Skip to main content
investor newsletter

Being a contrarian investor is really hard. It’s a lot more fun to be a contrarian during a market rally. You can adopt a superior, world-weary ‘I’ve seen all this before and it always ends in tears’ posture while everyone else makes money.

Being a contrarian when markets are selling off is a much more difficult proposition.

Merrill Lynch’s always-anticipated monthly survey of global portfolio managers, released Tuesday, uncovered a decided turn towards pessimism for professional investors. Observations included, “global growth expectations slumping to their lowest levels since November 2008,” “a record 85 per cent of investors surveyed [who] think the global economy is in late cycle” and average cash levels of 5.1 per cent, well above the 10-year average of 4.5 per cent.

A true contrarian, faced with all this bearishness, would be buying equities right now but there’s good reasons not to. Investors can quote Warren Buffett – “be fearful when others are greedy and greedy when others are fearful“ – all they want but no one really knows when the selling is going to slow down. Few of us have Uncle Warren’s patience to let it play out or his experience-driven sense of timing on when to buy.

Contrarianism is a simple idea but really, really hard to implement in practice. It’s easy to do when it’s the wrong strategy, and excruciatingly hard to do when it’s more likely to be profitable.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you, you can sign up for Globe Investor and all Globe newsletters here.

The Rundown

A leading expert on valuing stocks has some comforting words for investors

One of the world’s leading experts on valuing stocks has some comforting words for investors shaken by last week’s market carnage. Aswath Damodaran, a professor of finance at New York University and author of several textbooks on corporate valuation, says the economy is doing just fine. Instead of signalling a new financial crisis ahead, Wall Street is simply ratcheting back to normalcy after a decade of ultralow interest rates. “What we’re seeing is a recalibration of the market that reflects the fact we’re no longer in that 10-year period of low interest rates, low growth and low inflation,” he said in an interview. “It suggests we may be entering into a more normal period, which is good in many ways.” Ian McGugan explains (for subscribers).

What 10 Canadian portfolio managers were thinking – and buying on the dip – this past week

It was a wild week on the markets and a painful reminder for investors of the stomach-churning feeling of watching the value of a portfolio drop in a matter of minutes. For some professional investors, the selloff was a chance to pick up stocks at a cheaper price, while others did nothing, trying to remain focused on long-term performance. The Globe asked a handful of portfolio managers how they reacted to the latest bout of volatility and what they think could happen next. Brenda Bouw reports on what these managers say (for subscribers).

Will markets continue their rebound? This may convince you they will

As investors ponder whether the recent bout of stock market turbulence is over, a useful template is emerging: The last bout of market turbulence. But will the pattern repeat? Stocks were hammered on Wednesday and Thursday but Friday stocks took one step toward stability as bank earnings were better than expected. It may suggest that some investors are taking their cues from an earlier downturn this year, when the S&P 500 slid 10 per cent from late January to early April, and then rebounded to fresh record highs within 10 weeks. David Berman examines (for subscribers).

Why the bull market isn’t over yet

The start of a bear, or just a scare? That’s what many investors were wondering after last week’s big market sell-off, which knocked almost 1,400 points off the Dow Jones Industrial Average in just two days. Gordon Pape has been saying for some time that this bull is running out of steam and a major pullback is looming. However, he doesn’t believe last week’s decline marks the end of the bull – yet. Bear markets typically foreshadow a new recession. There is nothing on the horizon that suggests the global economy is about to go into reverse. Gordon Pape explains his view (for subscribers).

Bargains plus juicy yields: A dividend stock picking strategy that has produced monstrous returns

Shell out! Shell out! Halloween is fast approaching and income investors want their dividends. They have bowls of candy to fill for the little witches and goblins who are soon to arrive at their doors. Thankfully, Canadian dividend investors have a little extra to spend because they’ve done well in recent years. Norman Rothery looks at how a strategy of buying dividend stocks with low price-to-earnings ratios with relatively low yields was a winner. (For subscribers).

Why Canadian equities have become a favourite for this fund manager overseeing billions

Alfred Lam has been preparing for a drop in the markets for some time, which has meant more modest returns in his portfolios. “Long-term performance is still attractive, but the short term has been more challenging because we purposely want to be more defensive in the late cycle. We also recognize the late cycle might run for a long period of time,” said Mr. Lam, the chief investment officer of CI Investments’ multiasset division, which oversees more than $40-billion in assets under management. Brenda Bouw spoke with Mr. Lam about his outlook for the markets, and why he likes Canada right now. (For subscribers).

For this month at least, value investors are putting hedge fund pros to shame

The stocks most widely held by global hedge funds took a serious beating during the latest market swoon in what potentially represents a major shift in sectors that have been leading the equity indexes higher. Scott Barlow explains (for subscribers).

Wall Street vets seeking cannabis fortunes in Canada

What would compel ambitious deal makers at Goldman Sachs and other top-tier investment banks to turn their backs on Wall Street, and instead seek their fortune on a backwater Canadian stock exchange? In a word, weed. Andy Willis reports (for subscribers).

Podcast: Looking ahead: The Retirementality

Listen to Rob Carrick’s new podcast on retirement, listen to here or download on iTunes or on Spotify. There are three episodes, one aimed at millennials, one at Gen X and one at baby boomers.

Need a Facelift?

Are you self-employed, an artist, freelancer, contract worker or small business owner? The Globe’s Financial Facelift wants to hear from you. Get some FREE advice from The Globe and Mail about your unique financial situation by requesting to be part of our Financial Facelift series. We want people of all ages, stripes and financial situations to benefit from our FREE financial advice. You can even choose your own false name. Better yet, you get to work with our photographers to obscure your identity in one of our trademark Financial Facelift photos. Learn how to make sure your financial future is secure, e-mail your situation to finfacelift@gmail.com today.

Others (for subscribers)

China’s ‘debt iceberg with titanic credit risk’ threatens global markets: S&P

Why this market sell-off is different

Tuesday’s analyst upgrades and downgrades

Monday’s analyst upgrades and downgrades

Tuesday’s Insider Report: Vice-president cashes out $600,000 worth of stock as the share price sinks

Monday’s Insider Report: Billionaire businessman invests nearly $6-million in this company

Bear or bull? Five reasons to claw or thunder

Self-directed investing: A beginner’s guide to getting started as a DIY investor

Dennis Mitchell’s Starlight Investments Capital introduces new real estate trust

The flip side of Sears: U.S. retail stocks poised for success

Others (for everyone)

Investors gloomiest on world growth in decade: poll

Bond bears stalk a FANG, short Netflix debt

The Globe’s stars and dogs for last week

Fidelity launches new company for trading, storing cryptocurrencies

Ask Globe Investor

Question: We are using a dividend approach for our investing accounts and until recently we have made out quite well. But now, too often the dividends are not beginning to make up for the loss in the value of the shares. Are there certain ratios or tools you use to identify which securities are more likely to avoid this fate?

Answer: In my Yield Hog columns, I examine companies from a number of different angles. Among the factors I consider are the company’s earnings growth prospects, stock valuation, yield, dividend growth outlook, dividend payout ratio, analyst ratings and management track record.

But even the best companies stumble now and then. They’ll have a bad quarter or their shares will be hit by rising interest rates – a familiar theme recently. Sometimes, even when a company is doing everything right, its shares will still get clobbered. When the market decides to plunge – as it did this week – no company is safe.

You mentioned that you have, until now, “made out quite well.” That’s great. However, it’s unreasonable to expect your stocks to do well all of the time. It’s also arbitrary to compare a company’s dividends with a short-term drop in its stock price and assume that if the former doesn’t make up for the latter something must be wrong. I suspect you’re connecting these two things in your mind because you don’t like the idea of experiencing even a paper loss.

If you want to avoid market turmoil altogether, you could invest in guaranteed investment certificates. But if you are going to own stocks – and I strongly believe most people should own some, either directly or through funds – there really is no way to avoid volatility and short-term losses. They are the price you pay for the superior long-term returns that equities deliver. Learning to live with volatility – not escape it – is one of the secrets to building wealth.

It can be helpful, during times such as these, to focus on the income your stocks are producing. Dividends are far more stable than share prices, and over the long run – again, assuming you hold high-quality companies – your dividend income will rise steadily. Knowing that your cash flow is secure and growing can be a great source of comfort when the market is experiencing one of its periodic – and unavoidable – bouts of turbulence.

--John Heinzl

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Canadian oil produced in Alberta’s oil sands is trading at a wide discount to West Texas Intermediate crude, weighing on Canadian energy stocks but also creating buying opportunities for anyone willing to bet that this discount will soon narrow. The good news: Based on patterns seen over the past decade, now may be a good time to buy. David Berman will explain.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

Click here share your view of our newsletter and give us your suggestions.

Want to subscribe? Click here to sign up or visit The Globe’s newsletter page and scroll down to the Globe Investor Newsletter.

Compiled by Gillian Livingston