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My pick for the single best short paper on investing remains “Decision-Making for Investors: Theory, Practice, and Pitfalls” by Columbia University finance professor Michael Mauboussin, written when he was chief investment officer at Legg Mason.

The paper was written more than 15 years ago but remains as relevant as ever. In it, Mr. Mauboussin uses the experience of professional gamblers, sports teams and investors to emphasize the necessity of understanding probability math to be successful in markets.

In the past week, venture capitalist Morgan Housel extended on Mr. Mauboussin’s work by explaining our destructive aversion to probability calculation in “Why we’re blind to probability.”

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Mr. Housel writes that although most people understand probability, they can’t help but gravitate towards right versus wrong: “If you said something will happen and it happens, you were right. If you said it will happen and it doesn’t, you’re wrong. That’s how people think, because it doesn’t take much effort to think it.”

The author uses virologist estimates to make his point. “A headline might say, ‘Experts predict 200,000 deaths by August.’ What it should say is, ‘Experts have 95% confidence that the number of deaths by August will be between 110,000 and 290,000,’ or something like that.“ The experts will be fully aware in this case that there’s a one in 20 chance the forecasts will be way off, but readers of the report will just declare them wrong if that happens, and never read their estimates again.

It is difficult for even the most seasoned investors to accept that no one knows the future of asset prices. The craving for certainty will lead them to follow confident, bold predictions from media pundits that turn out correct more by luck than skill. “Predictions that come true bring invitations to be on CNBC”, writes Mr. Housel. “Predictions that don’t bring client redemptions. Black and white.”

No investment has a 100-per-cent probability of success over any time period. None of them. According to Mr. Mauboussin, sustained investment success is based on the consistent application of probability, refined with experience over time, while searching for opportunities where the odds of higher returns are much more elevated than average.

Probability is not just an important part of investing. It is, in my estimation, the single most important concept for all market participants. The psychological barriers to implementing probability-based investment strategies that Mr. Housel details are hurdles all investors must climb, and are likely among the main reasons so few active investors beat the market over time.

-- 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 or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

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Stocks to ponder

The Descartes Systems Group Inc. The share price of this Canadian tech stock has made a V-shaped recovery. After plunging to the low $40 level in late March, it has already bounced back and on Friday the share price closed at an all-time high of $65.64. This stock has now exhibited a bullish technical signal – a “golden cross." Jennifer Dowty reports (for subscribers)

Fairfax Financial Holdings Ltd. This is the only member of the S&P/TSX Composite Index to have declined since the market turned a corner in late March, which set off a 35-per-cent rally in the benchmark index. The COVID-19 pandemic has not been kind to Fairfax. Insurers in general have fallen out of favour, partly over concerns about claims related to business interruption coverage. On top of it, long-term value bets on beaten-down companies, such as BlackBerry Ltd. and Stelco Holdings Inc., have dragged down Fairfax’s investment portfolio. Tim Shufelt reports (for subscribers)

The Rundown

Four reasons to be cautious about this market rebound

You don’t have to be a curmudgeon to wonder if investors are getting just a bit ahead of reality. Sure, central bankers have responded with overwhelming force to the pandemic. Public-health authorities appear to be making progress against the novel coronavirus. And many countries, including Canada, are now restarting their economies. But there is still a lot we don’t know about what comes next. Ian McGugan says investors should consider four threats that could darken the market’s carefree mood over the months ahead. (for subscribers)

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U.S. utilities look newly cheap, but face COVID-19 headwinds this summer

U.S. utility stocks have started to look like bargains after being considered expensive relative to the broader market for well over a year. Still, the outlook is far from certain as demand this summer is set to be hard hit by the contraction in commercial and industrial usage. Stephen Culp of Reuters reports. (for everyone)

Escalating China tensions could become an obstacle for U.S. stock rally

U.S. President Donald Trump’s directive on Friday to begin the process of eliminating special treatment for Hong Kong is likely to put China-U.S. tensions back in the headlines over the coming months, creating a new driver of volatility in global equity markets. Some investors said Trump’s move firmly brings back to the fore an issue that had receded earlier this year when Washington and Beijing struck a Phase 1 deal in their months-long battle over trade terms. David Randall and Lawrence Delevingne of Reuters report (for everyone)

Others (for subscribers)

John Heinzl’s model dividend growth portfolio as of May 31, 2020

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Monday’s analyst upgrades and downgrades

The highest yielding stocks on the TSX, plus risk data

Monday’s Insider Report: Three REITs that are being purchased

AirBoss of America insiders keep buying

Others (for everyone)

Gilead trades that made millions on COVID-19 drug news raise eyebrows

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Globe Advisor

New economy REITs offer healthy income for yield-seeking investors

Are you a financial advisor? Register for Globe Advisor ( for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

Question: I have two investments I just don’t understand: BK and BK.PR.A. They were purchased by a financial adviser I have since parted ways with. I know they invest in bank stocks, but I can’t understand why BK in particular is doing so badly. I feel that these shares are a special type of investment that is more complicated than most.

Answer: More complicated than most? That’s an understatement. Your adviser shouldn’t have recommended a product you don’t understand. What’s more, as you’ll see, the adviser’s recommendation to buy BK and BK.PR.A together makes no sense from a financial standpoint – except for the fat commission he or she likely pocketed in the process. Read John Heinzl’s full response to this reader.

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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

The stock market is seemingly immune to bad news. David Berman will give us his take on why that is.

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.

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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