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Steel resolve: A hands-off approach to investment gains – The Globe and Mail

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In Ian McEwan’s recent novel, Machines Like Me, the main character buys an advanced robot that winds up competing with him for the affections of his girlfriend while also making a quick fortune by investing in the stock market. Yikes!

While the speed of the robot’s investment success may be unrealistic, there can be no doubt that an investor able to minimize human cognitive weaknesses will outperform over time.

Three related cognitive handicaps that we, as homo sapiens, all share are: difficulty in thinking in terms of probabilities, a tendency to focus on potential losses to the exclusion of possible gains and an overconfidence in our ability to predict the future.

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Successful investing, like machine learning, is based on thinking in terms of probabilities – an activity that is not intuitive for us. Instead, we tend to think in binary, all-or-nothing terms.

In order to estimate the probability of a future outcome, you require a statistically significant sample of data. When investing, this means, at a minimum, examining the relevant facts over a long time period. Typically, we don’t do that. An oft-asked question is, “What did the stock market do today?”

Also, we allow the fear of a loss to trump the likelihood of a gain. This short-term loss aversion was helpful at earlier stages of our evolution, when loss often meant serious injury or death.

The problem is that biological evolution happens extremely slowly. Our minds are hardwired for life in a state of nature, whereas we now live in far different circumstances. In today’s world, we should understand that if someone offers us a coin toss for which a correct call would win us $100 and an incorrect call would cost us $50 (half as much), we should take the bet. Most people will not.

When someone says, “I’d rather be safe than sorry,” it strikes most of us as prudent. If we still lived on the savannah among lions, it would be. However, when it comes to investing capital over the long run, it is typically those who have chosen the perceived safety of cash or bonds who are ultimately sorry – or would be if they compared their return to that of the broad stock market.

Another of our human weaknesses is a stunning overconfidence in our ability to predict the future better than others. As the great Canadian-born economist J.K. Galbraith said, “There are two kinds of forecasters: those who don’t know and those who don’t know that they don’t know.” Most of us fall into the latter category.

When it comes to investing, this overconfidence causes otherwise intelligent people to think they can “time the market,” an activity that is guaranteed to lower your long-term return.

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How do you avoid these cognitive weaknesses? Well, if you are a tax-paying individual and wish to do your own investing, here is a simple, but not necessarily easy, approach.

Set aside, in short-term cash equivalents such as GICs, a buffer account to cover your expenses for one to two years. Invest the balance of your capital in an ultralow-fee global stock index fund or ETF, one that represents all global markets, including the emerging economies.

And then leave your investments alone! As Warren Buffett has wisely said about investing, “Inactivity strikes us as intelligent behaviour.”

A combination of real economic growth, inflation and dividend payments will ensure that you will – over time receive a safe and highly satisfactory return from global stocks. Inactivity is likely to improve your before-tax return and is extremely likely to improve your after-tax return.

However, not touching your investments will be difficult for most people.

It may assist you in staying the course to remember that the price assigned by the stock market to a group of companies will fluctuate around the growing economic value of those companies. The market price is also far more prone to short-term volatility than the economic value. So, more often than not, if the market price falls, your future percentage gain has increased.

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This simple approach may not beat an advanced robot, but over time it should outperform most human investors.

Biff Matthews is chairman, and Doug McCutcheon is president, of Longview Asset Management Ltd., a Toronto-based investment management firm.

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Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX up more than 200 points, U.S. markets also higher

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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