Fear is a great topic for Halloween. Actually, in a business media environment grown so competitive that headlines designed to scare the pants off investors are a daily occurrence, fear is a good topic any day.
The Of Dollars and Sense investing blog published a useful post Tuesday morning called “The War Between Fear and Evidence.” Author Nick Maggiulli presents a quote from a book called The Science of Fear with a sentiment well-known here in the newsroom.
“Fear sells. Fear makes money. The countless companies and consultants in the business of protecting the fearful from whatever they may fear know it only too well. The more fear, the better the sales.”
Thankfully, Mr. Maggiulli also provides an antidote to investor fear – evidence. He cites numerous non-investing examples of cases where the actual facts go a long way in mitigating our impulse to panic, including, “Since 1983, over 95 per cent of passengers involved in a plane crash in the U.S. have lived to tell their tale.”
Investing-wise, it’s important to remember the saying, “the plural of anecdote is not data” and distinguish between individual situations and aggregate results. Just because you have a neighbour who went bankrupt buying a house they couldn’t really afford, doesn’t mean the entire national real estate market is set to collapse. On the other hand, the aggregate data showing the national debt to disposable income ratio at almost 170 per cent is a reason for concern.
Market and economic calamities are always possible but rarely probable. Alarmist headlines will get our attention – basic psychology makes us susceptible – but the weight of evidence indicates that staying the course with a diversified portfolio is the approach most likely to succeed.
— Scott Barlow, Globe and Mail market strategist
Stocks to ponder
Canopy Growth Corp. Pot stocks received another shot in the arm on Monday after alcohol giant Constellation Brands announced it was buying a near 10-per-cent stake in Canadian marijuana company Canopy Growth Corp. for $245-million. The agreement is considered a signal of how some alcohol companies plan to respond to the growing acceptance of marijuana for medical and recreational use, giving changing legislation, and the potential opportunity for investors in the cannabis sector. Brenda Bouw reports.Also read her analysis: Why Canopy’s new investor is buoying the outlook for all Canadian pot stocks
Descartes Systems Group Inc. The shares of U.S. tech giants posted big gains on Friday after Amazon, Alphabet, and Microsoft released financial results that handily beat analysts’ estimates. Canadians could only watch with envy. Our own high-tech market is pitifully small compared to that of the U.S. That said, there are some companies on our limited high-tech list that are worth considering. They’re not glamorous but they are solid and profitable and would be a good fit for anyone wanting to add a Canadian technology firm to a portfolio. One of them is Descartes Systems Group Inc. (DSG-T, DSGX-Q), based in Waterloo, Ont. Descartes specializes in business software designed to facilitate logistics, financial controls, inventory, customs clearance, and freight tracking. Gordon Pape explains.
The Rundown
This portfolio of dividend stocks with momentum has a shockingly good track record
If investing in solid stocks bores you to tears and you’re willing to take on more risk for the slim possibility of gigantic rewards then Norman Rothery might have the just thing for you. Step right up and clamber aboard his mechanical monster momentum portfolio before it lifts off and takes to the skies. It holds an equal amount of 10 Canadian stocks that may prove to have the right stuff. He explains what it’s all about and the stocks he’s talking about.
Hey, Canadian stock market: Thanks for 10 years of nothing
Every day the Canadian stock market extends its recent rally helps hide an uncomfortable fact about investing. Even after 10 years, investing in stocks can seem futile. On an after-inflation basis, the S&P/TSX composite index lost money over the past decade. The index averaged a gain of 1.1 per cent annually for the 10 years to late-October, while inflation averaged 1.6 per cent. And, yes, that includes Friday’s record-high close on the TSX.One of the investing world’s main messages is that patient, long-term investing in stocks is a path to building wealth. But what, exactly is long term? It’s not five years or less – that’s basic. Now, it seems that 10 years may not be enough, either, in some cases. Rob Carrick takes a look.
The loonie and stocks: Here’s the best strategy for timing your investment decisions
Currencies are notoriously difficult to predict, so why bother? The Canadian dollar has become a hot topic in recent months. After the loonie surged against the U.S. dollar from May to September, reaching a high above 82 cents (U.S.), many discussions revolved around how long the rally could go on and which Canadian companies were most vulnerable to a strong dollar. Now, though, the loonie is falling back to earth. It broke below 78 cents this past Thursday, to its lowest level since July, and the discussion has quickly reverted to how low the dollar can fall. David Berman reports.
There’s one big thing holding back the marijuana ETF
What’s in your marijuana ETF? Some fentanyl, it turns out. Insys Therapeutics Inc. is a holding of the Horizons Marijuana Life Sciences Index ETF, better known as the world’s first pot ETF. Trading in the Arizona-based pharmaceutical company was halted Thursday after its founder was arrested on charges he took part in a scheme to bribe doctors to overprescribe a fentanyl-based pain medication. Trading resumed Tuesday, but the stock has plummeted about 30 per cent since last Wednesday’s close, compounding losses from its 2017 peak. Those losses have been a drag on the marijuana fund’s returns. But the situation also highlights a notable risk for the ETF: American firms. Matt Lundy reports.
An ETF for investors in search of income in the resource sector
The late stages of an economic cycle are usually good times for resource companies. Prices of key materials move higher, usually pushed by inflation, and shares of the companies that produce them follow suit. Although this is not a typical economic cycle, we’re seeing some of that now. All of this is happening without the traditional driving force of inflation, which remains muted in most industrialized countries. What we’re seeing is simply supply/demand forces at work. Gordon Pape looks at an ETF that focuses on resources.
Portfolio management duties are now being handed over to robots as Canada’s first artificial intelligence (AI) exchange-traded fund hits the market on Nov. 1. With the ticker MIND, Horizons ETFs Management (Canada) Inc. is set to launch the Horizons Active A.I. Global Equity ETF – an actively managed investment strategy entirely run by an AI system that extracts patterns from analyzing data. Clare O’Hara reports.
Robo-advisers
Robo-advisers find popularity where few thought they would
After discovering that he was paying more than $20,000 a year in fees, Bruce Pinn, a 57-year-old executive from Toronto, decided to make a drastic move and fire his investment adviser of 18 years.While turning to a do-it-yourself online broker platform would have been a logical next step for someone conscious of fees, it didn’t hold much appeal for Mr. Pinn, a self-described “invest and forget” investor. Instead, he decided to move his entire portfolio of more than $500,000 to Nest Wealth, a robo-adviser platform that is charging him a $960 annual flat fee and will automatically rebalance his portfolio as the market changes. Clare O’Hara reports.
Number Crunchers
Question: Given current prices of Bank of Montreal, Canadian Imperial Bank of Commerce and Royal Bank of Canada, when would you expect them to split?
Answer: In the past, banks have typically split their shares when their prices have approached $100. Toronto-Dominion Bank – the last of the Big Five to split – was trading at about $95 when it announced a two-for-one split in December, 2013. Royal Bank’s shares fetched about $98 when it announced its most recent split, in March, 2006.
Now, with CIBC trading well above $100 and BMO and Royal both cracking that milestone this week, I expect that we could see some stock splits as soon as the banks’ fourth-quarter earnings season, which begins in late November.
It’s important to understand that stock splits, in and of themselves, don’t add any economic value. After a two-for-one split, you’ll own twice as many shares, but each share will be worth half as much as before the split.
So what’s the point? Basically, companies want to improve the liquidity of their shares and maintain buying interest among retail investors, who might balk if the share price becomes too high. The rationale may, at least in part, be a holdover from the days when investors usually had to buy shares in multiples of 100 – called board lots.
Nowadays, thanks to modern trading systems, investors can easily buy fewer than 100 shares. That may explain why, although stock splits remain popular with some companies, others – such as Amazon.com, Priceline and Alphabet – have let their share prices climb above $1,000 (U.S.). At least one Canadian bank doesn’t seem to be in a hurry to announce a split. In response to a question at CIBC’s annual meeting in April, chief executive Victor Dodig said: “I don’t believe that stock splits create value. We are absolutely focused on what creates value for our shareholders by really serving our clients, by embracing technology, by building a really strong bank. So, we have no stock splits that are planned.” Bank of Montreal and Royal Bank both declined to comment on Friday.
Even though a stock split won’t increase your net worth, research indicates that it can send an important signal about a company’s strength.
In a 1996 study, David Ikenberry of Rice University examined 1,275 U.S. companies that split their shares between 1975 and 1990, and compared them with companies that did not split. Result: The splitters outperformed the non-splitters by 8 percentage points after one year and by 16 percentage points after three years.
It’s unlikely that the split itself caused the outperformance. Rather, the splitters were performing well already – as evidenced by their high share prices – and that momentum may have simply continued after the split.
credit:420intel.com