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Investing Horror Stories – And the Lessons They Teach: 2022 – Morningstar.ca

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Zoombies I, II and (maybe) III

The story of how I Zoom-ed to Heaven, Hell, and Back Again

In 2018 Morningstar replaced its legacy video conferencing system with a newfangled system called Zoom (ZM). It was immediately clear that Zoom worked far better than its predecessor. In April 2019 I did a little bit of research and learned that Zoom’s corporate clients numbered in the hundreds. Hundreds?! I thought that every big company in America should be using this product. I read a research report from a big brokerage firm (Morningstar was not yet covering the stock) and decided to dip my toe in the water with a purchase of 200 shares at $67. 

Most stocks plummeted when the COVID-19 bear market hit in March 2020, but Zoom merely dipped, then took off like a rocket as it became clear white-collar workers would have to operate from home for an extended period. COVID was a perfect storm for Zoom.

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Meanwhile, the bargain hunter in me said, “Zoom is great, but some stocks I’ve wanted to own are now cheap and Zoom looks expensive based on Morningstar’s analysis.” So on March 12, 2020, I sold Zoom at $113. I used the proceeds to buy shares in iShares Russell 2000 (IWM), a small-cap index ETF. 

By October ZM’s price had risen to $559. I was kicking myself. How had I blown it on a once-in-decade pick—which I had gotten right at first? I kept telling myself that I’m a long-term investor and it would be OK. Zoom would come down to earth again.

It took the 2022 bear market to bring Zoom’s valuation back down. According to both Morningstar and that other brokerage research, the stock is significantly undervalued. I bought more shares at $73.47 in September. This time I’m going to hold on until the market price approaches the target price or my thesis about the company changes. I did not sell IWM to fund the ZM purchase. My investment in IWM has returned 53% (cumulative) since April 2020.

Trading Zoom for the Russell 2000 felt like a big mistake for a long time. At the moment I feel vindicated, but who knows, this time next year we could be discussing an even more horrifying sequel!

-Stock Investing Mistake submitted by Syl Flood, Editorial Director for Morningstar

Haunted House

House of Rising Horror – An Investment Lesson on Adjustable Mortgages

You can only watch as your mortgage payments go higher. And higher. And higher!

My Halloween horror story this year (with which I’m sure many can relate) has to do with the rise in interest rates. Central banks everywhere have been raising their benchmark rates in a fight against fight inflation.

The clearest impact of this rise in interest rates (at least in my case) is the increase in the cost of my mortgage (I have a variable mortgage, the most common in Spain, linked to the Euribor). In my case this rise in my mortgage will coincide with Halloween. The bank has already sent me a simulation. In November I will pay 16% more than in October. It is a lot!

It’s not all bad, though. If you look at a chart of the Euribor you will realize that we are simply returning to normal, because in these past years, I have been enjoying the benefits of falling interest rates. The lesson to be learned here that after strong gains there can also be strong losses.

-Investing lesson submitted by Fernando Luque, senior investment analyst for Morningstar Spain

Carniverous Plant

Little Weed of Horror – Another Stock Mistake Story

Not all purchases make sense – both for investors, and companies.

The recent push from U.S. President Joe Biden on marijuana reform was likely bittersweet for most cannabis investors who’ve stuck it out only to watch their stocks flounder for years. These slow burns can be an annoyance, but if you’re optimistic and a long-term investor, you can at least hang onto the hope of a return in value, or more. This, however, does not apply to those who held cannabis stocks that were horror stories.

One trade that haunts me was my purchase of iAnthus (IAN) (this was when it was still cool to add “i” at the start of a name). The company had a great plan to expand and many dispensaries throughout multiple states but perhaps grew too quickly… and expensively. Not long after the company made a “transformational” acquisition of a competitor for US$1.6 billion, the stock tanked.

The following year, iAnthus announced it had defaulted on a US$4.4 million interest payment. Later that same year, shareholders were informed they now collectively held only 2.75% of the equity after a recapitalization agreement. I still have most of my original shares. They’re now worth more as a (very) small reminder to tread carefully in risky stocks.

– Stock Investing Mistake submitted by Andrew Willis, Senior Editor for Morningstar Canada

Ghost

The BooHooDook

Sometimes, the company’s name can tell you what to expect – or why value chain scares can leave investors in tears 

Here in the UK, online apparel retailer Boohoo (BOO) has fast become a case study of how environmental, social and governance issues – both within the company and in its wider value chain – can cause nightmares for shareholders. Boohoo grew rapidly after floating on the London Stock Exchange in 2014 and its share price grew from an IPO price of £0.50 to an all-time high of over £4.00 in 2020.

Skeptics have long asked questions about whether the “fast fashion” sector Boohoo occupies can ever truly be sustainable, given the negative environmental impact of producing clothes to be worn a few times and quickly discarded. Despite this, the company was rated highly on its ESG credentials by several agencies and included in many sustainable investment funds. However, in July of 2020, significant failings in Boohoo’s UK clothing supply chain came to light including evidence of unsafe working conditions, illegal pay practices and modern slavery.

Boohoo’s share price fell by 33% in two days after the news broke. Subsequent governance concerns have helped drive the price well below its IPO level today – more than 90% down from its peak. There is much debate these days about how investors should identify which ESG risks are “financially material”. What’s clear from the Boohoo scandal is that ESG risks certainly can switch from having high social or environmental impact to having a huge share price impact, often very quickly and with little warning. It’s also clear that investors need to keep an eye not just on what the companies they invest in are doing, but also on what’s happening in their value chain – within the companies, communities and natural assets that their investee companies rely on. It’s something investors need to keep a close eye on, or else the “Boohoo effect” could cause your portfolio some misery. 

– Story submitted by Lindsey Stewart, Morningstar’s director of investment stewardship research.

Horror

Let the Right Fund In – An Investment Lesson to Live By

Make sure you know what you’re buying – before you buy it!

My Halloween Horror Story is like a bad horror movie – you’ll be screaming at your screen that I should RUN AWAY from the second sentence, this being the first.

On the Second of June, 2021, deciding I had diamond hands,���� I bought what I thought was a regular Bitcoin ETF. It was helpfully called the Betapro Bitcoin ETF (HBIT). Reader, it was not a regular Bitcoin ETF. According to the fund house literature, “BetaPro ETFs offer daily leveraged (up to 2x), inverse (-1x) and inverse leveraged (up to -2x) exposure across a variety of indices, sectors, asset classes and commodities.”

Long story short, in the 5 days I owned it, Bitcoin lost 12%, my investment was down 17%. Needless today, I immediately sold, and ran back into my diversified equity ETF. Lessons: Never buy what you don’t THOROUGHLY understand, and always, ALWAYS do your research.

– Investing lesson submitted by Ruth Saldanha, Editorial Manager for Morningstar Canada. 

Explosion

The Camecoville Horror

When things go nuclear – very, VERY slowly

I started covering Cameco Corp (CCO) in 2017, though we had been covering the stock consistently since 2008 under a couple of other analysts. The unfortunate 2011 Fukushima nuclear disaster led to a shift on the market’s outlook on the future of nuclear. Prices bled from $70 per pound of uranium prior to the accident to less than half by November 2016, leading Cameco shares to fall 80% over that period.

By then, we saw shares at severely discounted, as the market seemed to price in permanently lower uranium prices. But we continued to argue those prices were unsustainable even as shares dipped even lower. But it wasn’t until the election of U.S. President Biden that sentiment finally turned, shares surging 40% by year end. Uranium prices have improved too, now hitting levels not seen since the early 2010s.

No doubt many investors grew frustrated with how long the story took to play out. Patience is hard, and many investors lose conviction in the face of time and second guess that their thesis was ever right.

– Story submitted by ESG analyst Kristoffer Inton

Old Phone 

Don’t Answer the Phone – A Near Stock Investing Mistake

The call isn’t coming from inside the house, but from a scammer who could be 10,000 miles away – or next door.

Earlier this month, I was eating a pizza with a friend in Turin. She told me that she had received a phone call from ‘Mr. Amazon’ who pitched to her an opportunity to invest in Amazon (AMZN) stock. She hadn’t invested in stocks before, but was intrigued because, in her own words, “Amazon is a large company with a worldwide presence and I often purchase goods through Amazon”. But then, a question arose in her mind, and she asked me: “Why is Mr. Amazon calling me? How did he get my phone number?” Readers, it was not ‘Mr. Amazon,’ but an investment scam, aimed at getting her to hand over money.

The fact is, investment scams are ubiquitous, and are getting more complex each day. They can seem perfectly legitimate, complete with websites, testimonials and marketing material. Luckily, there are some warning signs that you can use to avoid falling victim to these predators. Here’s a list of some, not all, possible red flags: 

  • Unsolicited approaches – these could be offers by phone call, text message, email, or a person knocking on your door.
  • Vague or unclear answers to your questions.
  • Persistent phone calls from the operator trying to induce you to invest (so-called Cold Calling)
  • Demands that you make a quick decision.
  • The firm or operator doesn’t allow you to call them back, or you are given with only a mobile phone number to contact them.
  • The information provided is not confirmed on the firm’s website.
  • You’re being offered a high return on your investment, but you are told it’s low risk.
  • You’re promised easily achievable returns and incentives to entice you to invest.
  • It is harder to spot, because many of these are sophisticated, but the reviews could be faked, as could the “other clients who have already signed up to this great, unique opportunity.”
  • In longer term scams, the perpetrators might try to build friendship with you to lull you into a false sense of security.

In short, be vigilant, and don’t part with your hard-earned money unless you’re absolutely sure it isn’t a scam!

– Investing lesson submitted by Sara Silano, Editorial Manager for Morningstar Italy

Dark train

Train to Brexit

If you trade more aggressively and frequently in volatile market conditions, you’ll end up in the bad place.

At Halloween we enjoy being frightened, but fear and surprise tend to lead to stock investing mistakes. When we are frightened we tend to respond in one of three predictable ways: we either try to fight off whatever is scaring us, we flee or we freeze. Professional investors often opt to ‘fight’, which in reality means trading more frequently and more aggressively. In volatile market conditions, this can lead to terrible outcomes.

Given the current political and economic turmoil in the UK, the Brexit referendum in 2016 provide a good example of how a fight response can lead to poor outcomes. I know of portfolio managers that stayed up all night trading in response to each twist and turn of the referendum results in the belief that they could create additional returns by identifying likely changes in market prices and acting more quickly than other investors. This combination of caffeine-fueled over-confidence, a short term horizon and lack of sleep cost their clients dearly.

If horror films have taught us anything, it is that when we are scared we tend to make poor decisions. Investment decisions should be made when we calm and well rested and able to focus on the long term. Such an approach is a poor plot for a movie, but a good way to secure one’s financial future.

Story submitted by Dan Kemp, Global CIO for Morningstar Investment Management

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The new rules of investment – The Economist

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High inflation, amid warnings of a global recession, is forcing investors to tear up the rule book. Since the financial crisis, bonds have been seen as a safe bet—even if they did not promise much of a return. Equity markets, led by soaring tech stocks, were where fortunes were made. Both have plunged this year.

In a world where rising interest rates have left governments worrying about how to afford their debts, and companies will struggle to raise cash, investors need new strategies.

On this week’s podcast, hosts Alice Fulwood, Soumaya Keynes and Mike Bird ask what those new rules of investing look like. Wei Li, global chief investment strategist for the world’s biggest investor, BlackRock, argues this new macroeconomic era is here to stay. And Mohamed El-Erian, chief economic adviser to Allianz, says investors need to focus on picking winners within stocks and bonds. Runtime: 39 min

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Sign up for our new weekly newsletter dissecting the big themes in markets, business and the economy at www.economist.com/moneytalks

For full access to print, digital and audio editions, subscribe to The Economist at www.economist.com/podcastoffer

Listen on: Apple Podcasts | Spotify | Google | Stitcher | TuneIn

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Proposed sovereignty act could scare off investment: Calgary chamber – Calgary Sun

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‘We still don’t see how an act like this contributes to economic growth,’ said chamber President and CEO Deborah Yedlin

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The Alberta Sovereignty within a United Canada Act, tabled by Premier Danielle Smith on Tuesday, could drive investment out of the province, the Calgary Chamber of Commerce warns.

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Chamber president and CEO Deborah Yedlin said the bill, which would allow cabinet to issue directives to disregard federal initiatives, would not help businesses attract investment or employees should it pass the legislature.

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“We still don’t see how an act like this contributes to economic growth,” said Yedlin, adding that Alberta competes around the world for labour and capital, and that any hints of uncompetitiveness or uncertainty could cause the province to be seen as an unfavourable jurisdiction to invest in.

The act was the keystone policy of Smith’s leadership campaign this summer. If passed, Bill 1 would allow ministers to bring motions forward to the Alberta legislature to debate whether a federal initiative is unconstitutional or harmful to Alberta. If the initiative is deemed as such, the legislature could pass a resolution that would direct cabinet to take action, which could include issuing directives to public entities to not enforce the federal policy.

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Government documents argue the bill would not do anything to harm Alberta’s economy. The premier’s office did not return requests for comment Wednesday.

  1. Alberta Premier Danielle Smith makes her way to a press conference after the Speech from the Throne in Edmonton, on Tuesday, November 29, 2022.

    Smith introduces flagship Alberta Sovereignty Within a United Canada Act, giving cabinet new power

  2. Prime Minister Justin Trudeau at the APEC summit in Bangkok, Thailand on Friday, Nov. 18, 2022. THE CANADIAN PRESS/Sean Kilpatrick

    Trudeau says Ottawa ‘not looking for a fight’ on Alberta Sovereignty Act

  3. Alberta Premier Danielle Smith speaks at a press conference after the Speech from the Throne in Edmonton, on Tuesday, November 29, 2022.

    A look at how Alberta’s proposed sovereignty act would work

  4. The Fourth Session of the 30th Legislature opened on November 29, 2022, with Her Honour the Honourable Salma Lakhani, Lieutenant Governor of Alberta, delivering the Throne Speech.

    Alberta Lt.-Gov. Salma Lakhani delivers Throne Speech focused on affordability, health-care reform, jobs, and fighting Ottawa

Speaking Tuesday, Smith said the bill is intended to put Ottawa on notice about provincial jurisdiction and ensure they are equal partners within Canada’s Constitution.

Yedlin argued the act does not allow for constructive conversations with the federal government and that all levels of government need to collaborate to make Alberta an attractive place to invest and to work, stating the province has to compete with jurisdictions from all corners of the globe.

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“This could cause us problems within Canada with other provinces, as well as with Ottawa. That’s not what we need right now,” said Yedlin. “We have worked with Ottawa in the past, perhaps not to Premier Smith’s satisfaction, but I would argue that, you know, let’s dial back.”

Yedlin said Quebec lost investment when that province grappled with the idea of separation. She said that while Smith’s bill makes it clear it is not about separating, just the idea of uncertainty could cause investors to look elsewhere.

Calgary Chamber CEO Deborah Yedlin.
Calgary Chamber CEO Deborah Yedlin. Azin Ghaffari/Postmedia

Lisa Baiton, president and CEO of the Canadian Association of Petroleum Producers, said they are taking time to review the bill with their members. She said they are concerned about any policy that has the potential to create uncertainty for investors.

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“It is important for governments at all levels to work together with the industry in order to attract investment back into Canada,” said Baiton.

Finance Minister Travis Toews was critical of the sovereignty act while he ran against Smith in the leadership contest. At the time, he argued the bill would bring “economic chaos” to Alberta.

On Wednesday, he acknowledged he had legitimate concerns during the summer but said he has since had full opportunity to participate in the development of the bill along with his caucus colleagues, and that it addresses his previous concerns.

For me to support this bill it has to be constitutional, support the rule of law and not create business uncertainty. This bill, as proposed, addresses these concerns,” Toews said in a statement.

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Alberta Finance Minister Travis Toews, file photo.
Alberta Finance Minister Travis Toews, file photo. Darren Makowichuk/Postmedia

Meanwhile, several groups that could fall under the “public entity” definition of the act and could be subject to ministerial directives said they need to read the bill further before providing comment.

University of Calgary representatives said the school was reviewing the bill and will seek clarity on its application if passed. Mount Royal University representatives said they, too, are reviewing the bill and will work with the province on how it applies to post-secondary institutions.

The Rural Municipalities of Alberta declined to provide comment. While speaking at an unrelated news conference, Leduc Mayor Bob Young said they hadn’t had a chance to look at the bill and how it would affect municipalities.

Alberta Municipalities said they are reviewing the bill and that it appears to allow the cabinet to direct municipalities to not enforce federal laws. They said they may have more to say once their analysts have fully reviewed the legislation.

dshort@postmedia.com

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Clinton Orr, Canaccord Genuity, earns Canada’s Top Wealth Advisor award

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Clinton Orr is a Senior Portfolio Manager and Senior Wealth Advisor, CFP, CIM, DMA, DMS, with Canaccord Genuity Wealth Management. Recently, he was recognized as one of Canada’s Top Wealth Advisors in the province. The recognition is based on an independent affirmation of his ongoing commitment to his clients and their financial success.

This prestigious award is given based on a number of factors, including client service and best practices, industry experience, and growth. This has established Orr and his firm as a leader in the wealth management industry.

Canada’s Top Wealth Advisors ranking is developed and distributed by SHOOK Research, and is based on in-person, virtual, and telephone due diligence meetings and ranking algorithms. This algorithm factors in client retention, industry experience, review of compliance records, and firm nominations.

Quantitative criteria include assets that are under management as well as revenue generated for their firms. Investment performance is not considered criteria, because client objectives and risk tolerances vary, and advisors often don’t have audited performance reports.

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Who is Clinton Orr?

Clinton Orr is a financial services professional who earned his start in the industry in 2003. He is a founding member of Becker Orr Wealth Management, a branch of Canaccord Wealth Management, and is a Senior Wealth Advisor and Senior Portfolio Manager with Canaccord Genuity.

Clinton Orr has been able to successfully establish relationships with his clients, who consist of business owners, retirees and professionals. His success in the wealth management space has been achieved through dedication, hard work, a love for the profession, and genuine compassion and caring for his clients.

Orr has been able to set himself apart by developing a strong team and utilizing a unique process called Financial Architecture, which allows him and his team to build customized financial plans that address all of their clients’ needs.

Orr earned a Bachelor’s of Commerce degree and has earned professional designations in financial planning, investment management, and derivatives markets. He has previously been recognized for his efforts in 2021, winning the Wealth Management Advisor of the Year for Canada, as a part of Finance Monthly’s Global Awards. He was also the central region winner of the Client Dedication Award presented by Canaccord Genuity.

Orr is a regular contributor to the Clipper Weekly, providing his professional insights in a regular column that is published monthly. He also makes regular appearances on Global News Winnipeg.

Orr lives with his wife, Jodi, in rural Manitoba where they operate their own charitable initiative, the Pet Life Animal Fund. Both are passionate dog lovers who enjoy giving back.

When Clinton Orr isn’t working, he trains in Jiu-Jitsu and currently holds a blue belt. He and his wife also enjoy spending plenty of time together watching the Winnipeg Jets and the Winnipeg Blue Bombers.

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