Tag Archives: investing

A Walk along Risk Road #3 — The Disruptors vs. The Disrupted

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Cameron Webster

By Cameron Webster, CFA

Institutional Portfolio Manager, Mawer Investment Management Ltd.

Special to the Financial Independence Hub

At Mawer, we spend a great deal of time asking and answering the question: So what? A company’s share price is down 6% … so what? A central bank moved interest rates up … so what? Google re-named itself Alphabet … so what?

It’s not always an easy question to answer and often leads us to ask even more questions in an effort to develop key investment insights.

“So what?” is one of the questions that can lead us to investment action (or inaction) in our process of building well-diversified, resilient portfolios. In an effort to pass on our “so what” learnings, I interviewed our Chief Investment Officer, Jim Hall, with specific questions pertaining to his views on risks in the current environment.

Cameron Webster: Jim, we decided at the conclusion of our slow growth world discussion that we’d address technological disruption. Let’s get into the “so what?” of it. What is technological disruption?

MAWER_Jim Hall 4x6 Formal blue bg
Jim Hall

Jim Hall: It’s many things. It has happened in many industries; rail to auto, telegraph to telephone, typewriter to word processing, CD’s to online music. Of interest to me is where an innovation ends up displacing a whole industry and the ones that support it—and sometimes changes society too.

For example, take e-commerce and the sharing economy. Companies like Uber and Airbnb are changing the economy in significant ways through the application of technology. These companies are growing very fast and they are stealing business from other companies. This may lead to lower growth overall, at least temporarily. That’s the disruption. This dynamic has been around a long time. Clayton Christensen called it “disruptive innovation” and John Maynard Keynes called it “technological unemployment.” Many people have written and talked about the consequences of structural economic disruption over the years—and many are fretting about it now.

CW: How does the disruption manifest itself? Continue Reading…

Stop making investing mistakes, avoid junk science

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stevelowrie
Steve Lorie

By Steve Lowrie, Lowrie Financial

Special to the Financial Independence Hub

You probably first heard this classic joke years ago. Maybe you even laughed at it once or twice:

Patient: “Doctor, doctor, it hurts when I do this.”

Doctor: “Then stop doing it.”

Yes, it’s silly … and yet wise. We’ve all been known to ignore what is painfully obvious, especially as investors.

For example, even though we know it’s a mistake to buy high and sell low, there’s ample evidence that this is exactly what most of us end up doing anyway. In “How Investors Leave Billions on the Table,” Wall Street Journal columnist Jason Zweig shared a litany of analyses on how investors lose available returns through hyperactive trading. Zweig published his post in 2013, but human nature hasn’t changed, so the stats undoubtedly remain relevant: We’re hard-wired to trade at all the wrong times.

Why we make mistakes

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Navigating a U.S. election year stock market

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patmckeough
Pat McKeough, TSINetwork.ca

By Pat McKeough, TSINetwork.ca

Special to the Financial Independence Hub

The U.S. election year stock market rule can be profitable for investors in any political climate.

As we’ve pointed out in the past, an election year stock market tends to go on an above-average rise in U.S. Presidential election years. This provides a statistical rationale for optimism in 2016, since the next election is this November. But it’s no guarantee that the market will rise substantially, for a couple of reasons.

First, several ominous factors are weighing on the market right now, in addition to the election. These include the outlook for interest rates; the trend in prices for oil and other commodities; the rise in terrorist activity; the Chinese economic slowdown; and the sharp rise in the U.S. dollar and corresponding drop in the Canadian dollar.

An abrupt shift in any of these factors could have a big influence on the market for the remainder of the year and beyond.

Obama diverging from usual pattern

Second—more important—the election-year indicator works because U.S. politicians have a characteristic way of behaving during these years. President Obama is diverging from the traditional pattern that helped spur market gains in past election years.

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Rebalance in May and go away?

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AdrianEditor’s Note: This blog by Adrian Mastracci spawned my column in the Financial Post today, headlined In May, Don’t Sell, Rebalance. Below is the original blog written for the Hub by Adrian. — Jon Chevreau

By Adrian Mastracci, KCM Wealth

Special to the Financial Independence Hub

 “Pitfalls of “sell in May and go away” strategies are not going away anytime soon.”

The catchy phrase “sell in May and go away” is making the annual pilgrimage rounds once again; a strategy that believes stock investing from November to April has better prospects than other months. Keen followers sell their equities now, such as stocks, mutual funds and (equity) ETFs.

They then repurchase equity investments around November. The “sell in May” part of the strategy needs much closer scrutiny, especially the costs and fees of selling and repurchasing. I’m fully on board with the excitement of getting away to a favourite destination. However, I don’t see any benefits to selling in May.

 Selling in May doesn’t work well often enough

If only successful investing were that simple! As an aside, selling in May does not work well often enough. These pointers should change your views on the wisdom of selling:

  • Commissions incurred to sell and repurchase investment selections.
  • Deferred Sales Charges (DSC) may apply when you sell mutual funds.
  • Front loads or DSC fees starting at the high rate for purchasing new mutual funds.
  • Tax payable on capital gains realized in 2016 when you sell current investments.
  • Earning less interest income than dividends from equities you sold.
  • Paying more tax on that interest versus that on dividends you gave up.
  •  Say the remaining DSC on mutual funds you sell is 2% to 3%.
  •  The DSC on newly purchased mutual funds will likely rise to near 6%.
  • Current dividend yields given up are in the 3% to 4% ballpark.
  •  Interest rates on cashable deposits now hover close to 1%.
  •  Another variable is whether the repurchase prices will be lower, similar or higher than today.
  •  Not to mention the amount of short-term speculation and portfolio upheaval you take on.

While they might seem appealing, these strategies are not as simple as they initially feel.
Add up all the costs, fees and implications of your round trip before you sell the farm in May.

I suggest not to clear the deck, nor to take other drastic actions.
A modified investing approach may better suit your needs.

Try these ideas instead:

  • Migrate to a more comfortable, long-term asset mix.
  • Make a series of smaller investing moves.
  • Arrange another portfolio opinion.
  • Rebalance in May and go away.

Rebalance in May

Investors should not spend any time agonizing whether they should sell in May and go away. I liken it to implementing a knee-jerk reaction that does not deliver.

Perhaps all that is necessary is a rebalancing of the asset mix already in place: a strategy that sells some of the winners and buys some of the laggards.

The beauty of a simple rebalancing is that you don’t have to make the right market calls.
Just rebalance the nest egg to your asset mix targets, not to the markets.

Be extra careful when contemplating sweeping changes, like “sell in May.”
You may create lasting and costly portfolio damages.

My investing philosophy is about making logical decisions and following a sensible plan.
I can’t find a logical reason or plan to “sell in May.”

So I stick to the prudent, tried and true rebalancing strategy. It leaves you much more time to decide where to go to in May and thereafter.

Adrian Mastracci, MBA,  is president and portfolio manager for Vancouver-based KCM Wealth Management Inc., specializing in designing and stewarding retirement portfolios.

FWB TV: The Free Lunch that is Index Investing

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Author Lars Kroijer

It’s been said that diversification is the investing equivalent of a free lunch, since it allows you to manage your risk while getting higher returns.

 The good news is that according to research, index funds and other passively managed investments like ETFs (Exchange traded funds) have diversification built in.
Yes, we’ve heard of people who were able to buy the right individual stock or sector at the right time, but they are few and far between. You can learn more about the free lunch of indexing by viewing the latest FWB video by clicking on this title: There is such thing as a free lunch and it’s called index investing.
Indexing beats picking individual stocks or sectors
The video, which runs three-and-a-half minutes, points out that using index funds to diversify equity exposure around the world is easier and more effective than attempting to pick individual stocks or even identifying promising industries.
And while it’s possible to buy the entire world’s stock market through a single fund, investors shouldn’t take that for granted. As investment author Lars Kroijer relates, 40 or 50 years ago you would have been hard pressed to be able to buy into most markets outside North America, Europe or Japan.

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