The very first thing Prime Minister Mark Carney did upon taking office was to scrap the consumer carbon tax. Depending on your degree of cynicism, the move was either desperate or brilliant. There is not much middle ground. He did so while noting that the tax had become divisive.
Few would disagree. The very large majority of economists who study the subject argue that putting a price on carbon is the most efficient and effective way of curbing CO2 emissions. Nobel laureate William Nordhaus has shown this convincingly. Despite the evidence, retail investors simply hated the scheme.
Sometimes there’s a major disconnect between public policy and retail politics. Sensible policies can be rejected because a large percentage of the populace is determined to make decisions based on emotion rather than rationality. People will do what feels good you respective of what the evidence says.
It has been proven many times over that four out of five Canadians were better off paying the tax while cashing the rebate cheques, yet a large percentage of those same Canadians rejected putting a price on carbon at the consumer level. Since about 89% of all emissions come from industrial outputs, the political capital gained by Carney in dropping the consumer portion of the tax far exceeded the opportunity cost of a marginal emissions reduction. Why do so many people viscerally hate policies that conspicuously work against their own self-interest?
Confirmation Bias and Cognitive Dissonance
I believe the answer lies in both confirmation bias and cognitive dissonance. Simply put, people believe what they want to believe:
a) because it makes them feel good; and
b) because they engage in herding behaviour and conform to groupthink
It seems a substantial percentage of the human population actively resists evidence. Sometimes, that resistance appears in the form of political populism where ‘elites’, ‘globalists’ and ‘intelligentsia’ are rejected in favour of whatever populist leaders pass off as ‘common sense’. Confirmation bias is essentially pretending to look for evidence dispassionately, well actually looking for evidence that merely ‘confirms your priors.’ Stated differently, if you were predisposed to disliking a tax on carbon, no evidence to the contrary would have likely changed your opinion.
Similarly, in investing, there are several long-held beliefs that many people harbour that often go unchecked. Some are factually false, while others are merely dubious and open to interpretation and debate. In all cases, however, there is at least some suspension of disbelief to protect a pre-existing viewpoint that simply feels better than the evidence-based alternative. Continue Reading…
Theatrical release poster for the film, Idiocracy. via Wikipedia.
By Mark Seed, myownadvisor
Special to Financial Independence Hub
A few months ago I wrote:
“Yes, interesting times may call for interesting portfolio changes! Or not. :)”
Well, here we are.
Regardless about how you feel about the current U.S. Administration, I would think most people would agree that this U.S. President feels very emboldened right now. With no future term to go: this is his last shot at taking shots at pretty much anything and everyone he wants without too many consequences near-term. At least it seems that way …
Since writing this post below from December I thought I would update such a post about any recent portfolio changes and beyond that, how our shopping habits have shifted (if at all) in recent months.
How to invest and shop during Trump idiocracy
I put the term “idiocracy” in the post title since it’s very much how I feel right now.
It’s like watching the Ferris Bueller movie scene: on tariffs.
History repeats.
Now that tariffs are in place and we’re now in a (trade) war between Canadian and U.S. businesses, consumers and workers (sadly), I’m expecting these tariffs will roil stock markets for months or years to come.
I have.
This is how I intend to invest and shop during some prolonged Trump idiocracy.
Approach #1 – What investments can withstand stagflation?
New tariffs are likely, in my opinion, to trigger a sustained period of low economic growth and even higher inflation: which will impact everyone.
At the most basic level, inflation means a rise in the general level of prices of goods and/or services over a period of time. When inflation occurs, each unit of currency buys fewer goods and services. Inflation results in a loss in the value of money and purchasing power. We will all be impacted by this.
Stagflationis essentially a combination of stagnant economic growth, high unemployment, and high inflation. When you think about it …. this combination probably shouldn’t exist: prices shouldn’t go up when people have less or no money to spend. This could be a place where things are trending…
Farmland might perform well during stagflation but we don’t own any.
Instead, I own some “defensive stocks” including some in key economic sectors like consumer staples, healthcare and utilities in my low-cost ETFs that should be able to weather a prolonged disruption. I also consider a few selected stocks we own as defensive plays: waste management companies. At the time of this post, both Waste Management (WM) and Waste Connections (WCN) we own have held up very well and provided stellar returns over the last 5+ years that I’ve owned them.
WM is up almost 100% in the last 5-years.
WCN is up over 100% in the last 5-years.
We’ll see what the future brings and my low-cost ETFs are a great diversifier: regardless.
Approach #2 – Staying global while keeping cash
Beyend certain sectors, investors should always consider holding a well-diversified stock portfolio across different sectors and different economic regions to reduce the long-term reliance on industries directly affected by tariffs.
While I have enjoyed a nice tech-kicker return from owning low-cost ETF QQQ for approaching 10 years now, and I will continue to hold some QQQ in my portfolio, I could see technology stocks tanking near-term. To help offset that, I own some XAW ETF for geographical diversification beyond the U.S. stock market. Thankfully.
Times of market stress are however times to buy stocks and equity ETFs.
Near-term and long-term investing creates buying opportunities for disciplined investors. A well-structured, diversified global mix of stocks including those beyond the U.S. could provide some decent defence against a very toxic, unpredictable economic and political agenda.
For new and established readers on this site, you might be aware I’ve mentioned that our investing approach could be considered a “hybrid approach” – a structure that was established about 15 years ago as follows:
We invest in a mix of Canadian stocks in our taxable account: to deliver income and some growth, and
Beyond the taxable account, we own a bunch of low-cost ETFs like QQQ and XAW inside our registered accounts: inside our RRSPs, TFSAs and my LIRA for extra diversification.
I like the hybrid approach, the process and the results to date.
At the time of this post, I just don’t see how I should be making any significant changes to our equity portfolio.
Beyond our portfolio of stocks and equity ETFs we keep cash/cash equivalents.
Cash savings remains a good hedge for a very uncertain near-term future. We have a mix of Interest Savings Accounts (ISAs) / High Interest Savings Accounts (HISAs), along with Money Market Funds (MMFs) in particular in our registered accounts. Generally, plain-vanilla savings accounts offer very low interest rates. So, if you want to earn more on your savings deposits (rather than simply using your savings account) then consider an ISA or HISA.
The greatest appeal of ISAs and HISAs for taxable savings IMO is liquidity, while earning interest, and member financial institutions of Canada Deposit Insurance Corporation (CDIC) insure savings of up to $100,000. It’s good business for banks and institutions as well since money deposited generates interest by allowing the bank to access those funds for loans to others. There are usually no fees for these accounts and while interest rates have come down in recent months, ISA and HISA interest rates are consistently north of 2% at the time of this post.
I believe some form of savings account / ISA / HISA remains the cornerstone of everyone’s personal finance portfolio since 1. your money is saved for future expenses or ready for emergencies, 2. it is safe/low risk, 3. it is liquid, and 4. you still earn returns.
Let your equities do as they wish after that.
Approach #3 – Shop local, buy local, and avoid U.S. travel
We are fortunate to live in an area in Ottawa where we can shop local and buy from local farmers. We will continue to do that.
For those that want to shop more in Canada and buy more Canadian goods visit here:
We’ve been fortunate to save up some money in our “sunshine fund” as I call it for some future travel. I/we have no near-term plans to spend our money in the U.S.
I’ve been fortunate to visit many, many U.S. States over the years but given this recent trade war initiated by this current U.S. Administration I hardly have any desire to spend my money in a country whereby that government talks about annexing us.
It’s that simple for us.
I encourage other Canadians who can and do travel, to consider the same – avoiding the U.S. – not because of its citizens but the U.S. Administration decisions. Continue Reading…
A key concern many investors have at the moment is the impact of Trump’s tariffs on goods produced outside the U.S. on the markets. I’m hearing from those wondering if they should do something to protect their wealth; their primary question is: What should I do with my investments?
My answer (as it usually is when investors are concerned about the geopolitical impact on the markets): stick with the plan because, by the time the news is public and you become concerned, the markets have already accounted for it/priced it in, so any reaction you take is too late.
A useful historical reference on tariffs is President Trump’s first term. Starting in 2017, his administration targeted China, implementing tariffs on a broad range of products by 2018. The following years saw ongoing trade negotiations that led to an agreement, though many tariffs remained. Despite the uncertainty, both U.S. and Chinese markets outperformed the MSCI World ex USA Index over Trump’s four-year term. Have a look at the data from 2017 to 2020, as Dimensional compares China MSCI Index to US S&P 500 Index to MSCI World ex USA Index.
Markets are forward-looking, meaning that the potential economic effects of tariffs are likely already factored into current prices. As a result, when these anticipated changes materialize, their impact on markets may be limited.
Understanding how Market Pricing Works
Let’s talk about the price of stocks.
It stands to reason: To make money in the market, you need to sell your holdings for more than you paid. Of course, we’re all familiar with good old “buy low, sell high.” But despite its simplicity, many investors fall short. Instead, they end up doing just the opposite, or at least leaving returns on the table that could have been theirs to keep.
You can defend against these human foibles by understanding how stock pricing works and using that knowledge to your advantage.
Good News, Bad News, and Market Views
How do you know when a stock or stock fund is priced for buying or selling?
The short answer is, we don’t.
And yet, many investors still let current events dominate their decisions. They sell when they fear bad news means prices are going to fall. Or they buy when good news breaks. They invest in funds that do the same.
While this may seem logical, there’s a problem with it: You’re betting you or your fund manager can place winning trades before markets have already priced in the news.
To be blunt, that’s a losing bet.
You’re betting that you know more about what the price should be at any given point than what the formidable force of the market has already decided. Every so often, you might be right. But the preponderance of the evidence suggests any “wins” are more a matter of luck than skill.
Me and You against the World
Whenever you try to buy low or sell high, who is the force on the other side of the trading table?
It’s the market.
The market includes millions of individuals, institutions, banks, and brokerages trading hundreds of billions of dollars every moment of every day. It includes highly paid analysts continuously watching every move the markets make. It includes AI-driven engines seeking to get their trades in nanoseconds ahead of everyone else.
And you think you can beat that?
We believe it’s far more reasonable to assume, by the time you’ve heard the news, the collective market has too, and has already priced it in.
News of a recession, under way or avoided? It’s already priced in.
Inflation on the rise, or abating? It’s already priced in.
A company suffers a calamity or makes a major breakthrough? It’s already priced in.
The government passes critical legislation that helps or hinders global trading? It’s…
And so on. Here’s your best assumption:
If it’s public knowledge, it’s already priced in.(And if it’s insider information, it’s illegal to trade on it.)
What we don’t yet Know
As soon as an event is priced in, several things make it difficult to profitably trade on the news:
You’re Buying High, Selling Low: If you trade on news after it’s been priced in, odds are you’ll buy at a higher price (after good news) or sell at a lower price (based on bad news). Continue Reading…
Ignore stock market anxiety and negative stock predictions and instead focus your investing strategy on diversification and portfolio balance
Image by Pexels/Markus Spiske
The current state of the world is generating stock market anxiety, as it often does. My guess is that the Israel-Hamas war is just getting started and will last a long time. I also suspect that Russian dictator Vladimir Putin had something to do with getting it started, and will do what he can to keep it going. After all, when it comes to running his country, Putin takes a grasping-at-straws approach.
Putin may think that bringing the longstanding Mideast conflict back into the headlines is going to improve his chances of conquering Ukraine and bringing the Soviet Union back from the dead.
He thinks taking a long shot is better than no shot at all. Who knows? He might get lucky.
Early on in his war on Ukraine, Putin seemed to think that Chinese dictator Xi Jinping was going to take pity on him and his country, and offer free money and/or weapons to shore up Russia’s Ukraine invasion. Instead, Xi insists on staying out of the war, while paying discount prices for Russian oil. He takes special care not to let his country get caught up in the economic sanctions that the U.S. and NATO countries and allies are directing against the Russians.
It’s not that Putin is stupid. If a war between Israel and Hamas turns out to be a big drain on the U.S. budget, the U.S. might have less money available to arm Ukraine.
Up till lately, however, Israel has had little to say about Russia’s treatment of Ukraine. Israel may soon take a more active role in helping Ukraine defend itself.
Any war is a terrible thing, and this one is no different. The stock market seems to be creeping upward. Maybe it knows something that Putin hasn’t figured out.
Meanwhile, if your stock portfolio makes sense to you, we advise against selling due to Mideast fears.
Stock market anxiety recedes with investment quality, diversification and portfolio balance
You’ll find that many of your worries concern things that are unlikely to happen; that are already largely discounted in current stock prices; and that probably won’t matter as much as you feared they would.
You get a much better return on time spent if you devote less of it to worrying about high-risk investments, and more of it to an investing strategy. Create a strategy that is built upon analyzing the quality and diversification of your investments, and the structure and balance of your portfolio.
There’s another advantage as well. A calm investor is much less likely to react in haste and make sudden decisions that could prove to be damaging in the long run. Continue Reading…
Our relationship with money often shapes many aspects of our lives, influencing decisions and perspectives. Developing a healthier connection with finances can lead to greater peace of mind and a stronger sense of control. By exploring thoughtful strategies, individuals can create a balanced approach that fosters both stability and growth.
Align Finances with Personal Values
Developing a personalized financial plan begins with identifying your core values and long-term aspirations. This process ensures that your financial decisions are purpose-driven and aligned with what matters most to you, whether it’s achieving financial independence, supporting family, or pursuing personal passions. Start by assessing your current financial situation, including income, expenses, and debts, and then outline specific, measurable goals that reflect your priorities.
Practice Mindful Spending
Image by Freepik
Incorporating mindfulness into your financial habits can transform how you manage money. By consciously evaluating each purchase, you can determine if it aligns with your core values and long-term goals, reducing impulsive buying.
This practice fosters better financial decisions, increased savings, and improved financial security. Understanding the emotional cues that lead to unnecessary expenses allows you to address them effectively, minimizing the risk of falling into debt.
Mindfulness empowers you to make deliberate and informed financial choices, paving the way for a more stable and sustainable financial future.
Manage your Finances with Budget Templates
Mastering the art of budgeting is a crucial step in managing your finances. Creating a budget provides a clear picture of your income and expenses, helping you make informed decisions and avoid overspending. By sticking to a budget, you can save for future goals and reduce financial stress. To simplify this process, consider using budget templates, which offer a variety of styles to fit your circumstances. These templates are customizable, allowing you to tailor them to your unique financial situation and manage your finances more effectively—learn more about the benefits of using a budget template.
Embrace Zero-based Budgeting
Zero-based budgeting is a strategic approach that assigns a purpose to every dollar you earn, ensuring your spending aligns with your financial aspirations. By planning where each dollar goes—whether for essentials like housing and groceries or for savings and debt reduction—you can take charge of your financial destiny. This method is particularly advantageous for those with steady income, but it can be adapted for individuals with variable earnings by making monthly adjustments. Continue Reading…
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