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Survivorship bias is a psychological tendency that not only warps perspective for investors, but people in all walks of life. It must be guarded against.

Hollywood celebrities advising fans to ‘follow their dreams’ in interviews is a good general example of survivorship bias. The strategy worked for the star, but they are the lucky one in 10,000 – they survived. The advice doesn’t take in to account the thousands of actors who went to California to seek their fortune and never made it. Following their dream didn’t work out.

The probability of a successful career in the movies is very, very low. The losers don’t get interviewed. As a result, our view of ‘follow your dreams’ as a life strategy is far more positive than the numbers say it should be.

Nick Maggiulli describes the dangers of survivorship bias to investors in The Problem With Most Financial Advice. The author recounts the financial advice of a successful friend as a plan that only applies to an infinitesimally small minority,

“Sam breaks down his journey to $1-million by age 28. If you don’t have time to read the whole thing, the summary comes down to: have one incredible lucky trade in the Dot Com bubble (make 50 times), earn a boat load of money in finance, and live a relatively frugal lifestyle… So, how do you become a millionaire by age 30? Make a ton of money and don’t spend most of it. Shocking, right? The issue is that this advice just isn’t an option for basically everyone.”

For the vast majority of 20-somethings, the idea of paying regular expenses and having enough investable funds left over to become a millionaire by 30 is laughable. Any financial strategy that requires an investment that increases 50 times in value is also ridiculous.

Successful hedge fund managers can also create survivorship bias. An aggressive manager may have bet the farm in a highly leveraged trade that worked out and generated monster returns. We’ll see them on television talking about new trade ideas but it’s entirely possible that the first one was blind luck rather than skill.

Either way, their success absolutely does not mean that most investors should make mega-risky speculative bets with borrowed funds. Big bets that fail have ended hundreds of portfolio manager careers and blown up hundreds of thousands of individual investor portfolios.

Investors should read financial advice with their own particular circumstances and personality in mind. The source of the advice must also be assessed objectively – what worked in the past may not be repeatable now.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Laurentian Bank of Canada. (LB-T). What is Canada’s most hated stock? Laurentian Bank of Canada, please step forward. The Montreal-based lender is a standout – in a bad way – among analysts. According to Bloomberg, just one brave soul recommends the stock as a buy, among the 10 analysts who cover the bank. Four of the 10 analysts say the stock is a sell. David Berman takes a look at Laurentian and other companies that analysts rates as sells. (For subscribers).

The Rundown

The real reason why stocks have done so well

Why has the stock market been such a glorious investment in recent decades? It’s more about workers’ declining power than actual economic growth, according to a team of U.S. researchers. Share prices surged over the past generation primarily because investors got a bigger share of the economic pie, according to Daniel Greenwald of the Massachusetts Institute of Technology, Martin Lettau of the University of California at Berkeley and Sydney Ludvigson of New York University. Ian McGugan takes a look at what this means for the economy and your portfolio.

The soaring TSX masks a country with too much debt and too little government action

David Rosenberg gives his opinion about why certain sectors of the TSX have done well and the big issue about rising debt levels - and its consequences. (For subscribers).

The good advisers out there did this for their clients in early 2019

Last year was a test for investment advisers, and it’s only partly because the markets were generally garbage. The real challenge for advisers: Did they reach out to clients to discuss what the sharp decline in stocks meant to their financial plan? In the J.D. Power 2019 Canada Full Service Investor Satisfaction Study, overall levels of client satisfaction with their advisers declined slightly. It was the first decline since 2008 and a reminder of how a bad year for the markets can strain client-adviser relationships. Rob Carrick reports (for subscribers)

Former teacher gets his retirement plans back on track with dividend stocks

Larry MacDonald talks to retired teacher Bob Gibb who rebuilt his pension using dividend stocks and dividend reinvestment plans after an accident left him on disability.

Canada needs a better picture of how households are faring

How has the past decade been for you? Are you happy with your financial progress? Answering that question is difficult without knowing how other people are doing – and that information can be surprisingly hard to decipher. Statistics Canada showers us with charts that break down incomes and net worth by age groups, regions and other factors. However, it can still be difficult to answer simple questions about how typical Canadians are faring and why. Ian McGugan explains why he thinks we need a new statistic to figure this out.

A contrarian argues against building wealth and creating income through dividend stocks

This advisor suggests investing in dividend stocks isn’t the best way to structure your portfolio.

Others (for subscribers)

World’s most over-owned and under-owned stocks

Citi makes changes to its list of top stock picks

Wall Street keeps hitting records. What do investors do now?

Why these six large-cap stocks are a strong bets for earnings beats

Analysts at Lyft underwriters say buy falling stock

Twelve established growth stocks poised for further gains

Wednesday’s Insider Report: CEO unloads over $5-million worth of shares

Wednesday’s analyst upgrades and downgrades

Tuesday’s Insider Report: CEO cashes out over $900,000 from this spiking stock

Tuesday’s analyst upgrades and downgrades

Globe Advisor

Millennial investors need ‘hybrid’ financial advice

A ‘pick-and-shovel’ approach for investing in cannabis

Investors’ rising interest in cannabis puts advisors in a tough spot

A classic investing strategy: Buy the unloved

Are you a financial advisor? Register to Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation – a powerful tool to help you manage your clients’ portfolios.

Ask Globe Investor

Question: You recently mentioned the iShares Core Dividend Growth ETF (DGRO) as a way to get exposure to U.S. dividend stocks. When holding DGRO in a tax-free savings account, is there any U.S. tax withheld?

Answer: Yes. Whether you own U.S. stocks directly or through a U.S.-listed exchange-traded fund such as DGRO, the dividends are subject to a 15-per-cent U.S. withholding tax in a TFSA. The same is true for a registered education savings plan or a non-registered account, although in the latter case you can usually claim a foreign tax credit for the amount withheld.

You can avoid U.S. withholding tax on dividends by keeping your U.S. stocks or U.S.-listed ETFs in a registered retirement savings plan, registered retirement income fund or other registered retirement account. That’s because retirement accounts are exempt from withholding tax under the Canada-U.S. tax treaty. However, if you invest in U.S. stocks through a Canadian-listed ETF or mutual fund, you will still face U.S. withholding tax regardless of the type of account in which you hold the fund.

--John Heinzl

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What’s up in the days ahead

Equitable Group Inc. is trading at 52-week highs. Is there still more upside to come? David Berman will take a look.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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