Tom Bradley: A DIY trend often springs up after a long bull market, but this one may have staying power
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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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(Bloomberg) — Ping An Insurance (Group) Co.’s profit dropped 4.3% in the first quarter as stock-market declines and falling bond yields eroded investment returns.
Net income fell to 36.7 billion yuan ($5 billion) in the three months ended March 31, from 38.4 billion yuan a year earlier, the Shenzhen-based company said in a filing to the Hong Kong stock exchange Tuesday.
Operating profit, which strips out one-time items and short-term investment volatility, fell 3%.
China’s stock market rout at the start of the year and lower bond yields have weighed on insurers’ investment returns. They hurt profit even as more customers seek to buy savings products. Co-Chief Executive Officer Michael Guo said last month that profitability will recover after a 23% drop in net income last year.
“China’s macroeconomy gradually recovered in the first three months of 2024, but there were still challenges,” the company said in a statement, citing weak domestic demand. “In response to volatile capital markets and declining treasury yields, Ping An continued to pursue long-term returns through cycles via value investing.”
Read More: Ping An Trust Wins First Court Ruling Over Delayed Trust Product
Net investment yield of insurance funds dropped to 3%, the statement said, down from 3.1% a year earlier. Real estate investments fell to 4.2% of the 4.9 trillion yuan portfolio, from 4.6% the year earlier.
The CSI 300 Index slumped as much 7.3% this year through the start of February, before government intervention fueled a rally.
New business value, which gauges the profitability of new life policies sold, rose 21% in the first quarter. That followed a 36% jump last year as the company’s efforts to improve the productivity of life agents started to bear fruit. NBV per agent jumped 56% from a year earlier, the statement said.
Ping An shares rose 3% to HK$33.00 in Hong Kong trading on Tuesday, trimming the year’s loss to 6.7%.
(Updates with company comment in fifth paragraph, more details afterwards)
©2024 Bloomberg L.P.
Two brown Adirondack chairs on a wooden pier with a yellow canoe. Across the calm water is a brown cottage nestled among green trees. Canada flag is waving on a pole.flyzone/iStockPhoto / Getty Images
New rules for taxing capital gains mean quick decisions are required for cottages that families have owned for decades, and investment properties as well.
Until June 24, you can sell a second property or cottage and pay tax on just half your capital gain, however much it is. After that date, the recent federal budget proposes to increase the inclusion rate on capital gains greater than $250,000 to two-thirds. Capital gains of this size can easily be envisioned in the property market after the massive price gains of the past 10-plus years.
“From now until June, we might be seeing some hasty sales to bypass the increase in capital-gains tax for those people who have held a property for long enough to realize that gain above $250,000,” said Diana Mok, adjunct professor at the University of Western Ontario and an expert on real estate finance.
But maybe you don’t want to rush into anything. Historically, the capital-gains inclusion rate has many times been adjusted up and down. The rate went from half to two-thirds in the late 1980s and then up to three-quarters from 1990 to 1999. In 2000, it was chopped back to two-thirds and then again to 50 per cent.
The next opening for a change would be after the next federal election, which is expected by fall of 2025 unless the minority Liberal government falls earlier. People may want to hold on to secondary properties until after that election. “I think this is a huge reason that people will be focused on the Conservative Party,” said Lani Stern, broker and senior vice-president of sales at Sotheby’s International Realty Canada.
Mr. Stern said he’s advising clients to sell only if they already had plans to do so. The federal government’s budget documents suggest there’s an expectation of a bulge of capital gains-generated tax revenue in general this year as people try to get ahead of the higher inclusion rate.
A capital gain is the difference between the purchase price of a home, stock or other asset and the sale price. The inclusion rate is the portion of the gain that is taxable. Currently, the 50-per-cent inclusion rate on a $500,000 capital gain means a taxable gain of $250,000.
The taxable amount of a $500,000 gain under the new rules would be $291,750. That’s $125,000, or 50 per cent of $250,000, plus $166,750, which is 66.7 per cent of the other $250,000 portion of the $500,000 gain.
Your margin tax rate would determine how much tax you actually pay on these gains.
Draft legislation for the new capital-gains rules has yet to be issued. But John Oakey, vice-president of taxation at Chartered Professional Accountants of Canada, said he believes it will be possible for capital gains to be split on the sale of properties co-owned by spouses. Each spouse would be able to report up to $250,000 in capital gains at the 50-per-cent inclusion rate.
The higher inclusion rate was billed in the budget as a way of targeting high-net-worth individuals, but middle-class families could be caught up as well in selling family cottages bought decades ago at a fraction of their current value. A principal residence can still be sold tax-free, but the gain on a cottage or investment property is taxable.
“Whether/when to transfer cottages to the next generation is a perennial question for many Canadians,” Andrew Guilfoyle, partner at Chronicle Wealth, said by e-mail. “The time crunch could make this much more difficult to execute versus simply realizing capital gains in an investment account of public stocks, as there will be legal documents and valuations needed.”
Prof. Mok sees the impact of the higher capital-gains inclusion rate being felt more by long-term investors than those who are flipping properties. “I could hardly see even the hottest market in Canada, such as Toronto, gaining $250,000 within a year or two,” she said.
Longer-term real estate investors will adjust to the higher tax rate, Prof. Mok predicted. Her thinking on this is influenced by what happened in Toronto after the introduction of a municipal land-transfer tax in 2008. Some observers thought house prices would cool down or fall, but that never happened. Similarly, people will adjust to the new capital-gains tax rate.
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I disagree with the adage that “opportunity only knocks once.” At least, I don’t think it’s always true with investing. That said, there are inflection points for some stocks after which things will never be the same.
Looking for these kinds of once-in-a-generation investment opportunities? Here are three magnificent stocks to buy right now.
You might be surprised to see an oil stock on this list. Aren’t companies based on fossil fuels in danger of becoming fossils themselves? Not if Occidental Petroleum (NYSE: OXY) has its way.
Occidental is at the forefront of developing direct air capture (DAC) technology. DAC extracts carbon dioxide directly from the air. Oxy CEO Vicki Hollub’s goal is to produce “net-zero” oil where the CO2 captured in the production of the oil effectively cancels out the emissions produced by using the oil. Hollub believes if DAC fulfills its potential, her company will be able to “produce oil and gas forever.”
Carbon capture could also open up a massive new opportunity for Occidental and other pioneers. ExxonMobil projects a carbon capture and storage market of $4 trillion by 2050. Unsurprisingly, the oil and gas giant is also investing heavily in the technology.
Occidental is potentially at another inflection point as well. Warren Buffett’s Berkshire Hathaway currently owns 28% of the company. Buffett has made clear Berkshire doesn’t want to acquire Oxy. However, I suspect the conglomerate will continue to aggressively buy shares of the oil producer — especially considering Berkshire secured regulatory approval to purchase up to 50% of the company. Occidental could become a near-subsidiary of the conglomerate even if doesn’t have majority ownership.
I think artificial intelligence (AI) will create many once-in-a-generation investment opportunities. And those opportunities aren’t limited to the tech giants that typically capture the headlines. UiPath (NYSE: PATH) is a much smaller company with a market cap of under $11 billion that could be on the threshold of a new era.
UiPath is a leader in robotic process automation (RPA). The idea behind RPA is to automate online tasks to improve productivity. RPA isn’t new: UiPath was founded in 2005. However, generative AI could be a game-changer that leads to explosive growth.
A recent survey UiPath conducted with consulting firm Bain found that 70% of corporate executives believe AI-driven automation is “very important” or “critical” to the future of their industry. Eighty-four percent of executives believe AI “will radically change how businesses operate in the next five (5) years.”
UiPath is seizing this opportunity. The company recently launched preview versions of its AI-powered Autopilot for Studio product for developing process automation using natural language and Autopilot for Test Suite to improve productivity in testing. In March, UiPath introduced new generative AI capabilities for its platform.
Vertex Pharmaceuticals (NASDAQ: VRTX) commands a monopoly in treating the underlying cause of cystic fibrosis (CF). It’s in the early stages of the commercial launch of the first CRISPR gene-editing therapy, a one-time cure for two rare blood disorders. But those aren’t why I think this biotech stock is a once-in-a-generation investment opportunity.
The company could have another megablockbuster franchise waiting in the wings in treating pain. Vertex plans to file for regulatory approval of non-opioid pain drug VX-548 this summer and is already preparing for a near-term commercial launch. VX-548 could fill a big gap between anti-inflammatory drugs that are safe but not as effective and opioids that are effective but highly addictive. The biotech is also evaluating other promising non-opioid pain therapies in phase 1 and 2 clinical studies.
Vertex recently advanced inaxaplin into phase 3 testing for treating APOL1-mediated kidney disease (AMKD). It hopes to seek accelerated approval if an interim analysis at week 48 of the study looks good. There are no approved therapies that treat the underlying cause of AMKD. The disease affects more patients than CF.
There’s more. Vertex’s pipeline includes programs that hold the potential to cure type 1 diabetes. The company also recently announced the planned acquisition of Alpine Immune Sciences. Alpine expects to advance its lead candidate povetacicept into late-stage testing later this year in treating IgA nephropathy, another disease that affects more patients than CF and with no approved therapies for treating the underlying cause.
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Keith Speights has positions in Berkshire Hathaway, ExxonMobil, and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Berkshire Hathaway, UiPath, and Vertex Pharmaceuticals. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Looking for Once-in-a-Generation Investment Opportunities? Here Are 3 Magnificent Stocks to Buy Right Now was originally published by The Motley Fool
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See how chicken farmers are trying to stop the spread of bird flu – Fox 46 Charlotte
Honda expected to announce multi-billion dollar deal to assemble EVs in Ontario
Own a cottage or investment property? Here's how to navigate the new capital gains tax changes – The Globe and Mail
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