Tom Bradley: A DIY trend often springs up after a long bull market, but this one may have staying power
There has been a surge of do-it-yourself investors opening discount brokerage accounts and trading stocks. The trend towards DIY tends to be a cyclical phenomenon that emerges after long bull markets, but there are reasons why it has been more pronounced this time and could have staying power.
Technology has made trading easy, and commissions are extremely low. The information gap between professionals and amateurs has narrowed significantly. Some exciting new industries have emerged (cannabis; electric vehicles; space; alternative energy) and the well-known tech giants have been just so good.
If you’re doing your own thing, however, you shouldn’t totally dismiss professional management. There are some habits and disciplines you can borrow from the pros that will improve your outcomes. Let’s start with a few basics.
First,you need a roadmap. You need to know the purpose of every penny you’re investing, the time frame and how your stock portfolio fits with your other assets. In this go-go market, it sounds like boring stuff but when you hit air pockets or invariably make bad decisions, you need something to lean on.
Young investors shouldn’t skip the planning stage just because they have a small amount to invest. They need to understand there’s an opportunity cost to betting big and losing on speculative stocks or bitcoin. The math behind a more deliberate approach is compelling — starting early, making regular contributions and earning a market-like return compounds into real money.
Understand what risk means to you.The media tends to look at risk from the perspective of an older investor — i.e. market dips are bad. But if you’re accumulating assets and retirement is a long way off, your risks are very different. Lower stock prices aren’t a problem, they’re a godsend. Your biggest risk is overpaying for assets and as a result, not generating an adequate return to meet your goals.
Know how you’re doing.When I ask friends or clients how their portfolio is doing, I get vague answers. “Pretty well” or “Tesla has been great” or “Geez, I got out of the oils too early.” I’m left with impression that they don’t really know what their return is.
This isn’t good enough. Like the pros, whose results are public record, you need to be intellectually honest with yourself. Your overall results are what matter, not just a few big scores. An annual assessment of your after-fee returns is a must.
Check the price tag. The story behind a stock is easy to identify (i.e. blockbuster new product; geographic expansion; management changes). The hard part is figuring out how much of the exciting outlook is already factored into the price. What you pay for a stock is the biggest single determinant of how you’ll do, which is why fund managers spend tons of time comparing the valuation of a potential investment to its history and to other relevant companies.
Write down three reasons.Most managers have a discipline of writing down why they’re buying a stock. A few bullet points that explain the thesis and outline the key factors to watch for. The list comes into play when a stock is down and you’re wondering what to do. If the reasons for owning it are still intact, it’s time to buy more. If they’ve changed, you may want to sell and move on.
When it comes to portfolio construction, there are several things you can do to professionalize your process.
Make sure your portfolio takes different scenarios into account.This means not being too loaded up on one theme or trend. If you’re really excited about cannabis or electric vehicles, you should allocate 5 to 15 per cent of the portfolio there, not 40 to 80 per cent.
Likewise, if you’re convinced the market is heading south, lighten up on your riskier stocks, but maintain a meaningful equity exposure. You may be convinced of your view but be assured that for every compelling argument to sell, there’s an equally compelling one to buy. Diversification comes in handy when it turns out you’re wrong.
Leave room to buy more. As noted above, if a stock is down and the fundamentals remain strong, you can bring your average cost down by adding to the position.
And don’t be dogmatic about going it alone.A properly diversified portfolio needs exposure to areas that are difficult for an individual investor to access. Use ETFs and mutual funds in areas where you have no knowledge (international stocks) or need broad diversification (high-yield bonds). If you can’t beat ‘em, join ‘em.
Tom Bradley is chair and chief investment officer at 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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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.
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.
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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