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In life and investing we are all a product of our experience. Market-wise, the portfolio decisions made now are based on precedents from the formative years of investing.

This is particularly true of risk tolerances. Investors who, for instance, started their investing career in 1998 and suffered the implosion of the tech bubble are likely extremely gun shy about any market conditions that look like an asset bubble.

One of the most remarkable illustrations of how investors’ (reasonable) tendency to be blinded by the past occurred more than 40 years ago.

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The now-legendary hedge fund manager Stanley Druckenmiller was then 25 years old and had only one year of experience as an equity analyst. Yet he was promoted to the head of research at Pittsburgh National Bank because the bank’s overall director of investments, Speros Drelles, understood the importance of a new perspective after the difficult market conditions of the time.

The details of Mr. Drelles’ reasoning for the promotion were related by Mr. Druckenmiller in the book The New Market Wizards and cited on the Real Clear Markets website.

“[Drelles] said: You know why I’m doing this, don’t you? For the same reason they send 18-year-olds into war – they’re too dumb to know not to charge. … I think there’s going to be a huge, liquidity-driven bull market sometime in the next decade. I have a lot of scars from the past 10 years, while you don’t… I think we’ll make a great team because you’ll be too stupid and inexperienced to know not to try to buy everything. That other guy out there (referring to Druckenmiller’s boss who he was replacing) is just as stale as I am.”

Speaking personally, my formative investing experiences in the late 1990s kept me well away from the boom in cannabis stocks. The pre-2000 tech bubble was characterized by investors paying huge stock prices for companies with no earnings. They were confident that the technological transformation of the global economy would eventually send the stock much higher.

Investors in 1999 were not wrong about the eventual dominance of technology in our daily lives and I don’t think cannabis investors are wrong about the eventual mammoth scale of the marijuana market. The correct price to pay for market participation in the trend is at issue, then and now.

There is a decent chance that cannabis stocks will continue to rise and not endure a painful 2000-style meltdown. In that case, my perspective is as stale as the other candidates for Mr. Druckenmiller’s promotion in 1978. Either way, the situation is a good example of how the precedent investors use to understand current markets is extremely important to future returns.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

CIBC economist Tal on the ugly outlook for bonds and why dividend stocks are the place to be as ‘very difficult year’ looms

Escalating trade tensions and concerns about the magnitude of a global economic slowdown have caused bonds to rally and stocks to stumble in recent weeks, leading investors to wonder whether the bull market in equities may be close to an end. The Globe and Mail’s Jennifer Dowty recently spoke with Benjamin Tal, deputy chief economist at CIBC World Markets, to get his perspectives on the economy and markets. (For subscribers).

With decades of dividend growth behind them, these stocks crush inflation

An investor’s best hedge against inflation is a dividend growth stock. But which stocks can you depend on to raise their dividend from year to year? A lot of Canadian companies, the big banks included, have either lost their dividend growth mojo temporarily or indefinitely in the past decade. For help in long-term, inflation-busting dividend growth stocks, Rob Carrick consults a website called Canadian Dividend Growth Investing & Retirement that maintains an extensively detailed Canadian Dividend All-Star list. (For subscribers).

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Gold’s rally making it look more attractive than it has in years

Gold is once again rallying, as it has periodically since its big fall six years ago. In contrast to those previous spikes, this one may actually succeed in blasting the metal out of its long-term funk. Any rise would come as welcome news to gold investors. Since it tumbled in 2013, gold has been largely confined to a range between US$1,100 an ounce and US$1,350 an ounce. Following a 3-per-cent jump over the past week, aided by a weak U.S. jobs report on Friday, it is now trading around US$1,341. Ian McGugan takes a look at the outlook for gold.

Investors who minimized bonds in their portfolio have outsmarted themselves

A year ago, bonds and bond funds were for losers. For the 12 months to May 31, 2018, the FTSE Canada Universe Bond Index was down 1 per cent on a total return basis (bond interest combined with changes in bond prices). Interest rates were rising at the time, and the outlook for bonds and bond funds was negative. And so, you commonly heard investors talk about carving off some of their portfolio exposure to bonds and allocating it to stocks, cash or other things. The 12 months ended May 31, 2019, offer a view on how this seemingly savvy bit of portfolio tinkering can backfire. Rob Carrick reports (for subscribers).

Others (for subscribers)

Canada’s next recession will be much more severe than in the U.S.

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Top U.S. bond managers betting bond market still has room to run

The Globe’s stars and dogs for last week

Monday’s Insider Report: Executive cashes out over $1-million from this marijuana stock

Monday’s analyst upgrades and downgrades

Monday’s small-cap stocks to watch

Others (for everyone)

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Bullish on DIRTT Environmental

Can these retirees protect their portfolio while maintaining their comfortable lifestyle?

Globe Advisor

Investments in water are on the boil

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Ask Globe Investor

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Question: I have three registered retirement savings plans at different financial institutions. In 2021, after I convert the RRSPs to registered retirement income funds and have to start making minimum withdrawals, do I have to withdraw the required percentage from each RRIF or may I withdraw the entire required sum from, say, the largest account and leave the other two untouched?

Answer: You’ll have to make the minimum withdrawal from each RRIF. As I discussed in a recent column, the minimum withdrawal percentage is based on your age (as of Jan. 1 of the year you make the withdrawal), and rises gradually as you get older. At 65, for example, it’s 4 per cent of the RRIF account’s value (as of Dec. 31 of the year before the withdrawal). By 95, the minimum withdrawal tops out at 20 per cent. (You can elect to use a younger spouse’s age to lower your minimum withdrawals.)

You must convert your RRSP to a RRIF by the end of the year you turn 71, with minimum withdrawals starting the year after the RRIF is opened.

You may find, especially as you get older, that managing withdrawals from three separate RRIFs is a headache. Consolidating your RRIFs at a single financial institution would solve that problem.

“For the most part, one single RRIF is easier to manage. You’ve got one minimum withdrawal, one statement, one website and one password instead of three different ones,” Jim Yim, a financial educator and author of the retirehapppy.ca blog, said in an interview. Managing your investments is also easier when they are all under one roof, he said. “Some people really love this stuff, but generally as you get older, the simpler the better.”

–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

Americans take great pride in the world-class corporations they create. They just don’t want them to get too big for their britches. If they do, they get smacked down, hard. That’s apparently what’s about to happen to the U.S. technology sector. Gordon Pape takes a look at why investors should be scaling back in the sector.

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

More Globe Investor coverage

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Compiled by Gillian Livingston

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