Posted on Leave a comment

The Mindless Investor Chapter 5 – Think Like a Trader

Highlights of this Chapter

Chapter 4 of The Mindless Investor was an interesting look at how Tyler got his start and progressed as a trader and we highly recommend taking a look at it. In keeping with the more instructive nature of this series of reviews, we chose to move ahead to chapter 5, which builds on the idea that trading success is more about self-mastery than market mastery. Understanding that systematic, methodical training can make you a successful trader is possible and it all starts by looking at the world the way a trader would.

Key Point #1: To be a trader, break free of the “investor” mindset

The Mindless Investor Review - Break Free of the Investor Mindset

In order to be a successful trader, you have to be willing to move in and out of a position when given the right signals to do so. Because traders speculate on price movements, they pay attention to the price “noise” investors try to avoid.

Key Point #2: Successful trading takes dedicated training

While timing markets is often considered hard to do, in reality many things are hard to do until one knows how to do them.  Anyone with money is allowed to participate in the markets, however that easy access is dangerous for most people and their capital. The biggest hazard for most traders is not having committed the time, effort and discipline it takes to learn how to trade well.

Key Point #3: Take it one step at a time

Learning the “what” of trading well is far simpler than learning the “how”.  One of the biggest cautionary notes is that before stepping into any kind of speculative activity, know how much you can afford to risk. Take time to learn and become confident at what trading involves before taking bigger risks in the market.

Posted on 1 Comment

All’s fair in love, war and investing

An interesting article was published on claiming that clients of financial advisors who are also investing through self-directed accounts are “cheating” on their advisors.  While the tone of the question presumes that somehow individuals are betrothed to their financial advisors, what is more troubling is the construal of investors as “cheaters” for seeking out other services.

The article reports that while 74% of investors have a personal discount brokerage account, only 17% of financial advisors believe their clients have these types of accounts.

What these “stats” mean, or the position they are meant to support isn’t entirely clear. On the one hand, if it is true that 74% of the population has a discount brokerage account AND a financial advisor, the big question is – so what? They are still retaining a financial advisor. On the other hand, if 83% of financial advisors (100%-17%=83%) are completely oblivious to their clients having discount brokerage accounts, doesn’t it seem like the overwhelming majority of these advisors are disconnected with their clients and therefore probably undeserving of the business anyway? If the author is talking about two different groups of people – those who have financial advisors and those who have discount brokerage accounts, then why brand investors who don’t have financial advisors as “cheaters”. If, however, the author is saying people with financial advisors also have discount brokerage accounts, why on earth label current, paying customers of financial advisors as cheaters?

Reports about the scale and growth of the discount brokerage industry are not news to many in the investing world.  If the author and potentially 83% of financial advisors from the survey read the annual reports of the two discount brokerages cited in the article (TD Ameritrade and Charles Schwab) or read the myriad of reports showing the continued interest in ETFs over mutual funds, then why they are surprised at so many people having discount brokerage accounts is a bit of a head scratcher. It stands to reason that the growth in discount brokerage accounts has to come from somewhere.

It is precisely the attitude of entitlement that will be the undoing of an industry that is service-based.  The financial services industry relies heavily on trust. That trust is not only built on good intentions, but more importantly, it is built on good investments. If the financial advisors polled in the survey could manage their clients’ money more effectively than clients could do themselves, what incentive would people have to try something else?

Aside from generating poor returns and charging high fees, accusing 74% of your current customers of “cheating” because they are seeking out other sources of investment management is definitely one more reason for those customers to look elsewhere. Hyperbole is one thing, but reckless accusation paints a grim picture for the state of the wealth management industry as a whole. Unfortunately for the author, it seems like she can count herself amongst the 83% of individuals who just don’t get it.

Posted on Leave a comment

TD Waterhouse Discount Brokerage is now TD Direct Investing

It looks like TD Waterhouse Discount Brokerage has recently rolled out its new name: TD Direct Investing. With the new name TD Direct Investing comes a much more user-friendly layout to their website, and many more pictures of smiley happy people.

After waves of reports and surveys about investors requiring added support and educational resources, it seems like TD’s response is to simplify access to the large amount of material they have developed for self-directed investors.

Screenshot of TD Direct Investing’s website – Dec. 20/2012

Gone are the overpoweringly excessive green and orange tabs and pages.  Instead cleaner shades of green and grey, mixed in with crisp fonts and ample use of white space have made the site far easier to navigate and read. The front end of their website now provides easy login access to WebBroker, three choices for individuals to access information depending on whether one is “new to online investing”, “an experienced investor” or “an advanced trader”.  Simplified website – check.

Scrolling further down the page, there are four simple categories mixed in with ample adjectives.  Your choices are investor education, knowledgeable support, powerful trading platforms and tools, and competitive fees. Despite sounding a bit super-hero like, rather than having to be a super-hero to find the information, the new layout makes finding things incredibly intuitive.

While filled with great promise at the investor education section and the investment seminars, the excitement quickly fizzled after clicking on the links to “find seminars near you” which took us back to the duo-tone green layout and semi-functional .pdf listing of seminars. Undeterred, we doubled back to check out more of the education section.

The “investor education” is a very well presented section. There are four interesting videos that made it to the landing page. On closer inspection, however, only four of the many videos are accessible directly from this page, and when clicking on any one of the videos, the user is taken back to the “green version” of the website.  While not terrible, I’m sure there’s work to be done to make that experience simpler than it is now.  The guides on options trading, mutual funds and fixed income looked promising however, they pointed back to some of the existing content that was less than engaging to read in the old-layout.

The re-branding exercise to go from TD Waterhouse Discount Brokerage to the shorter TD Direct Investing will take some time to catch on.  Credit should be given where it is due, and so while there is still some work that needs to be done on their website, the new look and feel of the TD Direct Investing website are certainly far easier to navigate and find information on than the previous version. To visit the new site, click here.

Posted on Leave a comment

Special Series: JD Power & Associates Discount Brokerage Rankings Explained – Part 3

In this final section of our special series on the J.D. Power & Associates Discount Broker Investor Satisfaction Survey, we look at the survey from the perspectives of its creators as well as the company that has placed first in investor satisfaction for the past four years.  Dr. Lubo Li, Senior Director and Industry Practice Leader for Canada at J.D. Power and Associates and Laurent Blanchard, Vice President and Manager of Online Brokerage at Disnat – shared their perspectives with us on the value of the investor satisfaction survey, and what it means for both consumers as well as the discount brokerage industry.

As we’ve learned from the previous sections in this series (click here for part 1 or here for part 2), the Investor Satisfaction Survey measures the experiences of consumers with different discount brokerages in Canada.  According to Dr. Li, however, the value of the survey goes beyond simply looking at experiences.   The real strength of the survey, he explained, is its ability to measure the “voice of the customer” and uncover “perceived customer value.” In short, the survey results reflect what consumers believe are important components to having a discount brokerage account.

Reliability matters

As any quick Google search will reveal, reliable and impartial measures of consumer opinions on Canadian discount brokerages are hard to come by. Thus, for consumers of financial products, the opportunity to access reliable feedback from their peers is invaluable.  Since a survey is only as useful as it is accurate,  consumers must be skeptical when coming across ‘polls’, surveys or other rankings by asking how they were devised and measured. As we’ve seen over the past year, several discount brokerages have been considered “the best” depending on who’s doing the ranking. Defining and measuring “investor satisfaction” accurately and transparently was therefore critical to the overall reliability of the investor satisfaction survey. For example, Dr. Li was able to explain that the reason the rankings (covered in section 1) were ordered in the way they were was because that was the priority most investors placed on those items.  To review, the six categories of investor satisfaction are:

  1. Interaction
  2. Trading Charges and Fees
  3. Account Information
  4. Account Offerings
  5. Information Resources
  6. Problem Resolution

Interestingly, when asked why something as seemingly important as “Problem Resolution” was placed last on the scale, Dr. Li answered that while the importance of receiving help when it is needed is high, the frequency with which that occurs relative to other situations is actually quite low.  The example he gave was using the insurance industry where although the essence of why insurance is useful is precisely because one may need it in an emergency, the frequency of those occurrences is actually quite rare. Similarly, for discount broker customers,the more immediate concerns of being able to get a hold of someone or how much a transaction costs score higher on the list of priorities hence they  are given greater importance for scoring.

Posted on Leave a comment

Discount Brokerage Weekly Roundup – Dec 16th 2012

As 2012 draws to a close, it looks like the discount brokerage industry is going into autopilot.  This past week saw the expiry of a couple of promotions. First, Scotia iTrade’s 100 days of unlimited trading offer expired this week.  This leaves Questrade as the only discount brokerage currently offering unlimited trades.   Speaking of Questrade, their “Ring the bell with Questrade” promotion also ended this week. The winner of this contest will be announced this upcoming week on December 20th.

Jitneytrade announced this past week that they’re “going green” by offering paperless statements and  trade confirmations.  If you choose to continue to use paper statements and confirmations, however, be prepared to shell out some major green – paper statements will cost $20 and trade confirmations $1 each starting February 28th 2013.  For more information – click here.

Best Discount Brokerage Tweet of the Week

Thinking about investing in “penny stocks?”  A lot of investors are lured into the low prices and potentially huge gains – but often overlook the bigger risks.  This week’s tweet by National Bank Direct Brokerage’s parent @nationalbank was a good overview of some reasons to think twice before turning to penny stocks.  Read the tweet here.

Event Horizon

This week (December 18th), Morningstar’s Director of Economic Analysis, Bob Johnson, will be presenting a forecast for the economy and investing in 2013.  For more details, click here.

The People Have Spoken

A really interesting discussion was sparked by a Red Flag Deals forum member asking about why retiring baby boomers or ‘young guns’ appear to not be investing?  Check out what dozens of folks had to say about this here.

Posted on Leave a comment

The Mindless Investor Chapter 3: Be a Trader – Chapter Review

Highlights of Chapter 3 – The Mindless Investor

This brief chapter in The Mindless Investor focuses on what “being a trader” means.  According to Tyler, becoming a competent trader means first understanding what kind of trading style best suits the reader. The key points covered by this chapter are that trading is not gambling, successful trading takes effort and, and most importantly who you are as a person doesn’t matter to the market; only what kind of trader you are does.

Mindless Investor - Trading Is Not Gambling

Key Point #1 Trading is not Gambling

Even though traders and gamblers have speculation in common, traders are professionals who calculate risk and reward.  Thinking like a trader is key to success because the primary focus for traders isn’t what kind of company they are investing in, it is what kind of risk to reward relationship is defined by the opportunity.

Mindless Investor - Trading Takes Effort and Motivation

Key Point #2 Trading takes Effort and Motivation

While some may equate trading with day-trading, Tyler offers a different perspective. Even though executing a trade takes mere moments, most of the money in trading is made in the waiting.  The market accommodates different types of traders, from short term to long term, from complex traders to very simple ones.  The important note is that to succeed, trading does take a significant amount of motivation and effort in order to avoid being on the wrong end of the market statistics for successful traders.

Mindless Investor - Know What Kind Of Trader You Want To Be

Key Point #3 What Kind of Trader You Are Matters More Than Who You Are

Whether you are a hedge fund manager or a ‘regular Joe’, it makes no difference to  “the market.” The most important thing to focus on is knowing yourself – what kind of emotional makeup you have, what your time and capital constraints are and what life situation you are in.  These factors will help to decide what kind of commitments you can make to the market and what strategies you can use that best suit you.   The common thread for all traders, though, is focusing on buying/selling shares in order to make a profit. What distinguishes traders from investors is that “investors own assets; traders speculate on the price movement of those assets.”

Posted on Leave a comment

Promotional Feature – Disnat Celebrates 30 Years of Stock Trading in Canada

As part of its 30th anniversary, Disnat has put together a fun promotional infographic that celebrates 180 years of stock trading in Canada as well as its own history as a pioneer in the Canadian discount brokerage industry.  To learn more about the deal they’re offering as a part of this promotion, click here.


Posted on Leave a comment

Special Series: J.D. Power & Associates – Discount Brokerage Rankings Data Visualized

How to use the Visual Discount Brokerage Rankings Table

We’ve collected the results from the J.D. Power and Associates Investor Satisfaction survey from 2012 (Table 1) as well as historical results from 2009-2012 (Table 2).  To help visualize how the different discount brokerages have performed on the surveys relative to other discount brokerages, we’ve created small graphs called “sparxlines”.  Each graph shows a series of dots that represent the order in which a company ranked according to the survey results and ordered from left to right (with 1st being on the far left).  A red dot on each graph corresponds to the company referenced in the same row.  The average for the industry is presented on the graph for a point of reference to identify which companies are at, above or below average.  Lastly the scores are provided for a numerical reference point.   To find out more about a particular discount brokerage, simply click on the logo of the company to be taken to the brokerage profile.


Table 1: J.D. Power and Associates 2012 Investor Satisfaction Results

Sparxline Company Investor Satisfaction Survey Score Rating
768 5/5
720 4/5
719 4/5
707 3/5
690 3/5
687 3/5
686 3/5
686 3/5
678 3/5
656 2/5

Source: J.D. Power and Associates 2012 Discount Brokerage Investor Satisfaction Study

Posted on Leave a comment

Event Review: Stock Chatter – TD Waterhouse Discount Brokerage

We recently attended a roundtable event provided by TD Waterhouse Discount Brokerage entitled “Stock Chatter” at their downtown Vancouver Investor Centre.

This educational session lasted an hour and a half and provided the audience with an overview of current stock  market conditions and  two different approaches to equity valuation. The presentation also covered two case studies that provided a better understanding of stocks and important variables to consider when choosing them. The session also included opportunities for the audience  to ask questions.

Two different approaches to equity valuation that were covered were Discounted Cash Flow Techniques and Relative Valuation Techniques.

Discounted cash flow techniques covered the following topics:

  • Present value of dividends
  • Present value of operating free cash flow
  • Present value of free cash flow to equity

The relative valuation techniques covered included:

  • Price/Earnings ratio
  • Price/Cash Flow ratio
  • Price/Book Value ratio
  • Price/Sales ratio

Questions about both topics were answered well by the presenter

Another important subject covered during the session was the return on equity  (ROE), which is composed of profit margin, total asset turnover and financial leverage.  ROE is a measure of a firms profitability and is often known as a way of measuring the performance for shareholders. [Note: to learn more in detail on measures of company profitability and financial statements, click here]

Overall, the session was very informative and well structured. The presenter encouraged the audience to ask questions and was able to successfully answer them. Despite the small audience, discussions were informative and beneficial. The presenter also provided the audience with various handouts including presentation slides, charts and a dividend-focused report.

We were informed that the TD Waterhouse discount brokerage roundtable events would take place at the Investor Centre in downtown Vancouver on the first Wednesday of the month(excluding January)

Posted on Leave a comment

Discount Brokerage Weekly Roundup – Dec. 7th 2012

Interactive Brokers made the news this week as it released its trading metrics for the month of November.  While not a perfect proxy for the rest of the investment market, Interactive Brokers’ transaction volumes, known as Daily Average Revenue Trades (DARTs) help to provide an indirect measure of the ‘health’ of the stock market participants including discount brokerages.  November’s data from Interactive Brokers show a substantial month over month increase (14%)in DARTs from October to November.   Even more interesting is the rise in trading volumes since the lows in August.  DARTs are now up over 23% from the August lows signaling an increased level of participation in the financial markets.   DARTs cover several types of trading including futures contracts, options contracts and trading in shares. Another metric that seems to validate that observation is the increasing number of new account openings.  As this is the picture for US investors, this data could be a signal that investors are jumping into the market ahead of the fiscal cliff or are they tactically preparing themselves to be able to respond.   A recent report by Investor Economics has mentioned that Canadian investors have sat on the sidelines for quite some time presenting some challenges to the Canadian discount brokerage industry for commission revenues.

A Canadian discount broker that we do not hear about very much, CIBC Investor’s Edge, is getting a makeover.  The new interface is appears to be an improvement from its prior layout, with some clearer and more intuitive sections.  For a peek at the site and its new features, click here.

Event Horizon

As we round out the year, webinars and seminars are giving way to Christmas/holiday cheer and holiday parties.  The next event of interest is the seminar, hosted by Disnat and presented by iShares on using ETFs in an equity portfolio on December 19th.  For more details, click here.

Best Discount Brokerage Tweet of the Week

It was slim pickings from the discount brokerages this past week in tweets.  One interesting tweet that linked to a great moneyville article on ETFs came from Scotia iTrade.  To read the tweet and article, click here.

The People Have Spoken

This  week, a discussion focused on the two discount brokerages that offer very low commission charges on trading, Interactive Brokers and Virtual Brokers.  Read what users had to say in the RedFlagDeals  investment forum about Interactive Brokers vs Virtual Brokers.