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How index funds and ETFs transformed investing

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Buying stock remains the core way to invest in U.S. companies. It’s part of the fabric of American capital markets.

Any savvy investor knows that the key to a successful stock portfolio is diversification. A health-care company might falter while a technology company soars. Or the reverse. So, for the everyday investor, it’s good to own a little bit of both. However, most people don’t really want to be thinking about company performance every day. That’s where index funds and ETFs come into play.

Index funds allow investors to spread their money across the entire market, like buying the entire S&P 500. ETFs go a step further, allowing investors to buy sectors of the market or groups of companies. Jim Ross is an executive vice president at State Street Global Advisors. He was there when the firm launched the first ETF in 1993. “An ETF allows you to be diversified with one trade.” Ross said.

But ETFs aren’t without risk. The ETF industry faces scrutiny over bond liquidity, leverage and inverse ETFs.

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Canadian cannabis investors still waiting for a breakout company

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Canadian cannabis stocks are still mostly trading in lockstep as the sector continues to evolve, increasingly frustrating investors who are waiting for a leader to emerge from the group.

Even early signs of profitability at some producers haven’t been enough to shake the winners from the losers.

“If you are investing in the space you are going to live and die by the sword of the broader sentiment in the market,” said Richardson GMP portfolio manager Chris Kerlow.

That was on display this past Thursday, after the largest producer by market capitalization, Canopy Growth Corp., reported a decline in net revenue and a $1.28 billion net loss for its most recent quarter.

Though most of that loss was attributable to a one-time non-cash charge related to changes made to a class of warrants, the operational component helped drive Canopy’s shares down more than 14 per cent to $36.41. And with it, the rest of the sector was dragged down as well.

It meant little to the market that Aphria Inc., Village Farms International Inc., MediPharm Labs Corp. and Organigram Holdings Inc. had each posted positive adjusted EBITDA and, with the exception of latter, net income in their most recent quarters: Their shares prices all fell, dipping between seven to nine per cent.

The drop was the latest leg in the sector’s lengthy decline, which has seen the benchmark North American Marijuana Index fall more than 30 per cent since reaching its 2019 high on March 22. In that time, six of the index’s Top Ten names have posted losses between 33 and 38 per cent.

While the sector had once traded solely on potential, the decline has come as investors have been shifting their focus to the fundamentals.

Purpose Investments portfolio manager Greg Taylor believes licensed producers will continue to trade as a pack until some prove they can post multiple consecutive profitable quarters.

“We need to have more than just one good quarter of separation; we need to create a trend,” Taylor said.

There are early candidates to break out and play that role, Taylor said. He’s looking outside of Canada for a leader and believes it could be Curaleaf Holdings Inc. The Massachusetts-based LP is at the forefront of the U.S. cannabis sector and its stock has already showed signs of being able to decouple from the sector.

One example came when Curaleaf acquired GR Companies Inc. on July 17.  Its stock closed more than 17 per cent higher, when acquisitions usually result in the purchasing party trading lower on the day, Taylor said. Curaleaf was also able to make those gains on a day when the North American Marijuana Index only gained one per cent. Still, it closed more than six per cent down at $8.75 on Thursday.

Given the correlation between the names, Kerlow suggests investing in an ETF that passively tracks the sector as whole.

We need to have more than just one good quarter of separation; we need to create a trend.

Purpose Investments portfolio manager Greg Taylor

The only problem is, If most of the companies in the ETF trade in-line, investors might not be receiving the diversification benefits that usually draw them to ETFs in the first place.

Correlation data shows the Horizons Marijuana Life Sciences Index ETF is highly correlated with Canopy, which has the highest weighting in the ETF basket. But as Horizons CEO Steve Hawkins said, the ETF is also comprised of companies that aren’t traditional cannabis producers and do not trade as part of that sector.

Hawkins pointed to Scott’s Miracle-Gro Co., a fertilizer company that also serves the cannabis industry, and Innovative Industrial Properties Inc., a cannabis REIT. Charlotte’s Web Holdings Inc., a U.S.-based CBD company, only IPO’d in September but has also bucked the trend of the Canadian producers. All three companies have seen double-digit returns in the market since March 22, but their weightings weren’t strong enough to keep the ETF from losing 32 per cent in that period.

The wait for a sector leader to emerge is part of the industry’s maturing process, Hawkins said. For now, he said, no company is powerful enough.

“I don’t think there’s one company that could stand up to the force of the negative news waterfall effect on the entire sector,” he said.

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Making Millions through Investing with out been a bro

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Many people I meet believe it is too late investing. Men and women, young and old. Bull market or bear market. They feel they have missed the boat or believe they are too old or that stocks are too expensive or, worse, are convinced they don’t have enough money. Add to that most people don’t feel proficient in investing or believe they simply don’t have the time.

Here is what I tell them: If Stephanie Mucha and Ronald Read could amass a fortune, so can you.

Stephanie Mucha died in December of 2018 at age 101. Her first investment was made with her husband: 50 shares of Medtronic at $5.11 a share. They held the stock for 26 years, along the way accumulating shares, reinvesting dividends and enjoying the occasional stock split until the value of their $255 investment totaled $459,000.

Still, it wasn’t until five years after her husband’s death in 1985 and Stephanie was 57 that she began managing the portfolio. She weathered bear markets and bull markets, and because she retired from nursing in 1993, she added to her investment portfolio on a fixed income. Before she died, Stephanie gave away $5 million.

Ronald Read worked as a janitor at JC Penney and as a gas station attendant for most of his adult life. When he died in 2014 at age 92, he had amassed an $8 million fortune. How? He bought blue-chip companies that pay a dividend, and, importantly, grow the dividend – what I refer to as “stocks to own for a lifetime.” And Read had the discipline to hold those stocks and add to them during the multiple corrections and bear markets he endured over his lifetime.

Neither Stephanie Mucha nor Ronald Read ever made a lot of money or had formal training as an investor or cut bait when the market declined. They knew what all long-term investors know: Over the long term, stocks can produce significant wealth.

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Consider the following:

• According to Professor Jeremy Siegel, author of “Stocks for the Long Run,” stocks have “never given investors a negative real (after inflation) return over a 20-year horizon.” His work also shows that since 1871, the median return for stocks over every rolling 30-year period is over 9%.

• The great investor Peter Lynch once said: “Everyone has the brain power to follow the stock market. If you made it through fifth-grade math, you can do it.” Lack of training shouldn’t keep you on the sidelines. Buy great companies; buy what you know.

• Retirement is 20 years of unemployment. Stocks provide a hedge against inflation even when the inevitable bear market arrives. With the real 10-year Treasury yield at 0.20%, bonds could be riskier than stocks over the next 20 years.

Investors are a little jittery with global interest rates dropping like a stone and trade tensions filling the headlines. But Stephanie Mucha and Ronald Read understood that buying stocks to own for a lifetime is a strategy to employ during up markets and down markets. And they accumulated the millions to prove it.

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Why Investing In Yourself Today Will Set You Up For Career Success

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Day 8: Invest in your career. This post is part of Forbes’ Career Challenge: Rediscover Your Purpose In 15 Days.

There’s plenty of talk these days about how critical it is for workers to continuously maintain and update their skills for career success. Heck, I’ve written about “the upskilling imperative” myself. But make no mistake: this is no trendy talking point that will fall out of fashion, nor is it simply a matter of beefing up your résumé to align with whatever employers seem to be looking for when you’re job-hunting—it can help you feel more fulfilled at work.

Investing in yourself by pursuing your own professional development comes from having an overall mindset of doing whatever you can to prepare for an unknown future. Lifelong learning (a.k.a., upskilling) is one part of the equation, but there’s much more you can do today to benefit yourself down the line.

Develop a growth mindset.

Pioneered by Stanford psychology professor and author Carol Dweck, the concept behind the growth mindset is pretty straightforward: it’s believing that your talents can be developed through hard work, good strategies and input from others. A fixed mindset, on the other hand, holds that only certain people are good at certain things, and the rest of us can only become as skilled as our intelligence will allow.

A big part of embracing a growth mindset is taking risks without fearing failure because you know you’ll gain valuable lessons through the process, regardless of outcome. It also relies on giving and receiving honest, constructive feedback, and not being afraid to talk to others about struggles and victories alike. I encourage everyone to read more of Dweck’s writing about growth mindsets because, without one, you may unwittingly be holding back your career growth.

Reflect on what you’ve done so far, and set goals for where you want to be.

Sounds simple, right? You need to know where you’re going in order to reach the destination. But figuring out your destination has never been more complicated. Job descriptions are fluid, career paths aren’t linear, new technologies are changing our day-to-day work and the role we aspire to today may look entirely different once we’re ready to step into it.

Reframing the way you think about your career can help you gain clarity. Think deeply and honestly about what you’ve enjoyed most over the course of your career, what you prioritize in your personal and professional life and what types of activities give you energy, satisfaction and pride. Then, think about the opposite scenarios: times when you’ve felt stuck or frustrated or not proud of your work.

There are no “right” answers. The point isn’t to come up with a list of specific job matches. Rather, it’s meant to put you in an introspective state so you can set goals aligned with your values and motivators, which, in turn, can open you to a variety of fulfilling career options. Connecting with a coach or mentor can help you stick to your action plan and make progress toward those goals.

Read up, follow your industry and network.

In other words, don’t limit yourself to whatever your job focus is now. Like I said, the way we work is changing, and you’ll need to be nimble and adaptable to be ready when opportunity knocks. Don’t just keep your head down in your current workload. Make sure you’re watching what else is happening in your industry and your world. New jobs are popping up virtually every day, and you might be surprised by positions that align with your skills and experience where you never looked before. It may be less important to have industry-specific background than to have transferable skills that give you the flexibility to pursue more options.

I’d also suggest investing more time in networking, whether at in-person events, through online communities or by staying in touch with people you already know and having them connect you to others. Again, these are places where you might catch wind of a job possibility you never would have considered or even known about. Engaging in conversations with a variety of professionals will expose you to more potential employers, of course, but it’ll also spark new ideas and directions for your career.

Prioritize learning.

Finally, I’m still going to advocate strongly for continuous upskilling. I know some of you reading this will think back on your school days and feel discouraged because you weren’t the most enthusiastic or accomplished classroom student. I urge you to put that baggage aside and start approaching learning as just another part of your work routine. Nowadays, there are so many choices for how, when, where and with whom you can learn, you need not fear repeating that awful experience of being bored, lost, or intimidated in a traditional classroom. You can even make learning a social activity—get a small group to take an online course together, collaborate offline to apply what you’re learning and keep each other accountable for reaching your learning goals.

Another untapped resource could be the expert a few desks away. You might be surprised how much people enjoy sharing their knowledge to help others improve. And, once you’ve gained some mastery yourself, you can pay it forward by helping another coworker. Nothing cements new skills and knowledge than teaching it to someone else. It’s another great investment in your career, too, because it demonstrates your hard-skill capabilities while also shining a light on soft skills like collaboration, empathy, communication and mentoring.

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