U.S. venture capitalist Morgan Housel voiced a remarkably counterintuitive but true statement about investing in a recent podcast with Barry Ritholtz.
“The grandfather of behavioural mistakes is the idea in investing that results are going to be correlated with effort … when we know in investing if you can just dollar cost average and leave it alone, you’ll probably do good if not great, like top quartile," he said.
Mr. Housel noted how easy this trap can be to fall into – in almost every other endeavour in life, working harder is the secret to success.
To make matter worse for investors, extra homework can actually be detrimental to returns. The podcast features the example of hedge fund manager Bill Ackman, who allegedly spent US$25-million researching Herbalife as a potential investment.
Mr. Housel suggested that after making this extreme effort to understand every detail about a company, it was psychologically difficult for the manager to walk away from it and write off the sunk costs of money and time. In other words, the tendency to fall in love with a potential investment rises with the amount of research done, even if it’s not a great idea in the end.
In a competitive modern environment, advice to do less doesn’t sit well.
Where investing is concerned, however, it is a good idea to follow the advice of Nobel-winning economist Eugene Fama who said, “Your money is like a bar of soap. The more you handle it, the less you’ll have."
-- Scott Barlow, Globe and Mail market strategist
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The Rundown
The indignity of annuities
Though annuities make particular sense for women, who tend to live longer than men and thus have more need for an income source that can never be drained dry, Rob Carrick examines they receive lower payouts and can pay more tax.
The flip side of tax-loss selling: Bargains galore.
Christmas is fast approaching and Canadians are starting to dream about figgy puddings. It’s also time for investors to prepare for the new year and to indulge in the holiday tradition of tax-loss selling. Norman Rothery looks at some stocks to ponder.
Canada’s big banks hit by fallout of global trade slump
Last week saw the Big Six banks conclude a rare dud of an earnings season, with three of six missing profit expectations, leading to a dip that wiped out nearly $15-billion in market capitalization from the group. Tim Shufelt writes on the fallout.
My Buy and Hold Portfolio continues to blow past expectations
Gordon Pape created the Buy and Hold Portfolio in June 2012. It has a very simple goal – invest in great stocks and then hold on to them, no matter what the market is doing. Over the long term, the strategy works. There are ups and downs, of course, but the underlying thesis is that the long-term trend of the markets is up. If you own good stocks, they’ll move with it. Gordon provides an update.
Advisors set to increase use of ETFs in client portfolios, survey finds
Exchange-traded funds (ETFs) are expected to become a bigger part of Canadian investment advisors’ client portfolios because of their lower fees, liquidity, transparency and a growing selection of products, the results of a new survey suggest. Brenda Bouw examines the findings.
Others (for subscribers)
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: Two dividend stocks that are being bought
The Globe’s stars and dogs for the week
Others (for everyone)
Globe Advisor
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Ask Globe Investor
Question: Has the tax-free savings account contribution limit for 2020 been established yet?
Answer: Yes. The federal government announced recently that the 2020 TFSA dollar limit is $6,000 – the same as in 2019 – but this should not have come as a surprise to anyone. The annual limit is indexed to inflation and rounded to the nearest $500. The limit was raised to $6,000 for 2019, up from $5,500 in 2018, but with inflation remaining subdued, it could be several more years before we see another increase.
Remember that TFSA contribution room is cumulative. For someone who has been eligible for the TFSA every year since it was introduced in 2009 but has yet to make a contribution, the maximum contribution for 2020 is $69,500.
Also keep in mind that, if you make a TFSA withdrawal, you can add the amount back to your contribution room – but not until Jan. 1 of the year after the withdrawal.
-- John Heinzl
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What’s up in the days ahead
Dollarama is encountering a case of stock market turbulence. David Berman looks at the investment case.
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Compiled by Globe Investor Staff