Josh ‘The Reformed Broker’ Brown of Ritholtz Wealth Management hosted an informative and entertaining video grouping the most common investor mistakes under the seven deadly sins. The entire video is worth watching but I’ll summarize the key points. Mr. Brown started with ….
Lust: The concept of falling in love with a stock or investment strategy was covered here along with chasing the hottest asset class, lusting after previous huge returns, when it’s about to head lower.
Gluttony: The old investing axiom “bulls make money, bears make money, pigs get slaughtered" was mentioned frequently. The pitfall of taking on too much investment risk when investment portfolios are doing well was also discussed.
Greed: Waiting too long to sell a winning position – trying to eke the last few percentage points of gains – was the most notable warning in this category and more topically, chasing yield that involves high degrees of investment risk was also mentioned.
Sloth: “So much more preventable” than the other deadly investing sins according to Mr. Brown. Financial planning was the focus in this segment of the video as the panel noted how common and destructive the “I’ll wait until I’m making more money to start saving” tendency can be.
Wrath: The phenomenon of revenge trading was detailed at this stage. Examples included losing money on a stock and trying to make the amount back by trading it again as if it owed the investor something. Shorting a stock because of a CEO’s political views was also mentioned.
Envy: “This one’s a killer,” according to Mr. Brown, who admitted he is susceptible to it. The panel agreed that investing out of envy is a clear sign of emotion-based investing when fact-based objectivity is the more successful strategy.
Pride: I cringed watching this part because it’s been my investing Achilles’ heel. In the video, Michael Batnick described it best, “You bought a stock and told yourself a story, and then the facts tell you you’re wrong and you refuse to listen“ because it contradicts your ego. I’ve gotten better at this, but still need to keep a close eye on myself.
I liked the seven deadly sins framework for its implications of mental discipline. The deadly sins is a series of religious stipulations developed in the fourth century A.D. and clearly have little or no application to daily life for most Canadians now. But a similar introspection on motives – checking to understand the emotional drivers behind investment decisions to make sure they’re productive – is helpful to avoid portfolio errors.
–Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
TC Energy Corp. (TRP-T). Pipeline stocks are rallying in Canada, and this is one of John Heinzl’s favourite stocks. TC Energy Corp. has been a standout performer in 2019, delivering a total return of 36 per cent that leads his model Yield Hog Dividend Growth Portfolio. So is it time to sell and lock in profits? Heck, no. A short-term pullback is always possible after such scorching gains, but he’s confident that the pipeline operator and power producer (formerly TransCanada Corp.) will continue to reward investors over the long run. He explains why. (For subscribers).
Open Text Corp. (OTEX-T). This software stock appeared on the positive breakouts list (stocks with positive price momentum) last week with its share price at an all-time high. This growth stock has an attractive business model with high recurring revenue, solid margins and strong cash flow generation. The company has a healthy balance sheet to fund its future growth. The stock is currently trading at a reasonable valuation, relatively in-line with its historical average. Also positive is management’s commitment to returning capital to its shareholders, boosting its dividend every year since 2014. The current yield is 1.7 per cent. The stock is up 23 per cent year-to-date and has 12 recent buy recommendations. One cautionary note, on the recent earnings call, management moderated earnings expectations for the upcoming quarter. Consequently, the positive price momentum in the share price may pause in the near-term. Jennifer Dowty reports (for subscribers).
Watch out Trump, the presidential cycle suggests markets won’t give you as much to brag about next year
The U.S. presidential cycle has unfolded perfectly for investors this year, which raises questions about how the stock market is going to perform in the fourth year of President Donald Trump’s first term in the White House – and what comes next. The cycle is one of the quirkier market patterns, but it has attracted some influential market watchers over the years because it is underpinned by intriguing logic and persuasive historical numbers. The logic: The S&P 500 tends to perform particularly well in the third year of a U.S. president’s four-year term because the president is thinking about re-election and will do whatever it takes to keep the economy – and corporate profits – humming. David Berman report (for subscribers).
Fidelity portfolio manager of $10.5-billion is staying bullish on markets. Here’s what he’s buying and selling
Fidelity Investments portfolio manager Mark Schmehl is bullish on the markets right now, in part because most investors aren’t. “I’ve never seen so many people so scared at the same time, especially when the market is going up,” says Mr. Schmehl, who oversees about $10.5-billion in assets. “The fear and negativity are overwhelming.” Whether it’s worries about trade wars, the inverted yield curve, or low interest rates, Mr. Schmehl says the concerns are largely overblown. He tells Brenda Bouw what stocks he’s buying and selling right now. (For subscribers).
Take a pass on this type of ETF that tries to outsmart the big indexes
ETF investing at its best – cheapest, in other words – means buying exchange-traded funds that track the biggest, most widely followed indexes. But how many different cheap funds tracking the likes of the S&P 500 and S&P/TSX Composite Index can Canada’s ETF market support? Not that many, which is why companies in the ETF business are creating products that try to improve on the big indexes. One of these product types, the equal weight index fund, isn’t the best option, says Rob Carrick (for subscribers).
A balanced portfolio is more important than ever - and this fund is one you definitely should consider
The stock market doesn’t seem to know where it wants to move right now. One day, prices are up after some semi-encouraging news about the resumption of U.S.-China trade talks. The next day they’re down over worries that U.S. President Donald Trump will slap tariffs on imported goods from the European Union. In short, there is no direction at this point, just confusion. Gordon Pape explains why a balanced fund is a good idea when markets are like this - and suggests one fund in particular with an outstanding track record. (for subscribers).
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What’s up in the days ahead
Canadian telecommunications companies are getting more aggressive in their wireless pricing. That’s potentially good news for iPhone- and Android-toting consumers, but it might not be so great for investors. The reason? The shares of Rogers, BCE and Telus are trading at premium valuations relative to their international peers, and some observers believe that new pricing models could challenge these valuations. David Berman will delve deeper.
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Compiled by Gillian Livingston