By Guest Blogger Doug Rowat
Back in October, as global equities plunged, I sat in my kitchen, despondent, face buried in my laptop, gazing at a sea of red.
My young daughter approached and asked, “Daddy, why did the banana go to the doctor?” Consumed by the market carnage, I just continued gazing. Persisting (don’t even bother trying to ignore a six-year-old), she asked again and then, exasperated by my silence, delivered the punch line: “Because it wasn’t peeling well!”
I finally snapped out of my funk, turned to her and laughed out loud. She did too. In an instant, I was reminded of what really matters and it certainly wasn’t short-term market volatility. But this is what happens when markets dip, even pros like me can become consumed by the upheaval, have brief moments of hopelessness and lose sight of the things that really matter.
And negative months like October create so many traps for investors to fall into—traps that can amplify their despondency. For instance, when markets are volatile, comparative thinking and envious feelings emerge. Ordinary investors often assume that the market forces are only affecting them personally and that other, wealthier investors are significantly outperforming. An assumption is made perhaps that the rich have more sophisticated resources and are magically beating the market while smaller investors are getting left behind.
However, unless your direct competition is Warren Buffett, this is simply not the case. Naturally, many of the super-rich have had spectacular individual business successes or were lucky enough to inherit vast family fortunes, but once the wealth is in place, it often doesn’t grow spectacularly. For example, the net worth of the 400 richest Americans grew only 7% from September 2017 to September 2018 (the latest data range available), according to MarketWatch. Most straightforward 60/40 portfolios could have rivalled this growth. The S&P 500, by comparison, was up almost 15% over the same period. In short, if they’re disciplined, regular investors can compete quite well with the big boys.
However, problems arise when investors aren’t disciplined. First, recognize that your control over markets is, sorry to say, non-existent. The Bloomberg World Exchange Market Capitalization Index, which measures the market value of all the actively traded securities on all the world’s major exchanges, currently sits at about US$72 trillion (with a ‘t’). In other words, capital markets are extraordinarily massive and reflect the decisions of tens of millions of investors. One can’t possibly control an entity so large, or outsmart it through frequent—and usually emotion-skewed—trading.
Dalbar, an independent financial-services research firm, confirms this. Dalbar annually publishes its widely read Quantitative Analysis of Investor Behavior report, which examines real-investor market returns. Basically, the report measures the performance actually realized by average investors versus the performance of a broader, bought-and-held index. Spoiler alert: average investors are shockingly terrible.
Real-investor returns versus S&P 500 – 30 years
Source: Dalbar. Returns to end-2016. Returns include all transaction costs and dividends
Dalbar’s conclusions are blunt: “investors lack the patience and long-term vision to stay invested…. Jumping into and out of investments every few years is not a prudent strategy because investors are simply unable to correctly time when to make such moves.” Warren Buffett would agree. Recall his wisdom regarding making money on the stock market: “I buy on the assumption that they could close the market the next day and not reopen it for five years.”
Frequent trading, particularly in reaction to short-term volatility, is pointless and erodes returns. Help from a financial advisor to control these impulses may be useful and an advisor may also bolster performance or limit downside by occasionally shifting asset weightings or geographies based on prevailing market conditions, but if the advisor is good, these wagers will be modest as even the best portfolio managers are often wrong. Overall, the best strategy is to simply buy quality assets with demonstrated long-term returns and always maintain balance and diversification. It’s your best shot against a US$72 trillion-dollar monster.
So, if you have such a balanced and diversified portfolio, just ignore markets when they’re volatile. You’ll weather these storms. Don’t gaze obsessively at your portfolio every day. Turn off the TV. Close your laptop. Go outside for a walk. And, most importantly, spend more time with the important folks in your life who are probably sitting right in front of you: your family, your friends, or even your dogs and cats.
Well, not your cats. That’s just sad.
Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.
83 comments ↓
CONFIRMED PINK SNOW.
This is another one that took a long time to come through,it’s done now and although nothing earth shattering my analytics tell me that people seem more interested in the affordable side of things than looking at people losing money in the 4-5 million bracket.
The details…
7333 113 st,Delta.
Paid 920k April 2016
Sold 897k July 2018
Assessment 902k
So as you can see below someone pointed this one out to me and the listing included ” updates”.
As always we never know the true dollar amount and this is only one sale.
It at the very least suggests a bit of softening out that way as they couldn’t even get them up past 900k.
Probably around 70k loss plus renovation costs.
Not earth shattering like i said, but this is what I do,spot the target,follow the target and report the results.
It’s up to you guys to decide what’s going on…
M44BC
___________________________________________
176 gary smith on 01.18.18 at 1:11 am
And another about to flop in Delta-Scottsdale.
Purchased in April 2016 for 920,000
Listed (“updates!!”) for 938,800
https://www.zolo.ca/delta-real-estate/7333-113-street
https://www.bcassessment.ca/Property/Info/QTAwMDA1VkZENg==
Take your anti-feline racism and GO TO HELL!
Nice November recovery. Conservative, diversified, balanced portfolio is even for the year. TSX down 6% or so. We’re ok with that considering what our average gains have been over the past 10 years. Hopefully we see a nice little surge in December and end the year in positive territory.
More than one cat is an extravagance.
Recent sale report.
The significance of this sale that just come through is that it is another Westside detached that sold below 1.5
I have seen a few this year but they are rare with the more likely chance of nabbing something between 1.6 and 1.7 at this stage.
The detached I showed in Arbutus the other day that went for 1.54 seemed like less of a project than this one.
Who knows,this one could be razed in a few months.
Anyway, as always we focus on the numbers we could get out hands on.
The details…
820 w 23rd ave ,Vancouver.
Originally asking 1.99
Just sold for 1.47
Assessment 2.04
So I guess it must be stated that it has a Westside address only just.
Same discounts are available all around the city if looking hard enough,not huge amount of options but competition is almost non existent.
Remember detached houses in Kitsilano are now selling below 1.7
This one sold close to 30% less than assessed and always I would like to remind you tis is the very, very bottom of the Westside detached market.
So the cheapest one this year I saw go on the Westside was 1.4,it is entirely possible at some point next year we see something go for 1.25.
The mansions will get the headlines, but most folk that seem to want my help aren’t looking for a mansion just a house to call home…
M44BC
https://www.zolo.ca/vancouver-real-estate/820-west-23rd-avenue
Recent sale report.
Looks like I’ve got the Burnaby broom out on the affordable ones, so let’s have a look at another one that just came through with similar numbers to confirm my points on the Laurel one.
The details…
4222 Eton st ,Burnaby.
Originally asking 1.05
Just sold for 1.00
Assessment 1.29
So just one observation on my part and read into it what you will.
4222 Eton st and 4901 Laurel st Burnaby, were both bought for exactly 1 million dollars each on the same day.
Could be coincidence.
Could be a professional knife catcher…
M44BC
https://www.zolo.ca/burnaby-real-estate/4222-eton-street
Oct was rough?
I didn’t even notice
Who cares what the stock market is at.
What counts are the dividends. Are they growing annually?
That was a good message. People sometimes need to be reminded of this. You should post this once a year to remind people not to over react, and to enjoy life.
Now if you will excuse me I have a joke to go tell my kids!
@#6 Flopster
“4222 Eton st and 4901 Laurel st Burnaby, were both bought for exactly 1 million dollars each on the same day.
Could be coincidence…..”
+++++
Could be Defendants “celebrating” their “win”?
https://vancouversun.com/news/local-news/federal-organized-crime-ministry-refuses-comment-on-stayed-b-c-money-laundering-charges
The “Point” about high house prices…
For those about to Flop…
I always figured we were into dangerous territory when fairly ordinary people started talking about house prices in units of millions as in 1 point X million dollars. Or 2 point X.
The existence of a “point” in a home price should give all but those whose net worth is well into the millions (or whose income is north of a half million per year) real pause.
Yes you DID. You’re the guy who was so bullish on USA
Oops
Hi Doug,
Q: What is the typical overall investor portfolio ‘haircut’ you saw from Oct 1 to Oct 30 (which are pretty much the peak and valley of the volatility) ?
Don’t fret – I’m playing a long game and haven’t made any changes to my holdings – but I am curious if my investments are more volatile than they should be – so just looking to compare notes. I was down over 8% in that month.
tx!
No, the banana went to the doctor because it was yellow with envy! :)
A valid message for the ‘average’ investor: hire a competent advisor because volatility is scary.
For me, the analogy that works best with regards to how we deal with the ebbs and flows of the financial markets, is the way we approach the ocean.
If you can’t swim, stay the hell out (or get in the advisor ‘boat’). If you’re a competent swimmer, see if you can catch a wave and have some ‘fun’; or even grab a board and surf those (volatility) waves. Because the same waves that scare (or even kill) the ‘average’ swimmer, are merely an opportunity for highly skilled surfers to reach higher levels of ‘fun’.
October was … sublime – especially watching/listening to others whine about ‘volatility’! And now, of course, with year-end tax-loss selling going on, I’m very happy to gorge on undervalued assets being given away.
But I try to not be ‘average’ – sometimes I succeed.
TCC
Still with yesterday’s post about cottages:
My 2nd oldest grandchild, a boy, is 14. He wants to grow up to be a Natural Resources officer. His goal is to never marry, certainly never have kids, and live by a northern lake in a log cabin with at least 2 dogs, preferably more.
People are not his favourite companions – except for Grandma (that’s me) for whom he will maintain an always-available 2nd bedroom fully stocked with my favourite books and music. I can fish all the live long day and eat Shepherds’ Pie whenever I want.
I’ve assured him that all suits me fine. But I’m not holding my breath about the no-wife part. He’s a good looker that one!
The Average Investor Can’t Beat… The Average Investor?
The S&P 500 index rises and falls precisely with the market-value weighted average of the rises and falls of the 500 stocks in the index. The change in the index represents the dollar-weighted average change (before fees) experienced by the holders of the 500 stocks over any given period.
Therefore it seems that Dalbar’s findings indicate that the average investor can’t beat and in fact badly trails the average investor.
Much of the explanation for this is fees of all kinds.
A less plausible explanation is that it is due to investors timing the market. One investor’s timing loss would be another investor’s timing gain and so would leave the average unaffected.
It would seem that if the average equity investor trails the equity index it is most likely due to fees. It could also be due to selecting an index (like the S&P 500) that does not represent the full universe of equity investments. And it could be due to measurement error. It is not easy to measure the average return achieved by ALL investors. Perhaps they calculated a simple average s opposed to a dollar-weighted average? Or they left out institutional investors?
Ryan, based on your post what I get out of it is I am a very small mouse & the market is a big elephant that won’t notice if it steps on me:) Even the biggest rodents could find themselves in a squishy state if market forces roll over them. However, patient & balanced rodents will do well, as long as they don’t panic & scamper under the descending feet of the elephant.
#13 haircut on 12.01.18 at 4:24 pm
///////////////////////////////////////////////////////////////////
-3.93 Oct-Oct (avg across three accounts) for me.
Its a toss up between Pickering and Whitby, because they are very nice and not expensive at all. The math is complex, but prefer Whitby for a few reasons. The club has a package deal for everything; there are tug boats everywhere, but the model type is unknown; and the GO Train goes there. Just take the #9XX bus, and in a few minutes your at the marina. These are not small, but very large established marinas, and unlike the TO area are a bargain.
I love my cat dammit!
so if all we have to do is buy the spy(s and p 500) and its the market, we dont need to worry about anything else.
and get better returns than individual or professionals generally do.
and if we can do with with an MER of .09 thats 900 on a million why doesnt everyone simply do it, simple, liquid easily diversified, pretty simple and cheap.
Canada is sub par performance and the XIU is nothing like the spy.
Doug,
I totally agree. I started focusing on dividend investing and holding slow steady businesses far too late… I was 40 when I realized I should just start buying dividend growth stocks and let them do their thing and ignore market fluctuations. But I was lucky that by 47 I had created a passive income that keeps me financially secure even after losing a job.
I still try to find fast growth companies to invest in, but it’s with a much smaller portion of my portfolio.
I may not be one to emulate, but I share my experiences with education, career choices, consumer spending and dividend investing, in the hopes it might help others stay the course and get to a secure financial footing. https://smartersquirrel.com/how-i-built-a-six-figure-passive-income-by-age-47
Speaking of Bets.
I checked the British Bookies Odds on
a) Brexit Deal voted down by Parliament…… a 50-50 chance.
b) Donald Trump impeachment proceedings before 2020 election…..also 50-50 odds.
Hello Doug
Good post tonight, but what about accounts where time frame is relatively short and funds in account will be start to be drawn in a year, year and half, and all account is to be fully drawn with in 6yrs. What is best course of actions, stay fully invested or take more defensive position?
#105 KLNR on 12.01.18 at 2:45 pm
@#103 Fee Yacht Plans on 12.01.18 at 2:11 pm
#96 KLNR
“pick out your yacht club website, and see the fees. There is an old saying that if you have to ask you cannot afford it all.”
“thanks for being an Ahole. Which one are you at? I’ll be sure not to go there lol”
Oh KLNR, I’ll say the same thing but differently. It depends on your interest and how much you want to spend. Just like golf clubs, I guess.
I belong to a cooperative yacht club with fees in the low hundreds per year. Storing the boat, paying for dockage, haul in/out, making repairs/improvements, depends on boat size. We pay $2K for storage and dockage for 32 feet and $2K for improvements (project boat).
Toronto tends to be expensive, but you’ll sometimes get nice uniformed staff to help you dock or refuel. Not my thing, but we’re all out on the water having fun, hopefully.
You can go somewhere like Ashridge’s Bay as the lovely Lauren said, or somewhere really swanky and pay many thousands per year to belong. Plus expenses. They have luxurious facilities and you’ll undoubtedly meet the best people, who won’t all give you funny replies to a simple question :-)
#13 haircut on 12.01.18 at 4:24 pm
Sounds like a lot to be down. For example my 60 Fixed 40 equity was down 2.2 to end of Oct. Even at the end of November. Previous 2 years average 8.5 net of fees. A very conservative portfolio and a good portion in corporate class funds.
go to hell jerk
Nice post, today. In the end, this stuff we all worry about is only money.
There is a reasonable chance that any one of us could not see the next sunrise, between commutes, aneurysms, meteors falling from the sky. You name it, the world is a risky place.
Money can be a good thing but it is not the best thing.
@#25 SW on 12.01.18 at 6:03 pm
#105 KLNR on 12.01.18 at 2:45 pm
@#103 Fee Yacht Plans on 12.01.18 at 2:11 pm
#96 KLNR
“pick out your yacht club website, and see the fees. There is an old saying that if you have to ask you cannot afford it all.”
“thanks for being an Ahole. Which one are you at? I’ll be sure not to go there lol”
Oh KLNR, I’ll say the same thing but differently. It depends on your interest and how much you want to spend. Just like golf clubs, I guess.
I belong to a cooperative yacht club with fees in the low hundreds per year. Storing the boat, paying for dockage, haul in/out, making repairs/improvements, depends on boat size. We pay $2K for storage and dockage for 32 feet and $2K for improvements (project boat).
Toronto tends to be expensive, but you’ll sometimes get nice uniformed staff to help you dock or refuel. Not my thing, but we’re all out on the water having fun, hopefully.
You can go somewhere like Ashridge’s Bay as the lovely Lauren said, or somewhere really swanky and pay many thousands per year to belong. Plus expenses. They have luxurious facilities and you’ll undoubtedly meet the best people, who won’t all give you funny replies to a simple question :-)
_________________________
Thx SW. was just looking for some friendly advice.
should have known this isn’t the place for that LOL.
Somehow I don’t think I’ll be getting such a deal as yours in Toronto.
@#19 Good News For KLNR on 12.01.18 at 4:57 pm
Its a toss up between Pickering and Whitby, because they are very nice and not expensive at all. The math is complex, but prefer Whitby for a few reasons. The club has a package deal for everything; there are tug boats everywhere, but the model type is unknown; and the GO Train goes there. Just take the #9XX bus, and in a few minutes your at the marina. These are not small, but very large established marinas, and unlike the TO area are a bargain.
________________________
thx for the info.
Any recos for west of TO? I’m in South Etobicoke. was looking at Mimico Yacht club if anyone is familiar with them.
Cat owners – you need to lighten up. Some of us are seriously allergic to Cats. We don’t all love them.
Good column Doug. Thanks for the reminder of what’s important.
It so simple.
Just read basic books about the long-term history of the market. A good start would be “A random walk down wall street” and ” The Intelligent Asset Allocator”. This is what basically Garth and company do.
#8 JSS “Who cares what the stock market is at.
What counts are the dividends. Are they growing annually?”
14 of my 15 Canadian holdings have increased dividends this year, for a total income increase of 8.24% ytd. All the companies I picked have a long history of annual dividend increases.
I’m a happy bunny.
As Buffet says….buy and hold forever….
#13 haircut on 12.01.18 at 4:24 pm
Hi Doug,
Q: What is the typical overall investor portfolio ‘haircut’ you saw from Oct 1 to Oct 30 (which are pretty much the peak and valley of the volatility) ?
—
I can tell you this, the Bloomberg Billionaire Index is down 5.6% from end-September to today, roughly equivalent to the decline in the S&P 500. The rich aren’t special.
–Doug
#24 NoName on 12.01.18 at 5:59 pm
Hello Doug
Good post tonight, but what about accounts where time frame is relatively short….
—
A 700-word blog post can’t capture everyone’s financial situation, but, of course, if your investment horizon is shorter and the need for the funds is certain then a more conservative asset mix is called for.
–Doug
@#27 friend to cats on 12.01.18 at 6:19 pm
go to hell jerk
___________________
uh oh Doug, you’ve upset the crazy cat ladies LOL
Money isn’t everything, it’s the only thing.
90% of hedge funds and professional money managers don’t even beat an index ETF.
So what do we need you for. – we don’t
BTW during this last 2 months 0 every genius money manager sold.
Cramer, all the talking boners on CNBC all said they went to significant cash positions.
So your point about dumb money includes the smart money traders dude.
They were running for the hills every morning on CNBC.
It turned out to be nothing but an intermediate cycle but according to Cramer for example the world was coming unglued again……
So what is your point? That people are bad traders?
I watched 100’s of “smart money managers” fall off cliffs this month on TV too….
I still think there are several more intermediate cycles to chew through..
You do go up 40-50% in 2 years without some type of consolidation….
Maybe you write an article on professional managers on CNBC crying like babies as their bets went boom….
Best TV ever
I wanted to add…
I don’t understand why people fret over how many % they’re ‘down’, in a given (usually short) interval (in this case, October). It’s the long-term yield that matters.
I’m willing to be ‘down’ 5, 10, or even 20-30% when I’m accumulating at the tail end of a bear market, if those same assets have a history of doubling or tripling (or better), on the other side. For instance, I was buying Teck Resources in 2015-16 from $12 all the way down to $5 and was in the red the whole time (- 48% at the lowest point). As my average cost was ~ $7.50 I made out like a bandit (not the dog), when it surged to >$38 over the next several months.
I was ‘terrible’ in my timing (started buying at $12, and started my selling at $15), but still ended up with more than 300% gains overall.
When considering ANY investment asset, one ought to be examing the downside ‘risk’, alongside the potential UPSIDE ‘reward’! They exist together as the 2 sides of a coin do and are inseparable.
In my example, I was willing to ‘risk’ a 50% drawdown on my TECK trade, only because I knew that this asset has been reliable in providing multi-bagger gains – which it did!
I’m a student of history, and I expect it to repeat (or rhyme), as a famous writer has previously noted. The markets go through ‘cycles’ – so just pay attention to which point in the cycle we are, and position yourselves accordingly. And always invest in ways that you don’t lose sleep when prices move against you.
I never put more than 5% in any one stock, unless it’s an ETF. Even then, no more than 20% (as I am now with GDX/GDXJ)
TCC
Geez, lotsa angry feline afficionados out there in blogdog land…..
Mr Rowat was kidding people.
Eat some catnip, its legal in Canada now, then “Chill’ …..
@#28 CEW9
“There is a reasonable chance that any one of us could not see the next sunrise, between commutes, aneurysms, meteors falling from the sky. You name it, the world is a risky place.”
++++
Yup,
The frozen “space poop meteors” always have me nervously glancing skyward…..
https://www.sfgate.com/weird/article/India-airline-poop-meteor-asteroids-12515588.php
But how do you know when to cut your losses on a stock? After doing some research and seeing the analyst’s buy recommendation I picked up some Chorus Aviation shares for my TFSA, the promptly swan dived from $9.40 to $6.40. Do you just keep holding the stock for the divided, or cut it loose?
I have been taken down by the market. I grind my teeth watching my decisions play out. Thank God my granddaughters think I am a hero. It is tough to impress after you fail. My income producing assets are taking a hit. I smell opportunity but I can’t afford many losses. I am targeting and will wait. I am not smart enough to beat the world. I just get off my ass (best way to get back on your feet) and try again with experience.
I look at cash flow and Alberta is in for a long period of pain. Yet I believe we will emerge stronger. People tell me to quit barking but I won’t. I am having trouble with closure today. Usually I have a goal in mind rather than stirring the pot. Let see what comes out the “G” meeting. Oh, be still beating heart.
#13 haircut on 12.01.18 at 4:24 pm
///////////////////////////////////////////////////////////////////
Down 5.9% in Oct, down 5% from end of Sept to date.
Very aggressive growth portfolio
#16 Shawn Allen on 12.01.18 at 4:33 pm
Maybe this helps to explain Dalbar’s results:
1) If the index was a fixed set of stocks, then what you said about market timing would be definitely be true – that one person’s gains would be another’s losses, and they would average out. So timing alone couldn’t explain Dalbar’s results.
2) I find it equally hard to believe, though, that fees and transaction costs alone could explain the difference in returns – 6%?
3) We know the index is not a fixed set of stocks, and has new stocks added and old stocks removed on a regular basis. Also, the S&P500 does not represent the entire universe of stocks, just the 500 largest American ones.
4) I remember reading somewhere that only 74 of the 500 stocks in the S&P500 index in 1971 were still in the index 40 years later.
6) If at least some investors are holding individual stocks, then they will lose money on the stocks that “die out” and get removed from the index, while others will make money on the new stocks that grow and get added to the index.
7) Old stocks that die out start out large, while new stocks that grow start out small. So in total, investors are losing more money on old stocks that die out than they are gaining on the new stocks that grow.
Perhaps the above explains the difference between index and average investor returns.
Is it possible that capitalism destroys more wealth than it creates? (that’s a facetious, rhetorical question, but maybe there’s some truth to it). Obviously not, because the average investor is making 4% a year, so overall wealth is should be growing at 4% a year. But how to explain the difference in returns vs the index? It’s kind of mysterious, isn’t it?
Another thought:
Maybe it’s a statistical thing. There could be many small investors, and a few large investors, and the small investors make low returns while the large investors make high returns. By ignoring overall dollar gains, and giving equal weight to investor percent returns, regardless of amount invested, the large number low return results in the population brings the average down.
Uberification of the 100 billion dollar US real-estate market.
Presentation from a16z’s annual Summit event, Andreersen Horowitz general partner Alex Rampell explains how as consumers get used to less friction and more transparency in the age of mobile, software is finally beginning to disrupt buying a home — from discovery to purchase to finance and more. Including even disrupting the nature of home ownership itself.
https://www.youtube.com/watch?v=IRPH3K1GXj0
The yacht club there is way too expensive, and so are the rest west of Toronto. In Whitby an instructor will even come on your personal yacht, and teach you how to sail it if needed. A great trip is sailing is the marina at Niagara on the Lake, and book a night. The next day cross over to Youngstown NY which is a village of 2,000 with a marina and a next door yacht center to do a bit of shopping for the boat. Its a tourist town, and the yacht center is part of a chain – they have it all on the cheap.
@KLNR:
Or you could get a trailerable sailboat like a Hunter, Tanzer or a Compac (22 feet upwards), a Sandpiper or Siren (<22 feet). Outboard motor. Launch most anywhere. Keep it at a dock for a few says if you want. Bring it home when you're done. Loads of these available mostly pretty inexpensive.
On most of these you can camp out with a small family.
In sailing, fun level is inversely related to boat size, and age :-)
#42 AGuyInVancouver on 12.01.18 at 7:58 pm
“But how do you know when to cut your losses on a stock? After doing some research and seeing the analyst’s buy recommendation I picked up some Chorus Aviation shares for my TFSA, the promptly swan dived from $9.40 to $6.40. Do you just keep holding the stock for the divided, or cut it loose?”
How long have we been reading Mr. Turner’s advice to not buy individual stocks?
#42 a guy in Vancouver
Why would u buy that crappy stock?
Follow the Connelly report
Buy td, Rbc, cn rail, Walmart, Mcdonalds ect…
#45 Renter’s Revenge! on 12.01.18 at 8:30 pm
#16 Shawn Allen on 12.01.18 at 4:33 pm
****************
Your points at 45 are excellent.
I lean towards measurement error on the average return. Super easy to know the S&P 500 return.
Extremely difficult to know the average return or dollar weighted average (equity only) return of the investor population.
And let’s not discount the fact that Dalbar was looking to make a point. When tortured long enough, the data can almost always be relied upon to confess to whatever answer is desired.
Ultimately, investors trading among themselves cannot cause dollar-weighted average returns to change one iota – except when fees and costs of trading are deducted. Thankfully, as you mention the market as a whole generates profits that flow from business customers to business owners. Investors collectively receive or own those, minus fees.
Actually, upon brief reflection, I must retract my claim that investors trading amongst themselves cannot effect the average investor’s return.
What is true is that an ideal all-inclusive equity index would equal the dollar weighted average investor’s return – before costs. And would do so over every long or short period of time. Trading is a zero sum game. Some traders win at the expense of those who lose at trading. Holding the index is a positive sum game.
We have three cats. Despite this formidable obstacle, the neighborhood dogs insist on breaking free and attending at our back door for head scratching and belly rubs. Can’t explain it, just happens.
“The Bloomberg World Exchange Market Capitalization Index, which measures the market value of all the actively traded securities on all the world’s major exchanges, currently sits at about US$72 trillion”
I could only find this
https://www.bloomberg.com/quote/BWFINL:IND
Do you need a special Bloomberg sub to get more data?
Adding to the boat/sailing discussion. If you’re not sure whether a boat/sailing is for you, prepare to get seduced by an ol’ boomer hottie:
https://m.youtube.com/watch?v=z5m9yT06Khg
Stupid’s why I go alone
.https://youtu.be/4E9ydw_aDMg
Well, my advice would have been to not crystallize paper losses in the CPD while the market was perception driven. In other words, panic selling into a wobbly market is a rookie mistake. Write down the rationale for having bought an individual equity in the first place and read it before you kneejerk a sell order. If you can’t sleep in a down market you’re not drinking enough.
Trudeau pops off another lie about cooperating with China. Whoops, China hasn’t heard of this latest Trudeauism.
https://trib.al/eLX8uvK
Now, lying about the unchecked and uncoordinated, unconscionable facts behind the flow of opioids from China into Canada is monstrous. Several articles tell us that the state run Big Circle Gang of military officials is behind it, everyone seems to know. But when Trudeau refuses China access to the legal system and protects China’s most wanted criminals ( one who stole a billion in Beijing and hides in plain site in Canada) the Chinese refuse to cooperate right back.
After the RCMP stunning defeat on the money laundering files it makes me think that Trudeau is behind the belligerent tone Canada has taken. Who else could it be?
Only poor people worry about imaginary temporary downturns
Non story
#50 Garth’s bastard child on 12.01.18 at 10:44 pm
#42 a guy in Vancouver
Why would u buy that crappy stock?
————————————
Because somebody needs to get dumped on. If not the lemmings, then who?
#42 AGuyInVancouver on 12.01.18 at 7:58 pm
But how do you know when to cut your losses on a stock? After doing some research and seeing the analyst’s buy recommendation I picked up some Chorus Aviation shares for my TFSA, the promptly swan dived from $9.40 to $6.40.
—
See my post from November 17th regarding the value of consensus analyst opinion:
https://www.greaterfool.ca/2018/11/17/perception-vs-reality-2/
–Doug
DELETED
https://www.facebook.com/groups/JustinTrudeauisanidiot/permalink/2199687196912912/
Is it a crime to hide the truth, or just a critical e to speak it?
Hi Doug,
Any convincing explanations why the blog approved preferreds are getting so absolutely wrecked?
Thumbs up, excellent advice!
Can somebody please explain how Preferreds work? When interest rates were going down so were the Preferreds. Now that interest rates are going up Preferreds are down again. What gives??
Preferred Shares… Why they recently fell
Perpetual preferred shares will almost always fall as interest rates rise (the exception involved when their credit rating improves).
Rate Reset Preferred shares are a relatively recent invention and are vastly different than perpetual preferred shares.
All else equal they should AT BEST maintain their value but not rise as interest rates rise since their return floats with interest rates. But the floating kicks in only every five years and so if rates rise today a rate reset that won’t reset for four years will not tend to fully maintain value.
All else has not been equal lately. The market spread over and above the five year government has risen due to well market forces and perceptions of risk. Rate resets with a given spread that they will reset based on are disadvantaged when the market spread increases.
Bottom line, it’s complicated. Keep reading.
#63 Unhinged Trader on 12.02.18 at 11:25 am
Hi Doug,
Any convincing explanations why the blog approved preferreds are getting so absolutely wrecked?
—-
In part due to an overreaction by retail investors. But their 4.5% yields and the widening yield-spread versus corporate bonds (a common income-generating comparable) are starting to suggest significant value.
—Doug
Your entry point in the market makes a great difference. If you buy now and markets dive by 30% which is a distinct possibility in the next few months, it will probably take years to just get even. If you buy when the markets are down by 30% you are minimizing your risk greatly and will probably look like a genius in a few years. There is no guarantee the market will go in one direction or another, but after such a run up I’m not willing to chase another 5-10% upside when 30% down seems more likely.
Successful investors are not guided by fear, but logic or analysis. There is no case for a 30% decline in an expanding world. – Garth
According to the financial industry there is NEVER a case for a 30% drop in the stock market. Similarly there is NEVER a case for a deep recession. And yet those things happen at least every 10 years or so. It is very due.
Recessions do not happen because they are ‘due.’ It’s not like the pull of the moon. For markets to drop by a third the bottom needs to fall out of the economy. With robust profits, strong GDP growth, technological advance and the lowest jobless rate in 50 years, there is no case for your pessimism. Stay in cash and stop giving advice. – Garth
I was holding Trans Canada Pipeline in portfolio, and it collapsed. I did something foolish and bought it all the way down to about $10.00 a share. I had sleepless nights because had way too much money on it, equal to 25% of my portfolio. Will never do this again!
Guys, all the “angry” cat lovers were kidding. I’m quite certain none of those “go to hell jerk!” comments were serious. The host would have deleted them if he believed the hostility was real.
Funny it hasnt been posted yet.. so here goes… A boat is a hole in the water you throw money into.
October and November provided good buying opportunities so we hope. Tough to time the bottom admittedly and it is uncertain if this correction is behind us.
Tough to reap profit when ones portfolio isn’t positioned accordingly. Sellers remorse is a bitch for those that have to learn the hard way.
@ #68 Samantha — Dollar Cost average then if you think we are over-valued.
@#68 Garth, “No case for a 30% decline in an expanding world” -What % case is there then? No rewards without risk.
Expect corrections of 10% or so – completely normal (if somewhat sporadic lately). But there’s no case for a crash or a bear market soon. – Garth
#72 Phylis on 12.02.18 at 2:01 pm
Yep…
B-ust
O-out
A-nother
T-housand
#72 Phylis on 12.02.18 at 2:01 pm
Funny it hasnt been posted yet.. so here goes… A boat is a hole in the water you throw money into.
….
A boat is like everything else in your life, what you make out of it.
#11 Shawn Allen
I recall a real estate agent in LA in the 1990’s quoted as saying the same thing about housing prices there and that was just before the big crash they had back then.
#42 AGuyInVancouver on 12.01.18 at 7:58 pm
#60 Doug Rowat on 12.02.18 at 7:28 am
Cliche but has to be said, the best way to become a aviation millionaire is to start off as an aviation billionaire…
Seriously, if you are investing in individual companies like this you need to do the homework and watch fundamentals like a hawk – as for Doug’s analyst comments I’d add you want to understand who has a position and do they have the industry / regional chops to be a call you trust…
In anticipation of Premier Notley’s announcement today and her acting like an OPECker with an announced and imposed oil production cut in Alberta today, I filled my tank at $.99/liter. Will retailers follow with a quick bump to $1.20?
I hate cartels and corporate welfare.
some reading
New CPP Enhancements – Canadian Institute of Actuaries
https://www.cia-ica.ca/docs/default-source/2018/218084e.pdf
announced an expansion to the Canada Pension Plan that marks the most … period starting in 2019,
70 Risky Business on 12.02.18 at 1:44 pm
I was holding Trans Canada Pipeline in portfolio, and it collapsed. I did something foolish and bought it all the way down to about $10.00 a share
——————————–
Holding any stock that makes up 25% of portfolio is a risky proposition.
But are you are talking about TransCanada Pipelines ?
TRP has not been a $10 stock since 2000.
Since then it has been a dividend engine as well as currently sitting at over $55.
Pipeline stocks are money machines wit especially in Canada.
TRP is up 450% from it 10$ price in 2000, not including dividends. Every Canadian dividend ETF and preferred share EFT included pipeline stocks and preferred shares for pipeline companies.
Still not a good idea have so much of your portfolio in one campany.
Individual stocks are best played as a side bet. Having the lionshare invested in the major indices involves less risk due to diversification. Impossible to pick winners consistently and way less headaches than trying to be the uber trader. Not going to happen generally speaking.
Taking a big loss on individual plays usually leaves one trying to play catch up and making more irrational trades.
The vast majority of professional fund managers can’t outperform the markets over the long haul. Why would a retail investor even try.
Awesome post Doug! Great perspective.