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Two hard lessons of investing, avoid this pot ETF, and why Trump doesn't deserve credit for the market rally

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Two quotes:

"I've learned that every investor should go to investment conferences, if only to meet 400 other people who look like you, think like you, speak like you, work like you, went to the same as school you, and look at the same data as you, all of whom claim to have an edge over everyone else in the room." – Morgan Housel

And

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"When you open your first brokerage account … you try to find bargains… But this is probably the worst advice you can give to an aspiring trader, because beginners can't separate cheap from garbage, and they lack the patience necessary for something to turn around (which it usually doesn't). " – Michael Batnick

Combined, these two statements take a lot of fun out of 'playing the market'. Mr. Housel implies that choosing your own specific investments is a waste of time, and any illusion we have of competitive advantage is a narcissistic delusion.

Mr. Batnick's observation is more optimistic, suggestive of a learning curve rather than investing as a waste of time. Still, for investors who've been taught to buy low and sell high, uncover opportunities that others have missed, investing in assets that are already going up doesn't sound exciting, it sounds like following the herd and anyone can do that.

These are hard lessons, maybe too hard, but useful to the extent they indicate how much work, and how much independent thinking are required for repeatable success in stockpicking.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Parker Drilling Co. The Contra Guys have been watching Parker Drilling, a provider of contract drilling, drilling-related services and rental tools, for some time. About a dozen years ago the stock was at $12 (U.S.) and now it's at $1, so it definitely fits into the value play category. Oil and gas is an out-of-favour sector and could be ready for a return to favour. The company sells at about half of book value, which can indicate a bargain, but given that the losses will likely continue for the foreseeable future, that number will almost certainly erode, they say, and the company could file for Chapter 11. So, for now, they're taking a pass on this stock and will continue to search for stocks that likely have less reward potential but also reduced danger.

Vertex Pharmaceuticals Inc. This company is on the brink of a breakthrough that could treat nearly all patients with cystic fibrosis, and the stock has done everything an investor could ask for in 2017, including doubling its market cap to almost $40-billion (U.S.). For restless bulls hoping for more, the money gets a little harder to make from here. Wall Street firms remain overwhelmingly bullish, with 22 buys and six holds. Part of the optimism may be tied to expectations the 26-year-old Boston drug maker will be taken over, though no deal has materialized. Bloomberg's Tatiana Darie reports.

Black Monday Anniversary

Crash of '87: An enduring mystery, but lessons abound

Stock market crashes always seem so simple in retrospect. It's easy, for instance, to point out signs of mounting anxiety in the run-up to Black Monday in 1987. The Dow Jones industrial average had spent the first seven months of the year rocketing higher. Then, in mid-August, the market wavered. Its downward momentum picked up speed in mid-October, and culminated a few days later in a stunning and unprecedented 23-per-cent drop on Monday, Oct. 19. Ian McGugan reports on some key lessons we should all take away from that day.

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'It was absolute pandemonium'

David Rosenberg, Tom Bradley and Kim Shannon relive their experience on Black Monday -- Oct. 19, 1987 -- and talk about how it affected them and their careers in the years that followed. Tim Shufelt and Brenda Bouw tell their stories. And also, you can read The Globe's coverage on that fateful day.

The Rundown

Sorry Mr. Trump, you do not deserve credit for this year's market rally

Is this still a Trump rally? The answer is still no. In fact, one can argue that all asset classes are performing inversely to his presidency. Look at what has happened year to date. The stocks in the highest quartile of corporate tax rates have underperformed the lowest quartile by about 400 basis points. The DXY dollar index is down 9 per cent for the year even with the recent recovery – how does this depreciation fit into the "America First" narrative? And, as a sign of how little has been done on the agenda front (no health-care reform, tax reform is hardly a slam dunk and what happened to repeal of Dodd-Frank?), we see that the financials, the poster child for deregulation, have lagged the broad market by 150 basis points year to date. That surely wasn't supposed to happen. David Rosenberg explains his point of view.

Why dividend investors should be delighted with Bill Morneau's week of bad publicity

Bill Morneau's week of uncharacteristic bad publicity over his financial ties to Morneau Shepell Inc. must have tormented the respected Finance Minister. How else to explain his decision to divest his shares in the company? But the bad press has also raised the profile of the company he once helmed, and investors should be delighted: This stock deserves more attention. Morneau Shepell, a human-resources consultancy, hasn't generated a lot of interest or even analyst coverage prior to this week, despite its market valuation of more than $1-billion. HR firms are like that. This low profile is now on the rise, though, and no wonder. David Berman explains.

'Bubble basket' stocks irk short-call guru David Einhorn

David Einhorn is as sure as he ever was that a reckoning approaches for some of the world's hottest stocks. The famous hedge-fund manager, known for such prodigious short calls as betting against Lehman Brothers in 2007, has been getting knocked around lately by what he calls his "bubble basket." A collection of stocks he views as disconnected from underlying value, Mr. Einhorn's biggest short positions include Tesla Inc., Netflix Inc. and Amazon.com Inc. Year to date, those three names are up by 64 per cent, 56 per cent, and 32 per cent, respectively. Tim Shufelt explores Mr. Einhorn's picks.

This is not the way to go about investing in the marijuana sector

Anyone betting on an individual cannabis stock is swinging for the fences. So is a diversified investment in the broader marijuana sector through an exchange-traded fund nothing but a bunt? Given the lacklustre performance of the Horizons Marijuana Life Sciences Index ETF, which gives investors exposure to 20 marijuana-themed stocks, diversification is certainly raising some questions. David Berman explains.

Three value stock picks from the worst-performing sectors

If global economic growth predictions come true, stocks could continue their climb into the stratosphere. It almost seems impossible at this point, but every day there are signs this bull still has room to run, despite a steady drumbeat of warnings that it is about to end and Thursday's ominous 30-year anniversary of the 1987 crash. John Reese looks at three stock picks from downtrodden sectors.

My new dividend portfolio is off to a flying start

Three down, 19 to go. When John Heinzl launched his new Yield Hog Dividend Growth Portfolio two weeks ago, he fearlessly predicted that most, if not all, of the 22 securities would continue to raise their dividends, just as they've been doing for years. He's pleased to report that his clairvoyant powers haven't let him down yet. On Monday, two of his stocks, Fortis Inc. (FTS) and A&W Revenue Royalties Income Fund (AW.UN), hiked their dividends – by 6.25 per cent and 2.3 per cent, respectively. A third, Emera Inc. (EMA), announced an 8-per-cent increase in late September. And we're just getting warmed up. Over the next few months, he expect that several other stocks in the portfolio will raise their dividends.

Why peak gasoline deserves your attention

The short-term outlook for crude prices is bullish according to Merrill Lynch commodity strategist Francisco Blanch. The longer-term view is, well, really complicated. Energy-consulting firm Wood Mackenzie projects that while peak oil demand is highly unlikely before 2035, demand for gasoline is set to begin a secular decline earlier; on a global basis, gasoline demand peaks at some point between 2025 and 2030. Scott Barlow explains.

Worried about investor fraud? Here are some warning signs

Fraud — which depends on deceiving the victim — comes in many forms and can be difficult to detect, says Tyler Fleming, director of the Ontario Securities Commission's Investor Office. But he says there are several warning signs that should raise red flags for investors. David Paddon from The Canadian Press reports.

Others

Friday's Insider Report: Companies insiders are buying and selling

Thursday's Insider Report: Companies insiders are buying and selling

Wednesday's Insider Report: Companies insiders are buying and selling

Ten ways the new mortgage rules will shake up the lending market

The week's most oversold and overbought stocks on the TSX

Number Crunchers

Ten Canadian stocks trading at attractive valuations relative to their sectors

Six dividend payers set to benefit from a Toronto tech hub

Ten stocks that could help diversify your dividend portfolio

Ask Globe Investor

Question: I have a question regarding stocks such as BOTZ and ROBO. Both are U.S. stocks involved in Automation/Robots, etc. My thinking is that this area is something that has potential, with everything I have read about the number of jobs that may disappear in the near future. My question was whether you had any insight on this type of stock.

Answer: ROBO, which is listed on Nasqaq, was the first ETF to specialize in robotics and automation companies. The portfolio holds 91 positions in such firms from around the world and is highly diversified – not a single stock exceeds 2 per cent of the total holdings.

Bellwether companies include Rockwell Automation, Hiwin Technologies Corp., and Fanuc Corp. A little over 44 per cent of the portfolio is North American based with about 34 per cent in Asia and 19 per cent in Europe. About three-quarters of the holdings are in small- and mid-cap companies, which by definition makes this a higher-risk investment.

This ETF has performed well so far in 2017 with a gain of 28.3 per cent to the end of August. It closed on Oct. 6 at $38.95 (U.S.), just below its all-time high. The management expense ratio is 0.95 per cent.

BOTZ is the symbol for Global X Robotics and Artificial Intelligence ETF, which also trades on Nasdaq. It is a smaller fund than ROBO, with a lower MER at 0.68 per cent. It was launched in September of 2016. The fund holds fewer stocks and makes bigger bets on individual holdings. For example, Keyence Corp. makes up 7.91 per cent of the portfolio, closely followed by Nividia Corp. (7.76 per cent). The fund's one-year gain to Sept. 30 was 43.13 per cent.

Either fund would be suitable for investors who want to take a long-term position to this exciting sector but don't want to zero in on individual companies. But keep in mind they are likely to be volatile. Both funds are too new to have any performance history in down markets.

--Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.

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

If you're searching for the perfect symbol of this frothy, tech-loving, disruption-applauding era, look no further than Amazon.com Inc. In Saturday's Globe Investor, Ian McGugan explores whether there's still any upside left in the company that at times seems to be taking over the world.

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

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Compiled by Gillian Livingston

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