Globe Investor
 

January 29, 2020

 
Why we make bad investment decisions, the 2020 ETF Buyer’s Guide, and advice on dumping your advisor
Why we make bad investment decisions, the 2020 ETF Buyer’s Guide, and advice on dumping your advisor
Tim Ferriss is a venture capitalist – an early investor in Shopify, Uber and Facebook among numerous others – and the host of the massively popular Tim Ferriss Show podcast.

 
In a recent blog post, Mr. Ferriss announced his initially surprising decision to avoid reading any books in 2020 – not a single one. He confessed that he had spent too much time trying to stay on top of current events and discussions when what he actually wanted to do was get to the bottom of things.

 
Mr. Ferriss cited an intriguing quote by South African activist Desmond Tutu to provide a metaphor that describes his intellectual goals for the year, “There comes a point where we need to stop just pulling people out of the river. We need to go upstream and find out why they’re falling in.”

 
 
 
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Applied to investing, this suggests we should spend less time listing the numerous common mistakes investors make and attempt to understand the ways basic human psychology leads us to make them.

 
Nobel Prize winning psychologist Daniel Kahneman, author of Thinking Fast, And Slow was introduced as ‘the most influential living psychologist’ in a recent podcast hosted by Shane Parrish. Professor Kahneman offered insight that can be readily applied to investing, and the highlights are listed on Mr. Parrish’s Farnam Street website along with the link to the podcast.

 
The one-hour interview is well worth the time, as the discussion ranges through many pertinent topics including why Mr. Kahneman believes people don’t value happiness very highly, and how the colour of a room can distort decision making.

 
The bullet points below represent the specific highlights, in Mr. Parrish’s words, that are most relevant to investors. I suggest that readers consider each one – slowly, in Mr. Kahneman’s terminology – and look for ways these psychological tendencies might be negatively affecting their portfolios,

 
· Very quickly you form an impression, and then you spend most of your time confirming it instead of collecting evidence.

 
· We have beliefs because mostly we believe in some people, and we trust them. We adopt their beliefs. We don’t reach our beliefs by clear thinking.

 
· Independence is the key because otherwise when you don’t take those precautions, it’s like having a bunch of witnesses to some crime and allowing those witnesses to talk to each other.

 
· What gets in the way of clear thinking is that we have intuitive views of almost everything…. What gets in the way of clear thinking are those ready-made answers, and we can’t help but have them.

 
-- Scott Barlow, Globe and Mail market strategist

 
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Stocks to ponder

 
Air Canada The recent share price weakness is anticipated to continue as the coronavirus spreads worldwide, the death toll rises, and news that the virus can be spread to others even when an infected person is asymptomatic. The share price closed at a record high of $52.09 on Jan. 13 and since then has dropped over 9 per cent. However, as the share price continues to fall, this may represent a buying opportunity for longer-term investors. This is a stock to watch for now; it is not yet in oversold territory. Jennifer Dowty profiles this profile of the stock.

 
Alpha Pro Tech This Canadian-headquarter protective apparel stock is skyrocketing on the coronavirus outbreak. Traded in the U.S., it’s been a holding of The Contra Guys for some time. They share their latest thoughts on the stock.

 
CAE Inc. After Boeing Co. recommended this month that all pilots of its 737 Max planes get training on flight simulators before the grounded aircraft return to the skies, CAE Inc. shares surged to record highs. The reason? The Montreal-based flight simulation company has found itself in a sweet spot amid a swell of interest in its pilot-training services and technology. Now, though, investors are facing a tough question: How much further can this rally go? Read more from David Berman

 
The Rundown

 
How equity markets have developed their own idea of fair value

 
The argument about whether equity markets are too expensive rages on, while, at the same time, stock prices in Canada and the U.S. have arranged themselves into a comprehensible assessment of fair value that no one’s talking about. Scott Barlow has this analysis that could aid investors to uncover promising opportunities.

 
Others (for subscribers)

 
Rob Carrick’s 2020 ETF Buyer’s Guide: Best Canadian equity funds

 
Monday’s analyst upgrades and downgrades

 
Monday’s Insider Report: CEO unloads $11-million worth of stock

 
Four-comma club: Predicting the next company to join trillion-dollar value elite

 
Hopes are high for tech stock ‘Cadillacs’; so are their prices

 
Ask Globe Investor

 
Question: For the past 20 years, my husband and I have had a financial planner at a private company, Aligned Capital Partners, Inc. He has taken care of all of our investments, including RRSPs. He charges a management fee of 1.13 per cent. When I calculated this over the 20 years we have been with him, I was aghast! I blame us for not learning enough about investing before we made the decision to go with this him.

 
The returns on our investments have been good as far as I know but I'm embarrassed to say that I do not know for sure, and currently simply don't have the time to go through all of our records.

 
My question is: if we "break up" with this advisor (and we would have no desire to go with any other independent financial investment company) and move all our investments to our bank (CIBC) to work with a financial advisor there, who doesn't charge a management fee, what might the penalty be? Would the bank possibly pay this fee in order to get our money?

 
We have about 10 years left before we retire, and I am getting rather nervous that we might be making a big mistake by sticking with this advisor.

 
I’d really appreciate your advice on this because I would find it very awkward to broach this subject with him, especially as we have a good rapport with him and, silly as it sounds, I wouldn’t want him to feel bad! On the other hand, it IS our money! I would be very grateful to get your opinion on this.

 
Answer: For starters, a management fee of 1.13 per cent is not out of line, presuming he does not charge you for trades and is buying F-series mutual funds. The key question is the net return you are receiving. This should be on the reports you’re getting. If not, ask him for the net return for 2019, the average annual rate of return for the past five years, and the average annual return since you started doing business with him. He should have those numbers readily available. That will give you a much better insight into how you’re doing.

 
What about switching to the bank? For starters, a CIBC advisor cannot buy you stocks, ETFs, etc. A bank is not a brokerage and is limited in the number of products it can offer. Their advisor will be pushing mutual funds, especially CIBC’s own brand, which will come with a much higher management expense ratio than the 1.13 per cent you have been paying. The advisor will probably earn a commission on those sales. If you’re not paying one way, you’ll pay another.

 
So, I suggest your first step is a meeting with your present advisor. Since you have a good rapport with him, he should be willing to answer all your questions honestly. Then, if you wish, have a meeting with CIBC. Ask exactly what investment products would be available to you and how the advisor is paid. You’ll then have enough information to make an informed decision.

 
--Gordon Pape

 
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Compiled by Globe Investor Staff

 
 
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