Gary Mishuris, the chief investment officer at Boston-based Silver Ring Value Partners, recently provided a public service by detailing a horrendous, early-career market mistake that provides current investors with valuable lessons.
With the ink on his Massachusetts Institute of Technology diplomas still drying, Mr. Mishuris began his working life as an analyst at Fidelity Investments. The position involved uncovering investment opportunities and convincing the company’s mutual fund managers to buy them.
The analyst became enamoured with a small plastics conglomerate named PolyOne, led a by a CEO from Harvard Business School. Mr. Mishuris had assessed the business plan, ‘grilled the chief financial officer’ on the balance sheet, visited factories and spoken with competitors. He was convinced the stock was about to shoot higher and a number of fund managers added the company to their portfolios.
In late 2002, PolyOne fell 50 per cent in one day after suspending its dividend and guiding profits lower. He writes,
“I felt physically sick. As you read these words you might intellectually relate to what I was going through, but I can assure you that unless you have experienced a similar situation you have no visceral idea how I felt. I literally wanted to crawl under my desk and cry.”
Mr. Mishuris listed five painful lessons he learned from the mistake that almost killed his career before it got started.
One, never rely on management’s projections – use actual financial evidence. Two, the quality of the business should be rated before breaking down all the accounting.
The third lesson caught my attention most, “Don’t get overconfident because you know a lot of details about the business – it’s the few big things that matter.” Identifying the main drivers of growth is more important than knowing every footnote in the annual report.
The fourth lesson was to imagine scenarios where things could go wrong for the company and judge how likely they are, and the fifth is not to trust any market profession without a number of years of experience.
Mr. Mishuris’ experience is also a good example of why it’s good to fail early. Initial investing success can lead quickly to overconfidence that eventually results in big losses. As the famous quote by author Humphrey Neill goes, and this could be the final lesson, “Don’t confuse brains with a bull market.”
–Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Cargojet Inc. (CJT-T). This stock appears on the positive breakouts list (stocks with positive price momentum). The stock has delivered attractive double-digit gains to investors over the last few years. A key driver for the company is continued e-commerce growth as companies such as online retail giant Amazon expands its operations. Cargojet provides air cargo services in Canada. Jennifer Dowty reports (for subscribers).
The Rundown
CannTrust plunges as company faces shortages after Health Canada says pot producer broke rules
Shares of Vaughan, Ont.-based cannabis producer CannTrust fell sharply Monday after the company disclosed a non-compliance order it received from Health Canada for its Pelham cultivation facility, forcing the company to delay releasing thousands of kilograms worth of inventory. Jameson Berkow reports (for subscribers).
Speculators keen to invest in Bruce Linton’s next venture
The tiny Martello Technologies Group Inc. put out an announcement last Thursday, at the request of regulators, saying it was “unaware of any material change in the company’s operations that would account for the recent increase in market activity.” Its shares, you see, were on their way to doubling in two days of trading. The reason? A well-timed t-shirt worn by Bruce Linton, cashiered chief executive of Canopy Growth Corp. and involved in Martello, as he made his rounds to media after being let go from Canopy. David Milstead reports (for subscribers).
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Canada gains its first robo-adviser platform geared toward women
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Wealthsimple Trade challenges Canada’s online broker establishment with free trades for stocks and ETFs
The cost of trading stocks online is less than $10 a transaction, but even that sounds expensive when compared with the deal offered by an aggressive new competitor. Wealthsimple Trade has been offering free stock trades since March. There are many catches – the firm offers only non-registered accounts right now, U.S.-dollar accounts are unavailable and there are no tools for choosing stocks and monitoring your portfolio performance. But in an industry that hasn’t seen any serious competition on commissions fees in years, free is big. Rob Carrick explains (for subscribers).
Why the market had a downbeat response to an upbeat jobs report (and what it means for the path of interest rates)
A surprisingly strong U.S. jobs report has dispelled fears that the world’s largest economy is teetering on the brink of recession. The numbers published Friday do little, though, to shed light on what the next few months will bring. In fact, they underline the contradictory state of an economy where unemployment is hovering around half-century lows and stocks are roaring, but the bond market and many other indicators are screaming caution. Investors, in particular, are grappling with an environment in which bad news is good news, and vice versa. Ian McGugan reports (for subscribers).
Why I’m the only one calling the U.S. jobs data a dud
David Rosenberg explains why he doesn’t buy into the latest jobs numbers from the U.S.
A low maintenance, all-weather portfolio that suits this busy entrepreneur
Craig Rowland had a lot of money to invest after he sold his computer-security company to Cisco Systems Inc. in 2002. An unsatisfactory period of picking stocks followed. Then he read many investment articles and books. What resonated was the Permanent Portfolio set out by Harry Browne in the 1981 book Inflation Proofing Your Investments. Mr. Rowland got to know this low maintenance, all-weather strategy so well that he co-authored a book of his own: The Permanent Portfolio: Harry Browne’s Long-Term Investment Strategy, published by John Wiley & Sons in 2012. He spoke to Larry MacDonald about his portfolio (for subscribers).
Ask BlackRock Canada’s chief investment strategist a question
In an interview later this week, the Globe and Mail’s investment reporter and equities analyst, Jennifer Dowty, will be speaking with Kurt Reiman, the chief investment strategist from BlackRock Canada. If you have a question for Mr. Reiman, email jdowty@globeandmail.com and indicate “interview question” in the subject line.
Others (for subscribers)
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Monday’s analyst upgrades and downgrades
Monday’s small-cap stocks to watch
Others (for everyone)
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What’s up in the days ahead
Fidelity Investments portfolio manager Mark Schmehl is bullish on the markets right now, in part because most investors aren’t. We’ll have a Q&A on his latest market views and portfolio moves.
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Compiled by Gillian Livingston
Scott Barlow