April 2, 2018

 

If you are like me this recent stock market volatility is exhausting.

Possible causes of daily volatility include Trump setting tariffs against Canada, or NAFTA falling apart, tariffs on certain products entering The U.S. from China and the potential of a Trade War, Volatility linked notes with leverage that go to zero value at a certain increase, Gary Cohn and Rex Tillerson leaving office, and Stormy Daniels.

Enough already!

Shouldn’t a company’s share price go up as the company does better. Old fashioned fundamentals like Return on Equity, Profit, Free Cash Flow, Revenue and Margin growth should be determinants of share price. Not a tweet at 2:00 am!

The U.S. is enjoying lower tax rates, enhanced tax write-offs, repatriation of money that was held abroad, less Banking regulation and an overall favorable business and investing climate.

U.S Corporations are using their cash to buy back shares, give employees bonuses and to fund capital investments.

To me this looks like a pretty good environment to be a long-term investor.

Investing successfully is pretty simple, but hard to execute.

Formula as follows: Set goals and objectives, time frame, develop a plan, monitor and fine tune as necessary.

The challenge is sticking to the plan with all the noise and distractions affecting us every minute of each day.

would like to tell this story again which equates successful long term investing to a train trip. magine you are in Toronto and wish to travel by train to Vancouver. Given your time frame and budget you select the appropriate train and know you will arrive in Vancouver on a certain date and time. You board the train and the journey begins. Along the way you encounter rain and snow, hail and high winds. You pass through tunnels that are dark and never ending, and cross bridges that are as high as the clouds. There are many times during this journey you feel uncomfortable and would prefer to get off at the next station, which you are free to do. f you stay on the train you will arrive at your destination a little early, a little late or on time. f you get off the train you are stuck at that station for a period of time, and you will have to develop a new plan to get to Vancouver. Getting to Vancouver just became a lot more difficult and you will arrive much later than originally planned.

Same with investing. There are many times during a week, month or year that you will feel uncomfortable, uneasy, and or afraid and wish to go to cash, which you are free to do. When you go to Cash, GIC’s, T Bills or Bonds you will feel momentarily better, and some time later you will you will have to set about making a new plan to achieve your goals and objectives, as you require a higher rate of return than what is provided by investments with little to no volatility.

Moral of this story is: Stick to the plan.

Chinese Proverb: Danger plus Crisis = Opportunity

Warren Buffett: Cash and Courage in a Crisis are priceless.

Sir John Templeton: Invest at the point of maximum pessimism.

Sir John Templeton also said: “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.”

My sense of most Investor’s attitudes today and the stock market is pessimism. What do you think?

In 2017 The Can $ increased in value vs The U.S. Dollar from .72 cents U.S. to .82 cents. This increase in value directly hurt the value of our U.S. Equities. It looks like the Can $ is now retreating and as of today is just above .77 cents and this is helping the valuation of our U.S. Equities. I think there is more room here for the Can $ to weaken vs The U.S. as interest rates in the U.S. rise and the U.S. Economy outperforms Canada and more money moves from Canada to U.S.

Cannabis companies seem to be gaining more credibility in Canada lately, as Bank of Montreal recently lead a financing for Canopy Growth, and both RBC and TD have indicated recently they may be involved in future deals. I think most Cannabis companies will experience a bounce in price as we get closer to recreational use being legalized later this year.

Bond investors continue to face a challenging environment as interest rates increase. When rates rise, the value of the Bond goes down. Imagine the surprise to an Investor who buys a 10-year Government of Canada Bond that yields 2.13%, and then the Bank of Canada raises rates by 25bps, and the market value of the Bond goes down. Happy to send you a chart that shows analysts expectations for this 10-year Bond going out to Q2 2020 and the expected yield then is 3.39%. A capital loss on a Government of Canada Bond which one thought was safe and risk free is not what the investor was expecting!

As an alternative, consider buying shares in a well-run, proven business that consistently generates profits and pays dividends and increases their dividend annually. Looks to me to be better to be an owner of a Canadian Bank than to lend them money via a GIC or other fixed income instrument.

On a personal note I would like to advise that my long-time and highly valued colleague Mrs. Bonnie Wilson is retiring on July 1st. Bonnie started with me on October 31st, 1994 and I guess she has finally had enough of me. Her contribution and support has been invaluable and greatly appreciated. I will certainly miss her, yet I am happy she and her Husband Les have great plans for their retirement and new home in Sundridge. I know the main reason Bonnie has stayed with me all these years is our wonderful clients whom she has grown so fond of. Thank you.

Please call or email if you have any questions or need anything, and thank you for the privilege of helping you with your Financial and Wealth Planning.

Sincerely yours,

Fred Banwell

 

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates.Richardson GMP Limited, Member Canadian Investor Protection Fund.Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.