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Five times investing professionals got it wrong — very wrong – Financial Post

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Peter Hodson: The investment game — even for professionals — is never an easy one

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Have you ever made a very bad investment call? Sure, you have. We all have. Frankly, if you say you’ve never made any mistakes, then you aren’t trying hard enough, or you’re just lying. Otherwise, we would see your name at the top of all the world’s richest people lists.

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But what about making a very public — and very wrong — investment call? Luckily for you, most of your mistakes are very private. Maybe not even your spouse knows about that time you lost $5,000 on a penny mining stock you heard about at a dinner party one day and bought with no research. But mistakes by investment industry professionals can be very public: splashed across research reports, talked about on television, and discussed and ridiculed in investment forums. It’s not fun making a mistake that is so widely known.

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Sometimes, investment calls are just so wrong that they follow analysts and companies around for years. Let’s look at some absolute doozies over the years. We’ve chosen five, but, trust us, there are hundreds we could have chosen from. We’re not picking on anyone here, and we’re going to leave out names (Google will know if you really want the details). We just want to remind readers that the investment game — even for professionals — is never an easy one.

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‘China internet stocks are uninvestable’

We’ll start with a very recent one. Just last week, with the threat of sanctions on China and the likelihood of market delistings in the United States, an extremely large and well-known U.S. investment bank put out a research note on March 14 saying the entire sector was ‘uninvestable.’

Talk about bad timing. Less than 48 hours after the research note was public, China announced a series of measures designed to prop up its financial markets and maintain international stock-market listings. Most Chinese stocks soared, some even had their biggest gains ever, as the index representing the sector had its biggest gain since 2008. Clients of the investment bank who sold missed out on gains of 30 to 40 per cent in less than 10 days. Ouch.

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‘The gold is there, I’ve seen it’

We have to go way back to 1997 for this one, and the infamous Bre-X Minerals Ltd. mining fraud. A very well-known analyst from a large Canadian bank drew a line in the sand with his famous quote above. But, of course, the gold wasn’t there, and $6 billion in stock disappeared as Bre-X went bankrupt. Still, 25 years later, no one has ever been convicted in this giant fraud.

The analyst carried the burden of that call around for years, but it hasn’t impacted him too much: he still works in the industry. And we must give him some slack. Part of the fraud was that someone was “salting” the cores, which involves adding gold to an ore sample. The analyst certainly could have “seen” some gold, but couldn’t have known that the gold in the sample came from elsewhere.

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‘Sell everything’

In 2016, a very large bank in the United Kingdom came out with a giant research report with the ominous title Sell Everything. It caused a stir as banks are usually conservative and the report oozed a sense of panic. Lots of readers thought it was a joke. But the bank was deadly serious. It was worried about lots of things, and to quote the report: “Investors face a cataclysmic year, and markets could fall 20 per cent. Oil could fall to US$16 per barrel.”

How did this call work out? Well, the S&P 500 has nearly tripled since the report, and oil, of course, is sitting around US$110 today. We’re not sure if the authors of this report still work in the industry.

‘Sell Netflix and buy Blockbuster’

We love this one, because it was so wrong, and the author of the research report refused to give up, reiterating his call 12 different times even as Netlfix Inc. shares soared, and Blockbuster LLC shares plummeted towards bankruptcy. It’s a good lesson to learn, in that the market is always right, even if you think you’re the one who is right.

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This was a call from a research analyst at a global investment bank in the mid-2000s. Investors who followed it bought a stock that went to $0, and sold a stock that has risen almost 31,500 per cent since going public in 2001. But the analyst was not the only one who got this wrong. Blockbuster, it is widely rumoured, turned down a chance to buy Netflix for US$50 million. It is worth US$170 billion today.

The economy is not likely to recover ‘for 20 or 30 years’

Even investment firms can make very public mistakes. In April 2009, in the middle of the great financial crisis, a very well-known mutual- and hedge-fund company hosted a gala evening called A Night with The Bears. About 3,000 guests gathered at a fancy Toronto theatre, sipped champagne and listened to five famous short sellers who were espousing doom and gloom in the middle of the market downturn. One speaker noted the economy was not likely to recover “for 20 or 30 years.”

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We attended this event, and it was very depressing. Walking out of the theatre, guests must have wondered why they owned anything at all. The world — according to the guest speakers — was indeed truly ending. Well, neither the fund company nor the guests knew it at the time, but this event was held less than a month after the absolute market bottom. Since then, the Dow Jones index is up almost six-fold. Another lesson here: When everyone is bearish, it is time to buy.

Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)

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Zacks Investment Ideas feature highlights: Alphabet, Tesla, Shopify, Amazon and Palo Alto

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For Immediate Release

Chicago, IL – February 2, 2023 – Today, Zacks Investment Ideas feature highlights Alphabet GOOGL, Tesla TSLA, Shopify SHOP, Amazon AMZN and Palo Alto Networks PANW.

Which of These Stocks Has Been the Best Buy, Post-Split?

Stock splits have been a regular occurrence in the market over the last several years, with many companies aiming to boost liquidity within shares and knock down barriers for potential investors.

Of course, it’s important to remember that a split doesn’t directly impact a company’s financial standing or performance.

In 2022, several companies performed splits, including Alphabet, Tesla, Shopify, Amazon and Palo Alto Networks. Below is a chart illustrating the performance of all five stocks over the last year, with the S&P 500 blended in as a benchmark.

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As we can see, PANW shares have been the best performers over the last year, the only to outperform the general market.

However, which has turned in a better performance post-split? Let’s take a closer look.

Tesla

We’re all familiar with Tesla, which has revolutionized the EV (electric vehicle) industry. It’s been one of the best-performing stocks over the last decade, quickly becoming a favorite among investors.

Earlier in June of 2022, the mega-popular EV manufacturer announced that its board approved a three-for-one stock split; shares began trading on a split-adjusted basis on August 25th, 2022.

Since the split, Tesla shares have lost roughly 40% in value, widely underperforming relative to the S&P 500.

Palo Alto Networks

Palo Alto Networks offers network security solutions to enterprises, service providers, and government entities worldwide.

PANW’s three-for-one stock split in mid-September seemingly flew under the radar. The company’s shares started trading on a split-adjusted basis on September 14th, 2022.

Following the split, PANW shares have struggled to gain traction, down roughly 15% compared to the S&P 500’s 3.3% gain.

Shopify

Shopify provides a multi-tenant, cloud-based, multi-channel e-commerce platform for small and medium-sized businesses.

SHOP shares started trading on a split-adjusted basis on June 29th, 2022; the company performed a 10-for-1 split.

Impressively, Shopify shares have soared for a 50% gain since the split, crushing the general market’s performance.

Alphabet

Alphabet has evolved from primarily being a search engine into a company with operations in cloud computing, ad-based video and music streaming, autonomous vehicles, and more.

Last February, the tech titan announced a 20-for-1 split, and investors cheered on the news – GOOGL shares climbed 7% the day following the announcement. Shares started trading on a split-adjusted basis on July 18th, 2022.

Alphabet shares have sailed through challenging waters since the split, down 10% and lagging behind the S&P 500.

Amazon

Amazon has evolved into an e-commerce giant with global operations. The company also enjoys a dominant position within the cloud computing space with its Amazon Web Services (AWS) operations.

AMZN’s 20-for-1 split was a bit of a surprise, as it was the company’s first split since 1999. Shares started trading on a split-adjusted basis on June 6th, 2022.

Following the split, Amazon shares have lost roughly 18% in value, well off the general market’s performance.

Bottom Line

Stock splits are typically exciting announcements that investors can receive, with companies aiming to boost liquidity within shares.

Interestingly enough, only Shopify shares reside in the green post-split of the five listed.

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Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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$13 million investment in Campbellford Memorial Hospital

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The Campbellford Memorial Hospital will be receiving a $13 million investment from the Ontario Government to address infrastructure concerns.

The announcement was made at the hospital by Northumberland—Peterborough South MPP David Piccini.

The $13 million is broken down as follows:

  • $9,639,900 will be going to CMH as one-time capital funding to address the HVAC and generator
  • $1,874,929 for reimbursement of CMH’s COVID-19-related capital expenses
  • $771,797 in COVID-19 incremental operating funding
  • up to $600,000 in one-time funding to support the hospital’s in-year financial and operating pressures
  • $163,600 in pandemic prevention and containment funding
  • $81,132 through the Health Infrastructure Renewal Fund
  • $46,884 in health human resources funding.

Interim President and CEO Eric Hanna welcomed the news, saying much needs to be done about the HVAC and generator.

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At the announcement, Hanna spoke of the issues with the generator.

“I’ve got the wee little generator up at the lake and then I’m thinking well, everything should be going well at the hospital,” Hanna told the audience in attendance.

“You get a call from the person in charge who says, ‘Guess what Eric? Generator didn’t start. Oh, so what does that mean? There’s no power in the hospital.’  That’s happened a couple of times in the past year and the generator is over 30 years old.”

Hanna says the solution was not as easy as replacing the generator.

“You can go buy the generator and that may be about a million dollars. But then when we found out afterwards, we came to hook up the new generator to the electrical distribution system and said it won’t work with that because your electrical distribution system is 1956. You can’t plug this generator into that. So now we’re putting close to $5 million into a whole electrical distribution system so the generator will work. It’s part of that ongoing thing and that’s why these costs continue to go up.”

The HVAC system was also something addressed by Hanna.

“It’s a contract close to $7 million to replace that. This wing, for example. There’s no fresh air in this wing. It hasn’t worked in here for 15 years. So now this is administrative areas and the concern was that in some of the patient carriers, it wasn’t working either.  So – having those discussions with David (Piccini) and saying what we have to do to correct this.”

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Chile’s Enap Set to Slash Debt Burden That Weighed on Investment

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(Bloomberg) — Enap, Chile’s state oil and gas company, plans to use near-record earnings to slash its debt burden, while increasing investment in its refineries and in exploration and production.

The company aims to reduce its debt load to about $3 billion “medium term” from the current $4.3 billion, Chief Executive Officer Julio Friedmann said in an interview. Plans include a bond sale in the first half of this year to refinance some securities.

The improved financial position — with 2022 profit surging to $575 million — comes after Enap’s oil and gas operations in Egypt, Ecuador and Argentina got a boost from high crude prices, while healthy international refining margins benefited plants in Chile. Those trends are expected to extend into this year and next, enabling the company to pre-pay some short-term obligations. About half of the current debt burden matures in the next three years.

“We are going to issue bonds,” the MIT-trained executive said Wednesday from the Aconcagua refinery in central Chile. “We are closely evaluating the local and international markets.”

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At the same time, Friedmann, who took the reins at Enap in November, plans to increase capital expenditure to about $700 million this year from $550 million last year.

The increase comes after underinvestment in the past few years because of Covid restrictions and the heavy debt load. Spending will focus on making treatment processes cleaner and upgrading infrastructure, as well as a more aggressive approach to increasing gas reserves in the far south of the country, he said.

Gas Markets

Enap plans to expand in both liquefied petroleum gas and natural gas markets in Chile, focusing on the wholesale business and eventually selling directly to large-scale consumers such as mines. Organizational changes to enable the expansion will be announced soon. There are no plans to enter the final distribution business, Friedmann said. The company wants to supply more gas to southern cities as a way of replacing dirtier fuels such as wood and diesel.

Enap and its partners are also preparing pipelines and a refinery near Concepcion to start receiving crude from Argentina’s Neuquen basin sometime this year in an arrangement that could supply as much as 30% of its needs.

While there’s plenty of potential do collaborate more with energy-rich Argentina, particularly in the Magallanes area, that would require greater long-term visibility on supplies from the neighboring country, Friedmann said.

He sees a role for Enap in the development of green hydrogen in Chile. It’s in talks with three companies to enable its facilities in Magallanes to be used to receive all the wind turbines, electrolyzers and other equipment that will be needed to make the clean fuel. Enap is also evaluating its own small pilot plants and will consider whether to take up options to enter other green hydrogen projects as an equity partner.

While the company will maintain its focus on meeting rising demand for traditional fuels, it anticipates new regulation that will require lower emissions. It’s also looking closely at clean-fuel options for aviation, Friedmann said.

(Adds clean fuel plans in last paragraph. I previous version corrected spelling of CEO’s surname.)

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