Q: What's your view on using protective puts and covered calls?
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Investment Q&A
Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.
Q: Hi guys
I read something recent from Vitaliy Katsenelson (love his writing) which really hit home..... his thought that buying a stock is an "act of arrogance." I have copied part of it below. Please make it Public if you think his thoughts have value. You often remind us, like Mr. Katsenelson, that there is always someone else on the other side of a trade - with opposite thoughts on an equity.
Thoughtful Arrogance
Volatility can be both a feature and a bug of investing. Value investors attempt to treat it as a feature. We try to take advantage of the exuberance of the upswing and the pessimism of the downswing. I use the words attempt and try because though this approach sounds great in theory, reality proves to be a lot more challenging. This gap between theory and practice is created because volatility doesn’t waltz in a vacuum.
Upswings are accompanied by optimism and a positive news , or at least the positive spin the crowd puts on the news – this pushes a stock up. Downswings don’t happen in a vacuum, either; they are accompanied and usually driven by negative news, which results in Mr. Market marking down the value of your initial investment. Fear sets in. What if Mr. Market is right? What if this new news and the army of commentators on CNBC are right?
As the great American philosopher Mike Tyson said, “Everyone has a plan until they get punched in the mouth.” Theory gives you the game plan (buy more when the stock is down), but then the market punches you in the mouth.
Our ultimate goal is to narrow the gap between theory and practice and take advantage of volatility. We do this through thoughtful arrogance.
Let me explain.
Investing is an act of arrogance. You are basically saying, “I am right and the person on the other side of the transaction, who is buying a stock from me or selling it to me, is wrong.” Value investing takes that arrogance to an even greater extreme, as you are often buying unloved, if not hated, stocks.
However, arrogance comes in different forms. Plain vanilla arrogance is very dangerous in investing. Softbank CEO Masayoshi Son built Softbank out of nothing. He is one of the richest people in Japan, he is a visionary, and he has had one of the best multidecade investment track records.
However, today his Vision Funds are at the tip of the spear of dotcom 2.0 as it shatters against the rock-hard wall of economic reality, losing his investors tens of billions of dollars this year. Mr. Son is solely responsible for it. He recently admitted, “When we were turning out big profits, I become somewhat delirious.” Success went to his head. He started thinking that he had the Midas touch. This is why temperament is so important in investing: We are our own biggest enemy.
And then there is thoughtful arrogance.
This arrogance requires amnesia of your past successes and failures; it is earned with your current sweat, through thorough research. Your research leads you to conclusions that often disagree but sometimes agree with the prevailing trends in the market. Arrogance – belief in your process and research – allows you to follow through on your conclusions, even if the market scorns them.
Stuart
I read something recent from Vitaliy Katsenelson (love his writing) which really hit home..... his thought that buying a stock is an "act of arrogance." I have copied part of it below. Please make it Public if you think his thoughts have value. You often remind us, like Mr. Katsenelson, that there is always someone else on the other side of a trade - with opposite thoughts on an equity.
Thoughtful Arrogance
Volatility can be both a feature and a bug of investing. Value investors attempt to treat it as a feature. We try to take advantage of the exuberance of the upswing and the pessimism of the downswing. I use the words attempt and try because though this approach sounds great in theory, reality proves to be a lot more challenging. This gap between theory and practice is created because volatility doesn’t waltz in a vacuum.
Upswings are accompanied by optimism and a positive news , or at least the positive spin the crowd puts on the news – this pushes a stock up. Downswings don’t happen in a vacuum, either; they are accompanied and usually driven by negative news, which results in Mr. Market marking down the value of your initial investment. Fear sets in. What if Mr. Market is right? What if this new news and the army of commentators on CNBC are right?
As the great American philosopher Mike Tyson said, “Everyone has a plan until they get punched in the mouth.” Theory gives you the game plan (buy more when the stock is down), but then the market punches you in the mouth.
Our ultimate goal is to narrow the gap between theory and practice and take advantage of volatility. We do this through thoughtful arrogance.
Let me explain.
Investing is an act of arrogance. You are basically saying, “I am right and the person on the other side of the transaction, who is buying a stock from me or selling it to me, is wrong.” Value investing takes that arrogance to an even greater extreme, as you are often buying unloved, if not hated, stocks.
However, arrogance comes in different forms. Plain vanilla arrogance is very dangerous in investing. Softbank CEO Masayoshi Son built Softbank out of nothing. He is one of the richest people in Japan, he is a visionary, and he has had one of the best multidecade investment track records.
However, today his Vision Funds are at the tip of the spear of dotcom 2.0 as it shatters against the rock-hard wall of economic reality, losing his investors tens of billions of dollars this year. Mr. Son is solely responsible for it. He recently admitted, “When we were turning out big profits, I become somewhat delirious.” Success went to his head. He started thinking that he had the Midas touch. This is why temperament is so important in investing: We are our own biggest enemy.
And then there is thoughtful arrogance.
This arrogance requires amnesia of your past successes and failures; it is earned with your current sweat, through thorough research. Your research leads you to conclusions that often disagree but sometimes agree with the prevailing trends in the market. Arrogance – belief in your process and research – allows you to follow through on your conclusions, even if the market scorns them.
Stuart
Q: Hi Peter
Not a question, but a comment
In Market call today, a caller from
Vancouver requested to invite you. Andrew Bell made a note. The analyst of the day, Jamie Murray, acknowledged and mentioned you as really good
Hoping you will get a call soon
Not a question, but a comment
In Market call today, a caller from
Vancouver requested to invite you. Andrew Bell made a note. The analyst of the day, Jamie Murray, acknowledged and mentioned you as really good
Hoping you will get a call soon
Q: Good morning 5i
Your portfolio tracker tells me that i have too many funds. I hold stocks as well as the funds. Some, like iwc and iwo are in smaller proportions. I guess I became a bit too enthusiastic and i am wondering whether you could make some suggestion as to how best to rationalize these. They are: RSP
VOO
IWO
IWC
ICLN
VEA
VWO
VYMI
thanks for your excellent service
Your portfolio tracker tells me that i have too many funds. I hold stocks as well as the funds. Some, like iwc and iwo are in smaller proportions. I guess I became a bit too enthusiastic and i am wondering whether you could make some suggestion as to how best to rationalize these. They are: RSP
VOO
IWO
IWC
ICLN
VEA
VWO
VYMI
thanks for your excellent service
Q: i would like to have your opinion about buying shares like Amazon or Goog on the Neo exchange.
Thank you very much for your good work Lorraine
Thank you very much for your good work Lorraine
Q: This is not a question, but an experience I'd like to share.
I have subscribed to Peter's covered call selling for many years. For instance I had a September expiry $30 CC on CCXI that gave me a $1.50 credit. So, the stock was selling at 24 and the CC strike was 30 and the credit for selling the call was 1.5. So potentially I could make a max profit of 7.50. Not bad I thought.
Then I woke up this am and was confronted with this:
https://www.tipranks.com/news/press-releases/amgen-to-acquire-chemocentryx-for-4-billion-in-cash
Be prepared for that eventuality if you use the CC strategy. Even though it happens much less frequently then desired it does hurt the greed part of our ego. No doubt about that.
Sheldon
I have subscribed to Peter's covered call selling for many years. For instance I had a September expiry $30 CC on CCXI that gave me a $1.50 credit. So, the stock was selling at 24 and the CC strike was 30 and the credit for selling the call was 1.5. So potentially I could make a max profit of 7.50. Not bad I thought.
Then I woke up this am and was confronted with this:
https://www.tipranks.com/news/press-releases/amgen-to-acquire-chemocentryx-for-4-billion-in-cash
Be prepared for that eventuality if you use the CC strategy. Even though it happens much less frequently then desired it does hurt the greed part of our ego. No doubt about that.
Sheldon
Q: Dear 5i crystal ball.
Re recent comments on a market rallying just before and/or after announcement of a recession. The merits of which said recession seem to be debatable, but the market rally is in plain sight. Much of what I'm reading suggests that with increasing rates, the economy will slow, as intended, inflation will succumb, and a real recession will occur sometime in the next 12 months, accompanied by a market downturn. Accepting that the market is forward looking is the market currently looking beyond the real recession yet to occur, and therefore the current rally is sustainable, or are we to expect another market dowturn in the near future?
Thanks.
Peter.
Re recent comments on a market rallying just before and/or after announcement of a recession. The merits of which said recession seem to be debatable, but the market rally is in plain sight. Much of what I'm reading suggests that with increasing rates, the economy will slow, as intended, inflation will succumb, and a real recession will occur sometime in the next 12 months, accompanied by a market downturn. Accepting that the market is forward looking is the market currently looking beyond the real recession yet to occur, and therefore the current rally is sustainable, or are we to expect another market dowturn in the near future?
Thanks.
Peter.
Q: Not a question but a comment re rrif mandatory withdrawals. Rather than sell a stock, You can do a withdrawal in kind and transfer the stock to your cash account. That way you can defer decision re which stock “to sell” if you don’t really want to sell.
Q: If one holds foreign companies via an ADR on the NYSE and the US dollar plummets, is the investor ‘protected’ in any way? Stock price? Dividend? I’m wondering what is the best way to hold investments in foreign companies.
Thanks…
Thanks…
Q: what are some good things to keep in mind that help you keep things in perspective regarding the fluctuations and negativity.. for me its having a rational solid response to a quarterly earnings thanks for the help
Q: With all the market turmoil I would like to park some funds. I am considering money market or GICs. I invest through TD Waterhouse. What would your recommendation be?
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BCE Inc. (BCE)
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Shopify Inc. Class A Subordinate Voting Shares (SHOP)
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iShares S&P/TSX Capped Information Technology Index ETF (XIT)
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Vanguard FTSE Canada All Cap Index ETF (VCN)
Q: Historically speaking, what is the average rate of return of ETF’s compared to individual stocks?
Q: So many of your recent answers to member questions have statements like:
"will need a better market environment to perform better"
"it will need a 'good' market to perform"
"A better market will see this stock rise sharply"
"it is still an expensive stock and will only work well if the market co-operates"
It is almost like you are blaming the market for the poor performance of so many stocks. Like how companies blame the weather for their poor results -- but their competitors had the same weather.
So, what do you mean by a "better market"? What has to happen to be in a better market environment?
Paul
"will need a better market environment to perform better"
"it will need a 'good' market to perform"
"A better market will see this stock rise sharply"
"it is still an expensive stock and will only work well if the market co-operates"
It is almost like you are blaming the market for the poor performance of so many stocks. Like how companies blame the weather for their poor results -- but their competitors had the same weather.
So, what do you mean by a "better market"? What has to happen to be in a better market environment?
Paul
Q: Not a question but just a comment that companies like Aritzia First Service and Go Easy would never have been on my radar without 5i. I’ve held all three for a number of years in my portfolio and they’ve done well. It’s also heartening and reinforcing to hear the “experts” on BNN Market Call selecting these names as Top Picks or strong recommendations. I appreciate your sound advice and recommendations. No doubt I can also mention losers that I’ve followed from 5i but my take is that it’s up to us to decide when to sell and what to buy based on your data and your informed advice. Thanks
Q: For PK re Share Buybacks
Try using the research tool from your on-line broker for this. I use Scotia iTrade and if I click on “Edge Reports” it shows a very useful table that gives the total shares outstanding for the past couple of years and an estimate for the next two years based on management comments and what they are currently doing. TD Waterhouse has a similar function.
For example, for CNR I see total shares O/S for 2020 at 713M. 2021 is at 710, so I assume 3M shares were repurchased and cancelled. Interestingly, the estimate for 2022 is 688M shares so it looks like they have been buying back more this year.
I love to see the share count go down and the dividend increase each year, even if the share price does nothing. It helps me hold on and accumulate the stock even in a bad market. This has been rewarding. As a last resort you can look on the company web page or even email them your question. Usually you will get an answer.
Try using the research tool from your on-line broker for this. I use Scotia iTrade and if I click on “Edge Reports” it shows a very useful table that gives the total shares outstanding for the past couple of years and an estimate for the next two years based on management comments and what they are currently doing. TD Waterhouse has a similar function.
For example, for CNR I see total shares O/S for 2020 at 713M. 2021 is at 710, so I assume 3M shares were repurchased and cancelled. Interestingly, the estimate for 2022 is 688M shares so it looks like they have been buying back more this year.
I love to see the share count go down and the dividend increase each year, even if the share price does nothing. It helps me hold on and accumulate the stock even in a bad market. This has been rewarding. As a last resort you can look on the company web page or even email them your question. Usually you will get an answer.
Q: In my previous question, you commented on places to be if the market looks forward to the end of a recession later this year. In that context, can you also provide good sectors and stocks (trading on the TSX) that are good places to hide out in during the recession / for the period leading up to it (i.e. from now to the end of the year)?
Q: On July 14 you answered a question from Donald about share buybacks. However, the screener you provided a link for was apparently for US stocks only, and required a monthly subscription.
I am interested in specific buybacks for a limited amount of Canadian companies. I can of course see in announcements that an NCIB has been approved and such, but is there any way to know whether or not they actually are buying back stocks? Must I wait for a quarterly or annual report to find this out after the fact, or is there somewhere I can go to see purchases?
I do know that the amount of stock they have would be reduced, but wonder if the actual share cancellation happens at the buyback, or at their leisure sometime later?
Thanks PK
I am interested in specific buybacks for a limited amount of Canadian companies. I can of course see in announcements that an NCIB has been approved and such, but is there any way to know whether or not they actually are buying back stocks? Must I wait for a quarterly or annual report to find this out after the fact, or is there somewhere I can go to see purchases?
I do know that the amount of stock they have would be reduced, but wonder if the actual share cancellation happens at the buyback, or at their leisure sometime later?
Thanks PK
Q: As we progress through the dog days of summer and possibly approach the winter of our discontent, the number of questions being asked of 5i seem to be lower at this time. Is this a summertime normal occurrence? Otherwise, is it possible that the number of questions asked day by day could be a useful metric of investor interest in the stock markets. If so, then as the number of questions increase, could this indicate that the market is in the road to recovery. This would not be a “bet the farm” metric but would appreciate your thoughts on the matter.
Thanks for your valuable service.
Cyril
Thanks for your valuable service.
Cyril
Q: I recently read that Wealthsimple was firing staff and cutting back on some services. I do use Wealthsimple Trade and have been very happy with its simplicity and ease of use. Should an investor be concerned about bankruptcy for a firm like Wealthsimple as opposed to investing/trading with a bank like National Bank or one of the big banks ?
Q: From my years of investing, I can say that whenever I take a position larger than 5% of my portfolio, I have come to regret it. The larger position occurs either because I averaged down or became so enamoured by the company that I bought more shares. There are so many unknowables about a company that is not run by yourself, that pleasant and surprising adverse events are equally possible. The beauty of the stock market is that you can invest in 20 good conviction companies at 5% position each and really limit the damage of the adverse events. And if you can't find 20, keep the powder dry for the next nice find.