My adviser tells me to remain fully invested at this time. Should I listen to them?

October 14, 2022

Advisers make the most money for themselves when you, the investor, is fully invested. There is absolutely no incentive for them to try to time the market. You have all heard them say that market timing does not work and adds no value.

At this time, we know that their rhetoric is not correct. Market timing does work very effectively as long as you never are either fully invested or totally in cash for an extended period of time.

At times like we have today, investment advisers spend most of their time trying to calm your nerves by providing long term trends of the market. What you really need from them is more fundamental analysis and portfolio management and a lot less hand holding.

My recommendation is to learn how to invest yourself. This will ultimately save you from the high management fees and enable you to be more pro-active with your asset mix.

Becoming a subscriber to my monthly newsletter offers you two model portfolios of individual stocks and recommendations for asset mix and equity sector weights.

 

 

FFN – N.A Financial 15 Split Corp – Never Invest in this ETF

June 10, 2022

Many of you know that I have expressed my absolute dislike for this ETF both in my recent book and in my monthly newsletter on many occasions.

Many years ago an investor was boasting to me about FFN’s investment performance by saying that you cannot lose. Being suspicious by nature with hybrid investment products like this, I began to research the reasons for the short term outperformance of this security at that time. I discovered that this ETF uses leverage to borrow funds that are used to purchase Canadian financial stocks. The ETF is marketed as a conservative investment. It was only in the fine print that I found out that they use borrowed funds to invest.

In a rising equity market, using leverage can add to your investment returns but still adds to an increase in portfolio volatility. However, we also know that leverage works in reverse in a bear market like we have today. Controlling portfolio volatility is important and this ETF does the complete opposite by dramatically increasing the risk and sharply increasing the losses in a falling market.

Today FFN’s share price fell by 10.3%, compared to only minus 1.82% for Royal Bank and minus 1.77% for TD. Year to date on a total  return basis, FFN has fallen by 27.79% compared to minus 0.76% and minus 2.08% for Royal Bank and TD Bank respectively.

These differences in performance are absolutely staggering given the marketing around this ETF as a conservative investment.

Recommendation

Never be tempted to invest in FFN or any other similar hybrid security where leverage is involved. Purchase the underlying security directly – namely a domestic bank or insurance company.

Stock Picking is a winning strategy over Index funds in this current market

June 7, 2022

 

Old fashioned stock picking is winning out in a big way. This requires a different skill set than simply buying an index fund.

Stock selection involves making decisions about the best companies to buy as well as the companies you do not want to own.

In an index fund you are required to own all companies – both the good ones and the bad.

Start focusing on the best companies to improve your performance.

Bear Market or Correction in an Ongoing Bull Market- Which is it?

June 6, 2022

 

My June newsletter highlights how to invest in these volatile times

Recession or Stagflation – How markets perform under these differing scenarios

Should I liquidate all my equities at this time and wait for confirmation about a global recession?

What equity sectors do the best in a period of rising inflation and rising interest rates?

Should I take profits in my Energy and Materials stocks after their recent strength?

Should I take profits in my cyclical stocks and buy back into the depressed technology stocks?

Should I now buy back into longer term bonds after their recent price declines?

New Offering- One Time Review of any Canadian, US or Global company listed as an ADR

May 19, 2022

For an all inclusive fee of $100, including HST, I am offering any investor an objective investment review of any company they choose. I am restricting the companies to listed Canadian and American ones, but will also consider a review of a global company that is listed as an American Depositary Receipt on the US market.

My report will include both historical and projected fundamental data on Revenues, EBITDA, Cash Flow, Earnings, Operating Margins and Return on Equity.  I also assess balance sheet strength and the ability of the company to maintain and increase the dividend over time.

My report also includes a review of the industry the company operates in and how the company competes against its peers.

My report will also include a review of the company’s share price’s technical pattern.

Lastly my report will provide some projections on the future fundamental outlook.

As this service is not yet highlighted on my website, any of you who are interested can contact me directly at peter.mcmurtry@yahoo.ca. Payment can be arranged by an E-Transfer.

Thank you.

New Offering – One Time Review of any Canadian, US or Global company listed as an ADR

May 19, 2022

For an all inclusive fee of $100, including HST, I am offering any investor an objective investment review of any company they choose. I am restricting the companies to listed Canadian and American ones, but will also consider a review of a global company that is listed as an American Depositary Receipt on the US market.

My report will include both historical and projected fundamental data on Revenues, EBITDA, Cash Flow, Earnings, Operating Margins and Return on Equity.  I also assess balance sheet strength and the ability of the company to maintain and increase the dividend over time.

My report also includes a review of the industry the company operates in and how the company competes against its peers.

My report will also include a review of the company’s share price’s technical pattern.

Lastly my report will provide some projections on the future fundamental outlook.

As this service is not yet highlighted on my website, any of you who are interested can contact me directly at peter.mcmurtry@yahoo.ca. Payment can be arranged by an E-Transfer.

Thank you.

Maintain overweight of Canadian equities over US as a result of our domestic commodity exposure

April 12, 2022

 

This week both the Australian former Prime Minister, Kevin Rudd, and Gavin Graham, contributing editor of the Income Investor, both said that commodity prices will continue to perform well in the current environment of:

Continuing trade sanctions against Russia that are expected to last for much longer than originally thought

Increased Chinese Covid lockdowns resulting in a continuation of supply disruptions and goods shortages

Global inflationary pressures in both labour and commodities

Gavin Graham also mentioned that the Canadian dollar is trading historically at a much lower valuation relative to the US greenback taking into account the high commodity prices, especially crude oil and natural gas.

 

Recommendation

Continue to overweight Canadian equities over US

Continue to overweight commodity and cyclical stocks over growth stocks.

Given the high level of volatility in cyclical stocks, try to make your purchases on down days like yesterday

 

Recent Globe and Mail article about all the fundamental reasons why Energy Sector remains attractive

COMMENTS

LISTEN TO ARTICLE

In November 2021, a BofA Securities strategist provided eight reasons for ranking U.S. energy stocks the No. 1 most attractive sector in the S&P 500. The potential for geopolitical conflict, which sadly later occurred in the Ukraine, was only one driver of the expected price rally in oil.

In an update this week, the strategist, Savita Subramanian, noted that while the Russia/Ukraine conflict is likely already priced into crude, the other seven reasons for bullishness are still in play. For her, this strongly suggests oil prices will remain elevated for the foreseeable future.

In brief, the seven remaining reasons are: energy stocks offer inflation-protected yield; the sector is close to record low valuations relative to strong cash flow generation; actively managed funds are still 30 per cent underweight; capital discipline has been maintained; decarbonization plans are reducing ESG-related investor opposition; sector earnings are predicted to exceed consumer discretionary stocks; and funds that are underweight are significantly underperforming the benchmark.

The S&P 500 Energy Index’s year to date return of 29.6 per cent has outperformed the S&P 500 by almost 40 percentage points. Domestically, the S&P/TSX Energy index has climbed 22.1 per cent, easily outdistancing the primary benchmark’s 1.5 per cent appreciation.

The majority of fund managers that remain underweight in oil and gas stocks, for ESG reasons or any other, are experiencing career risk – underperforming their benchmarks by a wide enough margin that their jobs are increasingly threatened. The temptation to capitulate and allocate assets to the sector will be very strong in many cases and this would push related stock prices even higher.

Somewhat surprisingly, U.S. energy stocks remain attractively valued after the strong rally (comparable data is not available for Canadian companies, although many also trade in the U.S.). Based on historical averages, Ms. Subramanian estimates 62 per cent potential upside based on current price to operating cash flow multiples. A jump in energy stock prices to average price to book value ratios implies 48 per cent upside.

The most profitable investment time horizon for investment in oil and gas is difficult to gauge. Over time, renewable power will cut deeply into fossil fuel demand but it will be a number of years before these effects become financially tangible. An increase in nuclear power is almost guaranteed but facilities cannot be built overnight, and the related politics remain contentious and likely to cause construction delays at the very least.

There are many ways in which energy stocks have been pushed into the sin stock category because of environmental concerns, joining alcohol and tobacco. But here’s a fact investors may want to consider: tobacco stocks were the top performing market sector between 1900 and 2020, turning a US$1 investment into more than US$8-million.

Canada is clearly a better place to invest than the US in a high inflationary period

Historically in a high inflationary period like the late 1970’s, the TSX Composite sharply outperformed the US market.

Over the last 6 and 12 month periods, the Canadian equity market has performed much better than the US market.

The basic makeup of the TSX Composite is much more exposed to cyclical and commodity sectors than is the case south of the border.

Currently all commodities including crude oil, natural gas, wheat, aluminum, copper and fertilizers are in a long term uptrend based on a favourable supply / demand  scenario.

Cyclical stocks and sectors normally outperform growth and defensive ones during the latter stages of a bull market.

Current inflation is at the highest level in North America in twenty years.

The loonie is currently trading at a historically low level relative to the US greenback compared to  previous periods of high commodity prices, especially crude oil.

 

Year End Portfolio Review to Reduce Portfolio Volatility

If this is of interest or you know someone in need of this advice, please fill in the form online or contact me directly by sending an email. You can either pay me through Paypal online or by an E-transfer to my personal email, peter.mcmurtry@yahoo.ca. I would be glad to discuss any of these options with you.

Consolidated Asset Mix for all of your accounts

Portfolio Rebalancing – Asset Mix, Equity Sector weights, Individual stock weights, Fixed Income exposure and duration

Tax Planning

Risk reduction – rebalance back to long term asset mix

Analysis of all Mutual and Exchange Traded funds holdings

Management Fee Recommendations

Individual stock, Equity Sector weights and Fixed Income duration and credit risk recommendations

Invest in Canadian bank common shares or bank GIC’s – This is a no brainer

November 25, 2021

Many of you may still have investments in Canadian bank GIC’s. In a period of rising interest rates like we have today, bank GIC’s do perform better than fixed income securities because the price is never marked to market. However due to their lack of liquidity, I do not recommend them. Liquidity is something we take for granted, but many investments we make are not liquid at all. Private fixed income and lending is an example of this. It is true that you can cash in your GIC’s before maturity, but only if you forfeit all your interest.

Some of you are terrified of the stock market, preferring to invest your hard earned capital in bank GIC’s. This is clearly a poor choice.

In my opinion investing in Canadian bank common shares is a far better investment than bank GIC’s over the long term. While bank shares represent common equity and involve much more price volatility than GIC’s with their fixed income guarantee, the long term returns from bank shares far exceed GIC’s. In addition bank GIC’s never go up in value and are a very poor hedge against inflation.

Recommendation

Stay away from investing in bank GIC’s. Invest your cash and fixed income portion of your portfolio in high interest savings accounts and short term 1-5 year bond ladders. US Real return bonds and Canadian floating rate ones should also be part of your portfolio. For those who have never invested in stocks before, consider taking a small percentage of your capital to invest in bank common stock. The dividend yields are much higher than GIC’s and you will also receive a dividend tax credit for monies invested in your non registered and non TFSA accounts.

Asset Mix – Being either fully invested or having too much cash are both dangerous strategies to follow

As many of you know, I am a believer in active asset mix strategies to enhance portfolio returns.

However, I am not a proponent of either being fully invested at all times or being mainly in cash waiting forever for a market correction.

Being fully invested does not provide you with an opportunity to take advantage of market opportunities when they present themselves.

Being mainly in cash provides little upside and results in a material decline in your purchasing power in a rising inflationary period like we have now.

Recommendation

While it is difficult to predict a short term equity market correction of 5-10% that can occur at any time, it is much easier to foresee an upcoming economic recession where markets can fall as much as 50%. Every month I review economic stats to determine the probability of an economic recession.

Currently these economic stats do not point to a recession at this time. Consequently I continue to advise a proper allocation to equities to participate in the growth in equity prices.

Should I sell my losers now or wait for a better day?

Many investors, including institutional ones, routinely sell their losers right away thinking this is a good strategy to follow. In my opinion this is a very poor idea.

Many years ago I had a client who sold all his US investments at a loss. He thought he was being smart. Six months later the US stock market rebounded sharply and the securities he had sold at a loss earlier climbed back dramatically.

Recommendation

Never sell your stocks at a loss without assessing their future outlook. Do not let a paper loss affect your judgement.

Carry out some detailed fundamental analysis on both the industry and the specific company to determine if the current problem is a short or long term one.

If the company’s issues are short term in nature only, my advice would be to hold the stock until things improve.

On the other hand, if you determine the issues are more long term in nature, you can liquidate your position and move into something with a better outlook.

 

Picking your own stocks vs. using an ETF or mutual fund – Which is a better choice?

Many advisers encourage the use of mutual and exchange traded funds over individual stock picking. In fact many actually discourage investors from buying stocks on their own.

There are many flaws to their argument as follows:

When the equity markets go down in a recession there is nowhere to hide if invested in a fund or ETF.

Owning individual stocks enables the investor to better control their overall portfolio volatility or risk. Proactively managing your investments through stock selection, asset mix and equity sector allocation can materially lower your level of risk. In the early stages of a recession this can mean increasing your weight in cash and reducing your exposure to more volatile equity sectors and higher beta stocks.

Conclusion

For many investors risk reduction is equally as important as absolute investment returns.