The Transparent RRSP: The Investor’s Mindset

No Action Taken for the Week of March 6

Let’s have a gander at the charts for the stocks in the Transparent RRSP.

 

4 charts

Four weekly charts on freestockcharts.com

 

The charts for LFE and GRL still look good. LFE is particularly nice in that it held up strong yesterday, despite a big down day for the market.

ZPR could use a correction. I’d like it to either go sideways or have a tiny selloff (hopefully, no lower than the $11.00 area) before going up again.

LIQ got ‘wasted’ on their earnings report yesterday morning, but the fast drop was followed up by some serious buying. Seeing volatility like that can be a little thrilling (for me, at least). A shakeout like this is called capitulation. This is when sellers get out in large numbers due to panic. The stock dropped off the open and went up for the rest of the day.

Whenever a stock trades like this at an abnormal price range and trade volume, it attracts the attention of many: the media, scared investors, and traders who are watching for a potential buying opportunity. I’ve lived through enough earnings/news shakeouts – my biggest regret for most them was abandoning my positions. This is because usually after enough time passes, there was almost always a recovery. I’m going to hold on.

As I mentioned in last week’s RRSP post, the market is in need of a correction before investors can feel confident in taking new positions or adding to their current ones. Remember, I only just entered these positions in the last two months; when you buy a stock at a time when the market is nearing the end of its shorter-term trend, you can face a bit of turbulence while the market either levels out or has a bit of a selloff. I’ve said it before: selloffs are temporary and often short-lived. When the market resumes its uptrend, all you can do is hope that your stock either follows the market or will have started going up before the market gets going again.


The Investor’s Mindset

Investors feel confident when they’re right. If you buy a stock and it’s positive, then you feel like a top contender for Wall Street’s Got Talent. You look for more stocks to buy or you buy more shares of the same one. A rising stock within a rising market is positive feedback and confirms that you made the right call.

If you buy a stock and it’s negative and lower than the position you took, you start frantically looking for reasons that explain where you went wrong. There will always be reasons to support why you’re making money as well as why you’re losing money. The problem with human psychology is that we tend to focus on losses and failures more than our successes and long-term progress.

Losing something is often a traumatic experience for us. We withdraw and try to rationalize why it happened and what could’ve been done to prevent it in the first place. Just watch an athlete on a streak make one mistake. The athlete who recovers quickly and keeps at it like nothing happened conquered that hit on the ego by staying focussed on the goal of the game, not the hitch. (If you’re interested in this high-performance mindset stuff, read The Inner Game of Tennis by Timothy Gallwey.)

This doesn’t mean I stick my head in the sand and ignore all the signs saying to cut my losses when I should. I just need more information that’s relevant to me and my plan. I didn’t become a good trader/investor until I truly accepted the ups and downs that come with trading. It has taken me years to get comfortable with that. I’ve read countless books on trading and psychology to see if I was missing something in my mental processes. What I realized was that I was denying myself the joys and rewards that come from being patient.

I discovered the importance of having plans for your trades. Writing it down helps to remind you of your original intentions. (I’m getting better at this. No more loose post-it notes!) If you start getting antsy, then review your plans to see if you’re still on track with your short and long-term expectations.

Have a plan, stick to it, learn from it, and get confident!


From Binge Watching to Betting

OB with wordsLate last summer, it got too hot to go outside, so my man, JP, and I stayed indoors and watched a lot of movies and shows. We had heard Orphan Black was really good, so we borrowed the DVD from the library to check it out. 

The opening scene of the show marked the point of no return for the lead character, Sarah Manning, and it was the same for us. We were hooked. Each time we sat down to watch Orphan Black, we found ourselves in fight or flight mode — the experience was stressful, yet thrilling. We got so emotionally involved that it was nearly impossible to be in a neutral state before and after watching.

By the fifth episode, JP decided to de-stress by taking a relaxing walk to the gas station (the only nearby store) and he bought a bucket of our local dairy’s popular ice cream — a seemingly great way to soothe spikes in stress hormone levels. So it became our new thing to borrow the next DVD of Orphan Black and get a bucket of ice cream which, of course, was totally fine as it was ‘local.’  

In the short time it took to watch the first three seasons of Orphan Black, I had gained nearly 10% in body weight. We had also developed a fiendish unstoppable appetite for that rich, addictive ice cream. The only thing that prevented me from eating more of it was a horrific blistery rash that erupted around my mouth — binge eating dairy had triggered an old lactose allergy I kicked years ago. It’s an understatement to say that I was a physical mess by the end of the summer.  

Since then, I was never able to exercise myself fully back to my pre-Sarah Manning weight. I’m still considered to be at a healthy size and weight range for my age and height, but I know I could and should feel fitter and I really miss wearing a lot of my clothes, almost half of which have gotten too snug. I eat ice cream on rare occasions now, and I know I could be healthier by exercising more often and drinking less alcohol. 

I read that people generally respond to incentives. People will be more successful at losing weight if they win money. I’m not competitive, and instead, I get this weird urge to shut down when I’m around competitive people. If you have to compete for victory, I’m the last person you want on your team. I always manage to convince myself it’s not worth the effort for the small chance of winning with or against others who want it more. However, I do hate losing something I already have (other than unwanted pounds), and that something is money, no matter how much it is. If you want to see hulk-like anger, watch what happens when I discover extra service charges in my bank account or on my bill.

So this week, I went on stickk.com and signed up for a weight loss challenge. On this site, you can set up any challenge you want for yourself and you have to give them your credit card number. I designed it so that my challenge is for me to lose a realistic number of pounds in two months. If I fail to reach my target weight by the end date, I have to pay them the amount I agreed to lose, which is $80. It’s not much to lose (some people have thousands on the line), but it’s enough to royally upset me. I also have to report and meet a gradual weight loss target each week. You can have a referee to report your progress to or you can report based on the honour system. Betting against yourself seems odd, but I see this as a way of investing in my health, which is a form of wealth, after all.

Where does the money go? When you set up your challenge, you can decide that the money goes to someone you don’t ever want to lose a bet to, which will really motivate you. Or you can lose to the StickK people and they will pay your money to a charity of THEIR choice, not yours. I never want to promote gambling, but this form of betting is not based on some random win, it’s based on your desire to make your life better. There is no randomness or limit to your will to achieve what you want. 

Never underestimate the power of loss aversion. Just don’t let it prevent you from investing because you can reduce the risk with strategic asset allocation. Instead, use that aversion to loss to hit your goals if you want to lose weight or quit smoking–anything you’ve been struggling to achieve. In eight weeks, I will reveal whether I lost $80 to the StickK challenge or not. Wish me luck!

Thanks a lot for being the most binge-worthy show ever, Orphan Black! (I love you so much.)  

 

 

 

Breaking Up is Really Hard to Do

Exit

Six lbs of fury over Brexit

The world over is talking about the British exit and I feel compelled to express my woes.  It’s official, the UK voted to break up from the EU. A wise friend once told me that in a breakup, the one who decides to leave first wins; they’re emotionally prepared and very likely already have their exit strategy planned out.

So what does this all mean? Does Britain win and the rest of the EU lose? And when the rest of the EU loses, then economically do the rest of us lose too? What is Britain’s exit strategy? How long will this take?

We all have many questions, most of which will take years to answer. The big thing is the uncertainty that comes with all this. The best play is to be defensive. Maybe wait until the markets settle down over the next week or so. In the meantime, look at other investment opportunities. Look for stocks that barely reacted to the news. Did their sectors do the same? If the market moves sideways or goes up, you can take your position. If the market goes down, just be ready for when there is a reversal. If your choices display alpha behaviour in that it does not care what the markets are doing and wants to advance on their own, I say consider going for it, maybe just take fewer shares than you normally would to reduce your risk. The macroeconomic conditions have now changed and makes anything you invest in riskier.

There’s always risk in investing; sometimes there is wisdom in the strategy of sitting on your hands until economic uncertainty and market volatility cool off. Sitting on your hands for too long and not being pro-active in the interim poses another kind of risk: the risk of doing nothing and taking action when it’s too late. The best opportunities occur in the places where you anticipate the start of change, the beginning of a potential shift in trends. Watch the world markets, observe the different sectors and industries, wait for currencies to stop falling, and look for promising changes in employment and housing.

Keep your eye on the EU, and if there is instability for a while, look for signs of recovery. My only hope is that the EU has a plan in place to deal with the exit of a major member. I will now join my newborn niece and weep over this major breakup.

 

The Trend: To Spend and Lend

This week I had the honour of meeting my MP, Kim Rudd. She is a fascinating woman; you could write an entire book about her inspiring tenacity alone. She’s a true community leader, a successful entrepreneur, and a genuine, cool lady. She had been told about my book, Loonie to Toonie, and wanted me to meet with her in person to talk about it.

While in that meeting, I received some great tips on how to promote the book. I also got to participate in an open discussion of the challenges many Canadians face from not having their finances under control. This is a big problem that stretches across all the generations. The main question that came up was: Why don’t we all know more about money? There were many answers to that question. The solutions are simple, but not easy. My book is my own way of seeking an answer to that question, but it’s only one solution. I have no control over what people take away from my book. I can only hope to empower people with knowledge. But is that enough to transform a culture from spending to investing?

Imagine going to the mall and there was a store that sold all sorts of investments. Whatever you bought, you left the store with more money. How popular would that store be? I think we would all go to that store first before spending our money anywhere else. We would know all the features to investments like we would for the latest smartphone or pair of Jimmy Choo shoes.

The reality is, investing doesn’t offer the same instant feedback we get when we actually purchase an item. There’s a wait time for the payoff which sometimes take years. This means that we don’t have many chances to make corrections if an investment doesn’t work out. In general, the longer we have to wait for something, the more antsy and uncertain we feel about it. Then add to the length of time the element of risk, which is the uncertainty of the investment’s outcome. If an investment doesn’t work out like you expected it to, you can’t refund it or get all your money back. Thankfully investing doesn’t have to look like a scary game of risk, thanks to the strategy of diversification, which is having different financial assets of various risk levels. Similar to having a closet of clothes for different occasions, your savings should be comprised of different kinds of investments for various stages and goals of your life. 

So how do we enhance our relationship with money? Divide your pay cheque up like this: bills, food, future goals, then the rest for fun. This way, you take care of your basic necessities now, your needs for the future, and you can still enjoy some instant gratification for your hard-earned money.

If you haven’t done so yet, go to your bank and just ask to speak with a financial advisor about what you can do about your future goals. Advisors are always friendly, helpful, informative, and they’re there to make the processes easy for you. Whenever I go to the bank, I look for reasons to chat with the advisors. Sometimes I’ll ask a question and suddenly there’s a bunch of us standing around the reception area chatting and sharing ideas. They always tell me of the different options available and they give me new things to consider. I recognize that I’m not shy to talk about financial stuff, but that comes with being empowered with knowledge, even if it’s just some knowledge. No matter how much or how little you know, these advisors are always there to help.

This week, the global markets finished in neutral / positive territory, still above the losses that began in January. On Wednesday, the “Feds” (the FOMC – Federal Open Market Committee – of the U.S. Federal Reserve who make decisions that affect their economy and markets) announced that they don’t expect to be increasing their interest rates as they previously thought they would. Lower lending rates encourage borrowing and spending to stimulate the economy. This makes the stock market go up because people anticipate further growth in business. This reaction could be temporary. If the oil sector’s recent rebound is short-lived, another plunge in oil could still take us all down. I’m not saying this will happen, it’s just something to keep in mind. All the major global economies are doing many things to boost and stimulate their economies–this could also mean these economies are on the weak side and need to experience actual growth. 

Does my cautious sentiment mean not to invest? No. Whether the stock market is strong, the economy is weakening, or if we’re in a recession, there are always investment opportunities. This is why I try to be aware of my other options so that I can strike when the time is right. At the moment, I’m still waiting for a chance to get into the metals (see last week’s write-up on precious metals). I’m also thinking of getting a bond fund that’ll pay me interest for the very, very long term.