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Valuation not stories ultimately determines investment returns – Financial Times



The writer is chief executive officer and chief investment officer of Richard Bernstein Advisors 

A prime rule of investing is that return on investment is highest when capital is scarce. In other words, one should want to be the sole banker in a town with 1,000 borrowers. Supply and demand of capital ultimately determines investors’ returns.

Historic US monetary growth has generated tremendous liquidity of capital in the financial system. Given long-term rates are not much higher than the short-term rates at which banks usually borrow money, there have been weaker incentives to lend.

That has trapped liquidity within the financial markets, leading to a series of bubbles. These feed on hype and there are accordingly many exciting investment stories focusing on future economic trends.

Investors, however, must objectively analyse these wondrous themes because history shows valuation, and not stories, ultimately determines investment returns.

Innovation and disruption are cornerstones of capitalism, yet many investors ironically treat these themes as being, well, innovative.

Individual investors are not alone when it comes to forming potentially overly enthusiastic expected returns. Institutional investors continue to increase allocations to venture capital funds and have even been lured into the cryptocurrency craze.

Investors seem to have forgotten the lessons of the technology bubble. Lofty valuations, like those for stocks associated with today’s innovation, disruption and technology themes, can significantly hurt returns even if the economic themes do come true.

There were many stories during the technology bubble regarding new internet-linked breakthroughs potentially changing the economy. Much of the bubble’s buzz on the actual technology did come true. But technology was nonetheless the worst-performing S&P 500 sector during the next decade.

The S&P 500 delivered a negative return of 9 per cent during the so-called “lost decade” to December 31 2009. The hyped technology and telecom sectors, though, both lost more than 50 per cent in the decade. If one bought the Nasdaq Index in December 1999, it took nearly 14 years for one to break even despite the widespread adoption of internet technologies and of cellular communication.

Bubbles damage economies because the financial markets grossly misallocate capital. Too much capital flows to a small set of bubble assets, but the remainder of the economy becomes relatively starved for capital. Companies in bubble sectors over-invest while those in the broader economy underinvest.

However, the capital starvation to non-bubble companies presents investors with extraordinarily large opportunities. They can be the banker in a town with 1,000 borrowers.

Again, one can use the technology bubble as an example. It exacerbated the prohibitively high cost of capital within the energy sector but those willing to invest in it reaped the rewards. The energy sector appreciated nearly 150 per cent during the lost decade to 2009 and outperformed technology stocks by 200 percentage points.

The compounding of dividends is a critical component in building long-term wealth, but dividends are rarely an investor focus during a bubble because investors prize long-term growth over income. The S&P 500 Dividend Aristocrat Index underperformed the technology sector by more than 400 percentage points from 1995 to 1999, but outperformed by more than 130 percentage points during the subsequent decade.

There are numerous examples how today’s bubbles are grossly misallocating capital within the economy. Something seems terribly wrong when growth investors are excited about private-sector space exploration while there are historic shipping and transportation bottlenecks here on earth. Buying green peppers through an app is considered technology, but building a fighter plane is not.

Sector performance over the past several years reflects these distorted priorities and the misallocation of capital. Since the end of 2018, only three of the 11 global sectors have outperformed the MSCI All Country World Index: technology, communication services and consumer discretionary. Such narrow performance suggests exciting investment opportunities abound, just not in those sectors.

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Bitcoin is over $66,000. Here are 3 questions to ask yourself before you invest – CNBC



Bitcoin, the largest cryptocurrency by market value, hit an all-time high on Wednesday, surging above $66,000. Its previous record of $64,899 was set in mid-April.

This surge comes after the first U.S. bitcoin futures exchange-traded fund made its market debut on Tuesday.

With all the hype, investors may feel tempted to buy in on the fear of missing out, or “FOMO.”

“A lot of people who have yet to get into the space or really learn more about it are going to be bombarded with a lot of noise right now,” Douglas Boneparth, certified financial planner and president of Bone Fide Wealth, tells CNBC Make It.

But before investing in bitcoin or any other cryptocurrency, it’s important to step back from the noise and excitement and first understand what it means to invest in a digital asset, he says.

To do that, Boneparth recommends asking yourself three questions.

1. Why am I investing?

First, assess why you want to invest in the first place.

If you’re just afraid of missing out, then you should probably pause before moving forward. It’s important to truly understand bitcoin, cryptocurrency or any asset prior to investing in it.

“‘Educate before allocate’ is a phrase that me and my friends are using,” says Boneparth, who has invested in bitcoin since 2014.

Taking a step back may be difficult, especially now as bitcoin hits an all-time high, but it’s worth taking some time to research what it is, how it operates and what the risks are before parting with your money.

2. Can I handle volatility?

Next, consider how well you handle extreme swings in price, since bitcoin is a notoriously volatile asset. “That’s not easy to handle for most investors,” Boneparth says.

For some people, the volatility “may be OK, that may coincide with your appetite for risk and your own risk tolerance and investment time horizon,” Boneparth says. “But, you still got to live with it.”

Other investors may prefer something more stable.

But regardless of your tolerance level, financial experts warn that the volatility makes bitcoin and other cryptocurrencies a riskier investment than something like a low-cost index fund, which should be kept in mind.

3. How much can I afford to allocate?

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From casino to sports: Canada’s gambling journey



Gambling was originally present in Canada amongst native people, quickly becoming cemented into the cultural history of the country. The earliest recognised game that involved a fairly primitive form of gambling – although not with money – was Slahal. This was a traditional stick game, using two different kinds of sticks that were split between the two teams, as well as ten scoring sticks. The sticks were exchanged in the place of currency, with the team with the most scoring sticks ending as the winner. What’s more, Slahal is still alive today and features regularly in traditional festivals across the country, for example, at Vancouver’s Summer Live festival.

Card games have remained the most popular forms of gambling, whether it’s Poker or Blackjack. During the Klondike Gold Rush, the game of Faro had a big boom in North America, but left Canada when the gold rush subsided, although arguably the love for card games remained.

Read on as we talk regulations, the move online and beyond.


The Canadian Criminal Code was enacted in 1892, dictating laws and deciding what kind of behaviours would be permitted across the country. In terms of gambling, the Code tolerates it, but only under certain conditions. An amendment was made in 1910 that allowed occasional games of chance where the profits would be used for charitable events and activities. As well as this, games were also sometimes permitted at agricultural fairs and exhibitions.

These laws around gambling remained relatively unchanged until the 1970s, where it was decided that individual provinces would have the authority to license and regulate gambling for themselves.

In particular, Quebec, Ontario and Alberta have created their own corporations and commissions to regulate casino gameplay. The latter operates as the Alberta Gaming, Liquor and Cannabis (AGLC) commission, working to regulate the selling and consumption of alcoholic beverages, recreational cannabis use, and gambling. The policies and rules that the AGLC put in place went on to maintain the fairness and security of all gambling activities, whilst also working to maximise the financial return and potential benefits of gaming.

Going online

The AGLC have taken things one step further, and even gone on to create their very own regulated online casino. The site was developed in 2020 and is called Play Alberta, in which all money that’s made by the site is then funnelled back into the community via Alberta’s General Revenue Fund.

This way of regulating casino gaming helps keep the pastime safe and fair – but how? Well, this site in particular works alongside GameSense to keep all players well-informed before placing their bets, and within their set budget.

Sports betting

As well as casino gaming, Play Alberta has also begun to offer sports betting, which has arguably become equally as popular amongst Canadian gamers. This has been a long journey for the nation, with the federal government only granting provinces the right to legalise single-game wagering in 2021.

The province of Ontario has had a long history of pushing for sports betting to come into fruition, so they are expected to be the first to incorporate sports into the Alcohol and Gaming Commission of Ontario (AGCO) gaming laws.

With the annual betting habits of Canadians already estimated to surpass a value of US$10 billion – you can only imagine how the industry will grow with singular sports betting also entering the market! What sports will you be looking to bet on first?


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Bitcoin edges off all-time high but momentum for more gains this year seen intact



 Bitcoin fell slightly in Asian hours on Thursday, a day after marking an all-time high on optimism around the launch of the first U.S. bitcoin futures ETF.

The world’s largest cryptocurrency was last down 1.3% at $65,184 after hitting a record $67,016 on Wednesday, but still above a previous peak of $64,895 seen in April.

“We think its going to go higher and we can get to 80 or 90,000 by the end of this year easy, but that won’t be without volatility,” said Matt Dibb, COO of Singapore-based Stack Funds.

In the past few days, he said, traders were starting to pay high rates to borrow to buy bitcoin futures, “and that’s a sign that we could be a bit overextended, and there could be a pullback to come.”

He added he anticipated traders would rotate out of bitcoin and into major ‘altcoins’ – other cryptocurrencies.

Ether, the world’s second largest cryptocurrency, rose 1% to $4,203 and there were also sharper gains in smaller tokens.

Market players say the latest wave of buying has been supported by the launch of the first U.S. bitcoin futures-based exchange-traded fund (ETF) with investors betting this will open a path to greater investment from both retail and institutional investors.

Existing bitcoin exchange-traded funds and products have seen sharp inflows since September.

Average weekly flows to bitcoin funds totalled $121.1 million in October, up from $31.2 million a month earlier, data from London-based CryptoCompare shows.

The three months prior to September had seen outflows following steep losses for bitcoin in May and June.


(Reporting by Alun John; Editing by Edwina Gibbs)

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