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Recent Canadian economic data had recession alarmists out in full force and for good reason.
For the fourth quarter of 2018, Canadian GDP grew a meagre 0.1%, or 0.4% annualized, a 'barely-there' numberthat could well vanish in subsequent data readings and even turn negative.
Brian DePratto, senior economist at Toronto-Dominion Bank, went so far as to say that the country was facing a perfect storm. The fourth-quarter figures bear him out - consumption spending was weak, investment in housing plumbed decade-lows and business spending declined for the second quarter on the trot. A deceleration in global growth also made matters worse. One consolation was a robust jobs market.
A study by the Canadian Imperial Bank of Commerce (CIBC) said this was Canada's second brush with near-recession conditions after 2015. But ominously, the bank warns that a third instance of a recession risk looms in 2020 when the US could witness a slowdown after exuberant growth and jobs conditions in this year. The Canadian and US economies are pretty much joined at the hip and if the US slows down, Canada could also feel the pain.
According to Deloitte, Canada's economy stalled in Q4 but did not derail. They think the Canadian economy will likely grow a tepid 1.3% this year and a marginally better 1.5% in 2020.
But when elephants fight, it is the grass that suffers. And that brings us to the recessionary implications for Canada from the US-China trade showdown.
US China trade wars: Spanner in the global works
Economic risks are now all the more serious given the unfavourable developments in the trade talks between the US and China. The US has reacted to the apparent stalemate by raising tariffs on $200B of Chinese imports, and further action is contemplated by extending their reach to all imports worth $325B from China. China has played tit-for-tat by upping tariffs on $60B of US goods with effect from June 1.
According to Brian DePratto, senior economist at TD Economics, an estimated 0.1 per cent could be shaved off from Canada's economic growth over the next year as a result of the dispute. More serious will be the damage to Canada's already weak business confidence.
The fall-out on the common Canadian, personally, may be higher prices for consumer goods, TVs and tires. Unfavourable hits to the financial markets will also affect their retirement accounts such as RRSPs.
According to Bloomberg economist Maeva Cousin: “Higher tariffs would mean lower margins for producers and higher prices for consumers and, in turn, reduced demand. This would create widespread disruption along the supply chain.”
Morgan Stanley has warnedthat if the two sides do not find a solution there could be a global recession with growth below 2.5% by 2020.
Recession or Not - How to play defence
With storm clouds on the global economic horizon, and Canada already on a weak domestic growth trajectory, it may be time to take a hard look at recession-proof investing.
(Read our US-stocks focused primer on recessionhere)
Typical strategies for a recession include investing in companies that have a history of earnings growth and regular dividends, sectors that don't suffer from a demand hit (such as staples, healthcare, entertainment), and stocks in foreign markets. Bonds, cash and bullion are also options, but this article focuses on equities.
Canadian stocks for the bunkers
Here's a list of our stocks picks should you want to seek shelter from a recessionary storm.
1. Canada Goose Holdings Inc (TSX:GOOS) @ $65.03
Perhaps appropriately, an extreme weather clothing company is one of our picks for defensive investing.
Founded in 1957, the company makes premium outdoor apparel for men, women, youth, children, and babies. The company operates in two segments, Wholesale and Direct to Consumer. As of April 09, 2019, it operated 11 retail stores. The company also sells its products through e-commerce in 12 countries.
For the fiscal third quarter of 2019 i.e. the December 2018 quarter, the company reported EPS of $0.73, which beat estimates by $0.11, and revenue of $300.44M which beat by $28.41M.
The company does not currently pay a dividend and looks expensive at the current price of $49.20 which translates to a PE ratio of 38.13.
But what’s going for the stock is its excellent brand value which has resulted in impressive revenue growth and improvement in margin. Revenue grew 46% in 2018 compared to 2017. Its trailing twelve-month gross profit margin is currently 45.24%.
The company's initiativesto boost wholesale distribution and its direct-to-consumer business (online or physical) are paying off in terms of revenue growth, and also likely to further enhance already fat margins.
2. TELUS Corporation (TSX:T) @ $49.35
This is a mobile play, a market which is a necessity and unlikely to suffer a severe downturn even in recessionary times.
TELUS Corporation provides a range of telecommunications products and services in Canada. Operating through Wireless and Wireline segments, the company’s products and services comprise wireless and wireline voice and data services; data services, including Internet protocol; television services; hosting, managed information technology, and cloud-based services; healthcare solutions; customer care and business services; and home and business security solutions. It has 13.4 million subscriber connections.
Telus has a market cap of $22B and a PE ratio of 13.68.
For the latest quarter the company reported EPS of $0.56 which was in line with expectations and revenue of $2.6B which missed by a negligible $11.41M.
At the current price its dividend is yielding 4.42%. The company has grown its dividend every year for the past three years.
Operationally, the company said on its earnings call that it grew its combined wireless mobile phones and connected devices, Internet, and TV customer additions by 50% over the previous year. EBITDA grew by a robust 8.4%.
Last month, Telus acquired important 600 megahertz spectrum licenses covering British Columbia, Alberta, Eastern Ontario, and Southern and Eastern Quebec, and this will enhance its network footprint and subscriber base.
The stock has the potential for substantial appreciation if it is able to take out a long-term resistance zone clustered in the $38-$39 zone.
3. Franco-Nevada Corp (TSX:FNV) @ $102.22
Precious metals mining and trading companies offer defence from a recession as the underlying asset, such as gold, is viewed as a safe-haven asset.
Franco-Nevada Corporation operates as a gold-focused royalty and stream company in the United States, Canada, Latin America, Australia, and Africa. It also holds interests in silver and platinum group metals; and oil, gas, and natural gas liquids.
Franco-Nevada does not mine any gold, instead it takes a share of the gold output from miners it finances. This off-take is generally at low prices.
At current prices the stock yields a dividend of 1.32%.
The company's assets are well-diversified and it is not economically dependent on any single asset. It earns its royalties and streams on properties mined by some of the most reputable mining companies in the world.
4. Fortis Inc. (TSX:FTS) @ $50.13
Utilities are a defensive investment in recessionary conditions because they are safe, stable and offer a steady cash stream via dividends.
Founded in 1885, Fortis is an electric and gas utility company in Canada, the United States, and the Caribbean. It operates solar, gas-fired and hydro-electric power generating facilities and is also a natural gas distributor. It is also an owner of transmission and distribution systems, natural gas pipelines and natural gas storage facilities.
The company pays a steady dividend yielding3.6% and is ranked as a Dividend Aristocrat.
For the quarter ended March 2019 Fortis reported EPS of $0.55 which was in line with estimates while revenue of $1.81B beat estimates by $46.29M, and was up 6.05% year on year. It currently trades at a PE Ratio of 14.71.
The company said in its earnings call that it plans to invest $3.7B in 2019 and about $17B over the next five years. The company also is confident that it will grow its dividend at an annual growth rate of 6% through 2023.
5. Algonquin Power & Utilities Corp. (TSX:AQN) @ $15.70
Another utility, Algonquin Power & Utilities Corp. owns and operates a portfolio of regulated and non-regulated generation, distribution, and transmission utility assets in Canada and the United States. It generates and sells electrical energy through a portfolio of non-regulated renewable and clean energy power generation facilities. The company also owns and operates hydroelectric, wind, solar, and thermal facilities with a combined gross generating capacity of approximately 1.5 gigawatt; a portfolio of regulated electric, natural gas, water distribution, and wastewater collection utility systems.
For the latest quarter ended March 2019, Algonquin reported EPS of $0.19 which missed estimates by $0.03. Revenues of $477.20M missed by $48.19 and were down 3.56% year-on-year.
The current dividend yield is 4.37% and the company has grown its dividend for the last seven years.
The company trades at a market cap of $5.75B and a PE ratio of 27.12.
The company foresees steady, consistent growth in the future.
Brookfield is a utility focused on renewable power generation. The company generates electricity through hydro, wind, solar, co-generation, and biomass sources and owns a portfolio of renewable power generating facilities primarily in North America, Colombia, Brazil, Europe, India, and China.
Its portfolio consists of approximately 17,400 megawatts of installed capacity and $47B of power assets.
It is one of the largest public pure-play renewable businesses gradually.
The current dividend yield on the stock is a generous 6.44%, and the company has been growing its dividend since the last nine years.
For the March 2019 quarter it reported an EPS of $0.14 which surpassed estimates by $0.02. Revenue came in at $825M and beat forecasts by $22.12M.
The company has a solid balance sheet with a concentration of prized hydro-power assets. The company boastsof available liquidity of $2.3B and a comfortable debt maturity profile.
In its earnings callBEP said: "We believe the business is well-positioned to deliver strong results during all points of the economic cycle... Should the markets weaken, we believe our strong balance sheet, our liquidity, our robust asset sales program and access to capital will reduce the need to issue equity to fund growth. Accordingly, we believe we are one of the few companies in this sector with the strategy and the financial flexibility to benefit during periods of both market strength and weakness."
7. Alimentation Couche-Tard (TSX:ATD.B) @ $84.31
Apart from the fact that retail stores, and more particularly convenience stores, are a natural shield against recession, the most compelling reason to buy Alimentation Couche-Tard is the technical strength on its chart, setting it apart from rivals such as Dollarama and Canadian Tire.
Based on revenues, ATD is thelargest Canadian company. It has 16,072 stores strewn across North America, Europe, under the CAPL network and including the Circle K branded sites. That's a huge jump considering it started operations in 1980-1990, with most of the store additions coming through canny acquisitions at lower transaction multiples.
It has grown its EBITDA, currently $3.6B, at a 5-year CAGR of 5.1%. Merchandise and Service Sales have grown at a CAGR of 11% during 2013-2018. During the same period, road transport fuel quantity has grown at 16% CAG.
Interesting fact: 83% of in-store merchandise that convenience stores sell is consumed within one hour of purchase, and 65% is immediately consumed. This is inbuilt-defence against on-line.
The company had a bumper third quarter 2019, even though both EPS and revenue missed expectations.
Though its dividend yield is a lowly 0.51%, ATD is a consistent dividend payer.
The stock trades at a market cap of $35.38B and a PE ratio of 18.27.
Considering the growth trajectory and management execution, this is not expensive.
Another pick from the telecom pack, Rogers Communications Inc. operates as a communications and media company in Canada. Both telecommunications and entertainment are relatively recession-proof sectors.
Rogers operates through three segments: Wireless, Cable, and Media. The Wireless segment provides its services to approximately 10.8 million subscribers. The Cable segment covers approximately 4.4 million homes. The Media segment owns the Toronto Blue Jays league baseball team and the Rogers Centre event venue; and offers television and radio broadcasting, multi-platform shopping experience, digital media, and publishing services.
The stock pays a forward dividend yield of 2.97% and trades at a PE (ttm) of 17.48.
The company has refocused its operations in recent years to improve service, reduce debt, and provide valuable products and services to customers. These efforts have proved successful, as evident from the share price - which entered an uptrend in the latter half of 2015.
After touching an all-time high of $73.56, the stock has corrected somewhat.
If you don’t already know what an all weather portfolio fund is I highly recommend looking at the resources linked in this article to learn more about them. In a nutshell, it is a way to craft a portfolio that stays consistent over a long period time and will have a high likelihood having good returns through any economic cycle, including different types of recessions. My first exposure to all weather funds came from reading more about Ray Dalio’s hedge fund strategies.
Based off of this, you can start digging into specific Canadian ETF’s that fit this all weather portfolio. Let’s look into each one separately first.
Long Term Canadian Bond ETF
The two options for this bucket here would be the iShares Core Canadian Long Term Bond Index ETF (XLB.TO) and the Vanguard Canadian Long-Term Bond Index ETF (VLB.TO). I have used XLB.TO for back-testing purposes as it has been around for longer and would give us a better picture of how this portfolio would operate. These ETF’s in general are giving you exposure to bonds that mature after on average 15+ years. These type of ETF’s typically perform consistently and reduce your risk of draw down during bear markets.
For purposes of back-testing data shown below, we have selected XLB.TO.
Stock Market ETF
There are two ways to approach this. One would be to exposure to the Canadian market exclusively, second would be exposure to U.S market exclusively. Below I have included back-tested data for both options, all comparing to the Canadian stock market XIU.TO. For the actual ETF’s to trade, for exposure to the Canadian market iShares S&P/TSX 60 Index ETF (XIU.TO) makes sense. While iShares Core S&P 500 Index ETF (CAD-Hedged) (XSP.TO) makes sense for exposure to the U.S market with the dollar hedged.
Intermediate Canadian Bonds ETF
For this one I was only able to find a single ETF that fit the criteria. I am sure more exist and if you know any please feel free to share this within our community thread for this article. The one that I used for the back-tested data below is iShares Core Canadian Universe Bond Index ETF (XBB.TO). This is basically Canadian bonds that mature on average 10 years.
Canadian Gold ETF
The popular Canadian ETF for gold would be iShares S&P/TSX Global Gold Index ETF (XGD.TO). Gold makes sense as it typically does well during times of high inflation. Another alternative to this could be Horizons Enhanced Income Gold Producers ETF Common (HEP.TO).
Canadian Commodities ETF
This one was a tricky one to find as I couldn’t finder a broad commodities ETF without looking into U.S ones. I am deviating a little from the proposed broad based commodities ETF and selecting one based off of water. Michael Burry, the one who the movie The Big Short was based off of is onlyinvesting in water. The ETF I used for back-testing data seemed to perform pretty good. I used iShares Global Water Index ETF Common Class (CWW.TO).
Bringing it all Together
In order to make sure my selections made sense, I used the website over at Portfolio Visualizer to input my picks and back-test the portfolio and see how it performed over a period of time. I used XIU.TO as a benchmark to compare the performance. As you can see, both portfolio’s below (Canadian stocks and U.S stocks) out performed the Canadian stock market. Furthermore, they both have a lower maximum draw down, and higher ratios for both Sharpe and Sortino ratios. This means that the returns for these portfolios are pretty good with minimal risk. In essence, these picks mimic pretty good an all weather portfolio.
I wanted to take some time to introduce what we are building and a few sneak peak and snippets of our new community platform as I think it will give people a perspective into what we are building, and most importantly, why we are building it.
What is Hashtag Investing and how did it start?
Hashtag Investing is simply a community network of stock investors looking to learn, share, and discuss stocks, stock markets, equities, and other investments online in real-time. When we first started out we started building this community using Slack. Slack is a business communication tool that allows companies to chat and discuss internally. In a sense, it is meant to replace email where it can handle hundreds and even thousands of users in a group chat-like setting. Slack has been a key system for us in growing and starting out and there will be some members that will stick within that platform naturally.
As the community numbers grew to the multiple hundreds, growing pains of using Slack were starting to reveal itself. As more members come in, the increase in content being posted started flooding the Slack chat, which caused valuable messages, and posts to be overlooked and not readily searchable. This meant that members could become overwhelmed and didn’t really get value. This resulted in them no longer posting, which then resulted in a low influx of content being posted. It was a constant challenge to keep the influx of content at proper level, but as a community that was trying to grow, the idea of limiting content and growth didn’t make sense.
Furthermore, using Slack is great for ephemeral and real-time discussion of current events, but for topics that need to be searchable and found easily is doesn’t really work. Eventually, as growth stagnated, and churn increased, we had to take a deeper look inside to finally make the decision of using a brand new platform…
What makes Hashtag Investing 3.0 Different?
A lot of things, and let’s go through some of them!
A complete social network:
With Slack we were essentially a group chat on steroids, now we are essentially the stock investor version of LinkedIN or Facebook (without the privacy issues of course). This means you can follow and connect with other stock investors, you can direct message individuals, or create group chats among anybody, you can edit your profile and see all of the content any member has posted. You can easily see who is online, active, and the type of investor each member is and what they are watching and are currently trading. Everything is mobile friendly, which means you can sign in from anywhere and continue discussions with absolutely anybody. This becomes an incredibly valuable knowledge pool for investors to make better informed and validated decisions. Android and iOS applications will be launched within 2-3 months. Hashtag Investing naturally is getting a reputation as a good alternative to Stocktwits with higher emphasis on quality as opposed to quantity. We are serious about having absolutely 0 spam and trolls.
Modern forums for meaty content:
Forums are nothing new, we know. They are one of the oldest community platforms on the internet, so why are we so excited? Our forums aren’t the old school style like other stock investing forums. We boast a 21st century modern look, functionality, and scalability. On top of that, it’s completely mobile friendly. Creating forum posts allow members to organize content in an incredibly simple way that allows it to be seen by all investors, but also allows it to be nicely filtered in case you want to find things pertaining to a certain filter. Only want to see posts related to value investing? No problem. How about you want to see all posts related to learning resources? Done.
Unlike some popular sub-reddits, our forum is built for investing discussion. Our tags and labels allow that all content is perfectly organized for future discovery and searches. Here is what creating a forum post looks like! One of our goals is to make Hashtag Investing the best forum for stock investors.
Live chat and Group Chat Functionality:
Staying true to our founding platform of Slack, chat functionality was a must. Our new stock investing chat functions allow for group chats, direct messaging, channel chats and more. Essentially, our group chats give you a feel of a stock investing whatsapp group or telegram group. Again, all of this is mobile friendly so you can chat on the go anytime.
We expect our group chats for stock market, stocks, options, and day trading to be focused on more intra-day, ephemeral type discussion, leaving the detailed meaty content for the forums.
Vet Trades Using Community Polls
Many times while considering making a trade, an investor just want’s to run a trade by others. Rather than creating a discussion, a simple BUY, SELL, HOLD poll would suffice. With our trade vetting community polls users can do just that. Within seconds a user could easily ask a question, create multiple choice answers, and submit it to thousands of stock investors. Comments allow for discussion where different diverse ideas can explain their answer choices.
In this example, you can see super quick results for the poll question, “Will there be a market correction within the next 12 months?”.
Partnered Deals for Added Benefits to Members
As a community of stock investors, one of the things we can leverage is partnered deals with other online leading stock investing tools and services. As a member you get access to promo codes and discounts to some major brands including Benzinga, Sure Dividend, ValueWalk, Webull, Trendspider, and many more. We hope to become the best online social network for stock investors and providing a plethora of promotions to other services is a piece of that puzzle. To view some specific promotions you can view our partners page here.
Rob Koyfman is the Founder/CEO of Koyfin, an analytics platform that provides users with market insights through tools focused on dashboards, graphs and other data visualizations.
Today’s online space is loaded with thousands of tools for investors to better view, understand, learn, share, and trade in the stock market. There are naturally many services that don’t offer any value at all, but then there are some that rapidly grow into household tools that every investor is talking about, and this is exactly the type that Koyfin falls under. As a website that strives for genuine recommendations and knowledge sharing I was compelled to bring this interview with the Founder and CEO of Koyfin for you to understand exactly why you should be using this tool! Here’s Rob!
1) Can you tell us a little about your backstory and how you ended up founding Koyfin?
After college, I was on Wall Street for 15 years in trading and research roles. I have an unusual background because I focused on stocks in some of my jobs, but in others focused on ETFs, options and macro. So I've had the ability to look across different trading styles. I was also interested in data visualization after reading Edward Tufte's books and going to his classes. He is considered one of the top experts on data visualization and teaches how visual elements can communicate trends, outliers and other important information. After leaving my latest job on Wall St at a hedge fund, I started to trade on my own and wanted to create a research subscription product with trade ideas. As I was building up the infrastructure and process to do that, I was frustrated that I couldn't do proper research on stocks and the market without paying for a Bloomberg. Now that I was on my own and a company wasn't paying the $25,000 bill, I couldn't afford to pay for a Bloomberg especially since they require a 2-year contract. I needed fundamental data on companies and data on ETFs and macro themes. I started to experiment with other lower priced systems and I was disappointed with the functionality and data they offered. The user interface for all finance platforms was vey antiquated and not user friendly. The Atari from my childhood had better graphics! The main benefit of these systems was getting the data, and then doing the analytics in excel. If I were to pay a lot of money for a platform, I wanted the analytics included! That's the point where I decided to start Koyfin with the mission of creating a user-friendly research platform that offers quality data and analytics, and is accessible to every investor.
2) Tell us about Koyfin, what is that value proposition and how does it help investors?
We help investors by making them smarter about stocks and helping them understand thematic trends in the market. The way we do that is in four main ways. First, Koyfin is accessible to all investors and currently our product is free with plans in the future to have a free and premium version. Second, our platform provides high quality data about stocks and fundamentals, but also about macro trends like bonds, currencies, commodities and economics. That's because today every investor needs to follow and understand macro trends even if they are primarily focused on stocks. Third, we provide analytics so that investors can interpret the data and turn it into information. For example, it's one things to know Apple trades at 13x PE (that's data). But graphing the P/E over the past 10 years and seeing where is trading relative to its history provides the context (information). Lastly, we have an intense focus on making our product intuitive and easy to use. You don't need to read a 10 page manual to understand how to use Koyfin, just like you don't want to read a car manual before you drive a car you bought.
3) Who would be the target audience for Koyfin? What type of investors will benefit most?
Our goal is to provide powerful tools for all investors. Since our product is currently free, about half of our users are retail investors. These individuals want to track and research stock fundamentals and valuation. Graphing and analyzing financial statements is one of our most used features.
4) What makes Koyfin different from other stock charting tools?
The main differences are that we have high quality financial data about stocks and our platform is very easy to use. We also have unique tools such as MyDashboards where users can set up a watchlist of stocks or any security, and then set up "Views" which is a group of columns to analyze the watchlist. The columns can be price change, valuation, fundamentals, short interest, earnings date, etc.
5) How do you envision Koyfin evolving into the future? What kind of features can we expect?
We will continue to expand our data coverage and functionality. For example, shortly we'll cover all global equities whereas currently we cover only US and Canadian listed stocks. In addition, we're building out more functionality like a screening tool and portfolio analytics.
6) Personally, what type of investing strategies do you deploy?
I don't invest currently but when I did, I combined fundamental analysis, thematic top down analysis, and technical analysis. I would find an interesting theme and figure out the best stocks or ETFs to play that theme. Also I believe every investor should incorporate technical analysis into their workflow to understand what the market is saying.
7) Where do you see the markets going in the next 12-24 months?
I think this bull market will continue and will be the longest and biggest bull market in history. It won't last forever but it will last longer than many people expect. The risks of a recession are low because we never had above average economic growth in this cycle. I believe that economic growth will be shallow and drawn out. I'm always ready to change my view based on the data.
In January this year, a Bloomberg survey found that analysts saw a median 25 percent chance of a slump in the next 12 months, up from 20 percent in the December survey, and at a six-year high.
The January survey was conducted within a scenario of an ongoing trade war with China, the government shutdown, and rising volatility in the financial markets.
That survey came upon the heels of a December 2018 survey of US CFOs by Duke University that showed 82% expected a recession to begin by the end of 2020.
Prior to that, on the 10th anniversary of the Great Financial Crisis, a host of media articles were written around the lines of:
Did we learn our lessons?
Could it happen again?
What factors could cause a repeat of the events, and the recession that followed?
With rising mention of the 'R-word,' it may be worthwhile to take a brief look at recession's first principles.
The National Bureau of Economic Research (NBER) defines a recession as "a significant decline in economic activity spread across the economy, lasting more than two quarters which is 6 months, normally visible in real gross domestic product (GDP), real income, employment, industrial production, and wholesale-retail sales."
The NBER is an American private non-profit research outfit that also maintains an unofficial log of the recessions in the US and their tenures.
Typically, recessions feature a decline in consumer and business confidence, a weak employment market, and sluggish manufacturing and commercial activity. These factors result in falling real incomes in the economy.
Over the last two decades, according to the NBER, the US economy suffered the following two recessions:
March 2001 - November 2001 (Eight months) - Collapse of the dot-com bubble, the 9/11 attacks and a fall in business investment
December 2007 - June 2009 (One year, six months) - Collapse of the housing bubble, the sub-prime mortgage crisis, the failure of Bear Stearns, Lehman Bros, Fannie Mae, Freddie Mac
The second-named above, also called the Great Recession, was tackled by the US Fed, and other central banks around the world, through massive economic stimulus such as lowering interest rates, asset purchases and governmental support to affected institutions and banks.
Late last month, the US Department of Commerce announced that during the first quarter of 2019 the gross domestic product (GDP) of the US economy grew at a 3.2% annualized rate. This measure was well beyond expectations, and effectively put paid to apprehensions of a slowdown. “I just can’t point to anything now that’s going to push us into recession,” said Ben Herzon, an economist with Macroeconomic Advisers, a forecasting firm.
Looking under the GDP hood, however, it's clear that the large gain in inventories may be worked off in subsequent quarters by lower production.
The simmering trade war may also take a toll on imports and production (and therefore, GDP) by American firms.
As this is being written, President Trump said that tariffs on $200 billion of Chinese goods will increase to 25% (from 10%) on Friday, May 10, 2019.
He also threatened to impose 25% tariffs on a further $325 billion of Chinese imports “shortly.”
Meanwhile the US jobs market continues to run hot, as borne out by the non-farm payroll data for April 2019. The report showed that unemployment fell to a new 49-year low as payrolls rose by 263,000 in April, with the jobless rate falling to 3.6%.
However, note that the bullishness of the job market did not rub off on the hourly wage rate - that remained static at 3.2%. Also, the decline in the unemployment rate is partly also attributable to a decline in the participation rate, or the share of working-age people in the labour force, which fell from 63% to 62.8%.
Fed View: No Overheating
“We don’t see any evidence at all of overheating,” Federal Reserve Chair Jerome Powell said when asked about the solid GDP reading for the first quarter. He relied upon low inflation because data on core personal consumption expenditures - the Fed’s most preferred measure of inflation - showed prices rose by only 1.6% in March. That figure is comfortably short of the Fed’s inflation target of 2%.
The Fed held interest rates steady at its last meeting.
Buffett's View: Something's got to give
Commenting on this virtuous economic phenomenon of GDP growth, low unemployment, stagnant inflation, interest rates not rising and deficit spending, Warren Buffett said last week:
“No economics textbook I know that was written in the first couple of thousand years that discussed even the possibility that you could have this sort of situation continue and have all variables stay more or less the same,” he said. “I think it will change, I don’t know when, or to what degree. But I don’t think this can be done without leading to other things.”
Notwithstanding the above bullish economic data, one of the most reliable predictors of an oncoming recession is the inverted yield curve - also described as Wall Street's "fear gauge" - created when the plot of a short-term yield rises above that of a longer-term one.
The inverted yield curve has been highly successful in predicting looming recessions since WWII.
On March 22, the 10-year Treasury yield slipped below the three-month T-bill yield for the first time since 2007. The inversion caused intense media speculation on the likelihood (or not) of a US recession.
This may have been only transient, but it's a warning signal not to be taken lightly.
A Recession Probability Indicator computed by the New York Fed, derived from the Treasury spread between the 10-year bond rate and the 3-month bill rate, shows that the probability of a US recession hitting in April 2020 is now 27.49% - the highest since the Crisis.
So, what's to worry?
Plenty. Remember the old adage that says the market is the weakest when it looks its absolute strongest? Here are factors, one or more of which could trigger the next recession:
Nouriel Roubini: High equity PE ratios, excessive private equity valuations, expensive government bonds and high yield credit; excessive leverage in many emerging markets and some advanced economies
These factors apart, remember that booms and busts are an inevitable part of economic cycles, and a recession could be around the corner for the simple reason that it's been ten years since the last one!
Therefore, don't wait for the music to stop, instead be prepared.
So, where do I hide?
Here are some ideas for recession-proof investing:
High-quality, well-run companies that regularly pay dividends
Defensive sectors such as retailers ("people still have to eat"), healthcare ("you can't wish away medicines and medical care"), tobacco and liquor ("smokers will smoke, recession or not"), utilities ("can't do without the heating"), staples ("household stuff"), entertainment ("movies and TV - essential to lift the doom and gloom"), mobile telephony and precious metals
High-growth companies in emerging markets that have lower PE multiples compared to domestic companies
Our stock picks1. The Walt Disney Company (NYSE:DIS)
Disney scored a resounding beat in its earnings report for the December 2018 quarter. EPS was $1.84 which surpassed expectations by $0.27 and revenue of $15.30B beat by $96.50M.
The company has consistently paid dividends, and current yield is in excess of 1.5%.
Disney has upped the stakes in the digital media world with the closure in March of its massive $71.3B acquisition of the entertainment assets of 21st Century Fox. Apart from the powerful potential for content that will enter its fold, Disney will also save $2B in costs.
The company's Avengers: Endgame movie blockbuster has become the No 2 movie ever worldwide after Titanic, with box office takings of $2.19B global through Sunday.
The market is also upbeat about Disney's proposed direct-to-consumer streaming launch of Disney+, a video service to be offered at $6.99 per month.
Shares of Disney are expensive at $134.90, with forward PE ratio of 20.20 and a price/book of 4.00. Technically, however, the stock has broken decisively out of a multi-year consolidation, and is in an upward trend.
2. Costco Wholesale Corporation (NASDAQ:COST)
The company is a membership-based wholesaler of a range of goods for everyday use.
COST regularly pays a dividend and has maintained a positive dividend growth for the past 15 years. The upcoming quarterly dividend is $0.65, hiked from $0.57. For the latest quarter it reported EPS of $2.01, which beat by $0.32 and revenue of $35.40B (up 7.28% year-on-year) that missed by $254M.
Currently trading at $243.50, the stock trades at a forward PE of 30.65 and Price/book of a hefty 7.77. Expensive valuation aside, growth is strong. Comparative stores sales were up a decent 7.2% year-on-year in the latest quarter, while e-commerce sales moved up handsomely by 25.5%.
The stock has been in a strong uptrend for years, and more recently, the sizable correction end-2018 has been forcefully bought into. It is marking time at previous highs and may suddenly resume its uptrend.
3. The Clorox Company (NYSE:CLX)
The company sells home care, cleaning, laundry additives and many household items through its Cleaning, Household, Lifestyle and International divisions.
These are recession-proof lines of business as demand is fairly inelastic regardless of economic conditions.
Often referred as a dividend aristocrat, CLX has maintained a growth in its dividend payouts since 1978, or 41 years.
For the March 2019 quarter, the company missed on both EPS and revenue counts. EPS of $1.44 was off estimates by $0.03, while revenue of $1.55B disappointed by 22.50M. However, the company has a strong and diversified brand portfolio, has boosted its e-commerce sales, and managed to grow its margins despite commodity cost pressure.
Currently trading at $147.68, the stock is off nearly 12% from its 52-week high. But the correction has brought the stock to an important support range at $140-$145, at which point recession-wary investors could consider a partial entry.
4. Diageo plc (NYSE:DEO)
Diageo is a global producer and marketer of alcoholic drinks and beverages such as spirits, beer, cider, and wine. Its world-renowned brands include Johnnie Walker, J&B, Smirnoff, Baileys and Guinness. It owns 20 of the world's top 100 alcoholic brands and has a heritage going back to the 17th century.
Diageo is as recession-proof an investment as they come, because people drink regardless of a recession or not.
The company has an unbroken record of dividend payment since 1998.
Currently, the stock trades at $167.33, giving it a market cap of $100.42B and a forward PE ratio of 24.13. Though expensive, over the past decade Diageo's levered free cash flow has grown at 17.27% CAGR. It generated a gross margin of 79.67% and a return on equity of 34.45%.
5. Accenture plc (NYSE:ACN)
Accenture is a global technology company providing services through its Communications, Media & Technology, Financial Services, Health & Public Service, Resources and Products segments.
The company has been growing its dividend payout every year since the last nine years. It earns a dividend yield of 1.65%.
For its quarter ended February 2019, Accenture reported EPS of $1.73 which beat by $0.16, and revenue of $10.45B, which was up 9.06% year-on-year and beat estimates by $156.48M. It generated a free cash flow of $1.2 billion during the quarter and held a cash balance of $4.5B.
The company is a beneficiary of robust demand for digital, cloud and security-related services.
At a stock price of $176.52, Accenture has a market cap of $112.88B, a forward PE ratio of 24.18, and a Price/Book ratio of 8.46.
Technically, investors scooped up shares of Accenture during the correction in the last few months of 2018, and the stock has taken out its 2018 high.
Vertex develops medical therapies for the treatment of cystic fibrosis.
The company has a huge chunk of the market to treat the estimated 75,000 patients of cystic fibrosis worldwide through its Kalydeco, Orkambi, and Symdeko drugs.
Further technical development such as triple drug combinations and gene editing, if successful, would give the company a global monopoly in cystic fibrosis treatment.
At the current price of $174.81, Vertex has a market cap of $44.53B, a forward PE of 40.13 and a price to book ratio of 9.44. Cash held as at the end of the quarter was $3.48B.
The company has not declared dividends, however.
It's an expensive and volatile stock but a good exposure to the healthcare industry.
Technically, it is consolidating but making higher lows on the monthly chart. A breakout could occur anytime.
7. China Mobile Limited (NYSE:CHL)
China Mobile is a provider of mobile telecommunications, wireless Internet service, as well as digital applications comprising music, video, reading, gaming, and animation, wire line broadband services; and wire line voice services and related services in Mainland China and Hong Kong.
It is now expanding into Internet of Things (IoT) and cloud computing. It is also spearheading the advent of 5G in China.
It is one of biggest telecom companies in the world, but is also a somewhat risky investment given that it based out of China and is state-owned. Regardless, you can't ignore this behemoth that has a market cap of nearly $200B and mobile connections over 900 million.
Currently trading at $47.26, China Mobile offers a dividend yield of 4.58% and a modest forward PE ratio of 10.74.
The stock is 15.37% below its 52-week high, but trading near a crucial, multi-year support line.
8. Sempra Energy (NYSE:SRE)
Sempra Energy is a provider of electric and gas services both within and outside of the USA.
Utility companies such as Sempra generate favourable returns for investors in a low inflation environment. Inflation has remained well below the Fed's target rate of 2%. The Fed recently held interest rates steady, and utility stocks may therefore still hold promise. Utilities are a typically defensive stock recommended for investment in a slowdown or recession.
Sempra is trading at $126.39, has a market cap of $34.94B, a forward PE of 21.19 and a Price/Book ratio of 2.34.
The stock provides a dividend yield of 2.83% and has grown its dividend for 8 years.
The company is engaged in a comprehensive restructuring to deliver on its plans to become the leading energy infrastructure company in the country. It sold off its US solar and wind portfolios, as well as its non-utility US natural gas storage. It expects to receive approx. $2.5B from divestitures.
The company also recently completed the evaluation of its South American businesses prior to their proposed sale. "Although, we expect this transaction to be EPS dilutive, it could be value accretive, as we deploy the proceeds into North American T&D infrastructure and strengthen our balance sheet," the company said on its February earnings call.
The company expects to complete 3 trains of its Cameron LNG export project within 2019. Earnings from Train 1 are expected by mid-2019.
Technically, the stock has broken out of a 4-year sideways trading range and may be headed higher.
9. Duke Energy Corporation (NYSE: DUK)
Another utility, Duke has similar chart action as Sempra and is likely to break out of a 4-year consolidation that took the shape of an ascending triangle.
Duke operates as an energy company in the United States with three segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial Renewables. It was named to Fortune magazine’s 2019 list of the World’s Most Admired Companies for the second consecutive year. Duke also achieved nuclear capacity factor above 90% for the 20th consecutive year in 2018.
Trading at $89.48, Duke has a market cap of $65.61B, a forward PE ratio of 18.28 and a price to book of only 1.50.
Duke gives a decent dividend yield of 4.14% and has grown its dividend for 12 years.
10. Newmont Goldcorp Corporation (NYSE:NEM)
After its merger with Goldcorp, Newmont has become the world's leading gold company with a very strong portfolio of gold mines, reserves and projects across the globe in favourable jurisdictions. It aims to produce 6 - 7 million ounces of gold annually and boasts an investment grade balance sheet.
Newmont and Barrick Gold have merged their Nevada gold assets in a JV with Newmont holding 38.5% share.
Newmont pays a quarterly dividend of $.14 and its current dividend yield is 1.85%. It has grown its dividend for the past 3 years. It intends to also pay a special dividend of $0.88 on May 1.
Gold is a natural hedge against inflation or a recessionary meltdown. The sector is witnessing a spate of mergers and consolidations as gold prices have remained subdued and mining companies seek to achieve synergies and cost savings.
Research shows everyone has a well-defined, robust "risk set-point".
Taking either less or more risk than your set-point sets you up for bad decisions.
People are always out there to take advantage of your bad decisions.
I was watching the movie Free Solo the other day, and it got me thinking about trading. The movie, which recently won the Academy Award for Best Documentary, follows the mountain-climber Alex Honnold as he attempts the first free solo ascent of Yosemite's El Capitan 3000 ft rock face. Free solo means, rather unbelievably, climbing alone without the aid of ropes, fixed gear, or any other protective equipment. One slip, one wrong move and you inevitably fall to a grisly death on the valley floor. A death which has claimed many of Alex's friends over the years.
Like everyone, I couldn't help but wonder what possessed an otherwise mild-mannered, calm man to take such insane risks. But halfway through the movie, we finally get a clear window into what makes Honnold tick. An MRI scan of Honnold’s brain shows no activation in his amygdala, the fear center. Honnold is, apparently, virtually incapable of feeling the sort of fear that would make us stop a risky activity like free soloing El Capitan. Yet Honnold has no death wish. He believably states that he’d much rather avoid dying. It’s just that the only times he feels alive enough to be worthy of the term is when he’s taking life-threatening risks.
Fiction works the same way. The best screenwriters in Hollywood also seem to understand that people have an innate sense of how much risk they're willing to take. Classic caper movies, such as Ocean’s Eleven and The Italian Job, start with the lead character having just been released from prison. Free from their incredibly boring prison existences, Danny Ocean and Charlie Croker, respectively, immediately set about plotting their next heist. Far from setting them on the straight and narrow, their prison experiences push them strongly back in the direction of action, of getting closer to their risk-tolerance set points. The reason you believe in these characters and that you empathize with them (aside from their matinee good looks) is that you instinctively understand that the high-risk lifestyle is fundamental to who they are.
A taste for risk
The thing is, this taste for risk (or an aversion to it) isn't just about climbing or caper movies. It turns out we all have a well-defined amount of risk that we're comfortable taking. In a study by John Grable and Abed Rabbani of the University of Georgia, the authors examine the question of whether risk tolerance is a broad-based disposition or whether it’s domain specific. Using a dataset from the National Longitudinal Survey of Youth in 2010, they discovered that people’s risk-tolerance actually is robust across domains. A single “risk-tolerance” factor explains the majority of variation for a variety of behaviors, from everyday risky situations such as smoking to financial and occupational decision-making. That's your risk set-point.
Why does this matter to you the investor? It's because of what happens when your life doesn't provide you with either enough or too much risk. And the fact is that a lot of retail investors get sucked into trading more (and more often) than they should because of this set-point.
How often do you log into your online brokerage account to check your portfolio? More often than you'd like? That's your risk set-point, begging for a little more variance in your life. Drawn to the big swings of trading options or volatility products? Again, it's that set-point looking for some action.
Maybe you're the opposite. You know you should be invested in equities and not bonds because you read something about the equity risk premium. But you can't bear to look at what the S&P500 did today because you know what it means to your portfolio if it went the wrong way. That angst is because you're taking more risk than your brain's set-point is comfortable with.
Hacking your brain's reward system
Of course, the financial intermediaries you deal with know all about this. The financial services industry, at least at the retail level, clearly markets itself to affluent people with exactly the sort of language that will appeal to people motivated either to seek or to avoid financial risks:
For risk-seekers: Brokers and money managers advertise themselves by talking about the excitement and fun that investing and trading provide. It's not as much about profitability as it is about making decisions and putting money in play.
For risk-avoiders: There is no shortage of high-fee structured products marketed to high-net-worth individuals. These products provide protection in the event of market crashes, thereby mitigating the downside risk of clients' retirement portfolios. What's never explicitly mentioned is the often-immense profit margins and commissions on these structured products, and the difficulty of unwinding these trades.
In both cases, they're not really appealing to your rational self. The appeal is to the mismatch between the amount of risk you believe you're taking and the amount you're comfortable with.
What to do?
The first step in making better investment decisions is best summarized by the immortal quote from Bruce Lee:
“All knowledge ultimately means self-knowledge.”
Before going out there into the wide world of financial markets, you'd better have a very good handle on what's going on inside your own head. Without that crucial first step, you'll end up falling for emotional appeals to your risk set-point by those who'd seek to profit from it. Once you get your own self-image in order, you match up your investments to your tolerance and you're better able to make rational decisions about them.
Pre-commitment is a superpower
One of the most powerful protections against someone leveraging your set-points against you is pre-commitment. If you explicitly record your beliefs and preferences before an event occurs (in this case, a trade), you have made it more difficult to go back and change your mind. This record doesn’t have to be particularly strong in order for it to help protect you against hindsight bias. A simple note jotted down on a piece of paper, a statement to a colleague about your thought process, all of these serve in your brain as markers of beliefs at the time.
Again, one of the best ways to avoid fooling yourself about your previous beliefs and motivations is to set them down in writing at that time. After all, it’s hard to argue with a piece of paper. The most powerful way to leverage pre-commitment is to make it structural. Structural pre-commitment is culture. It’s a habit of writing things down, of making conditional plans and decision trees to describe your future actions. It’s pre-commitment that’s so ingrained it becomes the default action. This habit can be personal, but it can also be encoded in the culture of an organization. This is what lets you analyze your thought processes in a less-biased manner, and to improve them over time.
Having a set of people with whom you can talk about your investing ideas, creating a systematic process for evaluating them, making plans, and evaluating those plans, all of these are ideas that are fundamentally social and cultural. If you’re successful in creating such a culture, the desirable habits become automatic.
A broader view
Your risk set-point is only one of the many ways that your motivations can lead you down some sub-optimal paths. In my upcoming book The Laws Of Trading, the first chapter is entirely dedicated to examining all the ways that motivation can lead us astray. Boredom, intellectual validation, the mythical "zone", all of these can be exploited by others to our detriment. And the power of pre-commitment is only one of many other techniques that help you mitigate the effects of these undesirable motivations.
Agustin Lebron began his career as a trader and researcher at Jane Street Capital, one of the largest market-making firms in the world. Over the years he traded many kinds of securities: equities, futures, commodities, options, and an assortment of other derivatives, and has created, developed and implemented several successful trading strategies.
He currently runs the consulting firm Essilen Research, where he is dedicated to helping clients integrate modern decision-making approaches in their business.
Recently, Hashtag Investing re-launched a entirely new community platform for stock investors. One of our biggest focuses is ensuring that the community grows properly and has the right culture that allows investors to freely share valuable content from diverse perspectives Below is our first draft of our internal community culture and member principles.
. Hashtag Investing mission statement is to create a high quality, warm and authentic community for stock investors to share and learn with genuine, thoughtful and diverse discussions. In order to achieve this mission Hashtag Investing has a strong focus on the culture of the community and principles that members display. The following are items that we believe should define the way we interact, share, and build this community.
1. We are open-minded:
We expect their to be disagreements and personal beliefs that may contradict our own ideas, strategies, and mind-set. Differing opinions is necessary and important in order to build a high quality information source, as that is the way to get different perspectives. The concept of disagreement is absolutely required and encouraged. At Hashtag Investing, the way you disagree is just as important. Taking personal shots, name-calling, being overly obnoxious, over-powering, shaming, bullying, and any other hyper aggressive tactics are the wrong ways to disagree. Listening, asking questions, understanding the reasoning and assumptions behind different perspectives is the right way to disagree. This allows us as a community to break down arguments logically in order to ensure whether the reasoning is sound or not. This can lead to a wonderful learning experience.
2. We share valueable content:
Transparency is key. Whether you are a complete newbie, or a seasoned expert, anything is fair-game to post as long as it fits in the topic/category it is being posted in. Spam will not be tolerated as it usually does not provide any value for members. If you honestly have a tool that you want to promote, and you truly think it is a good fit for the audience, feel free to post it in the proper area. If you are promoting your own services/tool or are getting paid by others, please add a disclaimer at the beginning of the post to let other members know. Spammers will be removed immediately. No pump/dumps, no misleading, no BS.
3. We share what we know and join discussion:
Many other social communities online have a lot of lurkers, this is completely normal as some members want to just read and see what others are saying. Hashtag Investing encourages that all members, even lurkers, jump into discussion if they have a thought, opinion, or information on a given topic. Nothing is seen as dumb. More members discussing allows more points to be made, more discussion to narrow down ideas, and more information to be learned.
NEW YORK, September 28th, 2018 - Hashtag Investing, a quickly growing online platform for DIY stock investors is now partnering with a popular and established value investing news medium, ValueWalk, in order to provide premium members access to their exclusive chat community.
ValueWalk is the most popular online news source for value investors around the globe. They provide unique content, as well as premium features such as premium content and reports. Hashtag Investing will further provide value for premium members by providing access to the chat group. This will further allow investors to discuss and share ideas with other like-minded investors. “ValueWallk enables Hashtag Investing to further establish it’s recognition in the online stock investor space and positions it to accept more engaged and mature investors to the community”, says Harvi Sadhra, CEO and Founder of Hashtag Investing.
Hashtag Investing will also provide it’s members and future members special promotions and discounts on ValueWalk premium’s offering such as premium content, reports, and more. Hashtag Investing chat is already live and available to all current and new premium members of ValueWalk. “One of the main components of finance is networking and communication. While ValueWalk continues to strive in content we were always struggling to get readers to communicate with eachother in a nice environment free of trolls. We are excited to partner with Hashtag Investing to provide our readers a forum where they can discuss stocks or other matters in a secure and proper medium.”, says Jacob Wolinsky, Founder of ValueWalk.
About Hashtag Investing: Hashtag Investing is an online platform and community for DIY self-managing stock investors. Hashtag Investing empowers traders to make better decisions and improve return through a real-time chat community and a stock + strategy discovery tool. To learn more visit www.hashtaginvesting.com
ShareAlpha is a new proprietary stock discovery and investment strategy screener offering its solutions exclusively through business partners.
I sat down with Patrick Kuczynski to discuss his newest project, ShareAlpha, which will shortly be a partnered tool for stock and strategy discovery on Hashtag Investing. ShareAlpha will allow members to discover new stocks and strategies through a proprietary quantitative analysis system. You'll be able to select inputs like factors, legendary investors like Warren Buffett, and other trading strategies to discover new winning stocks and portfolio's.
1. Can you tell us a little bit about your backstory and how you ended up being the co-founder of ShareAlpha?
We actually met while we were both working together at a Montreal-based asset manager. We both have years of experience in institutional investments. I’ve taken more of a fundamental approach, working in equity research analyzing companies in great details. My co-founder, on the other hand, has taken more of a quantitative approach by working as an equity and derivative broker at a Bank, and later as a quantitative investment analyst.
We actually started with an investment picks’ marketplace provided by professional investment analysts and decided to join the Founder Institute together to validate our business in September of 2017. However, in early 2018, we decided to move away from the marketplace concept given initial scaling difficulties at growing two userbases simultaneously. We therefore started to focus on providing as much value as possible to do-it-yourself investors. Now, we are offering our stock and etf screeners exclusively through business partners targeting discount / online brokers, discretionary portfolio managers, financial blogs, other invest-techs, investor communities, investment newsletter services, etc. In fact, we are now in the process of rolling out our tools to a few partners that cater to thousands of investors.
2. Tell us about ShareAlpha. What is it and how will it help investors?
ShareAlpha is a stock discovery and investment strategy screener catered to beginners and up to the more advanced stock pickers. We are democratizing investment management services to independent investors focusing initially on finding the best stocks tailored to investors’ investing style.
Most do-it-yourself investors are time constrained yet want to maintain control over their investments. The #1 thing they are looking for is the next great stock that also matches their investing style. Most DIY investors look for opportunities through friends, investment groups or forums. However, you soon notice that many of the same stocks always resurface (Facebook, Google, Apple, etc.). Plus, even if you hear of a new stock, you do not necessarily know whether it fits your particular investing style until you delve more into it and potentially waste time.
Using our own proprietary ranking, each stock is scored relative to all other stocks in Canada and the US. For example, if you do not like too many ups and downs in your portfolio and focus mostly on quality companies, you can simply click 2 factors to get your low-volatility quality stock screener to instantly receive up to 25 of the best rated investment ideas with those 2 factors. It is very easy to use and saves tremendous amount of time in finding stocks that matter to you. This time can then be better spent further researching these stocks.
On top of that, we show you the 3-year performance and risk-adjusted metrics of following any of the strategies in either Canada or the US. Sometimes what works in Canada might not work as well in the U.S. due to structural differences in the institutional investor base in those markets, something that you would never have uncovered except using a service like ours. So not only do you have a list of new stock ideas each month, but you can also rapidly determine whether your investing style provides a return at a level of risk you are comfortable with. If not, you can adjust your filters to find something that satisfies you more as DIY investor.
3. What is the best way for an investor to benefit most from this kind of tool?
To benefit the most out of our tools is to truly experiment and question why you are investing the way you are. Is it because it fits you the best? Someone recommended you to invest in this way? Are you still learning and are discovering yourself as an investor? If your curious, like a good DIY investor should be, then you should stay open-minded to new stock ideas and investment strategies.
At a minimum it can help you find stocks that match your investing style whereas it can also improve your investing methodology. Some strategies posted gross returns of over 100% in a single year while taking much less risk than one would expect from such a return. You can also see which strategies have outperformed the market under different market conditions.
Also, we have rule-based strategies, so if your someone that reacts strongly to “fear of missing out” or you get especially nervous when your portfolio is declining, following a rule-based strategy allows you to better cope with emotions that is often a strong source of bad performance for investors. We are our own worst enemy when it comes to investing.
4. What makes ShareAlpha different from other similar tools online?
The vast majority of screeners basically eliminate companies that do not pass your specific criteria. For example, if you use 2 minimum filters such as earnings growth of 10% and operating margin of 12%, then you will have all stocks with those 2 filters. You can then sort these stocks either by the growth rate or the margin, but not both.
At ShareAlpha, we score each stock relative to the Russell 3000 and the S&P/TSX based on several factors. You can then select all factors such as “momentum”, “profitability”, “quality” and more to get the top ranked stocks with the highest combined scores. In other words, if the investor is shown a list of 10 stocks, the stock on top of the list is the stock that should be looked at first because it matches his investing style the most. This “multi-sorting” feature is what attracts investors to ShareAlpha.
Also, since our scores are updated monthly, when a stocks’ score declines significantly in the factors that are desirable to the investor that can cause the stock to be removed from the top picks for you. It therefore provides the investor with a sell signal, which is unique since most services focus on the “buy” decision only whereas our screener gives you insights into both the “buy” and “sell” decision.
I think the combination of these things make our stock screeners very attractive to most investors whether they are beginners or more advanced.
5. What features are you looking to roll out in the future?
We are very excited about our new features. This week we actually released an income screener to find the best dividend stocks based on your investing style. With our proprietary rankings, you can combine factors such as “profitability” and “quality” to find the most profitable and highest quality stocks that also pay a good dividend yield. You can therefore weed out companies that offer unsustainably high dividends and get a curated list of stocks that matter to you for further research.
Also this week, we launched a stock finder that allows you to find new investment opportunities based on the investment style of legendary investors such as Warren Buffet, Peter Lynch, Benjamin Graham, Joel Greenblatt, and more with even more legendary investors to come. In the future, there will be many investment styles covered such as value, growth, dividend, special situations, contrarian, quant, and much more, and we will continue to build our list of legendary investors based on what our investors want to see. This allows investors to have a pre-vetted listed of new stock ideas inspired by the stringent criteria of these legends, which investors already trust, and therefore cutting on their screening time exponentially.
We are also a very open-minded business. We are for DIY investors by DIY investors. We are always open to suggestions, so feel free to send us an email at info[at]sharealpha.co with any ideas and comments.
Not too long ago, a majority of financial trading took place over the phone. Back then, if you wanted to buy or sell a stock, you had to call your broker and have them make the transaction for you. However, this process is no longer necessary thanks to the development of trading systems through the use of APIs. In this article, I will be discussing everything you need to know about trading systems and the APIs that help build them.
What is an API?
An API is something that you can install onto a webpage that enables a variety of software programs to simultaneously interact with each other. There are many different types of APIs that all do different things. Shipping APIs, site search APIs, and price comparison APIs are all very common throughout the business world, but in this context, an API is an interface that enables your software to connect with a broker and make transactions accordingly. Without APIs, the development of trading systems would not have been possible.
What is a Trading System?
A trading system can be defined as a group of specific parameters that combine to create, buy, and sell signals for a given security. What this means is that you can manually put in specific guidelines into the trading system, and they will act accordingly. For example, let's say you own a stock and would like to sell it if it reaches a certain price. By putting in whatever that price amount is, the trading system will automatically sell it once it reaches that price point. The same rule applies to buy stocks as well. Let's say you want to buy a certain stock if the price dips down to a specific number. Trading systems will automatically purchase that stock if the price ever dips down to that number. Not only can they automatically perform transactions for you, but they also can provide you with live price updates, as well as offer you recommendations based on data obtained from an algorithm.
Advantages of API Trading Systems
There are many different advantages of API trading systems, but the two biggest advantages of them are that they save time and remove cognitive biases. API trading systems help save time because they do a majority of the work for you. If you optimize your trading system correctly, you don't have to sit around a screen all day looking for good deals and making trades. The system will do all of that for you. In addition to saving you time, they also remove any cognitive biases that you may have. Many traders are unable to accept a loss, and second, guess their choices quite often. This can result in a trader making irrational decisions that end up costing them money. API trading systems remove the traders from the actual buying and selling decision-making process and use algorithms to predict what the best decision is based on data.
Disadvantages of API Trading Systems
Even though there are numerous advantages to API trading systems, there are also some disadvantages as well. One disadvantage is that it can be difficult to optimize. There are many different things that play a role in creating the perfect algorithm for your trading system, such as transaction costs and constantly changing market dynamics. However, even if you do take these factors into account, there is still a possibility that the system will not be perfect. Unfortunately, you can not test these systems before they go live, so if you don't get it right the first time, you would have to start over from square one. Another disadvantage of trading systems is their initial startup costs. These systems take a lot of time to develop and test. Therefore, you could potentially lose out on some revenue while you are allocating time to the development of this system. Additionally, they require constant maintenance and are not cheap to fix if they malfunction.
In summary, trading systems have positives and negatives, but nevertheless, they are revolutionizing the stock market. Trading systems can do an excellent job of making the life of a broker easier, or they can make it harder. It all depends on if you know how to use them.