I featured Jim Simons, the secretive mathematician whose Renaissance Medallion Fund has generated average annual returns of more than 60 per cent since the late 1980s, on Nov. 8. The catalyst for the article was a Ben Carlson interview with author Gregory Zuckerman after the latter published a book on Mr. Simons and the Medallion Fund.
Mr. Zuckerman took the whole project further, writing a column for the MarketWatch site that attempts to use what he learned writing the book on the Medallion investment strategy to offer seven lessons for investors.
The first lesson, “Go Long” is a reminder not to try and trade against Mr. Simons’ algorithm-enhanced method that only holds investments for a few days at a time.
The other lessons include “Keep Your Cool,” noting that the Medallion fund performs best when going long during periods of investor panics, and “Be Humble” – Mr. Simons’s investments only work about 50 per cent of the time despite the fund’s remarkable returns.
For me, “Don’t Believe the Story" is the most impactful of the lessons: “Simons and his team achieved success by ignoring the sometimes-enticing stories spun by bankers, analysts and others… The Renaissance team views the narratives that most investors latch onto to explain price moves as quaint, even dangerous, because they breed misplaced confidence.”
The Medallion fund management team focus only on numbers – earnings, cash flow, correlations, stock prices – and ignores all projections.
The Canadian cannabis sector is just the latest example of how the excitement of explosive growth projections can turn into investor misery and steep losses. (Just as I was typing this paragraph, a report from the Globe and Mail’s Business of Cannabis group called “Gut Punches Continue” hit my inbox, a coincidence that reinforces the pattern).
I try, when looking at prospective equity investments, to focus on historical patterns of growth and profitability rather than the narrative surrounding companies. But I can still fall prey to the dreaded TAM acronym – Total Addressable Market – that usually represents an overly optimistic view of revenue growth for new businesses.
Mr. Simons’s investing style is not replicable for the average investor – for example, the Renaissance group as a whole can have 100,000 program-driven trades on at one time according to Mr. Zuckerman. But the fund’s success can provide important lessons for most market participants. Emphasizing data over narratives is a big one.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Xebec Adsorption Inc. This micro-cap stock has rallied 181 per cent year-to-date, and this positive price momentum is anticipated to continue. The average one-year target price implies a potential 38-per -cent return. Jennifer Dowty profiles the stock.
Fortis Inc. This utility stock can be depended on to raise its dividend at this time every year, through good times and bad. The company recently announced a 6.1-per-cent dividend increase, the 46th consecutive year that Fortis has increased its payout, tying it with Canadian Utilities Ltd. for the longest run in this country. And it’s not going to stop any time soon, reports Gordon Pape.
The truth about whether you can really make market-beating returns by investing ethically
Many investors would like to invest ethically. The problem is defining exactly what “ethical” means. Consider the flurry of high-minded ETFs that have hit the Canadian market over the past two years. These funds attempt to find companies with good records on environmental, social and governance issues – ESG, as the jargon goes. But what an ESG strategy means in practice is likely to surprise many people. Ian McGugan reports
Something peculiar has happened to Canadian markets in 2019
For investors, 2019 has been The Year of Upside. Every major asset class in Canada has participated in an unusual synchronized rise, upsetting the correlations that typically produce a mix of winners and losers in any given year. Over at least the past 35 years, in fact, Canadian investors have not seen anything quite like it. Domestic stocks, bonds, crude oil, gold and even the Canadian dollar have posted a slate of year-to-date gains without modern precedent. Tim Shufelt goes under the hood to seeing what’s going on.
TSX breaks through 17,000 for the first time, but it’s been a restrained climb
The S&P/TSX Composite Index rose for the 11th straight session Friday, breaking through 17,000 for the first time amid a remarkable stock market rally this year. But the latest 1,000-point move for the index took a lot longer than previous steps earlier this year, reflecting various challenges that have popped up over the course of 2019. David Berman reports.
Banks and funds lower red flags on supercharged stocks
A raft of major banks and fund managers have upgraded their view on global equities, with emerging-market stocks their top pick to benefit from signs of easing in the Sino-U.S. trade dispute. Read more from Reuters.
Others (for subscribers)
Monday’s Insider Report: President invests over $344,000 in this large-cap dividend stock
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Ask Globe Investor
Question: Like many we are starting to hold significant amounts of cash in all our accounts (RRSP, RRIF, and TSFA). We would appreciate knowing your advice on what to hold the cash in to at least earn something while we wait for more buying opportunities (perhaps early in the New Year) and further stabilities to occur (tariff and trade settlements etc.). We’re pretty open minded, however tend to be on the conservative side with investments (generally preferring value for long term with a touch of growth) and always appreciate keeping our costs associated with such investments to a minimum.
Answer: With interest rates so low, the best place for cash right now is a high-interest savings account. But you have to turn to smaller financial institutions like credit unions or on-line banks to get the best rates. That means paying closer attention to deposit insurance coverage – is your money protected by the Canada Deposit Insurance Corporation (CDIC) or by a provincial program? The CDIC is an independent Crown corporation, established in 1967. As such, it is backed by Ottawa and protects your deposits (principal and interest) up to $100,000. You can find more details here.
Some provincial plans offer higher coverage limits, but their financial backing is not as strong and varies between provinces. Ask for specific details if you are consider going that route.
The best return I can find at present is from Motive Financial’s Savvy Savings Account, at 2.8 per cent. Rate changes can happen any time with high-interest savings accounts, so you have to stay on top of them. Motive Financial is an on-line division of Canadian Western Bank, so your money is protected by CDIC.
EQ Bank, the on-line operation of Equitable Bank, is a close second with a rate of 2.3 per cent, tied with Oaken Financial. They are both covered by CDIC.
High interest accounts usually come with restrictions, such as a limit on the number of cheques you can write, or may have a limit on the amount you can deposit. Some are not be available for registered accounts – EQ Bank does not offer RRSPs or TFSAs whereas Motive does. Each company has its own policies, so you’ll have to do some research.
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What’s up in the days ahead
Gender-lens investment products have been slow to garner interest, even amid a growing body of research that shows companies with more women leaders tend to be stronger performers. We’ll explore what’s going on.
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Compiled by Globe Investor Staff