Monday, October 10th, 2011
If you’re still standing on the sidelines in cash at the moment, here are three good reasons that you should be invested in stocks right now.
- An investor’s choice of asset allocation is the single largest factor that will influence the probability of long-term success. Historical evidence suggests that cash investments return the least amount over the long run.
- There is significant upside potential in equities for long-term investors right now. Stock valuations are well below their highs and have a long way to go to be back in line with what we consider to be fair value.
- Sustained low interest rates and dramatic increases in money supply combined with increased deficits have many fearful of the inflationary impact once a true economic recovery takes hold.
Money market investments, non-market linked CD’s and high interest savings accounts offer little protection against the wealth eroding effect of inflation.
That is not to say that there is no downside. In fact, there is an inherent risk when investing in equities and there may, in fact, be another leg down.
However, I believe the risk vs. reward payoff favors the astute dividend growth stock investor at this time.
Posted in Investment News | 8 Comments »
Friday, July 3rd, 2009
With the end of June comes the start of summer: warm air, hot beaches and, sometimes, choppy waters. The following is a recap of last month’s market action and key developments from “30,000 feet” .
The month of June saw North American stocks end up in slightly positive territory. On a total return basis, the S&P/TSX Composite Index gained 0.3% and the S&P 500 Index was up just 0.2% .
However, volatility in the C$/US$ exchange rate was a big story yet again as the return on the S&P 500 in C$ terms was 6.6%. The story was similar for international equities. The MSCI EAFE Index (Europe, Australasia and Far East) was down -0.8% in US$ terms but up 5.6% in C$.
In June, the C$ lost ground against the US$. This was in stark contrast to May when the loonie posted its biggest monthly advance versus the US$ since 1950. We expect currency movements to continue to be hot topic in the weeks ahead.
Energy and Materials were a drag on performance for the S&P/TSX last month dropping 2.2% and 6.6% respectively (these two sectors represent 46% of the index currently). Even with the 2.2% pullback in Energy, the sector still posted an almost 22% gain to close the second quarter. Solid gains in Industrials, Consumer Discretionary and Financials (in particular banks which were up 9.8% this month) were sectors that kept the S&P/TSX in positive territory in June.
Key Messages
While uncertainty still looms, the data suggests that the worst of the economic and credit crisis appears to be behind us. Although U.S. consumer confidence numbers released earlier this week fell to 49.3 from 54.8 last month, the confidence index remains well above February’s low of 25.3. Many other indicators are now suggesting an easing in the pace of economic contraction in the aftermath of the deepest, most synchronous recession in the world economy in 60 years.
Most analysts expect continued volatility in stocks, currencies, and economic indicators as, although many agree we have embarked on some type of recovery, the timing and pace of that recovery may prove to disappoint investors.
For investors this means that our balanced, long-term view is as important as ever. There is still value to be found in dividend growth stocks.
Dividend Money purchases in the past month include:
Transcanada Pipeline (TRP)
Sun Life Financial (SLF)
Royal Bank (RY)
Bank of Nova Scotia (BNS)
Power Corporation (POW.TO)
Posted in Investment News | 1 Comment »
Wednesday, May 20th, 2009
Since the credit crisis began in August 2007, experts have agreed that there is no magic bullet solution. The general view is that world economies will eventually recover but the healing process will take time. Along those lines, here is REAL data that represents REAL steps in the right direction.
Here are two recent examples:
- Global credit markets continue to thaw as government cash injections and interest rate cuts kick in. Last Friday, the London interbank offered rate (Libor) – the interest rate banks charge each other for loans – fell the most in eight weeks to 0.85% for three-month U.S. dollar loans. Libor, which determines rates on everything from car loans to mortgages, peaked at 4.82% at the height of the financial crisis last October. Last Friday’s fall in three-month Libor was the 33rd consecutive day of declines – the longest stretch dating back to January 2008.
- Last Friday also marked the 10th consecutive day of gains for the Baltic Dry Index, which tracks ocean shipping rates for commodities. This was the longest advance in three months and the index hadn’t been that high since last October. The index is followed by economists since it can provide insight into the level of demand for raw materials in global markets.
Whether it’s banks starting to lend again, demand for raw materials picking up around the world, improved housing affordability in the US or the fact that the stock market rally since March 9th is now the largest and second-longest rally in the past 18 months, it seems step by step the pieces required for recovery are falling into place (albeit baby steps).
That said, the recovery path could still look like “one step forward, two steps back” for a while as we were reminded last week by weaker than expected April retail sales in the US and soft Q1 manufacturing sales data in Canada.
However, we can see that the LIBOR rate, the key indicator for credit movement, has decreased drastically. By all economic measures, this is a great sign for business and as such, a good sign for investors!
Posted in Investor Education | 5 Comments »
Wednesday, November 5th, 2008
A few weeks ago I wrote an article titled Panic or Profit and many folks thought I was just spouting theory. While that may be, the recent evidence of my “theory” has been proven at least half true thus far.
According to the Globe and Mail, panic sticken investors in Canada pulled a record $8.45-billion from the mutual fund market in a stampede for the exits. It was the worst month for net outflows since the Investment Funds Institute of Canada (IFIC) began collecting data in 1990, and nearly doubled the previous record posted in September, which saw net outflows of $4.5-billion.
Panic Selling
Of course many will be inclined to argue that those who pulled thier funds from the market in early October were smart and can now re-invest at lower prices. While this is true, the figures shown are net outflows for the month – so we’re not talking about trading or churning of these funds. This data is a decent representation of those investors who panic-sold.
Further to this point, most seasoned traders, who would be more inclined to recognize the market conditions and sell their holding to re-invest at a later date are likely not invested in mutual funds, but rather individual securities.
One such example of an individual who panic-sold is Norman Bambrick, a 72-year-old retiree in Port Perry, Ont. He bailed out of his bank fund after seeing his $200,000 investment in two accounts take a $12,000 haircut in 10 months.
“The funds didn’t work out for me and I cashed them,” Mr. Bambrick said.
“I had a feeling that they were headed for a disaster,” he said. “I had no confidence in them.”
What is even worse about this example is that the gentleman suffered just a 6% loss to his portfolio. This is an indication that he has received some incorrect advice about his risk tolerance and the investments that he holds.
Understand Your Risk Tolerance
If Mr. Bambick could not tolerate a 6% loss to his portfolio, he should not have been invested in those vehicles. At 72 years old, with such a low risk tolerance and relying on his portfolio for income, Mr. Bambick should likely be invested in Guaranteed Investment Certificates (CD’s in the USA) and Fixed Income securities only. Fortunately, that is exactly what Mr. Bambick did with the proceeds from the sale of his funds.
While this example is of an investor who was not likely in the appropriate asset allocation for his situation, it is still an example of panic selling. When we sell out of fear instead of understanding our fundamental reason for selling we often lock in losses. And, by the time we get up enough “courage” to return to following our original investment plan (when general market sentiment turns positive), we have often missed out on the initial upside gain.
The moral of the story is this:
- If you were lucky/smart enough to cash out before the downturn – don’t be too late to re-invest those proceeds because prices are much more attractive now.
- If you panic-sold during the downturn get prepared and develop a plan that is comfortable for you. Don’t miss out on potential gains when the market turns the corner.
- If you have been holding throughout, stick with your plan because this time is not different and equities will rebound as market uncertainty eases and we return to the fundamental valuations.
I personally fall into category number three and have been buying dividend growing stocks and some index ETF’s over the past 5 weeks.
Which category are you in?
Posted in Investment News | 6 Comments »
