Instead, take a close look at what the market is telling you
2020? No thank you, I’ve had enough of that.
But it’s 2021 now. So, let’s turn the page, as humans and as investors. And, let’s look forward to being productive investors in 2021.
There was a lot that happened in 2020 that can help a conscious investor out in the new year. It starts with separating what is important from what is, shall we say, “fluff.”
First, as the headline says, ignore predictions about what the market will do in 2021. That’s hard to do, since predictions are about as plentiful as face masks and hand sanitizer right about now.
Forecasting what the stock or bond market will do, or making educated guesses about which stocks will flourish this year, may be fun for some. But there is something they miss, and it is very important.
The markets don’t care what the calendar says. Investors do, but trying to confine any type of investment analysis to a specific time frame is very difficult. Sure, you can talk in terms of what you think looks relatively attractive over weeks instead of years. But you should resist trying to make investing a calendar year contest. That’s true at the start of any year, and at any point during the year.
Investing is a continuous process, and every investment cycle occurs on its own time, not the time we would like it to. I see too many people trying to force things to happen in a specific time frame. “How do you think we will do this year” and “will the first half of the year be better than the second half” are part of a disturbing trend. They are “game-i-fying” investing. Don’t do it.
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2021 and beyond: rules to invest by
We have covered what not to do. As for the investing attitude you should take into 2021, just look around you:
- FOMO (fear of missing out) is abundant
- Bond yields are pathetically low
- The stock market’s gains in 2020 were primarily by a small number of very well-known companies. Nearly half of the Dow Jones Industrials’ 30 stocks were down for the full year. And about 1 of every 5 Dow stocks were down at least 10%. Heck, the “Value” portion of the S&P 500 was about flat for the year.
- The U.S. Dollar’s value versus a trade-weighted basket of foreign currencies (a.k.a. ”the Dollar Index”) has been falling steadily for most of the year. Maybe Bitcoin is about to replace the Dollar as the world’s reserve currency? OK, just kidding.
Getting acquainted…with your future
This is a nice time to acquaint yourself with what a contrarian investment mindset is all about. That does not mean you shun what worked last year, or blindly plow your assets into what didn’t work last year.
I am talking about the old Rudyard Kipling quote, which, when adapted to investing today, sounds something like this: if you can keep your head while those around you are speculating at a historic level, you might just identify some great long-term investments. And, they won’t be the “obvious” ones.
Where to look?
I spent a lot of time during the holiday season vigorously analyzing a list of my favorite companies (to buy those stocks) and investment segments (to invest in through ETFs). While I can’t discuss much in terms of specific names in this space, I can tell you what some of the common features I am looking for.
First, they have been market laggards. Not only last year, but for longer than that. They are also businesses and market segments that have clear competitive advantages over their peers. Warren Buffett refers to these as companies with “wide moats.”
I am looking around the globe, since the combination of lagging non-U.S. markets and the suddenly sagging Dollar is intriguing. Frankly, anything that is not considered “Large Cap Growth” is a good starting point. That asset segment has been so dominant, history implies that any further gains will come with much higher risk of disappointment than we’ve seen in a decade or longer.
Anyone? Anyone? Bueller?
For many investors, commodities and currencies are a sort of “investment of last resort.” They are an afterthought compared to traditional stock and bond investments. But as the movie character Ferris Bueller once said, “if you don’t stop and look around once in a while, you could miss it.” He was talking about life. I am talking about wealth. And in 2021 and beyond, that is a great place to start your portfolio strategy.
Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors.
Furey talks medical travel, investment while in Labrador – The Telegram
Local Journalism Initiative
Premier and Liberal Leader Andrew Furey was campaigning in the Big Land on Monday, visiting candidates and groups in Labrador West and Lake Melville.
Furey spoke to the media while he was in Labrador City and covered a variety of topics, including concerns Labradorians have with the Medical Transportation Assistance Program (MTAP).
Last week NL NDP Leader Alison Coffin said her party would remove the requirement for upfront payment by patients and reimbursement for medical flights, which has been referenced as a barrier by people in the region.
When asked by SaltWire how his party would change the program to better meet the needs of Labradorians, Furey said he had met with impacted people while in Labrador West and recognizes there needs to be changes made.
The Liberal leader said when he was working as an orthopedic surgeon they had begun offering clinics in the region to cut down on patient travel, but says more needs to be done.
“When you hear the stories about a child or a loved one with cancer, obviously you can’t have an oncology clinic in every nook and cranny around our beautiful province, but we’re Canadian and everyone deserves a Canadian standard of medical care,” he said.
“That’s part of being Canadian, part of what we’re proud of as Canadians, is that won’t bankrupt you. My government won’t let that happen in the future.”
The district was a close loss for the Liberals in the last election, when NDP Jordan Brown beat then Liberal cabinet minister Graham Letto by only two votes. Former Labrador City mayor Wayne Button is representing the Liberals this time around, and Furey said he has full confidence in Button as a representative for the region as a candidate.
Furey was also asked about InvestNL, an online portal for investors to connect with local entrepreneurs his party had announced earlier in the day.
One of the ways out of the global economic crisis is to continue to bring investment to the province, he said, referencing Labrador West and the mining opportunities there an example of what the province has to offer.
“There is great interest around the world, but we need to make it easy for foreign investments to come to Newfoundland and Labrador by creating a portal to attract foreign investments to the government,” he said. “It’s a virtual trade desk that will link foreign investors with local entrepreneurs and the appropriate people in Newfoundland and Labrador.”
Evan Careen is a Local Journalism Initiative reporter covering Labrador for the SaltWire Network
Conflicts of Interest in The Canadian Investment Industry
Do you know what your investments cost? You would think that the collapse of worldwide markets would have provided a wake-up call to both governments and investors, but that’s not the case.
As a Portfolio Manager for private wealth individuals in Canada, I come across many intelligent and sophisticated individuals who have little, if any clue as to their all-in management fees with their current adviser. Truth be told, you’d probably need a forensic accountant to discover how much your investment adviser earns from managing your money.
The problem is that all-in fee structures are just not transparent, and the Canadian government (unlike other governments in the UK, U.S, Australia) has shown little interest in forcing the industry to simplify its communication of management fees.
The reality is that very few Canadians realize just how much degradation occurs within their investment portfolios as a result of profits being siphoned out via “management”, “trading”, and “trailer” fees into the hands of financial advisers and the financial institutions that they work for.
The biggest culprit of portfolio degradation is the Canadian mutual fund industry itself. Mutual funds became popular in the ’60s and ’70s as investors realized that they could access and tap into professional portfolio managers via a pooled set of funds.
Admittedly, the concept was a good one. The problem today is that financial institutions have bastardized the concept. Thanks to the large fees attached to most mutual funds, investors are almost guaranteed to underperform the market, while bearing most of the downside risk. Meanwhile, the mutual fund companies rake in their profits regardless.
Mutual funds are not the only ones offering fees that are out of proportion to the value of services received.
Many high nets worth investors turn to professional investment managers for tailor-made, customized investment solutions. Under this scenario, investors will often pay an investment fee to the firm. One immediate tax advantage that private wealth firms have over mutual funds is that investment management fees are tax-deductible whereas mutual fund management fees are not. The “tax-deductible” feature enables high net worth individuals who use portfolio managers, to presumably get better quality and service at lower costs.
These are difficult times for private wealth management firms, more so with the larger ones, as they have high operating costs and large overhead to maintain. A sharp depreciation in the value of portfolios and migration of assets from high-margin products to the safety of deposits, money market products, and government bonds, has eroded profits for many of these large firms.
Leave it to the financial services industry though to figure out innovative ways to disguise higher fee structures and market ill-conceived products.
At many large firms, an incentive exists for wealth managers to churn accounts to generate trading fees and commissions. These commissions often serve as a drag on the portfolio and directly convert client principal into fees and commissions for the broker and firm.
Higher trading commissions are often overlooked and downplayed by private wealth firms as simply small, immaterial costs within a ‘Buy and Hold’ portfolio. Make no mistake, high trading fees eat into profits over the long run. Furthermore, it compels portfolio managers to take a “Buy and Hold” philosophy even if the situation does not call for it. It is difficult enough for a portfolio manager to slim positions when the market is in free fall, but it’s that much tougher of a decision if he knows that the account will be further eroded by trading fees. Thus, clients are often left holding the bag much longer on poor performing stocks.
“Proprietary” or “Structured” products have become the next step in the evolution of financial offerings. Most of these are marketed by large financial institutions under the veil that an investor can somehow get the best of all worlds. In truth, these products represent one more way for financial institutions to surreptitiously filter money out of the hands of investors and into their pockets.
The Globe and Mail (“Why Investors Can’t Have It Both Ways” By John Heinzl) recently exposed one such structure product marketed by the Bank Of Montreal, called the BMO Blue Chip GIC. The bank marketed the GIC as a low-risk investment with the potential for large rewards — basically, a “too good to be true” offer. In fact, by the time, you go through all the fine print, an investor, in all likelihood is guaranteed to generate very low returns. The probability of there being some significant upside was highly remote yet the marketing materials focused on the absolute best-case scenario.
Structured products have become so bad that the Securities Exchange Committee (SEC) in the U.S. has launched an investigation into financial institutions that have overcharged individual investors for structured notes while failing to disclose fees, and potential conflicts of interest.
Investment confidence awaits vaccine boost – REMI Network – Real Estate Management Industry Network
A surging second wave of COVID-19 tempered investment confidence in commercial real estate during the fourth quarter of 2020. Newly released results of the REALPAC/FPL Canadian Real Estate Sentiment Survey finds participating senior executives expressing slightly less optimism in market conditions than exhibited three months earlier. Notably, though, data was collected in October before the confirmation of approved vaccines.
In assessing both survey responses and accompanying insight from interviews with more than 50 influential Canadian players, analysts with FPL Advisory Group conclude that some indicators aren’t telling much of a story. In particular, the survey’s conventional focus on real estate asset pricing has shifted more to macro-level observations, but there are more details to report on access to capital.
“Transaction volume remains low, resulting in inconclusive asset valuations. Distressed transaction activity has yet to emerge in Canada,” the survey summary states. “Lenders remain active. There is an increased level of scrutiny during the due diligence process with many less willing to engage in higher risk investments. Equity capital is available; however, investors are increasingly discerning when evaluating investment track records and leverage ratios.”
Analysts also suggest “uncertainty” characterized the October snapshot, but that came with some perspective on a potential stabilizing force. “Many remain hopeful that a vaccine is imminent,” they advise.
Survey respondents — representing owners, asset managers and affiliated professional service providers in all property sectors — collectively nudged the overall index score down to 43 on a scale of 100. Confidence ebbed in both current and future market dynamics compared to the third quarter outlook.
Canadian executives were somewhat more positive about current conditions than were their U.S. counterparts — delivering an index score of 28 versus the U.S. consensus at 27. However, Canadian expectations for a future bounce-back were more modest — translating into an index score of 58 compared to the U.S. score of 61.
Nearly one-third of Canadian respondents deemed market conditions in the fourth quarter to be “much worse” than they had been 12 months earlier. That’s a significant jump from the 13 per cent expressing that view in Q3. Nevertheless, there was a small gain in respondents who perceived conditions were “much better”— climbing to 14 per cent from 10 per cent in Q3.
A larger share of respondents expected a longer-lasting downturn, with 27 per cent suggesting that market conditions will be somewhat or much worse by Q4 2021 compared to 23 per cent in Q3. Accordingly, fewer respondents foresaw “somewhat better” times ahead, with 47 per cent making that prognosis for 12 months in the future versus 51 per cent in Q3. A steady 18 per cent of respondents in both quarters predicted conditions would be about the same one year hence.
Despite the lack of transactions, 86 per cent of respondents pegged asset values at somewhat or much lower than they had been one year earlier. That’s an increase from 72 per cent expressing that view in Q3, which also encompasses a sizeable jump — from 6 to 24 per cent — in the quotient calling values much worse. Looking forward, 35 per cent of respondents expect asset values to drop further during the next 12 months, while 39 per cent of respondents expect “somewhat” improvement. That’s also more pessimistic than Q3.
The report’s selection of anonymous quotes from leading industry sources reiterate many common themes of 2020, including preference for industrial and multi-residential assets, the pandemic’s hard hit on already struggling retail assets and unease about tenants’ prolonged absences from office space. Those are consistent trends among lenders and equity investors, as industry sources note that wariness of office and retail assets is serving up competitive jockeying to lend on industrial and multi-residential assets. Alternative lenders are also forging more presence in the market.
Generally, respondents reported more hurdles to secure capital in Q4, with 69 per cent gauging it was somewhat or much more difficult to get debt financing and 67 per cent saying it was more difficult to obtain equity capital than it was in Q4 2019. Looking forward, 56 per cent anticipate that equity capital will be somewhat or much more abundant by Q4 2021, while 45 per cent expect lenders will be somewhat or much more amenable.
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