Personal Wealth

What CNBC Won’t Tell You

In May 2009, during an appearance on CNBC, I suggested that the network could do a major service to investors by abandoning its slogan “In Cramer we Trust” and substituting “In Bogle we Trust.”

Personal Wealth
Female Jogging Attire Looking Up Stairs

If you think you need an options strategy, a hedge fund, or an active fund manager, you probably just need to revisit your time horizon

I often hear the phrase protect your downside. It’s the sales pitch that a large part of the investment management industry thrives on, and it plays to the myopic loss aversion that most investors exhibit. Myopic loss aversion is the tendency of investors to evaluate their portfolios frequently with greater sensitivity to losses than gains, causing them to act as if their time horizon is much shorter than it actually is.

Jim Cramer converts to index investing

In an unexpected but welcome turn of events, Jim Cramer has announced that he will give up on claims that he is able to predict the future to produce market-beating returns, and move all of his money into low-cost index funds. After years of preaching individual stock selection as the smartest approach for every investor with enough time to do the research, Cramer has said that he became curious about the consistent inflows into index funds. Taking a brief pause from his Bloomberg terminal to pick up some peer-reviewed academic journals, he was quickly overwhelmed by the amount of evidence in favour of index investing.

Principal Protected Notes vs. a Balanced Portfolio

Principal Protected Notes are investment vehicles governed by complex contracts that are not regulated or reviewed by any securities commission. In most cases, the contract offers investors the opportunity to participate in a percentage of the price increase of an underlying group of assets (stocks, bonds, an index) over a set period of time while being guaranteed to receive their initial investment back at the maturity date. The pitch is that this is an opportunity for investors to participate in the potential upside of some assets, with none of the downside. This is a great story. It’s so good, in fact, that Tony Robbins advised his millions of readers around the world to take advantage of this type of investment vehicle.

Structured Notes are Behaviourally Satisfying and Rationally Harmful

A structured note/structured product/equity-linked note is a financial derivative with a return at maturity that is linked to some underlying asset or group of assets. The linked asset tends to be some stocks or a stock market index. Structured products are popular because they play to investors’ behavioural biases, and they are profitable for financial institutions. These products are notoriously complex.

What Investors Need to Know About Managing Risk

“Investors love risk when stocks skyrocket, and hate it when they tank.” It is commonly accepted that there is risk involved in investing, but investors do not always know how to define it. In a recent white paper, PWL’s Raymond Kerzerho and Dan Bortolotti set out to help investors understand what risk is, and how it can be managed through a disciplined approach. In reality, the vast majority of investors choose to take risk management shortcuts like principal protected notes, hedge funds and guaranteed income products. These products “are often guilty of implying that you can achieve equity-like returns with bond or GIC-like risk,” which can be harmful to the long-term success of an investor.

The Next Big Call

Kyle Bass became instantly finance famous when he called the sub-prime mortgage crisis and made a handsome profit for the clients of Hayman Capital Management […]

Some perspective on market volatility

Markets, especially Canadian markets, took a tumble through September. The S&P/TSX was down 11.2% from September 3rd to October 15th, prompting Canadian news headlines like Forty-Day Freefall, and Market mayhem: what’s driving the global economic breakdown.

Sorry, we aren’t selling

Jason Zweig once wrote that “good advice rarely changes, while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good.” This statement is true in practice.