Venture capitalist Morgan Housel’s name will always come to my mind when discussing any list of the best publicly available financial pundits out there.
Mr. Housel’s deep understanding of markets and investor behaviour are currently generating strong sales for his new book, The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, which I fully intend to read. (No, he’s not paying me).
The latest post on his blog Collaborative Fund, When Everyone’s a Genius (A Few Thoughts on Speculation), is typically informative and relevant in light of the recent surge in aggressive U.S. retail trading.
The post begins by putting the concept of speculation in context. “Every investor is making bets on the future,” he writes. “It’s only called speculation when you disagree with someone else’s bet.”
There are those, for instance, that believe taking out a large mortgage to buy a Toronto home is a good investment based on past price appreciation. Others, who see the housing market as overheated and ready to crash, would find this a highly speculative venture.
It’s important for investors to accept that all investing is speculation - the differences in approach are only a matter of degree. “No risk it, no bisquit,” as Super Bowl-winning NFL head coach Bruce Arians is fond of saying.
Mr. Housel also discussed the importance of optimism as a market driver, particularly during periods of quickly rising asset values. He notes that investor optimism will always overshoot the real world prospects for speculative asset classes because overshoots are how accurate valuations eventually occur. He compared speculative investors to a blind person who can’t know where the wall is until they run into it.
Nonetheless, the author believes optimism is the correct mindset for all investors over the long term, even if it takes a degree of blind faith. He writes, “it requires a certain level of believing things that can’t be verified, either because you don’t have the technical skills to verify them – nobody knows everything – or because something hasn’t happened yet but you think it will happen in the future.”
This sounds counterintuitive at first glance, but Mr. Housel is right to point out that despite frequent interruptions, patient investors are always rewarded over longer time frames.
There are, however, limits to speculation for reasonable investors. The post ends with an important warning from Warren Buffett who once said, “If you risk something you need in order to gain something you don’t need, that is foolish. It’s just plain foolish.”
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Supremex Inc. (SXP-T) Shares in the company are up 50 per cent in the past three months and rose further Thursday after it reported strong fourth-quarter earnings. Profits were driven by a recent acquisition, and were achieved despite what the company described as a “secular decline” in its legacy envelope sales and the effect of the COVID-19 pandemic on its business. Brenda Bouw reports.
Rob Carrick’s 2021 ETF Buyer’s Guide: Best Canadian bond funds
Bond exchange-traded funds come in many versions, each offering a different balance of risk and return. This second instalment of the 2021 Globe and Mail ETF Buyer’s Guide will help you navigate whatever comes for bonds by helping you understand the risks posed by higher rates.
10-year Treasury yield overtakes S&P 500 dividend payout as inflation concerns spark big moves in U.S., Canada bonds
The advantage that the S&P 500 dividend yield has held over the benchmark U.S. Treasury note during the pandemic has now been erased, a year after the collapse in interest rates set the stage for Wall Street’s resurgence in the wake of the coronavirus sell-off. The move higher in Treasury yields could make stocks look relatively less attractive compared with safer Treasuries. Darcy Keith reports.
Bonds are getting hit hard – don’t be smug if you hold dividend stocks instead
The stock market overall has been great in 2021 – the S&P/TSX Composite was up about 6 per cent for the year through Feb. 22 on a total return basis. The bond market: not so much. But some of the conservative dividend stocks you’d want to consider as a bond alternative are not doing well at all. Rob Carrick reports.
Canadians’ fondness for U.S. stocks comes back to bite them
Canadian investors of late have been pouring assets into U.S. equities at a near-record pace. While it’s not difficult to see the attraction, it’s also very easy to see why investors might be making a huge mistake. Scott Barlow explains in this analysis.
Game on, again: GameStop surges and no one truly knows why
Wall Street’s GameStop saga won’t stop. After weeks of going dormant, shares of GameStop have suddenly shot higher again, surging 75 per cent in the last hour of trading Wednesday, with further volatility later in the week. The moves are reminiscent of the shocking 1,625 per cent surge for GameStop in January, when bands of smaller and novice investors communicating on social media launched the struggling video game retailer’s stock. No clear reason seems to be behind this most recent move, but it does demonstrate the increased power that regular investors suddenly have. Stan Choe and Alex Veiga of The Associated Press report.
Increase equity exposure, suggest global funds amid selling frenzy
The bull-run in stocks has at least another six months to go, according to Reuters polls of fund managers, who recommended increasing equity exposure to levels not seen in over a year, despite a frenzied sell-off in financial markets in February. Tushar Goenka and Hari Kishan of Reuters report.
Forecasts for Canada’s TSX hiked as analysts eye global recovery
Canada’s main stock index is expected to extend its record-setting rally this year as a global economic recovery boosts the outlook for the index’s heavily weighted financial and resource stocks, a Reuters poll found. The median forecast in a survey of 24 portfolio managers and strategists was for the S&P/TSX Composite index to rise to 19,650 by the end of 2021, up 7.2% from Tuesday’s close of 18,330.09. November’s forecast was 18,400. Fergal Smith of Reuters reports.
Others (for subscribers)
Friday’s Insider Report: Chairman invests over $900,000 in this financial stock yielding over 4%
Number Cruncher: Fifteen Canadian stocks with a history of stability
Ask Globe Investor
Question: You recommended a bond ETF in your newsletter. It has gone down in price. Is it time to sell?
Answer: You are referring to the iShares U.S. Treasury Bond ETF. It invests in what many consider to be the world’s safest investment: U.S. government Treasury bonds.
So, if Treasuries are so safe, why has the fund dropped in price? The U.S. Federal Reserve Board has not raised its key rate and continues to maintain a dovish position.
The reason is that despite the Fed’s posture, bond yields, including Treasuries, have been gradually inching higher. And when yields rise, bond prices fall. That’s exactly what we’re seeing here, and there may be more to come.
So why own GOVT in this situation? Mainly for stability and balance. The U.S. government is not going to default on its debt, so the principal of the bonds that underlie this ETF is safe. And if the stock market takes a nosedive, you’ll be glad to have some bonds that will minimize your downside risk.
That said, as interest rates move higher, you’ll see a gradual erosion in the market price. If that is not acceptable to you, look for other options.
What’s up in the days ahead
Stocks of many companies with relatively poor financial metrics have performed the best of late as investors seemingly abandon concern for risk. But higher bond yields are forcing a rethink of high flyers. Tim Shufelt reports this weekend.
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Compiled by Globe Investor Staff