I’ve been trying to focus on research reports in this newsletter lately, but Ben Carlson’s website post “12 Things I Remind Myself When Markets Go Crazy” is too good to ignore. Mr. Carlson is an institutional portfolio manager at New York-based Ritholtz Asset Management.
The 12 reminders are: There is no such thing as a normal market, the most effective hedge is not necessarily an investment strategy, your gains will be incinerated at some point, you still have a lot of time left, know yourself, there’s nothing wrong with using a “dumb” strategy, the crowd is usually right, markets don’t end, anchoring is dangerous, you don’t have to be bullish or bearish at all times, you don’t have to invest in everything, and don’t worry about what everyone else is doing.
Readers interested in a full explanation of each topic can click through the link above. There were a few of the subjects that felt more relevant than others. Under the ‘no such thing as a normal market’ topic, for instance, Mr. Carlson reminds us that “uncertainty is the only constant when investing” and investors are just going to have to learn to deal with it.
The most useful section warned against a practice called anchoring – investment decisions based on asset prices from a specific day. The most obvious example of anchoring is when an investor thinks ‘I don’t like the prospects for this company anymore but I can’t sell my stock here because I bought it at a higher price.’ The decision is anchored to a book value price in this case, even though the weaker profit outlook makes losing more money likely. The market doesn’t care what a single investor paid.
For Mr. Carlson, the dangers of anchoring also cover the investor tendency to regret not buying or selling at the prefect time. “No one is able to consistently get in at the bottoms and out at the tops,” he writes. “Hindsight makes it look easy but it never is in the moment.” I wish I had borrowed a ton of money and bought an S&P 500-tracking ETF on March 27 too, but with the pandemic just beginning, that idea would have felt insane at the time.
I firmly believe that investor psychology – keeping emotion out of portfolio decisions, avoiding behavioural biases, for example - is more important than investment process. Reminders like Mr. Carlson’s, which provide invaluable perspective on how to think about markets and investment goals, are always welcome.
-- Scott Barlow, Globe and Mail market strategist
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Ask Globe Investor
Question: Can you recommend a green ETF? I currently hold Greenlane Renewables (GRN-X) which has done well but has a narrow focus. I am looking for an ETF that cuts across many forms of renewable technology. Thanks. – Pierre G.
Answer: Most green ETFs focus on energy. In the past couple of years, we’ve seen some with a broader mandate, especially from Blackrock Canada, but these haven’t been around long enough to establish a meaningful track record.
To my knowledge, the oldest sustainable ETF in Canada is the iShares Jantzy Social Index ETF (XEN-T). But many green investors don’t like it because it owns positions in several major fossil fuels companies, including Canadian Natural Resources Ltd. and Suncor Inc.. Plus, its returns are unimpressive. It lost 1.2 per cent over the year to Jan. 31 and has an average annual compound rate of return of less than 4 per cent since it was launched in 2007.
I suggest a better choice is the awkwardly named iShares MSCI KLD 400 Social ETF (DSI-N). It holds a broad portfolio of ESG stocks and has performed well, with a 10-year average annual compound rate of return of 13.2 per cent to the end of January.
This fund is about as far away from green energy ETFs as you’re likely to find. Less than 2 per cent of the portfolio is in energy stocks. About a third of the assets are in technology, with Microsoft, Facebook, and Alphabet the leading positions. You’ll also get exposure to major companies like Visa, Tesla, Walt Disney, and Procter & Gamble. The MER is very low, at 0.25 per cent.
What’s up in the days ahead
Norman Rothery takes stock of the latest dividend yields in the Canadian market and offers some suggestions on where the outperformers will be for 2021.
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Compiled by Globe Investor Staff