I am about to once again question one of the sacred beliefs of many market participants and pundits. It is my belief that market level is not important to our success investing in it. What? That doesn’t make any sense, does it? Here is my […]
Market volatility has returned with a vengeance. The markets had been unusually stable throughout 2017. It was actually record breaking stability, with the fewest number of days with one percent or more daily changes. Said another way it had the most days with small daily changes. This all changed these last two weeks, with some very interesting intra-day and day-to-day changes of up to five percent on the US market. Until February 9th’s late day rally the main US index, the S&P 500, was down about 10% from its peak, and the Canadian market was down a slightly more modest 8.4%. However, the Canadian market has been a severely underperforming market for the past decade, and sits right about where it sat in 2007 and 2008.
What does this all mean? It means OPPORTUNITY. My book was written during a period of high volatility, from the summer of 2014 to January 2017. The Canadian market experienced a full bear market decline of 25% during this timeframe. The US market didn’t officially enter bear market territory, defined as a decline of 20% or greater, but it came very close and experienced a number of days similar to what we had these past two weeks. If you read the book you will see how I took advantage, to bungee jump my portfolios out of the canyon, when the bear market came to an end. What we have seen these past few days isn’t out of the ordinary. The worse it gets the better the opportunities will be.
While we don’t know for sure the root cause of changing market sentiment, it appears to have been around very strong US employment growth numbers, and the highest level of wage gains in quite some time, of 2.9%. What is perplexing is that economists had long bemoaned the lack of wage growth, so how did an improved wage growth number become such a big negative? The fear was that this would cause interest rates to rise faster than anticipated. Personally, I think it just was that the US market had been strong for a year and a half, and there are always periodic market corrections. Wage growth provided the excuse to sell, precipitating a correction. If it wasn’t wage growth, it would have been something else. While it’s impossible to predict what will happen short term, let’s review what we know for sure:
- The markets have returned about 10% per year for the past century and are likely to continue to do so for the next century, but it is not a smooth ride.
- Many excellent companies are now selling at a price 10-20% below where they were in the recent past.
- Corporate profits have been strong.
- The US and world economies have been good and growth has been accelerating. Major bear markets usually coincide with recessions.
- Dividend yields on many companies still exceed paltry interest yields, even though interest yields are rising. Many companies also increase their dividends annually, often by 5-10%.
- The decline in stock prices has increased the level of dividend, earnings and cash flow yields, such that companies now trade at better valuations that they did just a short time ago.
- Your money now goes further when buying stocks.
Nobody knows (see blog titled “Making Money is More Important than Making Predictions”) where the market is going short term, but as I have done before, I have already started trying to take advantage to the current market decline and plan to continue doing so. I personally would like to see another 10% or so decline to make the bargains better yet, but have no idea whether that will or will not happen. I never make major changes, just plan on slowly taking advantage of the current situation.
I will not write a blog next week and hope everyone enjoys a terrific Family Day.
One of the most frequent questions, aside from bitcoin and marijuana addressed in last week’s blog, is how to get started with a small portfolio. In the CBC Radio interview I referred to the success of our two sons, who started back in 2010 at […]
Are cryptocurrencies and marijuana stocks investments? I can’t seem to have a conversation on my book, without being asked about these two hot areas. Chapter #7 of the book is titled “Investment, Expense or Speculation: Which is it?” All three of these items are often […]
I had a wonderful opportunity to discuss my book with Meegan Read at CBC. Please have a listen, as this radio clip provides some great insights. There was so much more I wanted to say to help others learn more about investing but time was limited. As an FYI, the book spent most of this week as #1 or #2 in the Stock Market Investing category on Amazon.ca http://amzn.to/2DpXIUl . Thanks to all who have purchased and I sincerely hope you have the same experience as all those who have written reviews to-date. (Also, please note we are having technical difficulty with the email function of the website but it is my intent to e-mail future blogs, as they are written, when we get the issue resolved).
At this time of year financial predictions abound. But are they helpful? Is anything that is 25% correct helpful? About 75% of predictions turn out to be wrong, making 25% accurate. But, here’s the the beauty of investing in stocks: If you follow my SUCCESS […]
In a recent article titled “Sorry to burst your bubble but owning a home won’t fund your retirement,” Globe and Mail reporter, Rob Carrick takes aim at a common financial misperception. He goes on to say, “Don’t buy into the group-think about home ownership being the […]
I am eagerly awaiting final publication of my first book. It is so close I can almost taste it, and hope it will be available in November. I believe anyone, from new to seasoned investors, or anyone who has struggled making good returns from the market, or is thinking about investing on their own, would benefit greatly from the wisdom gained and delineated in the book, through many years as a very successful amateur investor. That success has culminated in a 24 year, 11.7% compound annual growth rate in my personal RRSP and a eight year 18.0% annual return in my TFSA. I wish to share my success in an effort to help others learn how to make good returns in an era of unprecedented low interest rates, where returns from other investing avenues are so meager.
The book outlines the simple strategies used that can be employed by anyone. My “Buy Value…Rarely Sell” modus operandi, described in Chapter 3, is the key to success and simplify’s the process for busy professionals, like I was (I might be using that term “professional” a little loosely here!). Each chapter in the book outlines a simple to understand investing philosophy, then moves to specific stock selections and how they were made, then organizes those stocks into resilient portfolios that don’t need constant attention. Lastly, the book follows the returns from those portfolios over time, fully demonstrating how to achieve success. I have never seen that done in any other investing book and I have read over 40, from many of the biggest names in the investing profession. Throughout the book I also discuss many of the market “old wives tales,” and often challenge conventional wisdom in an effort to avert sub-optimal performance.
By the end of the book, I hope readers gain commitment to their own financial well-being and have learned the basic principals and workings of the market. I hope they become more comfortable with and no longer fear market volatility, and are ready to take advantage of its fantastic wealth creation capabilities. I hope the book appeals especially to younger readers who have an unprecedented ability to take advantage of our tax-advantaged programs to build financial security over time. I hope to help readers through the investing School of Hard Knocks, with less knocks and much greater success.