Stock trading volumes at online brokerages went from high to stratospheric in the month of January and customers are raging about the impact on their investing.
A big complaint I’ve heard in recent days is that investors eager to buy a particular stock can’t place a trade because their broker’s website is either down or not responding. The way things are going in the stock markets in early 2021, this generally means watching a stock climb higher. A missed opportunity, in other words.
Fear of missing out on big gains is a huge driver of what’s happening in the stock market. Arguably, investors should be at least as fearful of not being able to sell a stock in a timely way.
A lot of investors have done well since stocks hit bottom last winter and began a rally that has continued in 2021. There could be more upside for stocks, but the exuberance of recent trading does make you wonder if a market peak is near. In that light, it seems sensible to consider an exit strategy. Maybe sell a profitable position outright, or pare it down. When the current rally ends, as it will, the turnaround could be sudden. Panic selling could jam up brokers even worse than they are right now.
If there’s a “quiet” day for the markets, take advantage by putting in a sell order or two. To give yourself a better chance of avoiding broker website gridlock, avoid trading in the hour after the market opens and before the market close. If you find your broker’s website won’t co-operate, stay with it until you get your sell trades done. There’s reason to be more persistent with attempts to sell right now than to buy.
Stop-loss orders are a way to get shares sold automatically when they fall to, or below, a particular price you select. In a fast-falling market, your shares could easily be sold for less than what you hoped to get.
Many brokers offer stop-limit orders, where you set a minimum price you’d accept. These orders aren’t foolproof, either. A plunging stock can blow past your floor price and your sell order never gets executed.
Stop orders are worth a thought, but they don’t offer full protection against a sharp turn in the market. The answer is to be pro-active and persistent in taking profits now, before the rush to come at some point in the future.
-- Rob Carrick
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The Rundown
No heroes as dust settles on Reddit revolution
If you’re thinking of buying GameStop Corp. shares to help those plucky Redditors in their battle against Wall Street, please don’t. The folks you think are the heroes in this saga nearly certainly aren’t. Ian McGugan shares his thoughts.
Also see: Reddit trading frenzy fades as Yellen summons agencies
Populist crowd fails to breach the silver fortress for now
Robinhood’s army of small retail investors may have failed to storm the silver market, but the online broker’s devotees certainly gave it an almighty shake. The spot silver price surged by 20 per cent between last Thursday and Monday this week, briefly hitting an eight-year high of $30.03 an ounce. An increase in the margin required to trade silver on the CME exchange has curbed animal spirits and the metal has fallen back to $27.12, though a collective stampede for physical metal continues to deplete retail supplies of bars and coins. The crowd has found that squeezing a commodity market such as silver is a very different proposition from cornering a short-seller in an individual stock such as GameStop. Particularly when the targeted big short doesn’t exist. Andy Home of Reuters explains.
Why shorting stocks is bad for your wealth and health
Value investors believe that stocks ultimately drift toward their intrinsic value, either from above or below. And so it is natural to ask: If value investors buy undervalued stocks, do they also short-sell overvalued stocks? The answer, says Dr. George Athanassakos, is no. The professor of finance and leading expert on value investing in Canada explains why.
Also see:
How silver is traded, from stocks and shares to coins and bars
Young, confident, digitally connected - meet America’s new day traders
Contra Guys: Why we’re holding the least number of stocks in more than 20 years
A common belief bandied about goes something like, if you missed the 10 best days of the market, your returns would have been lowered by “x” dollars. The number is always quite large with the lesson naturally being, “Stay in the stock market. Do not, repeat, do not pull your funds.” This regular refrain, often by those who sell mutual funds or exchange-traded funds, does have a modicum of truth. But it ignores the flipside of the coin: “If you missed the 10 worst days of the market, your returns would have increased by ‘x’ dollars.” And that, The Contra Guys explain, is why they are now holding the least number of stocks in their portfolios in more than two decades.
Others (for subscribers)
Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Strong cash flow for tumultuous times: Check out this Number Cruncher on 14 S&P 500 stocks
Globe Advisor
Six Canadian microcap stocks with growth potential
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Ask Globe Investor
Question: My wife (60) and I (67) are approaching retirement in the next couple of years with around $300,000 each in our RRSPs. We will likely convert into a RRIF soon. We expect with drawdowns that it should last us 20 years. We are generally buy and hold income investors (financials, utilities, communications).
Does the decumulation phase of a portfolio require a different investment perspective or practice? There doesn’t seem to be much information on this stage of retirement. Should I remove DRIP from the stocks? Should I continue to invest the cash quarterly and then sell what I need at the end of the year? There is also the question of the amount of risk recommended or tolerated. Maybe it will become clearer when I get there. – S.P.
Answer: For starters, my advice is not to convert before you need to, which is Dec. 31 of the year in which you turn 71. In your wife’s case, that is 11 years away. Keeping the money in an RRSP is much more flexible than having it in a RRIF. You can withdraw what you need when you need it, with no minimum withdrawals. You can continue to contribute to an RRSP, which you cannot do with a RRIF.
However, there is one exception to this suggestion. Anyone over 65 can claim a pension amount of $2,000 a year for withdrawals from a RRIF. That would apply in your case (but not your wife’s), so I suggest you set up a small RRIF to take advantage of this tax break. You’re allowed to have both a RRIF and an RRSP at the same time until age 71.
As for RRIF strategy when the time comes, your emphasis on low-risk, dividend-paying stocks should be continued. I would stop the DRIPs and allow cash to accumulate for the minimum withdrawals. It’s not a good idea to wait until year-end and sell securities to meet the withdrawal requirements. If the market is down at that point, you may have to take a loss. Keep the timing of any sales as flexible as possible. – G.P.
--Gordon Pape
What’s up in the days ahead
What’s the next stock to face a short squeeze? Scott Barlow looks at the Canadian stocks with the highest short positions to help find those that are most vulnerable.
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Compiled by Globe Investor Staff