Ray Dalio has amassed a net worth estimated at US$18.1-billion as the founder of asset management behemoth Bridgewater Associates. Mr. Dalio has turned to writing books in the past few years in a seemingly honest attempt – he makes pdf versions of the publications free online – to share the investing knowledge he’s developed in become one of the world’s wealthiest 100 people.
Mr. Dalio appeared on Bloomberg’s Masters in Business podcast to promote his latest work, Principles for Navigating Big Debt Crises, and the results were terrific.
The book’s premise is that the financial crisis of 2007-2008 was only ‘one case of the disease’ and it offers an in-depth look at the 48 serious financial crises that have occurred across the world in the past century.
At the 20-minute mark of the podcast, Mr. Dalio began detailing the disturbing parallels between the 1929-1937 period and the 2008-2018 decade.
- In both cases, financial crisis caused interest rates to go to zero, forcing central banks to print money to buy financial assets. The resulting asset market rallies drastically increased wealth disparity between rich and poor.
- Political polarization between left and right occurred globally, and populist movements popped up everywhere. In the 1930s, populism led to nationalist dictatorships in Italy, Spain and Germany. We get Donald Trump and Brexit.
- Japan was the China of the 1930s, a rising global economic power in Asia that began spreading its influence in the Pacific, and later Manchuria, to secure the resources necessary for growth. The global response were trade restrictions and eventually an oil embargo.
- In 1937, the U.S. Federal Reserve began tightening monetary policy in the belief that stimulus was no longer necessary. They were wrong – U.S. unemployment jumped from 14 per cent to 19 per cent afterwards and manufacturing activity fell by 37 per cent from the annual peak. The Dow Jones Industrial Average cratered 33 per cent.
Mr. Dalio was careful to point out that he does not believe ‘we’re going down the path’ to a world war, but the similarities between then and now remain alarming in many ways. Most pointedly for investors, the monetary policy mistake in 1937 takes on added significance in a current volatile market environment marked by rising interest rates both domestically and south of the border.
The above comparison was only one segment of the podcast which was really interesting throughout, and highly recommended.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
GDI Integrated Facility Services Inc. (GDI-T). This small-cap stock may resurface on the positive breakouts list (stocks with positive price momentum). Last week, the company reported better-than-expected third quarter financial results. As a result, five analysts raised their target prices with the average target price implying a potential 26-per-cent return to investors. Year-to-date, the share price is up a respectable 12 per cent. Quebec-based GDI is a leading provider of janitorial services in North America. Management’s corporate objective is a combination of acquisition and organic (increase customer base and increase services provided to existing customers) growth. Jennifer Dowty reports (for subscribers).
Bank of America Corp. (BAC-N). With the market still in the throes of despair from 2008’s epic plunge, The Contra Guys acquired Bank of America Corp. at a tally of US$6.76 in 2011. Very soon after, Warren Buffett announced he was also a shareholder in the venerable institution. The shares are now trading around US$28 even after a drop of more than 10 per cent during the recent market tumult. Although their gain thus far of 307 per cent is huge, their initial sell target on Bank of America is US$38.74. That projects a further upside of 38 per cent. If that’s correct, and of course there is no guarantee, that will be sweet especially if it occurs in the next few years. Throw on top further dividend hikes, and like whipping cream atop a thick chocolate shake, this could prove to be a savoury deal for investors seeking both capital appreciation and dividend growth. (For subscribers).
RioCan Real Estate Investment Trust (REI.UN-T). This high-yielding security may appear on the positive breakouts list (stocks with positive price momentum) in the future. The trust currently yields an attractive 5.8 per cent and the consensus target price implies a potential one-year total return (including the yield) of over 14 per cent. Toronto-based RioCan owns and operates a portfolio of 250 retail and mixed use properties across the country, including 17 properties that are under development. Jennifer Dowty reports (for subscribers).
The Rundown
This is the investing approach to take heading into 2019
David Rosenberg takes a look at key issues that he expects to occur in 2019, including corporate deleveraging – where companies focus on paying down debt. He says that will weigh against the prospect of any sustained capex boom, will depress economic growth and likely stay the Fed’s hands once it gets to the estimated 3 per cent neutral funds rate. And the failure of the S&P 500 share count to decline any further from its already depressed 18-year low will make it very challenging for a stock market in which consensus earnings-per-share growth forecasts for 2019 are still flirting near double-digit terrain. He says the theme for 2019 is one where the end of the share-buyback boom coincides with the end of the earnings boom, and that sets us up for, at best, a flat year for equities. (For subscribers).
How this award-winning fund manager has made at least 10% annualized returns by targeting TSX mid-caps
When you focus specifically on medium-sized stocks, you tend to catch companies either on the way up or the way down. The mid-cap market in Canada is a stepping stone for younger success stories en route to greater prominence, such as Shopify Inc., for example. And it’s a kind of penalty box for companies that have fallen afoul of investors and need to attempt a turnaround, such as BlackBerry Ltd. Both Shopify and BlackBerry spent time in the RBC Canadian Mid Cap Equity Fund, which Marcello Montanari, a portfolio manager at RBC Global Asset Management, co-manages and which had $225-million in assets under management as of the end of September. It was recently recognized by the Lipper Fund Awards for industry-best returns among comparable Canadian funds. Lipper Inc., a unit of Thomson Reuters, handed out awards last week to dozens of Canadian mutual funds and exchange-traded funds for performance across several different categories. Mr. Montanari spoke to The Globe and Mail about the approach that has generated an average annual return of more than 10 per cent over the past three years – the time frame for which he won the award. Tim Shufelt reports.
How large speculators are fueling oil’s record-breaking losing streak
Crude prices declined for the eleventh day in a row Monday, extending a record for consecutive losses that’s getting painful for investors in the energy sector. While it’s true that the fundamental supply and demand will determine the crude price in the longer term, day to day, it is speculative excess and the futures curve that have been driving the commodity price, which on Monday settled to less than US$60. The number of large, speculative investors in energy markets has been steadily rising in recent years. These big money managers have little interest in the actual supply and demand of the physical commodity. As Citigroup commodity strategy Ed Morse said earlier this year in the Financial Times, "they don’t care about talking to people who deal with fundamentals. They have no interest in it.” Scott Barlow reports (for subscribers).
Mutual funds, ETFs and advisers: Rob Carrick’s guide to socially responsible investing
No matter how you want to invest, there’s a socially responsible way to do it. Exchange-traded funds (ETF) are your favourite investing tool? A new crop of ETFs offering different takes on socially responsible investing (SRI) have recently been introduced. You like ETFs but prefer to have a robo-adviser handle your investments? A few robos now offer SRI portfolios, and human advisers are likewise adding SRI investing to their repertoires. Socially responsible investing, sometimes shortened to responsible investing, or RI, means putting your money in companies that score well in environmental, social and governance (ESG) matters. A popular theme in SRI these days is to focus on companies with low carbon emissions, but there are other themes such as gender diversity. Rob Carrick takes a look at what investors' options are (for subscribers).
Canadian bonds vs. stocks: A trend-following strategy for impressive returns
Investors who scurry like frightened mice from stocks to bonds, and back again, rarely succeed. But disciplined trend-followers might be able to have the cheese offered by bull markets and eat it while avoiding downturns. The historical record contains a feast of possibilities for trend-followers. Norman Rothery takes a look at Canadian stocks and Canadian bonds and found that Canadian bonds outpaced Canadian stocks over long periods. (For subscribers).
The demise of pipeline stocks is vastly exaggerated. Here’s why it’s now a perfect time to invest
Another kick in the teeth for the pipeline industry. On Thursday, a Montana judge issued a ruling blocking construction of the Keystone XL line and ordered new environmental studies to be completed on the long-delayed project. U.S. President Donald Trump, who approved Keystone shortly after taking office, reacted angrily, calling the decision “a disgrace.” Officials of TransCanada Inc. were probably seething, but public comment was limited to an assurance the project would eventually go ahead. Meantime, the company’s share price fell 1.7 per cent on the news. Investors have soured on pipelines in part because of the controversies they generate but also because they are notoriously interest sensitive. As a result, their share prices have been sinking as rates move higher at an increasing pace. TransCanada Corp. has seen its price drop from $65.18 last November to Friday’s close of $51.32 – a loss of 21 per cent. Enbridge Inc. has fallen from $51.04 in January to $43.49 now – down almost 15 per cent. No investor wants to see those kinds of numbers. Gordon Pape looks at the investment case for these pipeline stocks.
Others (for subscribers)
Global fund manager survey has ‘ominous’ implications for investors
‘The biggest mistake most investors make’: Ray Dalio
Tuesday’s analyst upgrades and downgrades
Tuesday’s small-cap stocks to watch
Tuesday’s Insider Report: Three management executives trade over $4-million worth of stock
Monday’s Insider Report: 12 insiders scoop up shares in this beaten down stock
Monday’s analyst upgrades and downgrades
Monday’s small-cap stocks to watch
Disappointing Q3 earnings another blow to battered European market
How an intelligence expert helps Wall Street mavens think smarter
Canadian stocks with strong earnings growth, low debt
Why Mawer Investment Management is mulling a sale – and other firms will too
Others (for everyone)
Citron’s Andrew Left bearish on Canadian cannabis producers
The Globe’s stars and dogs for last week
U.S. equity markets not taking their cues from high-yield junk bonds
U.S. utility stocks slump as California wildfires leave hundreds missing
Fund managers still prefer U.S. equities, predict further market gains: survey
Financial markets can suffer from the blues, too
Ask Globe Investor
Question: I was alarmed to see that my Loblaw Cos. Ltd. (L) shares took a steep dive on Nov. 2, but I am even more confused as to why the drop doesn’t show up on GlobeInvestor.com charts. What caused the decline and why doesn’t your website show it?
Answer: Loblaw did indeed suffer a big tumble on Nov. 2 – it fell 20.1 per cent. But let me assure you that you didn’t actually lose any money in the process.
To understand what happened here, let’s back up to September, when the grocery chain announced that it would spin out its interest in Choice Properties Real Estate Investment Trust (CHP.UN). Under the complex transaction, Loblaw parent George Weston Ltd. (WN) acquired Loblaw’s 61.6-per-cent stake in Choice REIT. In return, Loblaw minority shareholders received 0.135 of a George Weston share for each Loblaw share as compensation – a swap that was economically neutral for Loblaw investors.
So why did Loblaw’s shares fall? Well, the spinout was completed on Nov. 1, which meant that an investor buying Loblaw stock after that date was not entitled to receive any George Weston shares. As a result, on Nov. 2, Loblaw’s share price fell by $13.10, which, not coincidentally, was very close to the market value of 0.135 of a George Weston share at the time.
A Loblaw shareholder who held the stock through the spinoff closing date, however, was entitled to receive the 0.135 of a George Weston share. So, although the price of Loblaw dropped, the investor would have been made whole by receiving George Weston shares.
The way data providers depicted the price action in Loblaw’s stock only added to the confusion.
The reason the drop doesn’t show up on GlobeInvestor’s charts is that the data provider retroactively adjusted Loblaw’s stock price prior to Nov. 2 to effectively remove the value of 0.135 of a George Weston share. Presumably, the rationale for smoothing out the chart in this way is that the spinoff did not create or destroy any value for Loblaw shareholders, so it could be misleading to depict a large drop in the share price.
GlobeInvestor wasn’t the only website to adjust the data this way. Stock charts on Bloomberg also don’t show the big decline in Loblaw’s share price, while on Yahoo Finance – depending on the type of chart you create – some charts show the drop and others don’t. The TMX website does show the drop, both on its stock charts and in Loblaw’s price history data.
Where all of the charts agree is that Loblaw’s shares have rallied strongly in recent days, which ought to provide comfort to all Loblaw investors – not just those who were confused by the spinout.
--John Heinzl
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
John Heinzl looks at a number of TSX stocks that just announced dividend hikes, while Rob Carrick examines the pitiful returns so far this year of bond funds.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston
Scott Barlow