Don’t Confuse Activity with Intelligence

If you base your investment decisions on emotion, you are doomed to fail.

--Patrick A. Choquette

Given the number of stories of riches gained through investing in Meme-stocks, Cryptos, and SPACs, we thought a comment from our office was warranted. Let us begin by saying, that yes, it is possible to make money on Bitcoin, just as it is possible to hit the jackpot on a trip to Vegas. But, be very careful not to confuse skill with luck. Unfortunately, many do, and then try to backfill the narrative to save face. We bring this up in the context of conversations around the buying and selling of securities for our clients. I often hear comments like: “I feel the market is too high”, “we are due for a correction”, “it could go lower”, or “the next COVID variant is going to hurt my shares so let’s sell and buy back when they are cheaper”. To some extent, we are all guilty of playing into the emotional entanglements suggested above. But do we need to be? We think not. Our challenge to you is don’t think about equity investing as trading paper shares, but rather as taking a physical stake into the future prospects of businesses that provide profitable ventures. For some reason, we tend to believe that through our selection and timing of buys and sells, in essence our frenetic activity, we can beat our neighbours’ and the general market’s returns. This is not a sound practice. And as history explains, we are completely misguided in our assumptions about our ability.[1][2] Instead, we would like to leave you with the governing idea of prudent investing:

• Become an owner in a quality business where value is determined by sound financial analysis and not by popularity. Furthermore, take advantage of opportunities where you can acquire shares at substantial discounts.

Food for thought.

Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Patrick A. Choquette, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.

[1] SPIVA US Year-End Scorecard indicates that 94% of professional US Large-Cap money managers underperform the S&P 500 for the 20-year period ending in 2020. https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2020.pdf. The numbers are similar for Canadian money managers as well. https://www.spglobal.com/spdji/en/documents/spiva/spiva-canada-scorecard-year-end-2020.pdf

[2] See Trading Is Hazardous To Your Wealth. https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf