In a hypothetical world where I could only read three market commentators, venture capitalist Morgan Housel would definitely be among them.
Mr. Housel is a consistent source of valuable perspective, so it’s no surprise that on Thursday he wrote the best sentence on investing I’ve read so far in 2021: “A good summary of investing history is that stocks pay a fortune in the long run but seek punitive damages when you try to be paid sooner.”
The column, Too much, too soon, too fast by Mr. Housel, begins with metaphors from the natural world - specifically the work of biologist J.B.S. Haldane. Organisms, according to Mr. Haldane, gravitate towards ‘a most convenient size’ dictated by physiology.
A flea, for instance, can jump about 60 centimetres, but if it were the same size as a person, jumping ability wouldn’t scale to hundreds of feet because of the energy required and air resistance. The flea’s tiny size is ‘most convenient’ for adaptation to its environment.
Mr. Housel believes there is a convenient time horizon for investors in the same way. He presented a chart showing different investing time periods and the percentage of times U.S. stocks generated a positive return for each.
Five-year time horizons produced positive returns 80 per cent of the time, 88 per cent over 10 years and 20-year periods resulted in gains 100 per cent of the time. “There’s a ‘most convenient’ investing time horizon – probably something around 10 years,” he writes. “That’s the period in which markets are nearly always to reward your patience. The more your time horizon compresses, the more you rely on luck and tempt ruin.”
The lesson here is that investors attempting to get rich quickly will have as much success as a genetically engineered 10-pound flea – not much. As Mr. Housel emphasizes, the push and pull of the main determinants of equity market returns historically makes portfolio profits easy to collect over longer time periods. Aggressive investors looking to short circuit the process, and get paid sooner, have the odds stacked against them.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Mogo Inc. (MOGO-T) This stock closed at a record high on Friday, jumping 13 per cent with over 10 million shares traded. Mogo is a financial technology company and its share price skyrocketed last month when it announced it plans to acquire a 19.99-per-cent ownership interest in Coinsquare Ltd., the leading digital asset trading platform in Canada. Analysts still see further upside for the stock. Jennifer Dowty has this profile of the company.
FedEx Corp. (FDX-N) The company reported better-than-expected earnings results on Friday that sent the share price soaring 6 per cent on significant volume. With 15 recent buy recommendations, analysts expect further gains ahead. Jennifer Dowty provides an overview.
Recast as ‘stimmies,’ U.S. federal relief cheques drive a stock buying spree
The speculative appetite of small investors may seem at odds with an economy still reeling from a pandemic that has killed more than a half-million Americans, decimated jobs and snuffed out businesses and livelihoods. But one of the biggest tools deployed by the U.S. government to cushion the economic blow — stimulus payments — is also driving a huge surge in investing by small traders. Analysts at Deutsche Bank recently estimated that as much as $170 billion from the latest round of stimulus payments could flow into the stock market. And that may very well lead to more mania, and more speculation, in the stock market. Matt Phillips of The New York Times reports.
More evidence that crowd-sourced delusion is a timeless affliction
In case you had any doubts, yes, it is crazy out there. Canadian home prices are not supposed to soar during a pandemic. Reddit mobs are not supposed to be a driving force in capital markets. And digital sports cards are not supposed to be worth hundreds of thousands of dollars, even if they do reside on that cool blockchain thingy. The truly crazy thing, though? Similar clusters of mass lunacy crop up every few years, with metronome-like regularity. Ian McGugan shares some key insight from William Bernstein’s new book, The Delusions of Crowds: Why People Go Mad in Groups.
New bitcoin ETFs see large cash inflows over the past month
Investors rushing to capture the rising price of bitcoin made up almost 20 per cent of all Canadian exchange-traded fund sales last month. Clare O’Hara reports.
Funds take the money and run as copper rally stalls
Funds have slashed their collective bullish bets on higher copper prices as the sizzling rally shows signs of stalling. Investors have been drawn to other markets, particularly a resurgent energy sector, but the outflow of funds also reflects wariness about the potential for a major correction as the market’s short-term optics start to look a bit less bullish. Andy Home of Reuters has this analysis.
Electric shock: German auto stocks get a new lease of life
Volkswagen and BMW’s plans to grab market share in the fast-growing electric car market and challenge Tesla could shift the dial for their cheaply priced shares. A deadline set by many countries to go carbon-free by 2050 has led to rising adoption of zero-emission vehicles and Tesla has been at the forefront of this transformation, selling long-range battery electric vehicles. But as Danilo Masoni and Thyagaraju Adinarayan of Reuters report, it is no longer the only electrification play in town.
Others (for subscribers)
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Ask Globe Investor
Question: We recently opened a registered education savings plan for our one-year-old daughter at our TD Canada Trust branch, but the management expense ratio of the mutual fund we purchased is 2.5 per cent. Are there less expensive options for investing in RESPs, and if so could you recommend something?
Answer: Your best bet is to open a self-directed RESP with a discount broker. Since you already bank with TD, transferring your RESP to TD Direct Investing would be your easiest option, but you can choose any discount broker you wish.
With a self-directed RESP, you will have access to a much broader range of investments – including stocks, exchange-traded funds and mutual funds – than you can get with an RESP at your bank.
You’ll also be able to cut your costs dramatically. It’s possible to build a well-diversified portfolio of ETFs, for example, for an MER of less than 0.1 per cent – a tiny fraction of what your mutual fund charges.
John Heinzl has much more in this full response.
What’s up in the days ahead
Canadian Pacific Railway shares tumbled Monday in the wake of the company’s proposed purchase of Kansas City Southern. Is the pullback an opportunity for long-term investors? David Berman will share his thoughts.
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Compiled by Globe Investor Staff