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Betting on Markets being Wrong: Don’t take those Odds

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Capitalizing on Market Mispricing is Easier Said than Done

Canva Custom Creation/Lowrie Financial

By Steve Lowrie, CFA

Special to Financial Independence Hub

A common refrain in investing is that news and expectations are already “priced in.”

I often say this publicly and in individual client meetings. When clients are concerned about changes in the market and want to act on what they are hearing, I remind them that the market is ahead of the media rumblings and that snap financial decisions tend to sabotage positive financial outcomes.

So, it is much better to hold firm with your investment strategy, which should be based on a sound financial plan, rather than reactively sell, because those who react are most likely reacting too late.

And I’m not just guessing. I’m advising based on my experience and deep understanding of how markets work. The reality is that those who stay disciplined see much better performance than those who try to bet on market mispricing and make changes.

“Priced In” vs. Market Mispricing

How does the “priced in” concept apply in real-world market scenarios?

Take a recent client meeting, for example. It was March 3rd, the same day U.S. President Donald Trump announced that the 25% tariffs were officially moving forward on March 4th. My client asked,

“If the market is so efficient, how is it that stocks dropped 2% after the news broke? Shouldn’t that have already been priced in?”

When something is “priced in,” it means the market has already adjusted asset prices based on available information. Markets are forward-looking, incorporating not only what is known but also expectations about the future. In the case of the tariffs, if there had been a 100% certainty that a sweeping 25% tariff would be announced, the 2% drop would have already occurred beforehand. The fact that the market reacted afterward suggests that the market collectively expected some form of tariffs: but not a 25% hit across-the-board.

Similarly, consider a corporation’s earnings report. If a company is expected to post strong results, its stock may rise in advance as traders anticipate good news. But when the earnings are released and match expectations, the stock might barely move: because the market had already priced it in. Conversely, if expectations were too high, the stock could even fall despite good results. The paradox? A company can report strong earnings, yet its stock price still drops.

So, the question “Shouldn’t that have already been priced in?” is the wrong question to ask, as usually the underlying theory is “Everyone has been expecting this, I should have sold (or bought) the moment I heard about this coming!” The correct question to ask is “If I am assuming or betting on the markets being wrong, can I consistently and systematically profit from this?”

The answer to that question is a resounding “No – the vast majority of people can’t.” The reality is that reliably predicting the market in advance and capitalizing on it is not as easy as it seems – otherwise everyone would be a winner, and no one would lose – and we know that’s not what is happening.

Charlie D. Ellis, a renowned investment consultant, illustrated this perfectly in his book “Winning the Loser’s Game.” Risk-taking investors are like amateur tennis players; they try to make big plays but make lots of mistakes, so they ultimately lose. Whereas successful investors are like professional tennis players; they focus on being confident in their game and not making errors; instead, they exploit the errors of their opponents. So, it’s important to think about who is on the other side of the net, as it relates to investing. Investors who attempt to outmaneuver the market are playing against an unknown and faceless opponent.  In reality, the opponent is most likely a professional or institutional investor, who is highly educated and experienced and have a variety of technical tools and super computers to help them.

Quite often, I or my clients hear some anecdotal story of  a friend of theirs who sold at the right time or bought at the right time because they anticipated a change in the market. The truth is that if when someone takes a risk and wins, it is glorified: both in the media and in discussions by the water cooler. No one ever hears about those that lose. That’s not because they don’t exist; the losers far outnumber the winners. You don’t hear about them because, unlike the proud winners, the losers are scuttling away quietly with their tails tucked between their legs. I wrote about this phenomenon in my recent blog, “Real Life Investment Strategies #6: Beware the Risk of the Cult Stock Roller Coaster.”

Uncertainty and the Role of Spreads in Sports Betting

The idea of pricing in information isn’t unique to financial markets: it’s also central to sports betting. Bookmakers set point spreads based on team performance, injuries, betting trends, and even public sentiment.

Imagine a hypothetical hockey game between a professional NHL team and a top junior team. Some of the junior players might eventually make it to the NHL, but right now, the talent gap is massive. If you had to bet on the outcome, the NHL team winning is almost a certainty. But oddsmakers don’t just offer a simple win/lose bet: they set a goal spread to even things out.

Let’s say the spread is 20 goals. That means for a bet on the NHL team to pay out, they must win by at least 20 goals. This is where market efficiency comes in. If the spread were too low — say, 5 goals — everyone would bet on the NHL team, forcing bookmakers to adjust the line. If the spread were too high — say, 30 goals — more bets would come in on the junior team. The goal spread balances betting interest, just like stock prices adjust to reflect available information. Continue Reading…

Canadians’ quest for Financial Independence

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An RBC poll finds Canadians believe they’ll need almost $850,000 to ensure an independent financial future

By Craig Bannon, CFP, MBA, TEP

(Special to Findependence Hub)

For many Canadians, Financial Independence is the ultimate goal: a future where they can live comfortably, support themselves and their families and enjoy their desired lifestyle without the constant stress of striving to make ends meet.

However, with ongoing market fluctuations, a higher cost of living, and overall economic uncertainty, reaching that milestone may feel more challenging than ever before. Many individuals find themselves trying to navigate a complex financial landscape, where saving for retirement and other financial goals requires careful planning and informed decision-making.

Findings from the recent RBC Financial Independence Poll indicate that Canadians believe they need an average of $846,437 to ensure an independent financial future : which they variously described as “having a nest egg large enough to enjoy my retirement,” “not living paycheque to paycheque” and being “debt free.”  In some regions, that number is even higher: respondents in the Prairies, for example, estimate they’ll need an average of $958,535. Among generations, Gen X (aged 45 to 60) anticipates needing over a million dollars to achieve Financial Independence.

 

Investing a Key Strategy for Growth

With such ambitious targets, investing has become a crucial strategy for many Canadians. Nearly half (49%) of poll respondents say they invested in 2024, with Gen X and Millennials participating at similar rates. But concerns linger, with nearly half of all respondents (48%) calling out market volatility and investment performance as a key worry, with this concern jumping to over half (54%) for Millennials.

However, while markets fluctuate, one constant remains: the value of having a strong financial plan based on one’s goals, with a long-term investing strategy to implement, to help investors stay the course through market ups and downs. The encouraging news: 51% of Canadians say they have a financial plan, either formal or informal. Those with a plan report feeling more confident (42%) and reassured (30%) about their financial future.

Staying the Course and Seeking Professional Guidance

For those hesitant to re-start – or begin – investing, waiting for the ‘perfect’ moment to invest may mean missing out on valuable growth opportunities. Time in the market, rather than timing the market, is important. The sooner you can invest and the longer you can be invested, the greater the opportunity to potentially benefit from the gradual growth that markets and economies can experience over the long term. Continue Reading…

Trump Tariffs lead to Trade War: What investors can do now

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Image via Pixabay

By Kyle Prevost, MillionDollarJourney

Special to Financial Independence Hub 

With so many Canadians plugged into the latest Trump Tariff news, I felt that I needed to get an updated trade war column out as soon as possible!

So what I’m going to do today is update an article I wrote back when we were taking our first baby steps into Trump Tariff reality. Below you’ll see a ton of info on what tariffs are, what Canada’s situation is in regards to the big picture effect on our economy, and finally, what the impact is likely to be on your portfolio.

But first, just to bring you up to speed, here’s what the President announced in his big “Liberation Day” speech – complete with grade-five-science-fair-style cardboard visual aid.

  • A baseline tariff of 10% will be imposed on nearly all imported goods from all countries. This tariff is set to take effect on April 5, 2025
  • Canada and Mexico will not – for the moment – be part of that 10% baseline tariff.
  • Canada and Mexico trade is basically now broken up into three categories: goods that are USMCA-compliant, goods that are not UMSCA-compliant, and goods that are in sectors that Trump wants special rules for.
  • USMCA-compliant goods are actually in the best spot of any imported goods in the world right now – as they get to enter the USA tariff-free!
  • Goods that are not UMSCA compliant are still under the 25% “Fentanyl Tariff” rules.
  • We already knew about potash and fossil fuels having their own 10% tariff rules, but it appears that lumber, steel, and aluminium will continue to have their own special place on the Trump Tariff list as well.
  • Likely the biggest Canada-related news was that the 25% tariff on automobiles will be applied to Canadian-made vehicles (despite the USMCA explicitly outlining this as being illegal).

In regards to the rest of the world, the most noteworthy developments were:

  • An additional 34% tariff on China, resulting in a total tariff of 54% when combined with existing duties.
  • European Union: A 20% tariff.
  • Japan and South Korea: 25% and 24% tariff respectively.
  • India: 26% tariff.
  • Vietnam: 46% tariff.
  • Many many many other tariffs.

As we hit publish on this article, countries around the world were announcing retaliatory tariffs and US stock market futures were showing that the overall US stock market was set to lose 4% as it opened on April 3rd.

The best quote that I heard in regards to summing up this whole mess was from Flavio Volpe, president of the Automotive Parts Manufacturers’ Association who stated that the new tariff situation was “like dodging a bullet into the path of a tank.” He went on to write, “The. Auto. Tariff. Package. Will. Shut. Down. The. Auto. Sector. In. The. USA. And. In. Canada,” and then, “Don’t be distracted. 25% tariffs are 4 times the 6/7% profit margins of all the companies. Math, not art.”

It appears that the rest of the world is finally waking up to the same reality that Canada and Mexico have been experiencing for the last two months. There’s much more that could be written about the gnashing of teeth and simply incredible quotes from the President such as, “An old-fashioned term that we use, groceries. I used it on the campaign. It’s such an old-fashioned term, but a beautiful term: groceries. It sort of says a bag with different things in it.”

Oooook.

For now, take a deep breath and read what I had to say a month ago in regards to your stock portfolio. The reality was true then, and it’s true today. In my predictions column back in late December I wrote:

“One of the most pressing questions for Canadian businesses in 2025 is whether the newly elected U.S. president will follow through on his promises of large tariffs on Canadian imports.

Trump’s fixation on trade deficits could lead to a significant shake-up in the global economy. He appears intent on generating tariff income to support the legislative groundwork for corporate tax cuts. His “national security” justification may lack substance, but it could still trigger sweeping trade policies. 

I don’t actually believe that Mr. Trump understands how trade wars actually work, and he hasn’t cared to learn anything new in several decades. So the hopes better angels will talk him out of this are perhaps misplaced.

I believe even more strongly that the President-elect doesn’t understand how trade balances work, and consequently, he does not understand that in buying goods from Canada with a strong US Dollar, his constituents (US consumers) are winning! There is no “subsidization” of Canadian business going on here. 

While a blanket 25% tariff on all Canadian goods seems unlikely, a more targeted 10-15% tariff on non-energy products feels probable. If that happens, Canadian businesses would face a challenging environment, and retaliatory tariffs from Canada could escalate tensions further.

My guess is that we’ll see some major disruption in Canadian manufacturing, with supply chains snarled, and some factory commitments being delayed indefinitely as companies decide to move more operations within the USA for the next few years at the very least. I’d also be pretty worried if I was a farmer and/or worked in the dairy industry. Some of these tariffs might come off when the overall North American trade deal is finalized.”

I’d say that held up pretty well!

The key here is definitely not to panic. The Canadian stock market has actually held up pretty well so far – and as always, it’s key to remember that the vast majority of the companies in Canada’s stock market DO NOT depend on selling specific goods to the USA. It’s also worth noting that a lot of companies that weren’t previously UMSCA-compliant are likely to become so in a hurry. If that happens, there might actually be a lot of Canadian companies in an enviable position relative to the rest of their global competitors as they will have no tariff to worry about (for now) versus 10%-50%+ for other countries.

This isn’t going to be good for any of the world’s economies, but the Trump Tariffs are already proving very unpopular with US Citizens and even among Republican politicians. Read on for more detailed reasoning on why you don’t need to do anything drastic in the face of these latest Trump tariff developments, and the broader US – Canada Trade War that has now expanded to include the rest of the world.

Trump (Delayed) Tariff Details

So – what is a tariff anyway?

A tariff is a tax by a government on foreign goods coming into a country. The import company (or person) pays the tax to the US federal government. In the vast majority of cases, the company then turns around and sells the imported product for a higher price (and possibly also takes a hit to their profit margin).

Trump’s tariff summary:

  • A 25% tax on all imports – aside from oil. This happens on Tuesday, February 5th.
  • A 10% tax on oil. This is supposed to kick in on February 18th.
  • Mexico will see a 25% tax on all of its imports.
  • China will get a comparatively light 10% tariff on its imports.
  • Canada will respond with two-phases of tariffs in response. They will total $155 billion of US goods.
  • Mexico hasn’t finalized details but announced tariffs ranging from 5% to 20% on US imports including pork, cheese, fresh produce, manufactured steel and aluminum.

If you’re wondering what we send to the USA – it’s a lot (we don’t have 2024 numbers finalized yet).

top us imports canada
Source: CBC News
trade dependancy
Source: Council of Foreign Relations

The potential fallout from U.S. tariffs looms large. If the worst-case scenario unfolds and these tariffs stay on Canadian companies for more than a month or two, economists estimate it could push Canada into a three-year recession, shave three percentage points off our GDP, and wipe out 1.5 million jobs. While forecasts vary, one thing is clear – the economic risks are significant. It would likely be even worse for Mexico.

The USA isn’t going to get off the hook easily either. Predictions range between their GDP shrinking .3% to 1%. That range doesn’t give a precise picture of the fact that counter-tariffs will be heavily targeted with the goal of inflicting maximum pain to companies that are important to Republicans’ electoral chances. I wouldn’t want to be in the US alcohol or consumer goods business right now.

American consumers are going to immediately see higher prices on agricultural goods, lumber (which means more expensive houses), gasoline (especially in the midwest), and vehicles.

When it comes to cars, the idea that the tariffs will somehow shutdown Canadian factories and move them to the USA overnight is ridiculous. What will happen is that the complex supply chains involved for North American manufacturers will get much more expensive, and consequently it will make the final product more expensive. Continue Reading…

Don’t avoid U.S. stocks: Embrace a global portfolio

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By Dale Roberts

Special to Financial Independence Hub

We all know that Canadians are up in arms (well, elbows are up to be more specific) over President Trump’s strategy to destroy Canada, economically. There is a national wave of pride that says ‘Buy Canadian’ and avoid most anything produced in the U.S. More Canadians refuse to cross the border as well, tourism to the U.S. is down significantly. And while U.S. produce rots on the shelves at No Frills, many Canadian investors are also dumping their U.S. stocks in protest. This is the financial equivalent to cutting of your nose to spite your face. Don’t avoid U.S. stocks. Embrace a global portfolio.

Now I certainly understand, here’s the kind of motivation that gets our elbows up …

Of course Canadians will take a pass on that 51st State offer. But we should not take a pass on U.S. stocks. While you may not be a fan of the United States of America, it is still where they keep most of the best companies on earth. It is where they keep the best stock market on the planet. It’s where the entrepreneurial spirit and innovation rages like no place on earth.

Good luck hanging out in Rogers

Ironcially, the best way to protect against economic attack might be embracing our attacker. At least in a portfolio sense. What if they win? What if they destroy Canada economically? They can. Trump might. The U.S. would get stronger as we get weaker. Good luck hanging out in Rogers, Bell, BMO, CIBC, Enbridge, Magna and Suncor. Remember, America doesn’t need anything that Canada produces 😉

A portfolio can be used to hedge most economic events in life, even our country’s economic demise. I suggest that you protect yourself and your family first. Don’t remove what might be your best line of defence. If the U.S. remained an economic powerhouse (with U.S. companies leading the way), and the Canadian stock market and Canadian dollar collapsed, owning these great U.S. companies would make you rich in your own land. And in grotesque fashion, the greater the divide the richer you would get in your own land by way of those U.S. holdings. Here’s the U.S. market going up 4-fold from 2013 with the added currency boost. The weaker the Canadian Dollar, the greater your return.

Warren Buffett does not hate you

Keep in mind that the C.E.O.’s and management at Berkshire Hathaway, Pepsi, Microsoft, Home Depot, Johnson & Johnson and Apple are not out to get you. Quite the opposite, they know a massive tariff war is a very, very, very bad idea for everyone.

In fact, Warren Buffett slams Donald Trump’s tariffs on Canada and Mexico and calls them an act of war. Most business leaders don’t like what’s going on, and it’s the same for so many, or most Americans …

And in Vermont …

The fact that a tariff war is a bad idea might be reason for optimism. For Seeking Alpha this week I offered Defensive stocks for unpredictable Trump policy.

From that article.

My take on the global tariff war concept is …

The bad news is a global tariff war spells economic destruction.

The good news is a global tariff war spells economic destruction.

Essentially, it can’t happen, I think and hope. The markets will push back and so will voters if the economy continues to weaken, and we see a spike in inflation.

It’s safe to say that Trump does not want to be a half-term President, again. They have mid-term elections in 2026.

But U.S. stocks are underperforming

Yes, you might have noticed. And I’ve been pointing this out to readers for several weeks. The markets have been turning their back on U.S. stocks and are embracing international equities. Continue Reading…

Why a Market Timing Strategy leads to poor investment Returns

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Forget relying on a market timing strategy to boost returns. Focus instead on these proven tips for successful investing.

Deposit Photos

Market timing is the practice of trying to predict future trends and turning points in stock prices. For most people, this is a wasted, if not harmful, effort.

Random events tend to occur in bunches. A market timing strategy generates a lot of random buy and sell signals. Some are bound to work out well. But few work out well enough to offset losses on the inevitable erroneous signals, and leave a decent profit leftover.

Why successful investors stay away from a market timing strategy

The practice of market timing consists of coming up with and acting on a series of guesses (or estimates, or probability assessments) to use in your buying and selling decisions. Market timing theory attempts to interpret and detect buy and sell signals in trading patterns and history. Some of the decisions you make with the help of market timing will bring you profits, and others will cost you money.

Market timing can pay off sporadically, of course. Although the results are largely random, successes and failures are apt to come in spurts. The worst thing that can happen to you near the start of an investing career is that you make a series of successful timing decisions. This may lead you to believe that you have a natural talent for market timing, or that you’ve stumbled on a timing process that’s a guaranteed money-maker. Either of these conclusions can spur you to back your future timing decisions with growing amounts of money.

A significant market setback of, say, 10% or more will come along eventually. Unfortunately, no one can consistently say when that will be. Trying to foresee setbacks is sure to cost you money, however. That’s because many of the setbacks you foresee won’t occur. If you act on your prediction and sell, you’ll miss out on profits. You may buy back in at higher prices, just in time to be in the market when the next setback does occur. That’s known as a “double whipsaw.”

Eventually it happens to a lot of market timers. Some react by giving up on market timing. Others just give up on investing.

The best market timing strategy I can offer is to buy steadily and carefully throughout your working years, and sell gradually in retirement. That approach is virtually certain to enhance your investing profits. For one thing, it stops you from selling all your stocks near a market bottom, which market timers do from time to time.

How to be a successful investor without using a market timing strategy

Instead of trying to master market timing, you are far better off to study the earmarks of successful investments. Your long-term investment results will improve a great deal if you simply learn to spot and recognize these earmarks, and understand how they differ from the common risk factors in unsuccessful investments.

Here’s a look at some ways to make better investments: Continue Reading…