Don't trust anything you can’t prove and other lessons learned from an investing legend

Investment

Don’t trust anything you can’t prove and other lessons learned from an investing legend

Published

1 week ago

May 25, 2023

Megan Johnson

Michael Ryan’s career provides a perspective on how things have changed and how investing principles have remained the same. Photo by Bryan R. Smith/AFP/Getty Images

It’s not often you get a chance to talk to someone who’s been involved in a profession for more than 70 years. But the Vancouver investment community has such a person. Michael Ryan has been a pillar of insight, integrity and sound counsel since the early 1950s, and on June 1, the CFA Society Vancouver is launching an award in his honour: the Michael Ryan Award of Excellence.

Think about it. Ryan started out when luxury cars had fins, the Rolling Stones were in grade school and the NHL had six teams. His career provides a perspective on how things have changed, particularly regarding ethics and the availability of information, and how investing principles have remained the same.

Things were primitive back when he graduated from the University of British Columbia in 1952 with a degree in finance. His first job with a tiny brokerage firm, HJ Bird, lasted exactly a day, but he quickly got a job down the street at Hall Securities. Everything was done on paper and blackboards. Being near a ticker tape machine was a real edge. There was very little business reporting in the newspapers (the Financial Post was a weekly) and prospecting for new clients was done through the mail.

As Ryan recalls, brokerage firms were “a dime a dozen.” In Vancouver, there were “a few national (investment) houses and three local firms trying to do a job for individual investors, and 40 firms trying to do a job on investors.” Forbes magazine once called Vancouver the “Scam Capital of the World.”

Ryan had an analytical bent early on. He read the Wall Street Journal as a youngster and went “halfers” on a set of nine investment books from Barron’s with his school chum, Art Phillips, co-founder of Phillips, Hager & North. “We learned as we went,” he said.

He began doing security analysis when few others did. It was rare to talk to company management or even read an annual report. He tells the story of going to see a company and the CEO sliding the annual report across the table and grumbling, “Read this.” Ryan shocked him by saying he already had and had a question about one of the notes in the auditor’s report. “We became very good friends after that.”

In those days, investors got an edge by getting information nobody else had. Today, there are rules against that, and company information is a commodity. Investment results weren’t rigorously recorded, either. Few people knew what mutual funds were, and their results were reported once a year. Closed-end funds were more common.

Ryan made several other stops along the way, including setting up Ryan Investments, where he trained Murray Leith of Leith Wheeler Investment Counsel. He didn’t have a mentor himself, but mentored many industry notables including Leith, Bill Wheeler and Ken Shields.

Initially, his teachings were about security analysis and markets, but he became an invaluable consultant on management issues. “It was great having Mike around when there was a tough decision to make,” Wheeler said.

In the 1950s and ’60s, it was easier to differentiate your firm than it is today. Ryan Investments’ big edge was U.S. stocks. His small team had the U.S. market to themselves while everyone else was touting mining stocks.

Ryan also worked for Pemberton Securities twice (the second time after it bought his firm) and spent many years at Leith Wheeler. He was at the centre of some important investment milestones, most notably the creation of the Portfolio Management Foundation at UBC, which gives aspiring investors real money to manage and a professional committee to report to (many Canadian business schools have used the UBC template). In mid-May, he was bursting with pride when he told me the initial stake of $300,000 in 1986 had grown to more than $10 million.

A lot has changed during Ryan’s career, but his approach to investing is timeless. He believes you shouldn’t trust anything you can’t prove. “Most portfolio managers and analysts waste about 80 per cent of their time,” he said. “They’re looking at metrics and things that really aren’t that important.” He didn’t accept commonly accepted indicators unless he could prove them. “There are too many loose ideas around. You have to ask questions.”

Along the way, he developed a pension for growth stocks, and learned from Phillips to pay attention to what is now called momentum. Phillips believed a majority of his holdings should be in uptrends. Ryan remembers him saying, “It doesn’t matter if I like the stock. What matters is that others like it.”

As is typical, Ryan is looking ahead, even at 93 years of age. He believes years from now people will be talking about how primitive our work on governance was. “Corporate governance is incredibly important, and we have very poor tools to get at it.” I think you’ll agree, he has the perspective to say that.

Tom Bradley is chair and co-founder of Steadyhand Investment Funds, a company that offers individual investors low-fee investment funds and clear-cut advice. He can be reached at tbradley@steadyhand.com.

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Investment

FIFTY FIFTY's label reportedly seeking investment from Silicon Valley – allkpop

Published

13 mins ago

June 3, 2023

Megan Johnson

FIFTY FIFTY‘s label is reportedly seeking investment from Silicon Valley.

With the explosion of FIFTY FIFTY’s song “Cupid“, the girl group’s label Attrakt has been making more connections overseas. Following their partnership with Warner USA and their appearance on the ‘Barbie‘ movie soundtrack, FIFTY FIFTY are reportedly seeking investments from Silicon Valley.

Attrakt is in fundraising talks with a venture capital firm in Silicon Valley as well as investors in South Korea, and they’ve already raised 2 billion won ($1.5 million USD) from Yes24 Co. and Hansae Co. as well as 900 million won ($689144.49 USD) from Korea Technology Finance. The funds will be used to ramp up global marketing and album production for FIFTY FIFTY.

Stay tuned for updates.

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AI will change how you invest – and what you invest in – The Globe and Mail

Published

1 hour ago

June 3, 2023

Megan Johnson

While investors around the world rallied in the aftermath of the COVID-19 market crash, Scott Juds’s artificial intelligence-driven ETF was languishing.

The WIZ Bull-Rider Bear-Fighter Index, which uses AI to track changes in markets that determine whether it should shift its portfolio of exchange-traded funds to skew either more aggressive or conservative, suddenly couldn’t make sense of the data after an aberration as large as COVID-19.

“You had the initial shock of things which was followed by a series of closings and openings,” said Mr. Juds, the co-founder of Merlyn.AI, which runs WIZ.

He said the constant back-and-forth threw off the signals that AI use. “When it does that in a period of three months or less, you can’t properly determine momentum.”

As a result, WIZ is up just 7 per cent since its inception in October, 2019. Compare that with the S&P 500, which is up 37 per cent over the same period. Other simple index-tracking ETFs have posted similarly positive returns.

The performance of Mr. Juds’s ETF, which has suffered consistent losses since 2020, has sent investors running. At its peak, WIZ and DUDE (another Merlyn.AI ETF) had assets-under-management values of roughly US$250-million. Today, it’s just US$50-million.

But with AI constantly learning and big tweaks being made to the software with help from advisers, Mr. Juds is optimistic and said there has been considerable new interest in his products as long as they remain steady in the near future.

While multiple AI-driven ETFs have so far failed to beat the market, people like Mr. Juds still believe AI will be able to look through cluttered data to make investment decisions and eventually extract the best gains. Others believe it’ll be revolutionary for the user experience by giving retail investors greater education and control in customizing their portfolio while guiding them through different risk profiles.

Artificial intelligence has been one of many tools that large investing firms have consulted for years, but the popularity of ChatGPT has brought discussions of how AI can be relevant to investors at the retail level.

Mr. Juds said AI’s ability to find opportunities is rooted in the signal-to-noise ratio in investing.

There are countless data points in the world of equities that are simply background noise: They don’t mean anything. But buried deep within are valuable signals that point to meaningful investment opportunities in specific sectors.

“A very small signal like a tenth of a per cent in one day trend could get a 25-per-cent gain over a year,” said Mr. Juds. “But a 0.1-per-cent change in the market, that can get lost.”

Will AI take over the world? And other questions Canadians are asking Google about the technology

There are still people who remain skeptical about whether AI can actually bring greater returns simply by trying to make smarter or quicker trades.

Joel Blit, an associate professor at the University of Waterloo specializing in the economics of innovation, said there’s an old adage that fund managers are no better than monkeys when it comes to picking stocks.

“Why would we think that an AI system would be any better? If they can parse through large amounts of data and find the needle in the haystack, then presumably they could do better,” said Prof. Blit, but he said there are examples of AI stock pickers that have been unable to beat the market so far.

When it comes to faster trading times, Prof. Blit said that if every big hedge fund had ultrapowerful AI making quick trades to make the best gains, then everyone having similarly powerful programming could negate any real increase in returns.

On the flip side, if AI reads too deeply into certain signals and makes ill-conceived decisions, it could lead to more market volatility.

“If there’s some kind of signal that’s heavily correlated to past bear performance in the market and all of a sudden all these algorithms start selling at once, it could lead to a major market collapse,” said Prof. Blit.

That’s why a whole other world of AI experts see a different potential for the technology: to bring knowledge that has always been inaccessible and dense to the everyday investor in a way that’s personalized and meant to help guide investing strategy.

This form of AI could help someone figure out if their portfolio is too heavily weighted to a certain sector, or is too susceptible to changes in the credit market or an economic downturn.

Companies such as Global Predictions are already providing advice to thousands of investors with billions of dollars, with input from AI.

Led by Canadian chief executive officer and co-founder Alexander Harmsen and based in San Francisco, the company created an AI-driven platform to help people make future investing decisions.

The program, called PortfolioPilot, allows people to simply plug in the details of their financial life such as their debt, real estate and investment accounts to receive nuanced advice on whether the investments they’re making actually match the goals and risk appetite they have.

A new ChatGPT plug-in by the company allows people to have basic conversations with an AI that can make similar suggestions, simply by reading a copy and paste of your investing statements. If you have a couple extra thousand dollars you’re looking to invest, it can give you suggestions based on your existing portfolio about where to spend next.

The idea builds on the already-revolutionary effect that robo-advisers and simple investing products such as ETFs have had on making it easier to be a self-directed investor.

“The main value in AI is about personalization and being able to democratize access to this sort of expertise,” said Mr. Harmsen.

“We can reflect back to people that you’re not diversified enough or that your risk-adjusted return you’re taking isn’t high enough. We feel people need that extra step of, ‘Here’s a couple things you can do to improve your portfolio.’”

PortfolioPilot is free to use and has advised roughly 5,500 users with more than US$3.4-billion in assets. The company plans to eventually make money by releasing its own set of AI-guided ETFs.

Mr. Harmsen doesn’t see AI bringing human wealth managers to extinction. But he does hope it could push wealth managers to step up their game by increasing interactions with clients, lowering fees and moving away from simple risk-profile categories for investors to choose from, and instead allow for more personalized approaches to portfolios.

Already, he’s seen interest from portfolio managers who’d like to use his program.

Reducing ‘risk of extinction’ from AI should be on par with pandemics, nuclear war, experts warn

Edward Kholodenko, CEO of Questrade, said he sees client experience as the lowest hanging fruit where AI can make a difference. That includes helping clients understand how to make trades or how to complete a certain function on the company’s website.

He said Questrade is also developing and using AI internally, but providing advice to the public could be tricky because there are no regulations around the technology or its use of user data.

“It’s an area you have to be very, very careful … in terms of mining and using the data. We’re examining how to use the data to help our customers become more successful and financially secure,” said Mr. Kholodenko.

James Rockwood, founder and CEO of the fintech company CapIntel, said another obstacle is ensuring that AI remains compliant with rules if it were to directly provide financial advice, a service that is heavily regulated.

“People talk about how ChatGPT is so confident in everything it says but it doesn’t yet know if what it says is correct,” said Mr. Rockwood.

“You could run into issues where an AI could say something like, ‘This guarantees 100-per-cent returns,’ and a person can land in hot water.”

The Globe and Mail reached out to the Office of the Superintendent of Financial Institutions and the Canadian Securities Administrators, but neither regulatory body provided comment on whether national regulations for AI usage in Canada are coming.

A study commissioned by the Autorité des marchés financiers, Quebec’s financial regulatory body, and undertaken by the University of Montreal and Polytechnique Montréal, recommended the government create a framework for the use of AI that would identify unacceptable practices and data regulations for the use of this technology.

Depending on self-thinking robots for investment decisions certainly doesn’t come without risks. Mr. Kholodenko said investors should have a sober approach to AI, since people could create bots that push people to buy products that are not in their best interest.

And already, there are multiple get-rich-quick schemes online that have little proof of working.

One thing that experts agree on is that AI technology is in its infancy. As the technology develops and the amount of historical data that AI is able to access continues to grow, Mr. Rockwood said any prediction about where AI will prove to be most valuable in the financial world is simply that: a prediction.

“I don’t think anybody is talking about what AI is today when they’re having these discussions,” he said. “They’re talking about what could happen in the future, and that future has such a wide set of potential outcomes.”

Investing 101: A beginner’s guide to growing your money

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Invest Like Warren Buffett With These 3 Stocks

Published

10 hours ago

June 2, 2023

Megan Johnson

Warren Buffett, commonly known as the Oracle of Omaha, is a familiar name to many when thinking of the financial world.

Of course, many mimic his portfolio moves.

One of his purchases in particular, Occidental Petroleum OXY, has gained widespread attention over the last year amid volatile energy prices.

And it seems that the Oracle of Omaha can’t stay away from the stock; Berkshire has been buying more OXY throughout May, now holding roughly 2.2 million shares, reflecting a 25% stake in the company.

In addition to OXY, two other stocks that the legendary investor has placed big bets on include Coca-Cola KO and Apple AAPL.

For those interested in investing like Buffett, let’s take a closer look at each.

Occidental Petroleum

Buffett’s been in the headlines numerous times over the last year regarding his OXY purchases. Still, it’s worth noting that the Oracle of Omaha said there were no plans to fully acquire the company at the latest annual shareholder meeting,

OXY posted lighter-than-expected results in its latest release amid falling energy prices, with the company falling short of the Zacks Consensus EPS Estimate by roughly 16% and posting a negative -3.7% revenue surprise.