The Globe and Mail, Report on Business
Published December 24, 2010

By Tom Bradley

Hindsight bias: The inclination to see events that have occurred as being more predictable than they were before they took place.

That’s Wikipedia’s definition of a behavioural weakness we all have. We take credit for having seen something coming when we really didn’t (or at least our actions give no indication that we did). Investors are particularly susceptible to hindsight bias. So much so in fact, that a friend of mine suggested we start up a helpline to assist deluded portfolio managers who have convinced themselves they saw the tech wreck coming. She’s heard it too many times.

So in looking back at 2010, I’m going to focus on things that few people saw coming. I’m not talking about the obvious – the Leafs being bad or the Alouettes winning the Eastern Conference – but rather stuff that wasn’t even contemplated a year ago: LeBron James going from revered to despised, or curling emerging as a viewing highlight of the Vancouver Olympics. The stuff that prompts us to say, “Who knew?”

For instance, who knew Canada would continue to cruise along, seemingly immune to the troubles of its largest customer, the United States. And our residential and commercial real estate would be downright hot, while the market to the south was a sinkhole.

As for the U.S., who knew the government would go another year without showing any spending discipline, let alone austerity. Or that investors would continue to spend so much time listening to an institution that was discredited years ago, namely the U.S. Federal Reserve.

Who knew another year would go by without a plan to utilize one of Canada’s greatest resources – natural gas. I guess declining exports to the U.S. (they now have lots of gas, too) and environmental concerns about the oil sands weren’t enough of an incentive.

Who knew a major takeover (Potash Corp.) would get turned down after foreigners had effortlessly bought Alcan, Algoma, Anderson, ATI, Canadian Hunter, Cognos, Creo, Dofasco, Duvernay, Fairmont, Falconbridge, Four Seasons, Hudson’s Bay, Ipsco, Inco, Labatt, MacMillan Bloedel, Masonite and Newbridge, to name a few.

While most investors started the year worrying about rising interest rates, who knew bond yields would drop further (David Rosenberg, that’s who). In the face of the crises in Greece and Ireland, and a U.S. economy that was weak enough to require more quantitative easing, stock markets went up. And despite all the talk about the loonie’s strong fundamentals against the U.S. dollar, it remains where it was last January.

Who knew that after two excellent years in the markets, so many people would still hate stocks? Over the course of my career, I’ve never come across as many investors who are sitting on cash, making a huge bet again the market (and their own investment plan).

In the investment industry, who knew that Ned Goodman would sell out – to a bank, no less. Or that we’d have so many new exotic exchange-traded funds, including ones that play the spread between oil and gas, the volatility of the S&P 500 and the odds of “The Biebs” winning a Grammy.

Who knew the U.S. government would make money on its Citigroup investment, or that Government Motors (GM) would be one of the year’s hottest IPOs.

Who knew that Manulife would let another year pass without rebuilding the confidence of the investment community? Or that making women’s bums look good would be worth 55 times earnings to Lululemon shareholders.

And speaking of multiples, who knew RIM would be down 16.8 per cent on the year, and trading at well under 10 times earnings, after revenue grew by 35 per cent, earnings by 45 per cent and the company bought back $2-billion worth of stock?

The year once again demonstrated how perverse and unpredictable financial markets are, and how lucky we are to be living where we do.