Tag: investor psychology

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Commentary

The limits of your own expertise

investment expertise

One of the touted advantages of private investing is that you get to invest in things you know. So for example, if your background is in pharmacy, then investing in pharmaceuticals might prove not only advantageous from a knowledge standpoint but from an enjoyment standpoint, too. Believe it or not, investing can and should be fun, if you’re doing it right, of course.

However, investors should always be careful about valuing the kind of knowledge they bring to the table and whether it constitutes investment expertise. Let’s take pharmacy as an example again. Let’s say you’re a great pharmacist. You know pharmacology. But does that mean you know the business of pharmaceuticals? Maybe not. Even so, it does mean you can bring knowledge to an investment situation. Just don’t necessarily over-value it. If there are financial experts in the field of pharmaceuticals that you can use, by all means, do so.

You’re an investor, not a customer

Let’s take another more lighthearted example, this time provided by Nelson Smith in The Motley Fool. He says that his experience with the Tim Hortons food chain shaped his investment decision on the company, and in not so beneficial a manner.

Specifically, Smith says that he didn’t like the Tim Hortons store that opened up in his neighbourhood. The service wasn’t great, and his experience shaped his judgement about the company as a whole. As a result, he didn’t invest in Tim Hortons. And, what happened? Lo and behold, shares in the company rose 85 percent in the last three years, and quarterly dividends have tripled since 2016.

Stay disciplined

As Smith points out, he possessed a knowledge of the company that really was of no use to him financially. Sure, his local shop could use a customer-service overhaul. But, if he had stuck to doing due diligence on the company’s financials, and its potential strictly from an investment standpoint, he would have been much better off — as an investor, and not as a customer.

In fact, Smith’s experience, as well as our pharmaceuticals example, highlight a general axiom when it comes to investing: stay disciplined. Yes, personal knowledge can always be of use when investing. However, don’t over-value what you bring to the table, and make sure it doesn’t cloud your judgement when sticking to sound and shrewd investment decision-making.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Commentary

Another day in the markets

long-term investing

The position I’ve taken in relation to the markets is that much of the fear and even panic has been proven overblown. Trump’s trade actions haven’t led to any catastrophes yet. In fact, the U.S., Canada and Mexico just reached an agreement on trade recently.

However, as we approach the end of 2018, a trend in the markets has become noticeable. Specifically, the stock markets may well finish down for the year, and current December levels are precipitously down in comparison to other years.

Fluctuations versus trends

In other words, what’s currently happening can’t be quickly dismissed as an aberration. In a nutshell, the markets are worried, whether anyone thinks it’s justified or not.

Now, there are a few things to look at when analyzing the current state of the markets. First, and as I’ve stated numerous times on these pages, trying to decipher investor sentiment is kind of like trying to read a crystal ball. It’s hard to make any sense of it, unless you know what to look for.

There are various factors why investors are becoming a bit bearish on the markets. Trump will always be a factor in this. He’s doing things differently, and many people just aren’t sure how it will play out. Although I’ve been rather consistent in arguing that Trump’s actions haven’t been as panic-worthy as some might think. China needs the American market. Trump knows this. China knows this. They both don’t want to blow things up.

Avoid stock-market psychology

Yet, broadly speaking, investors tend to be creatures of habit. Yes, Trump is a habit they haven’t gotten used to yet. But habit also suggests that when markets have increased for a period of time, they’re bound to decrease, too. And so now observers are expecting a decrease and, as I’ve stated before, investing often becomes a self-fulfilling prophecy. If people expect bad things to happen, they’ll try to make bad things happen.

Nevertheless, even with these expectations of a downturn, and even a recession, there are a couple of things to keep in mind. America’s central bank, the Federal Reserve, is expected to raise interest rates yet again, which means one of the world’s most important financial institutions still sees growth in some important sectors, including employment.

Also, in the end, it doesn’t matter if the markets go up or down in the short term. They generally always go up in the long-term. And, if you’re a knowledgeable investor who looks for opportunities regardless of short-term worry or panic, you will find returns that match or exceed your investment objectives. That has always been the case and will continue to be so in the foreseeable future. Just call it a hunch, or historical reality. Take your pick.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Blog

A recession is coming! A recession is coming!

global investing panic

Do you want to know if an economic recession is coming? Well, if you want to have some fun, and do what many people do to get an answer to the question, try this: Go to Google (or Bing or your favourite search engine) and type in: is a recession coming.

You want to know what the answers tends to be? Well, it tends to be that, yes, a recession is coming. Do you want to know what the problem is with drawing the conclusion that a recession is coming? Two things. First, as has been mentioned on this website before, economic and investing experts are not mind readers or crystal-ball experts. So, they can’t predict the future. No one can.

Second, of course a recession is coming. Recessions happen from time to time. The problem is that we don’t know when, and anyone who tells you for certain when one will come should be greeted with some caution.

Avoiding the herd

herd mentality

Investor psychology is something any investor should take into account when making investment decisions. In a nutshell, investors, or anyone associated with the world of investing, love to engage in a herd-type mentality. When something looks like it’s happening, such as a recession, or a stock plunge, everyone expects it to happen, and rushes to confirm it. That’s why investment decisions should never be made based on this type of herd mentality.

If you want an example of everyone expecting something to happen, and it has yet to happen, just take a look at our own housing sector here in Canada. For years now, everyone has been predicting a bursting of the apparent housing bubble. There’s only one problem, however. It has yet to happen. Yes, government measures have considerably slowed down the market in Vancouver, but we have yet to experience a burst in the way many have predicted.

Always expect the unexpected

So, what does this all mean when it comes to analyzing the global economy and making wise investment decisions as a result? Well, it means what we’ve been preaching all along. A good approach to investing means looking at the long game, not the short game.

John Templeton, the famous investor and fund manager, took a value-based approach to investing that involved long-term returns that survived short-term stresses. In fact, there are graphs that show the huge long-term success of this kind of approach to investing.

Does this mean you have to be a value-based investor? No. But it does mean that recessions, or any other financial stresses, should always be part of an investment strategy. That’s because no one can predict when they come. But, when they do, wise investors will be ready.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Blog

Redefining investment opportunities

Alternative investment solutions

Perhaps one of the defining — or, to put it more accurately, redefining — aspects of today’s investment environment is that people are increasingly starting to think outside the box when it comes to maximizing opportunities.

We’ve come a long way since a time when, to invest in something — if you were so inclined — you’d call your broker, and they’d advise you on a standard set of possible investment opportunities, such as stocks and bonds.

An evolution in investing

As time went on, other types of standard investment opportunities started to become popular, such as mutual funds, then REITS, and even MICs have come to the forefront in recent years.

However, one of the most fundamental changes in investing has come in the way people have come to think about investing — more specifically, the psychology of investing has changed. It’s no longer about what to do with any extra money you might have. Instead, investing has become about finding unique ways to match people who want to invest in unique and rewarding opportunities with those that are providing such opportunities.

As a result, we’re not simply seeing an evolution of investment products out there, but a change in what even constitutes an investment opportunity. That’s why the term alternative investing is becoming increasingly popular lately. Investors are breaking new ground in finding investment vehicles that are not only unique, but out-perform traditional options.

A world of opportunity

The examples of emerging alternative investments are becoming literally too numerous to count, since, by definition, an alternative investment is anything out of the ordinary. There are alternative investments that people are becoming increasingly aware of today, such as private equity and debt, venture capital, and even unique assets ranging from land and commodities to fine art and collectibles.

However, when it comes to alternative investment opportunities, forward-looking investors need more than just an imagination. They either need to do their homework to find opportunities that meet demanding investment objections, or hook up with investors and managers that do this type of investing as a matter of routine and second nature.

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