Plus: average investors keep making one big mistake September 16, 2024 Sign Up | View online IN THIS ISSUE 7 min read 💰 Millennial money 🍎 Aging Apple 📉 Investing error So remember how TV networks made entire sitcoms based on the idea that millennials would be broke forever? Well, ’90s kids might get the last laugh (track). We explain below. | CBS THE WEEK IN MARKETS Welcome to Fed Week Last week was good but uneventful for the major markets, in large part because investors worldwide have drawn a thick black circle on their calendars around Wednesday, September 18th — the final day of the U.S. Federal Reserve meeting, when the central bank is expected to (finally!) cut interest rates. This is apparently such huge news that The Globe and Mail and Financial Post both ran big stories about it. Why so much fuss over someone else’s central bank? Because U.S. monetary policy is effectively global monetary policy: more than 60% of worldwide borrowing is in USD, and 50% of the world’s spending comes from countries that do business in greenbacks. Canada is extra-affected by the Fed, since U.S. consumers and businesses buy 75% of our exports, and since U.S. stocks and bonds make up about 40% of the typical Canadian investment portfolio. So, when the U.S. Fed raises or lowers rates, it influences spending, corporate sales, and stock prices for us too. The big question is whether the Fed will slash rates by 0.25% or do a jumbo 0.5% cut. See you in the group chat on Wednesday! THE WEEK IN ONE NUMBER $31.9 million That’s how much revenue (in USD) adult-content platform OnlyFans generates per employee. Microsoft, in contrast, makes about US$1 million per employee. WHAT HAPPENED LAST WEEK IMPORTANT Millennials might be OK, wealth-wise. The wealth of Canadian millennials has shot up by 144% (mostly thanks to rising real-estate values) since the start of the pandemic, according to StatCan. That’s compared to Gen X’s 78% gain and boomers’ 20%. It’s easier to make up ground when you’re so far behind: millennials have only about 25% of the combined wealth of their generational elders. Still, evidence suggests that millennials, after initially lagging behind older generations, now have more wealth than previous generations did at the same age (although they also tend to carry more debt). The wealth gap will likely narrow further over the next couple of years as Canadian boomers pass along an estimated $1 trillion to their mostly millennial heirs as they retire and, well, die. Speaking of boomers … INTERESTING Apple is embracing its boomer era. What’s a tech giant to do after conquering the world? We got a hint when Apple unveiled the iPhone 16, which aside from its built-in AI system mostly resembles older models. In an essay, tech thinker Ben Thompson argued that we’re witnessing the company shifting into a for-boomers, by-boomers phase, and only partly because the new AirPods double as hearing aids. His point: at its innovative peak, Apple made world-changing gadgets. But now, after nearly five decades of existence, the House of Jobs is accepting the reality that everyone who wants an iPhone already has one. So, to keep customers hooked and boost growth, Apple is gradually turning itself into a services and software company and, as such, jumping on “hot new trends” — like AI — that don’t quite fit its old hardware-reliant business model. The success or failure of its new AI system could hint at how well the pivot goes over. Canada’s hottest real-estate market? America. Canadians have always liked buying property in America, especially in Florida. And, after a decade-long stretch during which China often edged us out as the #1 foreign buyer of U.S. homes, we’re now back on top! Two factors help explain our reascension. First, China’s deepening economic woes. Second, Canada’s deepening housing-market woes (for buyers anyway). Shopping for a home in Canada has gotten so rough that many U.S. homes are still better deals even after you account for a relatively weak loonie. What sort of deals are we talking about? The average home in Ontario or B.C. costs about $900,000, while the typical place in sunny Florida goes for about $100,000 less. FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 📈 Canadian unemployment rate hits seven-year high. In related news, fantasy football teams say they’ve never been managed better. Source ☕ Fall will be warmer than usual for most of the country. Pumpkin spice standing by. Source 🍞 Amazon is launching Amazon Saver, a new line of no-frills groceries for when Amazon Basics just aren’t basic enough. Source 🌊 Canada’s first-ever tsunami evacuation tower being built at B.C. school. Sorry, kids, no more tsunami days! Source CRASH & BURN TO THE MOON 💸 7-Eleven owes B.C. woman $907,000 for declining health after pothole injury. Declining health after Slurpees not their problem. Source 🏀 Michael Jordan’s Chicago mansion still unsold after 12 years. Okay, what if he throws in 50 copies of Space Jam? Source 🏈 Kendrick Lamar headlining halftime show at the next Super Bowl. Drake waiting to hear back about playing the Puppy Bowl. Source ✉️ Sarah McLachlan gets her own stamp! And good news: there’s not a single sad dog on it! Source WHO CARES THE BIG IMPORTANT STORY TRADING The News Affects Stock Prices. Most Individual Investors Don’t Understand How What’s the biggest mistake investors make? It depends on who you ask, because investors mess up in all sorts of ways. But a new study by a team of (slightly judgmental) Germans suggests that individual investors — that is, non-pros who manage their own money — are likely to make one big error over and over. That error is that they fail to understand what it means for expectations to be “priced in” to the cost of a company’s stock. And, since there are a lot of big expectations priced into stocks right now — like that tech companies will keep growing profits by a lot — we thought it would be a good time to explain the blunder. First, what does “priced in” mean? It’s easiest to explain with an example: back in 2020–2021, Tesla shares soared not because the company was already making mountains of cash (it wasn’t) but because investors expected it to as EV demand grew. So its future performance was reflected in its stock price — aka it was priced in. That’s why, though Tesla has earned billions this year, its stock hasn’t risen; the earnings were expected. Tesla would have needed to beat expectations for its stock price to rise, and it hasn’t done that so far. Just the opposite, in fact: its stock price has fallen because earnings have come in lower than anticipated. What did the Germans find out? So three German researchers did an experiment. They told a group of individual investors (aka retail investors) about some hypothetical news reports — some positive, some negative — that stood to affect a company’s revenues. Then they asked what effect the news would have on a $1,000 investment into said company a month after the news broke. In response, most individual investors said that they would expect a $1,000 investment to grow in light of the month-old positive news and to fall in light of bad news. The problem with this answer is that, in most cases, after a full month the price of the stock would have already changed in response to the news — that is, the information would already be priced in. But the novice investors assumed that the stock’s price would continue to go up (or down) in the future because it had gone up (or down) a month earlier, when that might not necessarily be the case. What’s the lesson? Being right about how well or poorly a company’s business is doing right now isn’t how you make money trading its stock. To make a return, you have to invest in companies that make money and beat expectations. Everyone knows, for instance, that Apple makes great products and generates a lot of money. But for its stock to rise, it needs to make a surprisingly large amount of money. And it’s hard to guess which companies will do that! You have to correctly surmise that the market hasn’t priced in something important about the future or has undervalued a stock for some reason. We know we say this often, but the difficulty of picking which companies will beat expectations is why many smart people, like Warren Buffett, suggest individual investors buy not individual stocks but diversified index funds, which bet on hundreds of companies. If you are going to trade individual stocks, though, you’d be wise to ask yourself two questions first: [1] do other investors have high or low expectations for a company and why? (A company’s forward price-to-earnings ratio can speak to this.) And [2] do you have a better view of the company’s future performance than the rest of the market? If you can’t answer both, perhaps think twice before submitting the trade. —Ben Mathis-Lilley OTHER VERY GOOD READS 🍼 The Jackpot Generation How an inheritance-based economy will transform Canada. | Maclean’s 🩸 The Billionaire’s Secret How’d Germany’s wealthiest man get so rich? | Vanity Fair 🌉 Love, Interrupted Two women pledged they’d see the Golden Gate Bridge together. | Atavist POSTS OF WISDOM OK, we’ll admit it: the blue text bubbles keep us hooked. THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Ben Mathis-Lilley (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Clare Douglas (copy editor), Sara Black McCulloch (fact checker), Tyler Hamilton (senior lifecycle manager), Matthew Karasz (markets editor) Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Disclosures: Contributors to this newsletter own shares in Amazon. Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 VIEW IN BROWSER PRIVACY POLICY UNSUBSCRIBE Direct Deposit Cash Bonus: From July 29 to October 1, 2024 (“Promotion Period”), eligible Wealthsimple clients who set up their first recurring automated direct deposits in their Wealthsimple Cash account, totalling at least $2,000 per month for at least three months will receive a cash bonus of CAD$100. 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