Lucky stars

DOUG  By Guest Blogger Doug Rowat
.

If you purchased Amazon stock at the start of 2020, my congratulations to you. After a more than 75% one-year return, no doubt some back-patting and celebrating are in order.

But the danger, of course, is attributing such a great one-time stock choice purely to skill. There’s no denying that an investor who purchased Amazon at the start of 2020 deserves credit, they did, after all, actually make the buy decision and might have even done a fair bit of research; however, true investing skill can only be established by demonstrating success repeatedly over multiple timeframes.

This is the key: if you’re a skilled stock picker then you’ll have the ability to make similarly accurate picks again this year, and the year after that, and the year after that. But for most investors, their long-term results will indicate an overall lack of skill, meaning that their positive short-term results are, in fact, just pure luck.

What most investors fail to recognize is that only a very small percentage of stocks actually drive the performance of an entire index. JP Morgan, for instance, calculated the distribution of returns going back to the 1980s for the Russell 3000 Index, a broad-based index containing small- and large-cap US equities, and determined that the vast majority of the index’s returns came from only 7% of its constituents—constituents that massively outperformed by many standard deviations. In other words, to consistently outperform, investors need to overweight these tiny slivers of index-driving stocks and do so repeatedly. Given these stocks always slim percentage of the overall index, the odds are overwhelmingly against an investor consistently doing this.

One only has to look at the drivers of the S&P 500’s performance last year to recognize the validity of JP Morgan’s research conclusions. The FAANGM stocks (Facebook, Amazon, Apple, Netflix, Google (Alphabet) and Microsoft) accounted for almost half of the S&P 500’s gains (see chart below). But it’s the S&P FIVE HUNDRED, right? Not really. Last year, it was basically the S&P FIVE or SIX. If you made a wager that didn’t include this small handful of stocks, your performance was crippled.

S&P 500 2020 performance almost cut in half without FAANGMs

Source: Yardeni Research; FAANGM: Facebook, Amazon, Apple, Netflix, Google (Alphabet) & Microsoft

In other words, stock picking is extremely difficult. And the error of always attributing a short-term investment success to skill is usually compounded because investors also have a tendency to attribute their failures not to their LACK of skill but instead to bad luck. This behavioural tendency is known as self-attribution bias where successful outcomes are a result of internal talent, but bad outcomes are the result of external factors, e.g., bad breaks.

I’ve discussed the failure of well-known market commentator Dennis Gartman’s ETF before on this blog. His namesake ETF was ultimately shut down in 2013 due to poor returns and lack of investor interest. But Gartman’s back-and-forth emails with a Globe and Mail journalist show the full effect of his self-attribution bias. First, Gartman:

Dear Mr. Taylor [the Globe and Mail journalist], I read your note on my performance a short moment ago, and I have one or two major problems with your comments. Firstly, I was never contacted by you regarding my performance, although your note says that I refused to speak with you. That is simply not true…. [M]y performance was stellar in my Canadian fund until two instances in recent weeks wreaked havoc upon me. One was the surprise purchase of Marvel Comics, which was my largest short, by Disney and the second was the massive one day collapse of Molson’s on a day when its earnings were stellar and yet the stock fell 11%…. Regards, Dennis Gartman

The implication, of course, is that Gartman’s an otherwise excellent money manager who just got unlucky. The Globe journalist rightfully calls Gartman out on this:

Dear Mr. Gartman: It’s an inauspicious start to our dialogue that you call me a liar though I am happy to supply you with my cell phone records, which will show that I did indeed call you twice last week and left a message. I’m not lying, so please don’t say or otherwise imply that I am. We’re not going to get along at all if you do….. As for your pair trades and your unfortunate short sale of Marvel, who cares? The numbers speak for themselves. Sincerely, Fabrice Taylor

There are two effective ways to combat self-attribution bias: 1) recognize the incredible difficulty and low odds of regularly picking the stock market’s outperformers, especially over time, and 2) track carefully your failures in addition to your winners. By being transparent with yourself about your bad investments you reduce the risk of being overconfident and misinterpreting luck for skill.

Placing equal emphasis on your bad investments will allow you to put your ego aside and recognize that you’re probably not nearly as talented as the returns on your Amazon purchase last year might suggest.

Face it: you got lucky. Stop stock-picking. For most, the Amazon lightning won’t strike twice.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

 

95 comments ↓

#1 Bezengy on 01.09.21 at 1:34 pm

Why doesn’t Garth and company manage their own ETF?, you know, just a simple investment option for the average Joe that takes a diversified and balanced approach. I’d be all in.

#2 Prince Polo on 01.09.21 at 1:45 pm

My worst investment mistake continues to be not having a sports almanac from the future, a la Marty McFly/Biff.

My 2nd worst was picking up Valeant on its way to the basement. Never again!

#3 Rico on 01.09.21 at 1:59 pm

Some great points there Doug.
Many people hire an investment advisor thinking that they will be good stock pickers. Many investment advisors advertise themselves as good stock pickers.
The reality is that few advisors beat the broad market in a given year, and fewer advisors beat the broad market consistently.
Those people are too rich to talk to us.

#4 NobleToyz on 01.09.21 at 2:00 pm

DELETED

#5 Oracle of Ottawa on 01.09.21 at 2:34 pm

Usually these mistakes are made early in one’s investment career. Etf’s didn’t exist when I started investing. Although high fee mutual funds did. I thought I could outsmart the market buying .com crap. I think the same thing may happen to Bitcoin. We’ll see.

#6 Joe Schmoe on 01.09.21 at 2:43 pm

If “Billions” taught me anything, it takes more than luck and skill to consistently beat the market.

I used to buy stocks with no understanding or technical assessment. But I was a fantastic anecdotal buyer. As I got older, the more I learned just made me realize the less I know.

As an exec of a few different companies over the years, the intangibles are greater than most people recognize.

#7 KNOW IT ALL on 01.09.21 at 2:57 pm

It’s “ALL” luck…

You either in the right place at the right time or your not.

#8 Oakville Rocks! on 01.09.21 at 2:59 pm

Excellent Saturday post as usual. I always look forward to Saturday’s post because it always informative and often something I would not think of or read elsewhere.
Keep up the great work in 2021 Doug, Ryan & Sinan.

#9 Wrk.dover on 01.09.21 at 3:13 pm

Kodak was a no brainer stock pick after the man pumped it on Squawk. But it was good to know Garth’s advice “if you don’t take the gain it isn’t a gain, because after the insider allegations arose, the “keep and hold” advice is shaky at best.

#10 SWL on 01.09.21 at 3:20 pm

#129 Elon Fanboy – Previous Post

So Unregulated Big tech social media now ‘interprets’ the thoughts of a person to determine their violation…and by extension gets to define ‘subversive’ activity.

I’m no Trump fan, I’m more of a Libertarian, but if you support this type of mass censorship of the opposition you might wanna look up the def of Fascism, which is what Trump was always of accused of.

—————

Good points and I’m sure the next step of scrubbing google and rewriting digital history is already in the works. So much easier than burning books

The story book’s been read
And every line believed
Curriculum’s been set
Logic is a threat
Reason searched and seized

Another sad note: I just heard on CBC radio that Jagmeet wants to lump conspiracy theorist into domestic terrorists with racist and white supremacists

2020 is indeed the year we lost all logic and theories outside the programmed narrative will not be tolerated by the establishment

#11 C V on 01.09.21 at 3:27 pm

#5

Like anything in life, the more you learn about something the more you find out how little you really know

#12 Ustabe on 01.09.21 at 3:35 pm

#157 Mike from Canmore on 01.09.21 at 1:58 pm

#114 ustabe
“Elections Canada does not use Dominion Voting Systems,” the independent, non-partisan agency responsible for conducting federal elections tweeted last year. “We use paper ballots counted by hand in front of scrutineers and have never used voting machines or electronic tabulators to count votes in our 100-year history.”

Interesting. The last 2 elections I voted in for provincial and city, I was handed a paper ballot, filled in the circle who I chose and then walked over to a person who scanned it through a scanner. I was standing right there watching. I asked that’s it? You just scan them? The person replied yes. So we may get paper ballots but the ones in my district were definitely scanned for everyone.

There would be a significant difference between the federal Elections Canada systems and the hodge podge of various municipal and provincial methods. How you physically vote province and city is not how I physically vote in my province or city. Town actually.

However how we all vote federally is the same across the nation.

#13 TurnerNation on 01.09.21 at 3:38 pm

What’s really going on in Kanada.

– Are you a Coincidence Theorist? That what 10 elected leaders were stripped of power, appointments – all within a week? Unheard of. Or is it…

The Party is purging non-faithful. Perhaps more is to be rolled out in 2021, and they were not on board?

Learn from history:

https://en.wikipedia.org/wiki/Purges_of_the_Communist_Party_of_the_Soviet_Union

– Ontariowe – and most other place – in a lockstep fashion ordered schools closed.
Trust the science! (What science?) If you doubt all of this is to cause CHAOS, disrupt lives, making people depending on the state; and the hurt to an economy…check out these brand new – January – studies on the topic.

Seen elsewhere on the internet

1. https://www.reachcentered.org/publications/the-effects-of-school-reopenings-on-covid-19-hospitalizations

“The study is the first to examine how reopening schools in-person has affected COVID-19 hospitalizations. We found no evidence that reopening schools in-person or in a hybrid form increased COVID hospitalizations in the 75 percent of counties that had low COVID hospitalization rates during the summer, prior to reopening schools. Our results suggest that it seems safe to reopen schools when there are no more than 36 to 44 total new COVID hospitalizations per 100,000 people per week.”

2. https://pediatrics.aappublications.org/content/pediatrics/early/2021/01/06/peds.2020-048090.full.pdf

“What This Study Adds: We examined 11 school districts with nearly 100,000 students/staff open for 9 weeks of inperson instruction, tracking secondary transmission of SARS-CoV-2; within-school infections were extremely rare.

No instances of child-to adult transmission of SARS-CoV-2 were reported within schools
CONCLUSIONS: In the first 9 weeks of in-person instruction in NC schools, we found extremely limited within-school secondary transmission of SARS-CoV-2, as determined by contact tracing.”

#14 mike from mtl on 01.09.21 at 3:41 pm

Right, in 2019 example AirCanada looked to be a no-brainer winner until the worst black swan hit the industry.

That’s what separates the sp500 from every other index, there’s a handful of high flyers that push up the cap weight. Even though the rest under the surface are going mostly sideways like every other index.

The perverse ZIRP environment we’ve been in the last decade allows for such speculation – things like profit don’t apply.

Telsa who loses money on each ‘car’ they sell.

Amazon who loses money on each package from their marketplace, only their AWS makes any sort of profit. To their good fortune, are basically the 21st century Sears Catalogue and any competition are being forced out of business.

Apple while overvalued, actually makes fantastic profits as does Microsoft.

#15 Steve on 01.09.21 at 3:43 pm

So I understand the 60/40 split between equities and fixed income, and splitting equities across international, USA and Canada. What I would like is an opinion on access types into the 3 types of accounts: rrsp, tfsa, and cash accounts. Like USA dividends get a break in rrsp, and can used to reduce tax in Canada. My personal opinion is try more aggressive on tfsa picks like ark etf, and do boring stuff fix equities in rrsp.

#16 Doug Rowat on 01.09.21 at 4:29 pm

#5 Joe Schmoe on 01.09.21 at 2:43 pm

If “Billions” taught me anything, it takes more than luck and skill to consistently beat the market.

—-

I’m not uncertain you are correct.

—Doug

#17 Gg on 01.09.21 at 4:32 pm

The Pareto principal is a well known phenomenon

However having a diversified portfolio of companies that are high quality businesses with excellent margins and competitive advantage that are LEFT ALONE for decades will beat the market. You are unlikely to do better in an index fund.

Winners will keep winning. Your amazon example could be repeated next year and the year after. Again Pareto

#18 Dougie on 01.09.21 at 4:32 pm

I think #4 NobleToyz slipped past your scrutiny. Definitely racist in my opinion.

Potentially anti-Semitic, but I’m just not sure, since the acronym escaped me. Deleted anyway. – Garth

#19 Loonie Doctor on 01.09.21 at 4:37 pm

#14 Steve on 01.09.21 at 3:43 pm
So I understand the 60/40 split between equities and fixed income, and splitting equities across international, USA and Canada. What I would like is an opinion on access types into the 3 types of accounts: rrsp, tfsa, and cash accounts. Like USA dividends get a break in rrsp, and can used to reduce tax in Canada. My personal opinion is try more aggressive on tfsa picks like ark etf, and do boring stuff fix equities in rrsp.

—————————————————————–
I made an attempt at this to optimize asset location by tax efficiency. May not be worth the effort for those facing low tax rates. Possibly is for those facing high tax rates, particularly if incorporated with the passive income limits etc. I am not qualified to give anyone any specific investment advice. However, may be helpful tools for those trying to find their own way.

5-6 ETF one
https://www.looniedoctor.ca/canadian-portfolio-builder-basic/

3-4 ETF one
https://www.looniedoctor.ca/three-four-etf-portfolio-builder/

-LD

#20 Sara on 01.09.21 at 4:54 pm

Heather Cox Richardson, “political historian who uses facts and history to make observations about contemporary American politics ” has lots of interesting things to say on her facebook page.

A snippet from a post she made on Friday Jan 08:

“More footage from inside the attack on the Capitol is coming out and it is horrific. Blood on statues and feces spread through the building are vile; mob attacks on police officers are bone-chilling.
Reuters photographer Jim Bourg, who was inside the building, told reporters he overheard three rioters in “Make America Great Again” caps plotting to find Vice President Mike Pence and hang him as a “traitor”; other insurrectionists were shouting the same. Pictures have emerged of one of the rioters in military gear carrying flex cuffs—handcuffs made of zip ties—suggesting he was planning to take prisoners. Two lawmakers have suggested the rioters knew how to find obscure offices.
New scrutiny of Trump’s “Stop the Steal” rally before the attack shows Trump’s lawyer Rudy Giuliani, Representative Mo Brooks (R-AL), Don Jr., and Trump himself urging the crowd to go to the Capitol and fight. Trump warned that Pence was not doing what he needed to. Trump promised to lead them to the Capitol himself.”

#21 Or on 01.09.21 at 5:00 pm

Get a firm, such as the one helmed by our esteemed blog host and crewed by his stalwart henchmen, to manage it for you. Viola! No need to pick anything other than what type of mustard to slather on your favourite pork pie.

#22 Ed on 01.09.21 at 5:31 pm

For those of us that do pick stocks and have a history of beating our bench mark its more often what you don’t buy than what you do.

#23 R on 01.09.21 at 5:40 pm

Investing in passive indexes may not be as risk free as indicated. This decade is going to see large industral disruptions due to new emerging technologies. This is a generational threat / opportunity. It is possible that over a third of the S&P500 companies will be value traps, obsolete by the end of the decade. Please Google “Cathy Woods”, CEO of Ark Investments. Value investing is dead, disruptive investing is smart. BE ON THE RIGHT SIDE OF CHANGE !

#24 TurnerNation on 01.09.21 at 5:42 pm

Is the final push toward a UBI in Q1?
Shutting down the main economic regions.
Into WW3 Grey Zones. Yes yes the numbers on the telescreens I know.
This is a social and economic war. For Your Health Comrades.
The #s on the telescreen are being used to re-make the world into the New System.
And it is a brutal slave system. No one is untouched.

Remember there is no more news, only predictive programming. At this rate the prison lockdowns will be into 2022023. Time then for Bank of Canada’s new magical E-currency? How else would the economy survive?

https://ottawacitizen.com/news/local-news/covid-19-3443-new-cases-in-ontario-179-in-ottawa-quebec-curfew-takes-effect

COVID-19: With 234 new cases, Ottawa nearing ‘Grey Zone’ of complete lockdown, Etches warns

#25 Prince Polo on 01.09.21 at 5:45 pm

I foolishly thought that this was gonna be a confessional where we all confess our dastardly stock-pickin’ sins and exorcise those demons. It seems I’ve misstepped, as all comers are simply heavenly today, besides the DELETED devil, so what’s my penance for such malfeasance?

#26 SeeB on 01.09.21 at 6:09 pm

#136 crowdedelevatorfartz on 01.09.21 at 6:50 am
@#94 SeeB

Please refer to comment #113.

Jokes from a “Conservative-adjacent ” targeting Trudeau that were very well done.

Short, biting, “compliments” that were actually insults.
Sarcasm as wit.
Study up.
There will be a test during next weeks “Triggered Class” in Political Correctness at school.
After the test there will be a short film on Venezuelan Socialist Dictators and what type of Rolex watches they should wear when addressing the starving proletariat.

——————————————-

Looking down on the starving proletariat? Have you not seen the people sleeping in the streets of our cities? Have you seen the statistics showing over 14% of the Canadian population doesn’t have enough food? 14% of CANADIANS. That’s the country we live in.

You criticize my lack of humour at not laughing at a simple joke. Show me the part in the charter that says I’m morally obliged to find everyone who makes any joke funny. Show me the part that says I can’t tell you that you look foolish for worrying about pronouns.

You example an autocrat wearing Rolexes lording over working and poor people is weak. You have also described the US. Strange, they aren’t a socialist country, so why are the leaders and elites behaving as bad, if not, worse?

#27 crowdedelevatorfartz on 01.09.21 at 6:13 pm

@#20 Sara

Interesting.
It may take months or even years but…..
I’m thinking there will be tons of video, pictures, testimony to hang most of these idiots that stormed the Capital Bldg.

Now. if only Trump and Rudy wear some of the dirt…..

#28 Joe on 01.09.21 at 6:37 pm

Interesting Article

Everyone loves the FAANGM stocks, 75% for Amazon, sweet. Follow the herd and you can make money, “step outside” as some did and you can do all right also.

The Very Good Food Company(Plant based Meats) out of Vancouver went public in the summer, went from .46 to $9.50…whats that 1800 %…i guess thats what happens when you “step outside”.

A Few Rules
1) never discuss your stock picks with anyone
2) never say your a good stock picker
3) never recommend a stock to anyone

What is the definition of a good stock picker? Just because someone makes money from buying stocks does not necessarily mean they are a good stock picker

For those stock pickers out there here is a quote by Peter Lynch:

“so often we struggle to pick a winning stock, when all the while a winning stock has been struggling to pick us”

#29 Ponzius Pilatus on 01.09.21 at 6:46 pm

Hell has no fury like a Pelosi scorned.

#30 baloney Sandwitch on 01.09.21 at 6:51 pm

I feel the MAGA network being IPO’ed imminently by the Trump Organization will be a spectacular performer. Consider the Capitol riots the prospectus of the venture.

#31 Ponzius Pilatus on 01.09.21 at 6:53 pm

Stock picking is like a gambling addiction.
It has ruined a many a souls and families.
Beware!

#32 Nonplused on 01.09.21 at 7:08 pm

#10 SWL on 01.09.21 at 3:20 pm
#129 Elon Fanboy – Previous Post

Turns out TPTB thought 1984 was a “how to” book….

I am not sure how we roll back the clock though unless we can somehow “decentralize” the internet like in the early days. Right now too much traffic is controlled by just a handful of entities.

The appeal of something like Facebook is that everyone you know uses it. And now they have grown so large that they have the power to censor the president of the united states. I remember when it use to be the government that did the censoring.

And I love their tag “This claim is disputed.” that they attach to some posts but not others. Every claim is, or should be, disputed. But they attach it to some posts but not others. Twitter like wise. Say something YouTube doesn’t like and they will deplatform you, possibly taking your livelihood away. But “The Flat Earth Society” stays up with full ads.

And it appears now that you can’t even build an alternative. Apple has delisted Parler from the Apple store unless/until they come up with a plan to “moderate” their content. Google as well. Amazon hosts the Parler servers and may deny them service as well. But the whole point of Parler was that is was to be unmoderated. They have no intention of policing content or data mining, but they do work with the police if something goes up that is outside the law. But it turns out that Big Brother can shut down something like that too.

How Zerohedge has managed to escape censorship I am not sure, although that is a moderated forum except for the comments, which can get pretty salty.

Soon there will be no escape from the approved narrative.

And the amount of information a company like Facebook or Google has on you is breath taking. They probably know you better than you know yourself. They know if you are happy or sad. They know your interests. Heck if location tracking is turned on, they can even tell if you are having an affair. I’m told that Facebook is so good at analyzing the data they can even tell who is going to hook up and who is going to break up (they use that data to decide if you see ads for dating sites). And they know how to manipulate you.

#33 Trudeau’s Magic Money Machine on 01.09.21 at 7:11 pm

Here’s a no brainer for all of you to make some money.

Canadian oil stocks. Buy them and you will make money.

No luck or skill required. Just obvious supply and demand.

#34 Sara on 01.09.21 at 7:13 pm

#27 crowdedelevatorfartz on 01.09.21 at 6:13 pm
@#20 Sara

Interesting.
======================

You may also find this interesting.

http://www.megankatenelson.com/historians-contextualizing-the-capitol-insurrection-a-roundup/

#35 Regjeg on 01.09.21 at 7:14 pm

In retrospect, the events on 06 January at the Capitol are looking more and more like a bunch of clowns and misfits putting on a circus show, enabled by the Keystone Kops.

#36 Dr V on 01.09.21 at 7:14 pm

26 SeeB

It’s a blog.

https://www.irishtimes.com/life-and-style/people/patrick-logue-the-humourless-world-we-live-in-1.2617801

#37 mike from mtl on 01.09.21 at 7:23 pm

#23 R on 01.09.21 at 5:40 pm

Please Google “Cathy Woods”, CEO of Ark Investments. Value investing is dead, disruptive investing is smart. BE ON THE RIGHT SIDE OF CHANGE !
/////////////////////////////////////////////////////////////

ARKK got lucky betting big on TSLA in 2020, their own fund partially responsible. I’d be highly surprised they make another 150% in 2021. If so, well good for them, but if the market tanks or the FED stops QE they’ll get their asses handed to them.

#38 crowdedelevatorfartz on 01.09.21 at 7:25 pm

@#26 SeeB

Tis sad SeeBee
You are a serious socialista
Grumpy CeeBee
Have you thought abought calling Greta?

#39 Nonplused on 01.09.21 at 7:29 pm

#20 Sara on 01.09.21 at 4:54 pm
Heather Cox Richardson, “political historian who uses facts and history to make observations about contemporary American politics ” has lots of interesting things to say on her facebook page.

A snippet from a post she made on Friday Jan 08:

“More footage from inside the attack on the Capitol is coming out and it is horrific. Blood on statues and feces spread through the building are vile; mob attacks on police officers are bone-chilling.

——————————

Can you link these videos? I haven’t seen them and I cast a pretty wide net. And where in the heck did they get blood?

Anyway in today’s day and age where pretty much everyone has a recording studio in their pocket it seems like most of the unruly people are getting arrested one by one. The big mistake that the MAGA people made was they forgot to wear masks like ANTIFA does. And Trump’s executive order putting a 10 year sentence on people who damage public works like statues is likely to apply to these people too. They have already got the guy carrying Pelosi’s podium as far away as Florida. The lesson here is don’t do stupid stuff in front of a camera, and everybody has a camera.

#40 crowdedelevatorfartz on 01.09.21 at 7:49 pm

@#29 Ponzies Parody
“Hell has no fury like a Pelosi scorned.”

++++

Ladies and Gentlemen….Ponzie plagiarized a funny…
Not bad but definitely needs work.

#41 crowdedelevatorfartz on 01.09.21 at 7:52 pm

@#34 sara
“You may also find this interesting.”
++++

Nah.
Op Ed pieces…
Boring… white, male bashing is so 2020.

#42 crowdedelevatorfartz on 01.09.21 at 8:05 pm

90 million infected worldwide
380,000 dead in the US.
And not a peep out of Trump about Covid.
Hopefully he’ll wear this for a long, long time.

https://www.worldometers.info/coronavirus/

#43 Canadian Moose on 01.09.21 at 8:13 pm

Stock picking? Lots of nefarious picks from my past including the tip from a friend who knew someone and they knew someone in the inside track. Laughable in retrospect but never lost my shirt, maybe a sock or two. Lol

#44 S.Bby on 01.09.21 at 8:16 pm

To put Tesla’s market valuation into perspective, they should be selling each car they make for a million dollars.

#45 Theyounggreek on 01.09.21 at 8:17 pm

#1 are you serious?

There’s no way Bazinga read this article and then posted that comment. Mr. Bazinga you entirely missed the point of the article. Re-read pls.

#46 Love_The_Cottage on 01.09.21 at 8:20 pm

Every. Single. Time.
Great post, but based on xxx I can outperform the market because of xxx. Completely missing the point. Classic. Thanks for the laughs you super smart people.

#47 Doug Rowat on 01.09.21 at 8:26 pm

#23 R on 01.09.21 at 5:40 pm

Investing in passive indexes may not be as risk free as indicated. This decade is going to see large industral disruptions due to new emerging technologies. This is a generational threat / opportunity. It is possible that over a third of the S&P500 companies will be value traps, obsolete by the end of the decade….

—-

Then the passive index will own the survivors as well…and flourish.

I just pointed out that a tiny percentage of the best companies drive the entire index.

—Doug

#48 Nonplused on 01.09.21 at 8:34 pm

But anyway, back to Doug’s post.

There are some stock pickers that are amazingly good at it. Warren Buffet comes to mind.

But then there is also “survivor bias”, by which I mean the damn fool who gets lucky 10 years in a row and develops a very large following even though he has no skin in the game. Everybody forgets the 1000’s of others who had to bow out after 2 or 3 years.

I have worked in trading many years (as a risk manager). I knew Brian Hunter sort of a bit such that we had a beer together (with others) more than once. The risk ratio for these traders is so lopsided that of course they are going to gamble. It’s not their money. Make a big profit, you get 30% of other people’s money (or some similar amount of course the firm takes much of that). Lose money and you walk out the door with your salary and previous bonuses. There is no chance that the trader loses any of his own hard earned money. Hunter has millions more than I do even though he crashed the firm.

So what is happening often when these so called professional traders get your money and make bets is that they have a free lottery ticket. Should they go long, short, use leverage and go double long or short, they really don’t know. But it is in their best interest to make a bet, and I am sure they spend all kinds of time analyzing the data to make the best bet they can. But why wouldn’t they bet? It’s not their money, and if they win it is life changing.

Most markets are like this. There is the slow and steady rise of the B&D portfolio, but most other activity is nothing more than a poker game.

#49 crowdedelevatorfartz on 01.09.21 at 8:37 pm

Musings from Fartzy

Now that Trump has “turtled” and has washed his hands of the very MAGA mob he incited…
Trump is consistent in his backstabbing of friend and foe alike.
He will waste no time in distancing himself from the MAGA mobs that may cause him no end of legal grief.

Any bets on the time frame for the MAGA mob fury that will be unleashed in his direction?

One month?
Six?
Any bets?

#50 Sydneysider on 01.09.21 at 8:38 pm

Trump’s supporters shut down the Capitol; Trudeau shut down Parliament; Apple and Google shut down Parler. Hopefully nobody will shut down this blog.

#51 Nonplused on 01.09.21 at 8:45 pm

“Most markets are like this. There is the slow and steady rise of the B&D portfolio, but most other activity is nothing more than a poker game.”

PS I forgot with the house taking 1-2% of the activity.

#52 Nonplused on 01.09.21 at 8:52 pm

#50 Sydneysider on 01.09.21 at 8:38 pm
Trump’s supporters shut down the Capitol; Trudeau shut down Parliament; Apple and Google shut down Parler. Hopefully nobody will shut down this blog.

————————————-

Garth is 71 by my calculation. Hopefully we can get 10 more years out of him before he decides to retire, but can Doug and Ryan really replace him? Don’t get me wrong they write good and helpful articles, but some people can’t be replaced. And all things, even good things, come to an end. Even a Trump presidency, for better or worse, we all knew it wouldn’t last forever. Or should have.

#53 Nonplused on 01.09.21 at 9:04 pm

#49 crowdedelevatorfartz on 01.09.21 at 8:37 pm
Musings from Fartzy

Now that Trump has “turtled” and has washed his hands of the very MAGA mob he incited…
Trump is consistent in his backstabbing of friend and foe alike.
He will waste no time in distancing himself from the MAGA mobs that may cause him no end of legal grief.

Any bets on the time frame for the MAGA mob fury that will be unleashed in his direction?

One month?
Six?
Any bets?

————————————–

The “Trump mob” may very well unleash their fury, but it won’t be against Trump. He is the only person they still trust, rightly or wrongly. And they are all armed. Even the women and kids know how to use a gun and have one or more.

Whatever happens will be what makes the best news for rating purposes and ad sales. Save that it doesn’t go so far as to burn down the CNN building or there are riots outside one of Bezos estates. Notice ANTIFA never went to an Amazon fulfillment center. Which is strange, because that is where the best looting would be. TV’s everywhere. Instead they attacked a bunch of store fronts, many privately owned.

We are entering dangerous times. 2021 will not be better than 2020. Bet accordingly.

Maybe you could try sticking with the daily blog topic when commenting? We’re all a little tired of your Trump obsession. – Garth

#54 Old gringo on 01.09.21 at 9:06 pm

Just found out Mexico wants the wall and will pay for all of it!
Canada added that they also want a wall and also will pay for it!
Trump is now gone from a wall to a prisoner haha

#55 millmech on 01.09.21 at 9:44 pm

So SPY LEAPS it is!
Not hard to make money in the market, just put some time and effort, imagine how much better off people would be if they were not so obsessed by one man.
The power that Trump has just over the posters on the blog is amazing, that his actions make people cry, be upset, and now hate anyone who does not agree with their thought process or opinions.
One man and people have given this person almost supreme power over their lives, an incredible feat for anyone in this day and age.

#56 Doug t on 01.09.21 at 9:49 pm

DELETED

#57 Phylis on 01.09.21 at 9:49 pm

So, watch out for the tide and the waves. Got it.

#58 Doug t on 01.09.21 at 10:01 pm

Bezos is a stunning example of the beauty that exists in all of us – he gives and gives until he can’t give anymore – a saint, a hero, a leader for the lower class – his parents, when he was born, must have looked at him in awe knowing greatness was their child – a gift from the heavens to earth

sarc

Bezos has given jobs to 1.2 million people. And what have you done? – Garth

#59 Doug t on 01.09.21 at 10:23 pm

Hmmmm well I once used the heimlich on my mother in law while she was passed out – once did cpr a a kid who was in a car that was tboned- helped my dad when I was 7 when he fell drunk down the stairs at home – tried to be a better father to my son then my father – kept a women in a major highway crash from looking in the back seat once – supported some of my sons punk friends when they were in their teens from being homeless – no not Jeff bezos

#60 Tom from Mississauga on 01.09.21 at 11:20 pm

Holding my Amazon shares Doug. Ordered 1,000 piece puzzle today on it so we have something to do this week. Amazon was many people’s Christmas, the earnings are going to be insane. It’s the Millennial Stocks (my term) that one has to avoid (electric cars, renewables, MJ) way overpriced.

The research on your topic tonight was top notch, thanks.

#61 Faron on 01.09.21 at 11:26 pm

Sail Away From yesterday:

I agree that attacking the president is an implicit attack on their constituents. But I don’t think that’s not a reason to do so especially when they are riding the fringe of the law if not outright leaping over it. At some point, if they don’t pull a Nixon and leave, action has to be taken. This is why a resignation is preferred and why any current move to impeach gives me pause. Trump has committed crimes and they should be punished, but I’m not sure it’s worth it to do so at this stage because the Trumpettes will just further entrench.

My thoughts on the Twitter+ ban:

First, there were terms of service and anyone violating those terms on a private platform should be subject to banning. But, I agree with those who point out that any number of baddies still have accounts. Thus, by being greedy, Jack Dorsey has put himself in a position that’s hard to defend.

On the other hand, if you have a look at what’s being said on Parler, where folks have large numbers of followers now, you will see that posts hashtagging various journalists with statements that they are soft targets and any measures should be used to take them down. Following graffiti writing on the Capitol saying “murder the media” this has to be taken seriously.

This is relevant to Trump because Trump has shown a propensity for dog whistling. And, even when he isn’t, there are nuts that are taking his every word as incitement. Have a look at the Q-Anon numerologists breaking down his posts as calls to action and you will be amazed. If Trump were to hint that XY or Z reporter or media outlet should be razed or “taken out”, there’s a very good chance that one of his goons would take up the call and then Twitter would have blood on its hands. Lin Wood, Trump’s former Lawyer, has called for Pence to be put before a firing squad on Parler.

Ultimately, these mega corps that are fully ubiquitous in our lives should be regulated as utilities with a duty to service and with some kind of not for profit oversight or an ethics board that keeps them from straying. Only then will free speech rights truly exist on these outlets. It’s an utter failure that the primary outlet for a sitting president is a single platform and that he’s been removed from it and essentially has no current means of rapid communication to any of his constituents right now. That’s simply a dangerous path to start going down.

So, by failing to adhere to its terms from the get-go, Twitter lost its ability to ban and should be asked to un-ban Trump even though I’ve lon wished that a wealthy person would buy Twitter and kill it to put us out of our misery.

#62 crowdedelevatorfartz on 01.10.21 at 12:02 am

@#53 Nonplused =minus
“We are entering dangerous times. 2021 will not be better than 2020. Bet accordingly.”

+++++

Hmmmm

Apocalypse Now better dust off his resume…..there’s a new Sheriff in town….

#63 crowdedelevatorfartz on 01.10.21 at 12:13 am

Garth has made a good point.

Apologies to Doug R. for straying off subject.

Anecdote Time ( sorry Ponzie)

Many years ago I was told about an amazing diamond strike in Northern Canada and I should invest…
Pfffft. Diamonds in Canada?
Missed out on That one.
Several years ago a friend told me about bitcoin when it was $0.25 a share…
Pfffft. Cryptowhat?

Fartzy ……is, …..was, …..will always be……. a skeptical curmudgeon.

And , apparently ….poor.

Several times over the next few years, I invested in the “next sure thing”…….

Jonah Hex has better luck than me.

Anywho, several years ago…. I heard the siren call of a
“Balanced and diversified portfolio”…..

Some years good….
Some years ok…
Some years great….

I invest.
I Leave it alone.
I’m less stressed.

Gives me more time to focus on …….altitude…. expansion….. in confined spaces.

#64 crowdedelevatorfartz on 01.10.21 at 12:27 am

@#52 Nonplused = Minus

“Don’t get me wrong they write good and helpful articles, but some people can’t be replaced.”

+++++

Ok Ok
I accept.
When Garth steps down…..CrowdieFartz shall , humbly, grudgingly….step up.
Are you happy now?

#65 Nonplused on 01.10.21 at 12:31 am

“Maybe you could try sticking with the daily blog topic when commenting? We’re all a little tired of your Trump obsession. – Garth”

I did comment on today’s topic, but I also replied to other commenters, who I guess were off topic. I don’t see why I get singled out for doing so. Most of the comments were off topic. I at least put one up that was on topic and supportive of Doug’s general premise, but based on personal experience and observation. It’s currently at #48.

Sometimes I feel like that kid that gets all 90’s but his dad scolds him for not “applying himself”.

In any case we only have 11 more days of Trump. The deplatforming thing is a new concern however, because he is not the only one that has had their account removed. It is a literal purge. When Apple, Google, and Amazon can decide how Gab and Parler do business we are truly entering an Orwellian twilight zone.

#66 Samuel Bolle on 01.10.21 at 12:38 am

Too much use of the words ‘ luck’ and ‘ unlucky’. To attribute the performance of a single stock picking investor or manager to ‘ luck’ is akin to attribute yesterday’s lack of rainfall to an unlucky meteorologist belief in climate change.

A person might conflate past success to a personal belief. Gartman was that person, more a paid personality than an analyst. Follow a Gartman you commit to following the 97% of scientists you believe will deliver climate nirvana while forgetting the other 97% who think your belief system is a train wreck.

Gartman was that well hyped train wreck. If you need a soothsayer then Gartman was as good as any other you could choose to abrogate to. Gartman didn’t pick stocks, he sold the idea that he could identify individual stocks with trends. Trend investing is like Canute waiting for the tide to change.

If you can’t think for yourself, find a Gartman, or a Garth , or whomever you want to do your thinking for you. The “sales game” and the “ investing game” are two completely different industries.

Investing isn’t luck. It isn’t gambling. The stock market isn’t a casino. The stock market is a lofty tower where smart people go to do serious work every day. Likely if you’re a successful investor you’ll have accumulated your wealth by patiently analyzing the fundamental business model of every company in which you own stock.

It might take you months, or even years of analytical work and deep immersion in the company balance sheet before you’ve purchased a single share. There’s alway systematic risk in every aspect of life. A company taking a misstep or making a great gain is of no consequence to the patient investor. Luck is not lingua franca in an intelligent investors lexicon.

#67 Tarot Card on 01.10.21 at 1:38 am

Actually buying winning stock is easy selling at the right time is the hard part.
I bought transalta Renewables for the dividends bought it over a year ago at $15 bought more during the crash. That’s the easy part.
In the last 30 days it has gone from $18 to $24
The last five days from $21.34 to $24.
I bought for the long term. But fast increases make me nervous. Still a good yield at 4 percent.

Ballard Power another all time favourite bought in $23 sold at $28 in about three weeks. and in the last five days every day a new 52 week high now trading at $36.
Moral of the story? Buying is the easy part selling is the hardest.
So RNW I am holding only for the dividend. But will the price be higher in a year?
BLDP sold to early. Now should I buy on the dip? Company was over $200 in the 90s
Anyway we all have stories I can bet you a dollar not many people bought Amazon a year ago and still own it, they sold long ago.

#68 Janice Redman on 01.10.21 at 2:26 am

DELETED

#69 Seeb on 01.10.21 at 2:33 am

#38 crowdedelevatorfartz on 01.09.21 at 7:25 pm
@#26 SeeB

Tis sad SeeBee
You are a serious socialista
Grumpy CeeBee
Have you thought abought calling Greta?

—————————————

Ad hominem from the great crowdedelevatorfartz .

You love to see it.

Ponder your life and what you bring to the world.

#70 Nonplused on 01.10.21 at 2:55 am

So, Sara, where did the protesters get the lead pipes? I know of copper pipes, plastic pipes, even steel pipes. But lead pipes? I don’t think lead pipes have been available in a long time because they are poisonous. All replaced by PVC.

And blood? Whose blood? If you think there was lead pipes and blood you aren’t thinking it through.

#71 Alex G. on 01.10.21 at 4:06 am

Very well said Doug!

And for those that are curious about the JP Morgan study referenced, here’s the link to the full 46-page report: https://www.chase.com/content/dam/privatebanking/en/mobile/documents/eotm/eotm_2014_09_02_agonyescstasy.pdf

Enjoy!

#72 BillyBob on 01.10.21 at 7:10 am

#10 SWL on 01.09.21 at 3:20 pm

Another sad note: I just heard on CBC radio that Jagmeet wants to lump conspiracy theorist into domestic terrorists with racist and white supremacists

===============================

“Tolerance” rears its head again.

It’s touching that the powers that be are so concerned for our welfare they are eager to provide strict guidelines on how to think.

#73 short horses on 01.10.21 at 8:36 am

“If you purchased Amazon stock at the start of 2020, my congratulations to you.”

You can congratulate me next year. I plan to buy shares this month, well in advance of the (inevitable) AWS spin-off. Same with FB before the big break-up.

#74 Joseph R on 01.10.21 at 9:19 am

#65 Nonplused on 01.10.21 at 12:31 am

In any case we only have 11 more days of Trump. The deplatforming thing is a new concern however, because he is not the only one that has had their account removed. It is a literal purge. When Apple, Google, and Amazon can decide how Gab and Parler do business we are truly entering an Orwellian twilight zone.

———————————————————————-

Why do you want government to regulate how Apple and Google must find acceptable on their respective platform?

#75 Tokyo joe on 01.10.21 at 9:20 am

Yes indeed difficult to consistently pick big winners. By the way, Apple did better than Amazon in 2020 and is my pick as the Faangm leader in 2021.

#76 Joseph R on 01.10.21 at 9:33 am

#61 Faron on 01.09.21 at 11:26 pm

And, even when he isn’t, there are nuts that are taking his every word as incitement. Have a look at the Q-Anon numerologists breaking down his posts as calls to action and you will be amazed.

—————————————————-
You miss out on Trump Supporters pointing fingers and calling each other “Antifa agent provocateurs”.

#77 Warren-the-lagging_indicator on 01.10.21 at 9:56 am

Bitcoin is a pyramid-type scam that does not scale. The power requirements are limiting, akin to the tower of Bable narrative. If only we could get the global population down to about 500 mil or so then all is golden.

#78 millmech on 01.10.21 at 10:04 am

https://vancouversun.com/opinion/tasha-kheiriddin-why-you-might-want-to-hurry-back-to-the-office-before-its-gone/wcm/0af91c2c-5228-4501-bc6d-4ab87a633764
Now the up and coming generations can blame those entitled Millennials and how they have it so good, seeing quite a few articles on this now.

#79 OK, Doomer on 01.10.21 at 10:10 am

I’m not sure that the FAANGS have done anything at all positive for society. In the last week, they’ve crossed the Rubicon and become a hazard to society. If you hate Trump, you should find this especially scary, as you can now see how big tech is capable of destroying anyone, including the President of the United States. And if they can destroy someone you hate, think of the leverage they’ll have on you over something you love or need, like maybe your job.

And as their treatment of Trump proved, you now don’t even have to say anything bad, all that is needed is FAANG opinion on what you said and that’s enough to wreck your life. Don’t believe me? Try looking up what Trump actually said. Not what people said that he said, but what he actually said. You won’t find it anywhere. It’s been scrubbed from existence.

Facebook, Amazon, Google and Twitter have been acting an unelected unopposed, unchecked ungovernment recently, shutting down, and blacklisting people and destroying companies like Parler (a competitor to Twitter) purely because they didn’t like their political views.

Next stop? Geting the banks to block financing to people that the FAANGS don’t deem worthy. Think that’s far fetched? They’ve been de-monetizing people on Youtube for the past year or so and have now started blocking vendors on Shopify. The banks? I used to thing no way. Now I’m thinking three months, tops. Biden will be unable/unwilling to stop them.

And I’ll probably get deleted or banned for this post, but I really don’t care. Someone needs to speak out against these tech fascists.

Deplatforming people who foment insurrection and democratic overthrow seems like a peachy thing for large corporations to do. – Garth

#80 Dharma Bum on 01.10.21 at 10:14 am

Hey Garth, Ryan, Doug, and Sinan:

Can you guys perhaps devote an upcoming blog post to debunking the theory behind the “Dragon Portfolio”?

Y’know…The Allegory of the Hawk and Serpent, and all that stuff from Chris Cole.

Thanks!

‘Puff the Magic Dragon’. How’s that? – Garth

#81 Dharma Bum on 01.10.21 at 10:28 am

The biggest piece of luck that relates to the accumulation of wealth is winning the birth lottery.

When were you born?
To whom were you born?
Where were you born?

Hit it right on one or more of the above criteria, and you’re on your way to easy street.

Think of it this way: Being born in Canada or the U.S., in the early 1960’s, to a family that was anywhere from middle class to wealthy, valued education, and was supportive, is highly likely leave you far better of than being born in a poor South American or African country, without any infrastructure (plumbing, electricity), to parents who are struggling, and where the opportunity for education and employment is scant.

It’s the Luck of the draw.

Do you feel lucky?

Well, do you?

#82 SWL on 01.10.21 at 10:54 am

#77 Warren-the-lagging_indicator

Bitcoin is a pyramid-type scam that does not scale. The power requirements are limiting, akin to the tower of Bable narrative. If only we could get the global population down to about 500 mil or so then all is golden.

———————-

Check out the Georgia Guidestones. 500 mil is the magic number written in stone

#83 Fred on 01.10.21 at 11:01 am

Note to self – don’t take any stock picks Doug may like

That was a bitter last two sentences Doug. Sorry

#84 crowdedelevatorfartz on 01.10.21 at 11:10 am

@#69 Seeb
“Ponder your life and what you bring to the world.”

++++

Methane?

#85 Doug Rowat on 01.10.21 at 11:20 am

#73 short horses on 01.10.21 at 8:36 am

“If you purchased Amazon stock at the start of 2020, my congratulations to you.”

You can congratulate me next year. I plan to buy shares this month, well in advance of the (inevitable) AWS spin-off.

—-

I didn’t say everyone walks away from Vegas a loser. Otherwise who would visit?

But Vegas loves people who walk up to the card table saying it’s “inevitable” I’m going to win.

—Doug

#86 Sara on 01.10.21 at 11:20 am

@NonPlussed

Calm down, it was just a link to Heather Cox Richardson’s facebook page.

In the post from which I took the snippet she writes: “Please note that information from the January riot is changing almost hourly, and it is virtually certain that something I have written will be incorrect. I have tried to stay exactly on what we know to be facts, but those could change.”

Also note that with respect to that post she writes:

“My January 8, 2021 post has been taken down. Usually this happens when someone complains about it. The post then goes to Facebook jail until a moderator reviews it. At that point, until now, anyway, it has always come back up. I expect the same will happen this time, eventually.
I also expect that this will happen frequently for awhile, as far-right activists try to reclaim the public platforms that have now been denied them. Their panic at being kicked off Facebook, Twitter, Reddit, and so on illustrates exactly what I’ve been trying to say about the importance of reclaiming public debate. If they didn’t think taking up oxygen was important, they would not be fighting so hard to make sure they dominate public spaces.”

Note that subsequent to the moderation, Facebook put her post back up.

#87 Doug Rowat on 01.10.21 at 11:33 am

#75 Tokyo joe on 01.10.21 at 9:20 am

Yes indeed difficult to consistently pick big winners. By the way, Apple did better than Amazon in 2020 and is my pick as the Faangm leader in 2021.

—-

By the end of this year we could have an entirely different investor anagram. Remember when BRIC was all the rage?

Hence why only your first sentence is certain to be correct.

—Doug

#88 Diamond Dog on 01.10.21 at 11:37 am

53 Nonplused on 01.09.21 at 9:04 pm

Try reading my last comment on Garth’s post “Assumptions” from yesterday. It goes straight to the heart of Trump’s character, especially at the end. Earlier in the week Trump Turned toxic. This weekend, he’s a pariah. Next week, Trump is a leper. Lepers are still human but they aren’t individuals one gets close to for obvious reasons, do you follow? Yes, take the time and read it:

#160 Diamond Dog on 01.09.21 at 5:45 pm

#89 crowdedelevatorfartz on 01.10.21 at 11:40 am

Priorities priorities

https://globalnews.ca/news/7565207/canada-coronavirus-vaccine-inmates-critics/

#90 kothar on 01.10.21 at 11:42 am

How about TSLA 800% return in 2020 yr/yr and made Musk richest dude on earth this past week…on paper. That stock is completely overvalued, especially for a company that has weak earnings history.

#91 Mike from Canmore on 01.10.21 at 1:17 pm

#12 Ustabe
Point taken. I will be interested to see the voting procedure for the next federal election.

#92 reed marx on 01.10.21 at 1:23 pm

Wow!

#93 Don Taylor Mellon on 01.10.21 at 8:20 pm

Fabrice Taylor has made some inauspicious calls himself. One time on market call, 3 of his top picks were down so far it was incomprehensible.

#94 Mr Canada on 01.10.21 at 8:43 pm

I always see these expert “guest stock pickers” on BNN TV or CNBC and enjoy checking their web site and not all of them publish their performance, some of the bigger ones do and frankly they are near the benchmark most of the time and surprising how many have a lousy track record 1,2-3 years out.

#95 Scott on 01.12.21 at 10:40 am

Great post Doug!

One of the major benefits of modern investing is that even discount brokerages have easy ways to see how you’ve fared over the last year, five years, whatever you want.

Totally agree that it’s important to keep a view of the big picture. Every one is always pretty keen to tell you about that one amazing pick they had but less inclined to tell you about the eight duds they bought that year.

Two years in I was doing over 100% annualized return and everyone I knew was asking me to help them invest. A lot more quiet a year ago after my portfolio was cut in for the second time. The hype train is back now with some blockchain/crypto positions running wild.

Any one would be a fool to only look at some one’s last 3 months or year when they could instead look at what they’ve done since inception.