George Mason University economics professor Tyler Cowen did a long interview with Daniel Kahneman in December 2018 and the results – with insights into successful decision making for investors, executives and anyone in everyday life – were even better than I expected from a Nobel Prize winning psychologist and author.
Mr. Kahneman discussed research by Toronto-born psychologist Phil Tetlock showing that small groups of people in competitive situations can become steadily more accurate forecasters in both markets and politics,
“Phil Tetlock is another friend, but he’s also a hero… I think [he’s] proved beyond a shadow of a doubt that when you have people making forecasts for the medium term…you can help people thinking carefully without any training, who do better than CIA analysts... [with group analysis] there is looking at a problem from multiple dimensions and collecting a lot of information. And that’s basically what creates superforecasters.”
Professor Cowen asked what characteristics Mr. Kahneman believes are most important for forecasters and he answered, “they will be intelligent, they will be numerate, they’ll be open-minded, they’ll be curious, interested in learning, eager to train their mind.”
Applied directly to investors, these findings suggest that collecting multiple points of view on prospective investments, and carefully scoring the results of the process will lead to more profitable portfolios.
Excessive optimism and over-confidence are common, well-researched risks for investors and here again, Mr. Kahneman has valuable insights,
“To exaggerate the odds of success is a very useful thing for people. It will make them more appealing to others, they will get more resources, and they will take risks. It’s not necessarily good for them. The expected utility of taking risks in the economy is probably moderately negative. But for society as a whole to have a lot of optimists taking risks– that’s what makes for economic progress, so I call that the engine of capitalism, really, that sort of optimism.”
In essence, the psychologist is arguing that optimism is socially helpful even if it’s often bad for the optimist themselves over the long term.
The interview, while extended, is interesting enough that I was disappointed it wasn’t twice as long. Mr. Kahneman discusses research on happiness – he believes people don’t value being happy as much as “maximizing their satisfaction with themselves and with their lives” – and when to trust intuition, “if you have a lot of experience and if the feedback is rapid and unequivocal.”
I honestly can’t imagine a reader or listener (the audio of the interview is available at the link above in addition to the full transcript) who wouldn’t benefit from this conversation.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Canadian Tire Corp. (CTC.A-T). This stock appeared on the negative breakouts list (stocks with negative price momentum) at the end of December. However, next month the company will be reporting its earnings results from its seasonally strongest quarter. If the company reports an earnings beat once again, this could give the share price a boost. The stock has nine buy recommendations and four hold recommendations. The consensus target price implies the stock may deliver a potential total return (including the dividend yield) exceeding 30 per cent over the next year. Toronto-based Canadian Tire has over 1,700 retail stores and gas stations across the country under banners such as Canadian Tire, Mark’s, Sport Chek, Atmosphere, National Sports, and Sports Experts. Jennifer Dowty reports (for subscribers).
Barrick Gold Corp. (ABX-T). Now that Barrick Gold Corp. has completed its merger with Randgold Resources Ltd., investors will need to see evidence that the combined company can navigate a thorny issue: Does Barrick’s shift toward African-based mines raise the geopolitical risks for a company that used to be defined by its stable locales? The deal between Barrick and Randgold, announced last September and finalized on Jan. 1, comes amid a much-needed jolt for the gold sector. But risk-averse investors should wait to see if Barrick’s big bet on Africa is the right one, says David Berman (for subscribers).
The Rundown
RBC, BlackRock partner to create ETF giant in Canada
Royal Bank of Canada and BlackRock Inc. are joining forces to sell exchange-traded funds, forming a rare partnership between Canada’s largest bank and the world’s largest asset-management firm. Under the brand RBC iShares, the firms will create and market ETFs, which are passive investments that track major indexes at lower fees than most mutual funds. The new brand will be the biggest in Canada, based on assets under management. Clare O’Hara and Tim Kiladze report (for subscribers).
How a big deal in the ETF industry could mean better returns and lower fees for investors
Anything that puts more exchange-traded funds in the hands of investors instead of junk mutual funds and sketchy or poorly chosen stocks is a win. That’s what the partnership announced earlier this week between ETF leader BlackRock Inc. and ETF laggard Royal Bank of Canada will do. ETFs have surged in popularity in recent years, but they’re still just a sliver of what the mutual fund industry has amassed. Getting the investment industry to use ETFs at the expense of other products is the best path forward for future growth. Rob Carrick explains (for subscribers).
This year, there are the only two market forecasts Gordon Pape willing to make
The New Year began the same way the old one ended: volatile stock markets, the U.S. government in partial shutdown, Canadian energy policy in disarray, tariffs on our steel and aluminum exports to the States still in place. So, nothing new. The question is not how the year will start but how it will end up. And that’s anyone’s guess. This is the time when Gordon Pape normally offers his predictions for the coming year. But here’s the problem. Forecasts are problematic at the best of times, but at least they have some basis in reality by analyzing trend lines and making reasonable assumptions about where they are heading. Unfortunately, right now the only predictable patterns are volatility and uncertainty. Every forecast about the markets in 2019 is based on a number of assumptions that may, or may not, come to pass. If they don’t, the whole scenario collapses. Gordon Pape explains his view (for subscribers).
John Heinzl: Why I’m buying more shares of these three dividend dynamos
For the past few months, John Heinzl has been building up the cash reserves in his model Yield Hog Dividend Growth Portfolio. Now, it’s time to go shopping. As unpleasant as the recent market downturn has been, dividend investors with money to spend should be cheering: Because stock prices have dropped and yields have risen, every dollar invested will generate more income. He explains what three dividend stocks he’s buying more of with the cash in his portfolio (for subscribers).
These are the top things you should do in 2019 to reduce your stress about money
The year ahead does not look promising for those who feel financially stressed. Economic growth seems to be slowing, as are wage gains. The stock market is in a foul mood, and fast-rising house prices are no longer a given. We know from countless polls and surveys that people are feeling a lot of stress about money. For ideas on how to reduce anxiety levels, Rob Carrick consulted the financial planners, investment advisers and personal finance experts in his LinkedIn network. He got a slew of responses (for subscribers).
Others (for subscribers)
Investors question Amazon’s future after Bezos announces divorce
No quick fix for market volatility in 2019
An investor making 4% asks, “Should I be aiming higher?”
BMO slices 1,000 points from its Toronto stock market forecast
Dividend growth investors: How effective is a stop-loss order?
Retirement investing tips in market gone awry
Prospect of U.S. profit drop rises for investors
Gold-backed ETFs gained globally in 2018, even with North America outflows
DoubleLine’s Gundlach says high-yield ‘junk’ bond market now flashing ‘yellow’
Thursday’s analyst upgrades and downgrades (plus, Acumen’s top stock picks for 2019)
Thursday’s Insider Report: Insider invests over $19-million in this security yielding 6%
Wednesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: President sells over $4-million worth of this large-cap dividend stock
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What’s up in the days ahead
Rob Carrick this Saturday looks at the returns of the two-minute portfolio. Investors may be surprised just how well it performed in 2018.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston
Scott Barlow