Highlights of this Chapter – The Mindless Investor
Chapter six of The Mindless Investor looks at the advantages that everyday investors have over the bigger players. As it turns out, smaller investors have better maneuverability and lower performance hurdles. What it takes for smaller investors to succeed is a strategy that fits their size.
Key Point #1: Use your size to your advantage
Often many ordinary investors look at big investors like Warren Buffet with envy – after all who wouldn’t want a portfolio of a few billion dollars? Well, as the song goes ‘mo money, mo problems’. The problem with very large portfolios is that they are difficult to maneuver. In this instance, having a smaller portfolio means you can be nimble and can take advantage of opportunities that bigger players can’t.
Key Point #2: Use a strategy that works for your size
Most investors don’t have hundreds of millions of dollars in their portfolio. Large mutual or hedge fund managers need teams of people doing a lot of research and analysis to identify the right kinds of opportunities for the money they work with. As a smaller investor, strategies that are nimble and don’t take a lot of time and resources to use make the most sense to start with.
As part of our continued look at Canadian discount brokerage rankings, we review the longest running comparison and ranking of Canadian discount brokerages: The Globe and Mail’s annual ranking of online brokers, which had its start back in 1999. In part one of this series, we go through how we conducted the review, who the rankings are aimed at, the discount brokerages covered in the rankings and how the rankings are structured.
Our Methods
The scope of this review covers the 11 Globe and Mail discount brokerage rankings published from 2002 to 2012. Even though the rankings started in 1999, we felt the window we used to be sufficient to explore the recent history of discount brokerages within Canada, and more importantly to illustrate the nature of how the rankings have changed over time. The data was retrieved by searching for each years’ results via Google, The Globe and Mail website as well as from several websites that contained archived copies of articles. In addition to researching online, we also had the chance to speak to Rob Carrick of The Globe and Mail directly about his experiences in putting together the reviews.
Once gathered, the data was compiled into tables for sorting and analysis. Initially we thought it would be possible to compare scores and how they changed from year to year, however given that the ranking criteria changed so frequently, such a comparison would offer limited value. Instead, we have included a figure (see next page) that details the criteria for each year and how the criteria have changed over time. Although it is also of limited reliability, we nonetheless took the historical average rank of each discount brokerage currently referenced in the 2012 rankings which can be seen in the table to be included in part two of this series.
Happy New Year to all of our deal hunting readers and welcome to another edition of Discount Brokerage Deals & Promotions. One of the most popular New Year’s resolutions for folks is to slim down. As it turns out, the number of deals being offered by discount brokerages has also slimmed down. Right out of the gate, we noticed that a couple of discount brokerages did not update their deals section (Scotia iTrade and Virtual Brokers) and still had posted deals that expired on December 31st, 2012. We’ve since let them know and will update our deals section when we hear back from them. Update: as of January 7th, it appears that Scotia iTrade has updated their promotions page and extended out their 100 days of free trading offer to March 31st, 2013. Virtual Brokers has yet to update their promotional offer.
Those discount brokerages that did start off 2013 on the right foot were CIBC Investor’s Edge and Disnat, both of whom have extended out their respective promotional offers well into 2013 (and had their sites updated by Jan 1, 2013). Interestingly, BMO Investorline‘s 150 trade offer expires on January 3rd so we’ll also be on the look out for the update on whether this deal is extended out or replaced. Update: As of January 4th, BMO Investorline has launched a new deal offering 250 free trades or 250 free trades + $250 depending on whether you deposit $100,000 or $250,000 respectively. Their advertisement might be a bit confusing as it advertises 90 days of free trades, however the fine print reveals that is actually 90 days to use up to 250 trades. It is NOT an unlimited trading offer. Be sure to read the fine print carefully as there are a number of conditions attached to this offer.
One of the big deals we’re tracking is Questrade‘s unlimited trading offer which is due to expire in mid-January. As we mentioned in our outlook for 2013, we think that there will be more discount brokerage deals coming down the road especially now that TFSA contribution limits have been raised and because we’re headed into RRSP season.
Check back here throughout January as we get some more visibility on upcoming discount brokerage deals, promos and special offers for 2013.
Discount Brokerage Deals & Promos
Company
Brief Description
Minimum Deposit Amount
Commission/Cash Offer Type
Time Limit to Use Commission/Cash Offer
Details Link
Deadline
A Sparx Trading exclusive offer! Use the promo code “Sparx Trading” when signing up for a new account with Jitney and receive access to their preferred pricing package and a massive 45% discount on the Real Tick trading platform.
Open a new account (TFSA, Margin or RRSP) and receive $50 commission credit . Use promo code: kdkfnbbc
$1,000
$50 commission credit
none
none
none
Open and fund a new registered, margin or TFSA account and fund it within 30 days with either A)$1,000 B )$25,000 or C)$50,000 and you will be eligible to receive either unlimited free trading for A) 1 month, B) 2 months or C) 3 months depending on your deposit amounts. You must the code INFINITE to qualify. This is open to new and existing clients. There’s lots of fine print so be sure to read the details link.
A) $1,000 B) $25,000 C) $30,000
Unlimited trading (No commissions charged on any trades placed)
Refer a friend to Questrade and when they open an account you receive $100 and they receive $50. To receive this deal you must be an existing client with an equity account and refer a person that does not reside with you and who has not previously opened a Questrade account.
Get up to 100 free trades when you fund an account with a minimum of $10,000. You must open this account by November 15th, 2012 and fund it with $10 000 within 30 days of account activation to qualify. You must enter promo code “100FREEQ”. There are quite a few other details, including a minimum balance requirement, so be sure to check the details link.
$10,000
100 free trades ($495 value @ cheapest commission rate)
If you refer a friend/family member who is not already a Scotia iTrade account holder to them, both you and your friend get a bonus of either cash or free trades. You have to use the referral form to pass along your info as well as your friend/family members’ contact info in order to qualify. There are lots of details/conditions to this deal so be sure to read the details link.
A)$10,000 B)$50,000+
A) You(referrer): $50 or 10 free trades; Your “Friend”: $50 or 10 free trades (max total value:$199.80) B) You(referrer): $100 cash or 50 free trades; Your “Friend”: $100 cash or 50 free trades (max total value: $999)
Open and fund a new Scotia iTRADE account with at least $25,000 before December 31, 2012 and the commissions associated with your first 100 trades placed within 60 days of the date the account is activated and funded. Also, the new FlightDesk platform is being offered for free for 60 days. Use promo code WAC13-EN. See details link for further terms and conditions.
$25,000
100 free trades ($999 value @ $9.99 commission rate)
Open an account with $25,000 or more and receive 10 free trades. This offer is only valid at the downtown Vancouver TD Waterhouse Investor Centre. 10 trades must be completed within 6 months of account opening; reimbursement based on $9.99 commission rate.
$25,000
10 free trades ($99.99 value at stated commission rate)
Open an account with either: A) $25,000 or more and receive a $100 cash credit and 25 free equity trades. or B) $50,000 or more to receive $200 cash back and 50 free equity trades.
A) $25,000 B) $50,000+
A) $100 cash credit + 25 free equity trades ($823.75 (min)total value @ standard equity rate $28.95) B) $200 Cash credit +50 free equity trades ($697.50 total value @ active trader rate $9.95)
Disnat is celebrating its 30th anniversary by offering new & existing clients $300 in commission credits which can be used for up to 6 months. To be eligible, new/existing clients need to deposit $50,000 into a Disnat account. You’ll have to call 1 800 268-8471 and mention promo code Disnat30. See details link for more info.
Open a new account with $100,000 or more (or for existing clients make a deposit of $100,000 or more) and get $150 cash back and 150 free trades. Use the promo code BONUS when opening a new account (or when making a new deposit of $100,000 or more). See the details link for qualifying account types and conditions.
$100,000
$150 cash 150 free trades ($1492.50 value)
60 days
Path to Online Investing Promotion
January 3, 2013 [EXPIRED]
Open a new account or upgrade an existing account with either A) $100,000 or B)$250,000 to receive 250 trades (for those who deposit $100K) or 250 trades + $250 (for those who deposit $250K). Use Promo Code: RSP2013. NOTE: There are lots of details/important conditions attached to this promotion. Be sure to read the terms and conditions carefully.
A) $100,000 B) $250,000
A) 250 Free Trades ($2497.50 value @ $9.99/trade) B) 250 Free Trades + $250 ( $2747.50 value @$9.99/trade)
Below are the discount brokerages deals that cover transfer out fees from other discount brokerages.
Company
Brief Description
Maximum Transfer Fee Coverage Amount
Deposit Amount for Transfer Fee Eligibility
Details Link
Deadline
Qtrade Investor will reimburse your transfer fee up to $125 when transferring a balance of $25,000 or more. For reimbursement, please mail or fax a copy of your statement from the transferring institution that shows the transfer charge to Qtrade Investor at 604.484.2627 and indicate your Qtrade Investor account number.
Disnat is celebrating its 30th anniversary by offering up to $150 to cover the cost of transfer fees from another institution. To be eligible, new/existing clients need to deposit $50,000 into a Disnat account. You’ll have to call 1 800 268-8471 and mention promo code Disnat30. See details link for more info.
If you are a self-directed investor prepare for even more marketing, incentives and competition for your business in 2013. With modest trading volumes and account openings in 2012, a gun-shy investor base and increased downward pressure on commission pricing, discount brokerages will be trying very hard to win new business in 2013 but also to keep their existing clients from jumping ship. So what should do-it-yourself investors keep an eye out for in 2013?
#1 Lots of deals and even more fine print
Bigger deals for self-directed investors mean lots of fine print to pay attention to. Although they may seem like deals, make sure to ask “What’s the catch?”
Look over and understand the strings attached to offers that require longer-term commitments of your capital. Large numbers of “free trades” are being offered but if you don’t really use them to their fullest, it may not be the best deal for you. Also, pay close attention to “cash back” offers because those usually have restrictions on minimum balances or moving your money around within certain time frames.
#2 The marketing of “value” instead of “price”
2013 will be an interesting year for pricing. The ‘race to the bottom’ in pricing will come up against those players who will try to offer more “value” for the money. The result: brokerages will try to offer “new” services. Unfortunately, in finance “new” is a double-edged sword.
Sure it may seem like a reasonable premise to try something new especially if something old isn’t working, however unless some new product can be demonstrated to work, why risk one’s money as the guinea pig? So-called “new” services are likely to be repackaged older services so be ready to ask how the “new” service is so different than similar “older” services.
Also, adding bells and whistles that you don’t need or use becomes a frivolous reason to pay more than you otherwise would to forego the frills. Requesting trials of accounts or services before you commit to opening an account is a great way to test drive whether or not a discount brokerage’s services are worth the price they charge.
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
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.
An interesting article was published on WealthManagement.com 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.
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.
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:
Interaction
Trading Charges and Fees
Account Information
Account Offerings
Information Resources
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.
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.
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.
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.
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.
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.”
