20 Investing Lessons From Lorne Zeiler of TriDelta Financial

Investing

My full interview with Lorne Zeiler of TriDelta Financial originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

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“This is your brain on drugs.” A study from Laurence Tancredri, entitled “Hardwired Behaviour, What Neuroscience Reveals about Morality,” showed that “there is a resemblance between the brain of someone predicting a financial gain and that of a drug abuser. A dopamine ‘buzz’ is created by the cue, which prompts us to be more aggressive with our money. When acting on the cue fails to produce a reward, the dopamine level still increases dramatically, leaving us in a profound funk. The result: you overreact and prematurely remove your money from the market. If enough people did that, the market would inevitably drop precipitously.”

Lorne Zeiler, vice-president and associate portfolio manager at TriDelta Financial, would also argue that your behavioural drive often dictates your investment decisions. That’s why Lorne travels the country to educate people about their own brains. Don’t do drugs, kids. Seriously, though, this is how Lorne opens his presentation, “What You Don’t Know Can Be Harmful to Your Investment Returns”: “Have you wondered why your investment returns have been below your expectations? Why others seem to be able to take advantage of buying opportunities, while you sit on the sidelines? Have you sold stocks that seem to continue to go up, while holding on to securities that continue to go down in value? This is because emotion often has a much greater impact on investment decisions than most people realize.” You’ll also learn from Lorne why women make better investors than men. Pretty controversial.

Lorne Zeiler’s 20 Investing Lessons:

1) “Just because it’s illogical doesn’t mean it can’t continue to move up. And the market can get more illogical before it comes back to reality.”

2) “The best description I’ve ever heard is when John Maynard Keynes termed it ‘the animal spirits.’ When the animal spirits are there, people get excited, and rationality doesn’t necessarily meet up.”

3) “Retail investors tend to come into the market after it’s already moved up [and] tend to then hold on with the expectation that when things are turning negative, they can ride it out and things will be fine.”

4) “There’s an emotional cycle that people go through in the market. They get to a point of what’s called ‘capitulation,’ where they just can’t take it anymore.”

5) “People are of the expectation that if markets have returned 9% a year, markets are going to continue to return 9% a year. This is called ‘recency bias.’”

6) “When you’re buying stocks, what you’re actually doing is buying a fractional ownership in a company. A lot of people forget that.”

7) “The value of that company really should be based on its future prospects, future cash flows, future dividends, and future market share.”

8) “It is actually very difficult emotionally to go against the herd, even if all of your logic is there, even if you’ve done all your research, and even if you’re very confident in your conviction.”

9) “A sell-off period can have a serious impact on your thought process.”

10) “You never know a bottom until after it’s gone up from the bottom.”

11) “One of the issues with the Efficient Market Theory is that it states that the market reacts to information immediately. But that doesn’t mean it reacts properly.”

12) “I like the fixed-income market in that it tends to be more institutional, and so it tends to react more logically to events going on.”

13) “Studies have shown that in general winners outperform your losers. Stocks that have generally done well are often going to continue to do well but there are a lot of people who will continue to hold onto that losing position, because they don’t want to admit that loss.”

14) “Unless there’s a fundamental reason why not to sell it, then our natural decision is to sell . . . the sell discipline is very key.”

15) “If something fundamentally has changed about the company, then that might also be a reason for you to buy back the stock.”

16) “There’s a low correlation in general between equity and fixed income, in that if equity markets are dropping hopefully your fixed-income portfolio is going up.”

17) “If you are a believer that bond yields are going to drop — for example, quantitative easing is ramping up or people have expectations that rates are going to rise when they’re not — then the greater return potential can generally be achieved by owning a longer-dated bond.”

18) “With corporate bonds there’s something called ‘the spread’ — that’s how much additional yield you make from owning a corporate bond versus a similar-maturity-date government bond.”

19) “The main reason for owning U.S. stocks is that the Canadian market just isn’t sufficient.”

20) “Men tend to trade more. And men tend to be more overconfident in their abilities. Women tend to be more conservative. As a result, they watch their portfolio less, which often results in a better overall return than men.”

MarketMasters

Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.

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