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September-15-15

There is no good way to pick stocks.

There’s a lot of financial reporting that perpetuates the myth that you should be playing the market. This article is one extreme example.

The author, Peter Hodson, says he provides “conflict-free advice to investors.” Apparently that includes encouraging readers to take big risks. “If you don’t take a stock hit once in a while,” he writes, “you’re probably playing things too conservatively, and getting weaker investment returns as a result.”

In other words, if you don’t lose big from time to time, you should take more risks. Hodson goes on to write, “Investors can’t be afraid to make mistakes. They will happen. The key is to learn from them, or, at the very least, try not to make the same mistake again.”

He lists a series of lessons he’s learned from his mistakes (including taking a tip from a dead person). Which conveniently skips over the real lesson: you shouldn’t be picking stocks in the first place.

Ignore any “advice” like this that encourages you to be a cowboy with your life savings. Turn away from any guidance on the right and wrong ways to pick stocks. There is no right way. Don’t take stock tips from anyone, dead or alive.

By: Mark Sutcliffe | 0 comments
September-10-15

Rookie Mistakes

According to this story, excitement is building for the release of Conor McDavid's first hockey card as an NHL player.

McDavid, as I'm sure you know, is expected to become one of those once-a-generation hockey superstars, like Sidney Crosby or Mario Lemieux. The prospective value of his "rookie card" is compared to that of Wayne Gretzky. The story also mentions a rare 1909 Honus Wagner baseball card that once sold for $2.8 million.

But here's the problem with counting on McDavid's card to one day be worth thousands or millions of dollars: everyone already expects him to be a big star. The reason some cards end up being worth a lot is because nobody anticipates them being of great value in the future, usually because the player is a surprising star, not a highly touted prospect. Otherwise no one would throw away the card, creating the scarcity required to drive up the price.

In the case of both the 1909 baseball card and Gretzky's rookie card (which I'm pretty sure I had when I was a kid), nobody expected the boom in the value of trading cards that happened in the 1990s. To have known that the Gretzky card would one day be worth a lot, you'd have to have predicted not only that he would become the greatest player of all time, but that unexpected boom in trading-card value. If that was easy to do, more people would have hung on to the cards when they had them and they wouldn't be in such short supply.

Now that there are built-in expectations around both the value of cards and the stardom of McDavid, it's impossible to replicate the Gretzky outcome.

Likewise, commonly held expectations and knowledge are built into the market price of every stock. So if you think you can make a lot of money picking stocks - beating the market instead of getting the returns of the overall market - ask yourself: what is it that you're predicting will happen in the future that the person selling you the stock - and everyone else in the market - doesn't know?

By: Mark Sutcliffe | 0 comments
September-10-15

What to do with your surplus cash: the evidence.

Just about everything important in my life has a corresponding Excel spreadsheet. So if you're like me and you enjoy playing with numbers, running different scenarios and comparing options until you find the right answer, you'll enjoy this white paper written by PWL Capital's Ben Felix.

But even if data doesn't make you excited, give it a quick glance anyway. The topic is the question with which entrepreneurs and self-employed professionals are always grappling: whether to keep their surplus cash in their corporation or pay it out to themselves. What option yields the best results?

You can skip to the conclusions or read through the analysis line by line. But the important thing is not just what the data tells you, it's the fact that this is the kind of work that PWL does all the time for its clients. It's analytical, fact-based and transparent. This is about helping you make the right decisions based on the evidence, not selling a specific product.
Have a look at the white paper here and see what you think.

By: Mark Sutcliffe | 0 comments