how investors can put market risk in perspective. The segment describing the two ways investors can prepare for volatility is useful: "You can expect [wild times] to come, or you can predict when they’ll come ... The former is realizing that throughout your career things will occasionally get wild (“Expect about two recessions per decade, on average.”) The latter is predicting that things will get wild at a specific time (“A recession is coming this year.”) The former isn’t hard and helps, latter is extremely difficult and often backfires. “
I want to focus on the two other points he makes which highlight that investors’ biggest enemy is themselves. The first is “There are three legal investment strategies: You can be smarter than others. You can be luckier than others. Or you can be more patient than others. Know your edge and how hard it is to maintain”, and the second goes, “Risk’s greatest fuels are leverage, overconfidence, ego, and impatience.”
Both of the quotes above emphasize self-knowledge and recognizing our limitations as investors. The process for me, which took way too long, proved decisively that impatience is my personal investing Achilles Heel. Repeatedly, I have bought and sold investments too early.
The importance of introspection in strategic thinking is an at least 2500-year-old concept - Sun Tzu’s military strategy text Art of War was written somewhere around the fifth century B.C.
Ever since it was mentioned in the 1987 classic movie Wall Street, the testosterone-laden, chest-thumping segment of the finance industry has been reading the wrong, fighty parts about how to attack.
The real wisdom, in my opinion, is found elsewhere in the book and it emphasizes self-assessment, “it is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know others and do not know yourself, you will be imperiled in every single battle.”
Every investor has blind spots, in my experience. Some of the most common are over-confidence, excessive trading, personalizing (“I can’t sell this losing position because it’s below what I paid for it or it will make me feel dumb for buying it in the first place”), panic, choosing stocks for upside potential without assessing downside risk, and FOMO – fear of missing out.
Mr. Housel’s short post goes well beyond the introspection theme and I recommend investors read the whole thing. I also believe that those who have not recognized their personal investing Achilles Heel, and take steps to minimize its influence, are operating at a disadvantage.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Canadian Pacific Railway Ltd. (CP-T). This stock may resurface on the positive breakouts list (stocks with positive price momentum). Year-to-date, the share price has rallied over 18 per cent. However, with the recent market weakness, the stock price is down 6 per cent from its all-time closing high set last month. In October, the company reported record third-quarter financial results and raised its earnings guidance. As a result, a number of analysts upgraded their recommendations and raised their target prices. The stock now has 27 buy recommendations. Calgary-based CP Rail is a North American railway providing rail service across Canada and the United States. Jennifer Dowty reports (for subscribers).
Pizza Pizza Royalty Corp. (PZA-T) This stock is tempting investors with a big dividend yield and an impressive one-day rally from its recent lows. But is that enough to offset weak quarterly sales and well-heeled competition from the likes of Domino’s Pizza Inc.? David Berman takes a look.
This fund manager looks for ‘under the radar’ stocks. Here’s what he’s been buying
While it might appear the markets are recovering from the recent rout, portfolio manager Veeral Khatri, who moved his position to about 25-per-cent cash in the early fall, isn’t ready to jump back in entirely. “We are still defensively positioned, but we have some dry powder to put to work,” says Mr. Khatri, who manages the Canadian Value Fund at Toronto-based JC Clark, which has $240-million in assets under management. The fund looks at “under the radar” stocks such as Pollard Banknote Ltd., Richards Packaging Income Fund and Cargojet Inc. The Globe recently spoke to Mr. Khatri about what he’s been buying and selling and the fast-food stock he wished he owned today. Brenda Bouw reports (for subscribers).
These three high-octane dividend stocks have fallen on tough times and might now be buys
Have you checked out the price charts lately for Dollarama Inc. (DOL), BRP Inc. (DOO) and Premium Brands Holdings Inc. (PBH)? Anyone who owned these high-octane stocks over the past several years made out exceptionally well, but recently all three have done a face-plant. Dollarama is down about 37 per cent from its 52-week high, BRP is off 30 per cent and Premium Brands is down 27 per cent. But here’s the silver lining. As their prices have come down, so have their lofty P/E multiples. Their dividend yields, meanwhile, have gone up (although two of three still yield less than 1 per cent, which isn’t going to get most dividend investors out of bed). Now that the froth has come off these stocks, let’s look at why each of them tumbled and consider whether now is a good time for investors to step in. John Heinzl reports (for subscribers).
The chart that strongly suggests bond yields will soon head lower
A fresh reading on global manufacturing activity for October provides two important takeaways for Canadian investors: One, the sharp decline verifies the painful slide in global mining stocks, and more importantly, it also likely suggests that bond yields are headed lower. The monthly JPMorgan Global Manufacturing PMI index, released on Friday, is an excellent way to check for mispricing in industrial metals prices and, by extension, domestic mining stocks. The data are backward looking so they can’t provide a leading indicator. But when metals prices in aggregate diverge from changes in global manufacturing activity, it is often a sign that speculative excess in metals markets – bullish or bearish – is creating investor opportunities. Scott Barlow reports (for subscribers).
National Bank of Canada to launch its own ETFs
National Bank of Canada is the fifth Canadian bank to enter the exchange-traded funds industry with four new funds expected to launch later this year for Canadian investors. National Bank Investment, a subsidiary of National Bank of Canada, filed with regulators on Tuesday to launch four actively managed ETFs, including funds that will provide exposure to active preferred shares, family businesses, real assets and one of the first ETFs launching in the new liquid alternatives market. The bank’s entrance into the market comes on the heels of two other new entrants this fall – iA Clarington and First Block – bringing the total number of Canadian ETF providers to 34, who manage more than $157-billion in assets under management. Clare O’Hara reports.
U.S. political gridlock may create investment opportunity
Investors hope the split between Republicans and Democrats controlling the U.S. Congress will open up opportunities to pick new winners and losers because some government policies will be harder to predict. Correlations between stocks and sectors were high in the run-up to Tuesday’s congressional elections, meaning investors have been either dumping or buying all kinds of unrelated stocks at once. Some funds have been damaged in what is a tough market to be a stock picker. Now, with voters giving Democrats control of the House of Representatives and Republicans retaining their Senate majority, fund managers can take opposite sides of various policy bets.
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Compiled by Gillian Livingston