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Perspective and experience are more important in periods of market volatility as investors wonder whether to take advantage of lower asset prices and buy, or reduce risk in preparation for further portfolio pain.

Morgan Housel has been arguably the best public source of investing perspective in 2018, and his recent Investing Ideas That Changed My Life is thankfully even more helpful than usual. These ideas are: markets have to be pushed to crazy extremes once in a while, but it’s never as crazy as it looks, keeping money is harder than making money, investing brings out the gullible side of people, you can’t believe in risk without also believing in luck, there’s an art and a science to investing, and there are two types of information in investing – stuff you’ll still care about in the future, and stuff that matters less and less over time.

The entire piece is worth reading but the section on retaining market gains being harder than earning them is particularly relevant now,

“You can get rich by luck, but staying rich is almost always due to a series a good, hard decisions. The skills needed for getting rich and staying rich are often opposites – be bold and brave, then diversify and remain paranoid. Then there’s the mental momentum that getting rich creates that staying rich has to step in and try to block. It goes like this: The more successful you are at something, the more convinced you become that you’re doing it right. The more convinced you are that you’re doing it right, the less open you are to change. The less open you are to change, the more likely you are to trip in a world that changes all the time.”

Mr. Housel’s warnings about frequent change are right for the times. The occasionally gut-churning markets of the last three months are indicative of a market environment that has reached a new stage as the post-crisis rally fades. Interest rates are climbing, commodity prices are falling and the technology heavyweights that led markets have been taken out to the woodshed.

It might very well be time for investors to ‘diversify and remain paranoid,’ particularly if they are close to retirement.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Dream Industrial REIT (DIR-UN-T). Rising interest rates are usually bad news for real estate investment trusts, but that has not been the case so far this year. The S&P/TSX Capped REIT Index has gained 2.6 per cent in 2018. That compares with a year-to-date loss of 12 per cent for the S&P/TSX Composite Index. Gordon Pape recommends a REIT that has done even better than the REIT index, gaining 7.8 per cent so far this year. Plus, it currently offers a juicy yield of more than 7 per cent. This REIT specializes in light industrial properties, mainly located in Canada but with a U.S. expansion strategy. It owns and operates a portfolio of 223 geographically diversified properties comprising approximately 20.2 million square feet of gross leasable area.

Brookfield Property Partners LP (BPY-UN-T). Since Brookfield Property Partners LP made a big bet on shopping malls earlier this year, investors haven’t been impressed: The units, already weighed down by rising interest rates and slowing global economic activity, fell to a 4½-year low this week. But with the units down 23 per cent this year alone and now yielding a hard-to-ignore 7.8 per cent, maybe it’s time to give shopping malls a closer look. David Berman reports (for subscribers).

The Rundown

E-sports is exploding in popularity. Here’s how investors can play it

E-sports is poised to become a billion-dollar global industry by the next decade, but there are limited options for investors looking to bet on the professional gaming market. Most choices include buying diversified entertainment companies with an e-sports segment or betting on small, riskier, more pure-play companies that are new to the public markets. Analysts expect more e-sport investment options to pop up as the industry continues to grow and mature – and as more e-sports companies go public in the coming months. Still, some portfolio managers and analysts are cautious about which companies to buy given the industry’s short track record, not to mention the broader market volatility. Brenda Bouw reports (for subscribers).

Fiera Capital: Why we’re adding to our U.S. equity position amid this market selloff

After an extended period of calm, volatility has reasserted itself in 2018. In stark contrast to 2017, investor sentiment has been extremely fragile, with financial markets swinging wildly on the back of a myriad of macroeconomic developments at hand. Notably, investors have had to contend with an environment of rising borrowing costs, persistent trade tensions between the world’s two largest economies, a politically-charged environment in Europe, and some tentative signs of slowing global growth. In the highly-volatile and illiquid trading environment, nervous investors have fled indiscriminately from risky assets. Most recently, extreme pessimism has set-in and the S&P 500 broke below its February lows, with the U.S. benchmark now officially in correction territory. With volatility comes opportunity and Fiera Capital views this latest pullback as a short-term, sentiment-driven correction within a cyclical bull market. Candice Bangsund from Fiera Capital explains.

See also: Oil tumbles to lowest in a year as stock markets sink

Market’s negative reaction to Fed rate hike was ‘overblown,’ Mnuchin says

Global funds, spooked by stock selloff and Brexit fears, driving up cash and bond holdings

U.S. dollar refuses to play ball despite Fed’s tightening policy: McGeever

What the most accurate forecaster of 2018 sees coming in the year ahead

The most accurate forecaster for 2018 among prominent sell-side research teams sees an attractive entry point for equity investors in 2019, but unfortunately, it won’t happen before a lot of market pain. In January, 2018, the consensus view of strategists and economists was that a “synchronized global economic expansion” would push equity markets significantly higher during the year. Morgan Stanley U.S. equity strategist Michael Wilson and Britain-based global equity strategist Andrew Sheets, however, successfully predicted the market would face “difficult hand-off” as central banks normalized interest-rate policy. As a result, Morgan Stanley forecast a series of “rolling bear markets.” And that’s precisely what materialized in volatility-related ETFs, commodities, dividend stocks, technology stocks and credit markets through the year. Now, Mr. Wilson sees a 50-per-cent chance of a U.S. earnings recession – two consecutive quarters of year-over-year losses – and a sharp slowdown in the U.S. economy for the year ahead. Scott Barlow explains (for subscribers).

Trade slowdown coming at worst time for world economy, markets: McGeever

The warning signs are multiplying and becoming clearer: Global trade growth is slowing, which will pose an increasing threat to the world economy and financial markets next year. Cross-border commerce is in its poorest health since the Great Financial Crisis 10 years ago, or even in decades, depending on which measure you look at, and the incoming data point to further deterioration next year. Jamie McGeever from Reuters reports (for subscribers).

Two high-yielding blue chips in the preferred-share bargain bin

Rate-reset preferred shares were built for the kind of world we were living in until this fall. The sudden reversal of investor expectations for interest-rate increases has pushed rate-reset preferreds into a tailspin that is a bit reminiscent of the harrowing plunge of 2015. Rate-resets turned out to be a great buy back then. Can the same be true of the most recent setback? Rob Carrick reports (for subscribers).

Others (for subscribers)

Raymond James: These are the top 19 Canadian stocks for 2019

Desjardins Securities reveals its top stock picks for 2019

Contrarian investor guide to 2019

2018: The year that politics broke the metals cycle

Thursday’s Insider Report: CEO invests over $1.8-million in this stock on price weakness

Thursday’s analyst upgrades and downgrades

Wednesday’s Insider Report: Four stocks that insiders are buying

Wednesday’s analyst upgrades and downgrades

Ask Globe Investor

Question: My question is about convertible debentures. I think they often get overlooked by investors and investment advisers. Can you recommend any exchange-traded funds (ETFs) that might be added to a self-directed registered retirement savings plan (RRSP)?

Answer: There are two Canadian ETFs that are worth looking at.

The first is the iShares Convertible Bond Index ETF (CVD). It has been on the Recommended List of my Income Investor newsletter since September 2014 and shows a three-year average annual rate of return of 4.9 per cent to Oct. 31. The second is the First Asset Canadian Convertible Bond ETF (CXF), which has a slightly better three-year record at 5.5 per cent annually. However, it has not done as well as CVD so far in 2018.

If you want to cast your net farther, consider the U.S. iShares Convertible Bond ETF, which trades on the BATS exchange under the symbol ICVT. It invests in U.S. dollar denominated convertibles with outstanding issue sizes of more than $250 million. Among the top companies in the portfolio are Microchip Technology Inc., Tesla Inc., Dish Network Corp., and Twitter Inc.. This fund’s three-year average rate of return to Oct. 31 was 9 per cent. Year-to-date (as of Nov. 15), the fund has gained 3.2 per cent.

--Gordon Pape

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What’s up in the days ahead

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Compiled by Gillian Livingston

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