Morgan Housel’s online column Degrees of Confidence – listing the 14 stages of investor confidence – is equal parts entertaining and important. The column is written with a tongue-in-cheek tone, but with overconfidence among the most common behavioural pitfalls for investors, it’s useful to objectively self-judge the state of our market expertise and consider whether it’s truly justified.
The last thing investors want to do, to quote Vanguard Group founder John Bogle, is to “confuse genius with luck and a bull market.”
Mr. Housel’s list begins with stage one, delusional, ‘talking out of their butt’ confidence when, “you’re confident in something because you don’t know enough to realize how little confidence you should have.“
The list goes on to Level four, “what happens when ambitious college sophomores start a hedge fund after reading The Intelligent Investor,” to level nine, “armed with just enough skills to backfire,” then “Level 12: Even when you have Level 11 confidence you know that confidence is a game of odds, and almost all odds are less than 100.”
The final Level 14 is a surprise that I won’t ruin.
Mr. Housel clearly intended the piece to be light reading but it contains real investing wisdom and valuable perspective like this warning, “You’ve read and understand the core principles of a topic… But you haven’t grasped that what matters in most fields are the combinations and permutations of the core principles and what’s really important are the exceptions to the rules.”
The column does have some chiding for certain general investor traits, but it’s done in fun and readers shouldn’t take it personally. It is, however, a list I suspect that investors will return to for re-reading in the future.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Onex Corp. (ONEX-T). Onex Corp. has been busily assembling a broad collection of companies that few investors have heard about – from Clarivate Analytics to Carestream Health to KidsFoundation Holdings – giving the Canadian private equity firm a relatively low profile among retail investors. But Onex’s deal for WestJet Airlines Ltd., announced on Monday, will most certainly boost the company’s profile, and perhaps give the stock price a much-needed lift following a 27 per cent slide since July 2017. David Berman explains (for subscribers).
Superior Plus Corp. (SPB-T). This stock appears on the positive breakouts list (stocks with positive price momentum). This defensive stock provided investors with price stability during last week’s market volatility. The stock is trading at a reasonable valuation and has an attractive 5.8 per cent dividend yield. Analysts anticipate the stock will provide investors with a total return (including dividends) of 23 per cent over the next year, on top of its nearly 28 per cent year-to-date gain. Toronto-based Superior Plus has three core business divisions: Canadian retail propane distribution, U.S. propane distribution and the specialty chemicals segment. Jennifer Dowty reports (for subscribers).
Party like it’s 1999: Just like the dot-com days, unprofitable companies are driving the IPO market
In an echo of the dot-com days, Wall Street is once again obsessed with tech companies that are long on promise, but short on profits. From producers of fake meat to ride-hailing services, businesses that promise a glorious, if rather vague, future are going public, stirring both high hopes and controversy. For most of these companies, the first dollar of earnings still lies years in the future. Consider Uber Technologies Inc., which raised US$8.1-billion in its long-awaited, if ultimately disappointing, Wall Street debut on Friday. The ride-hailing company says it wants “to ignite opportunity by setting the world in motion.” For now, though, it is still losing hundreds of millions of dollars a year, which means it is essentially in the business of providing heavily subsidized taxi rides. Ian McGugan reports (for subscribers).
Cash-hungry engineering assets threaten SNC plans for breakup, analysis finds
As SNC-Lavalin Group Inc. weighs splitting off assets to boost its share price, it faces the possibility that parts of its engineering and construction business have little or no value – largely because they have been burning cash, according to an analysis by a Bay Street company. A multiyear analysis by Veritas Investment Research Corp., which specializes in deep dives on companies’ financial reporting, suggests that while SNC told investors its engineering and construction (E&C) business generated approximately $2-billion in earnings from 2013 to 2018, the operations actually sucked $1.2-billion in cash out of the company – a gap of $3.2-billion. David Milstead reports (for subscribers).
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Ask Globe Investor
Question: My husband and I have lent money to his brother on two occasions. One is a long-term loan that is documented and secured by a future inheritance from their father; the other is a short-term loan that was supposed to be repaid after two months but is still outstanding nearly a year later. I have grown increasingly concerned about my brother-in-law’s lavish spending on cars, vacations and private schools. I believe he has maxed out his credit cards and has also borrowed from other family members. What should I do?
Answer: Family relationships are difficult enough on their own. Add money to the equation and it can be a recipe for disaster.
"It often tears the family apart. There are situations where family members never speak again,” says Laurie Campbell, chief executive of Credit Canada Debt Solutions Inc., a non-profit credit counselling agency.
It’s one thing to lend money to a family member who needs financial support because of a job loss or another emergency. In such cases, it’s probably best to treat the loan as a gift, Ms. Campbell says, because the money might not be paid back. But, it’s quite another thing to lend money to support a family member’s out-of-control spending.
“The brother-in-law is taking advantage of their relationship and their good nature to continue borrowing money,” she says. “If he is borrowing from family members, my guess is this person owes money everywhere. He has probably borrowed from friends or anyone else he can. This is not someone who respects other people’s money. He only respects what it can do for him.”
So, what should the couple do?
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Compiled by Gillian Livingston