The Irrelevant Investor blog provided another great list of quotes providing professional-level perspective for the average investors. Michael Batnick provides eight excerpts from his friend Brian Portnoy’s new book, The Geometry of Wealth. My favourite is “Beating the market. That’s a silly and fruitless game. It’s not tied to your real needs. It’s attached to your ego.”
The whole list is great and recommended but I really wanted to discuss the difficulties in practically applying this investment wisdom with actual portfolio changes.
The secret to actually using the perspective of successful investors is encapsulated in quotes from Berkshire Hathaway’s Charlie Munger and Warren Buffett. Mr. Munger has said repeatedly that the secret to Berkshire’s success was not because they were smarter investors but because they did fewer dumb things in their portfolio.
Mr. Buffett used a baseball analogy to remind investors that they don’t have to be active in the market all the time, “What’s nice about investing is you don’t have to swing at pitches. You can watch pitches come in one inch above or one inch below your navel and you don’t have to swing. No umpire is going to call you out. You can wait for the pitch you want.”
The secret to using investment applying advice like Mr. Portnoy’s is that it provides rules on what not to do because as Berkshire’s principals advocate, the right thing to do is most often nothing. This idea is backed up by academic research proving that portfolio performance declines as the number of transactions increases.
Good investment advice can be used as a pre-trade checklist. For example, one of Mr. Portnoy’s other observations is that “Finance is a lucrative industry in which complexity is an important and often unassailable competitive moat. Make things too easy and you potentially lose your customers.”
Investors can apply this when, confronted with a new robo-adviser structure or technology company with a niche, inexplicable software package, they ask themselves, “Do I understand what I’m buying, or is it just a shiny object with strong recent performance?”
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Cott Corp. (BCB-T). This stock appears on the positive breakouts list (stocks with positive price momentum) . The share price has rallied 17 per cent since the company reported better-than-expected quarterly earnings results in early-May. Ontario-based Cott is a direct-to-consumer delivery provider of products including bottled water, coffee, and tea. The company services businesses, restaurants, hotels, healthcare properties, and residences across North America and Europe. Home and office bottled water delivery (HOD) represents the company’s largest business segment in terms of revenue, accounting for 41 per cent of the company’s total revenue last quarter. Jennifer Dowty reports (for subscribers).
Photon Control Inc. (PHO-T). This stock appears on the positive breakouts list (stocks with positive price momentum) . Its share price closed at an all-time high on Tuesday, rising 6 per cent on high volume. The share price has rallied 72 per cent over the past year and is up a staggering 198 per cent over the past two years. The share price may soon be due for a pause given the stock’s spiking valuation. Consequently, this is a stock you may want to put on your radar screen and wait for a potential pullback. This small-cap stock may be best suited for consideration by investors with a high risk tolerance. The security highlighted today is a small-cap technology stock. Richmond, B.C.-based Photon Control is a small-cap technology stock. The company supplies semiconductor manufacturers with temperature and position sensors. Jennifer Dowty reports (for subscribers).
Roots Corp. (ROOT-T). My nine-year-old daughter, Alice, class="">loves clothing from Roots, particularly the grey sweatpants. She also likes anything from Lululemon and she devours non-caffeinated beverages and snacks from Starbucks. Should investors take notice? David Berman takes a look at these retailers, and specifically Roots and how it’s doing since its IPO (for subscribers).
Cineplex Inc. (CGX-T). In action movies, the hero always escapes from perilous situations. Can Cineplex Inc.’s struggling stock do the same? In the past year, shares of Canada’s largest movie theatre chain have plunged about 40 per cent, hurt by falling box-office results, worries about the threat from streaming services such as Netflix and skepticism about the company’s diversification strategy. John Heinzl takes a look at the stock.
Soccer’s World Cup has much to teach investors about the Canadian stock market
As you may have heard, a certain international showdown involving men with strange haircuts and inflated egos begins on Thursday. If the 2018 edition of the World Cup runs true to form, it will involve dysfunctional teamwork, nationalistic fervour and, oh, yes, the Germans will win. That, when you think about it, makes the tournament a near perfect metaphor for the global economy. But the parallels between footie and finance run even deeper than that, according to Ian de Verteuil of CIBC World Markets. In a report this week, he points out lessons that apply equally well to both the World Cup and the Canadian stock market. Ian McGugan explains (for subscribers).
How to bluntly break up with your adviser
A Toronto money management firm has come up with a novel way to get some attention: Help investors identify and fire bad advisers. Hennick Wealth Management has produced four “blunt break-up cards” you can print and send to an adviser you want to fire. Silliness? Sure, a little. But there’s an element of practicality to this exercise. You should definitely look at Hennick’s list of traits of a bad adviser because they’re on the money. Rob Carrick reports (for subscribers).
Accounting Standards Board launches new financial-performance reporting guidelines
Canada’s accounting-rules setters, troubled by the explosion of customized earnings measures, are launching a project to create new standards to improve the use of alternative measures of profit. The new initiative, to be announced on Thursday, is designed to also include private companies and non-profits, covering all measures of financial performance. But it can only go so far without the help of the Canadian securities regulators. The regulators, who said last year that they planned formal rules to rein in companies that misuse alternative measures of profit, are the enforcers in the current system. And recent history suggests that guidelines and other voluntary systems may not be enough to solve the problem. David Milstead (for subscribers).
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Ask Globe Investor
Question: I am 27 years old and an aggressive saver. Having worked since the age of 22, I now have no debts and savings of $200,000 – with 35 per cent in stocks and ETFs and the remaining as cash. I am hesitant to invest the cash in today’s environment. What do you recommend?
Answer: If you are intending to buy a house in the next few years, then leaving a large portion of your savings in a high-interest savings account is prudent. You don’t want your stocks tumbling just when you need the money for a down payment. On the other hand, if you don’t expect to make a large purchase any time soon, then, for your age, a 35-per-cent weighting in equities is probably too low. According to an old investing rule of thumb, your equity exposure should be about 100 minus your age – or 73 per cent in your case. Given that lifespans are increasing and fixed-income yields are low, however, even that rule is now considered too conservative. Investing in banks, utilities, power producers, telecoms and other dividend-paying stocks – or purchasing a dividend-focused exchange-traded fund – will over the long run almost certainly beat the returns of a portfolio that’s heavy in cash. The downside is that you’ll have to live with greater volatility, but history strongly suggests that the trade-off will be worth it.
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What’s up in the days ahead
Larry MacDonald takes a look at the biggest shorts on the TSX, and Rob Carrick examines how to lay out your finances so your loved ones can figure it out.
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Compiled by Gillian Livingston