Perspectives

May 28, 2012

I attended a presentation by Kim Shannon, a 20+ year veteran Canadian money manager and president of Sionna Investment Managers.  She and her investment managers follow a disciplined value approach, purchasing stocks only when a minimum 25% discount to true value can be found.

Shannon subscribes to the sideways market theory below, and suggests we are in the 11th year of a sideways (or range bound) market which began in 2000 and will run to at least 2016 before markets begin another bull run.  The investment landscape is littered with individuals who have made market predictions based on historical patterns – as soon as a pattern is identified, the stock market seems to do something else.

The sideways market theory is based on the view that the stock market is always subject to excesses in both directions.  Long periods of strong performance are followed by long periods of recovery.

When looking at US historical stock market returns (from 1930 at least) there does seem to be a pattern of long bull market followed by a long sideways market.  Whether this pattern will repeat itself, we won’t know for a few years but it’s worth considering strategies that have worked in sideways markets.

Data on sideways markets suggest:

1 – Average returns in a sideways market are about 6% – however volatility means these returns can vary depending on when they are measured.

2 – A strong bull market follows every sideways market and the average return of the ensuing bull market is 17%.

3 – Historically, dividend paying stocks provide most of the return in a sideways market.

4 – Commodities and resources tend to do well in sideways market.

Shannon suggested there are opportunities in a sideways market and investing in long duration bonds was not one of them.  She said we have currently passed a milestone – as of last December the 10 year bond yield hit a 140 year historical low – 10 year bonds were being offered at the record low interest rate of 1.85%.

Historical Bond returns

This yield is offered in an environment where inflation is 2.5%.   This means investors buying those 10 year bonds paying 1.85% are prepared to allow their money to lose purchasing power at a rate of 0.65%/yr  (2.5% annual inflation rate less a 1.85% return on investment)

She also went on to say commodities and resources in this sideways market  are ambiguous with oil hovering around $100 (and the potential to go lower) and natural gas at a 10 year low with no increase expected.

Shannon also discussed a number of Canadian dividend paying stocks with valuations considerably higher than long term averages.  (Enbridge Gas for one)

She offered some suggestions for this type of market;

1 – Be conservative, diversify and be careful of the price paid for stocks.  The lower the P/E ratio the better as it provides a margin of safety.  Certain dividend paying stocks need to be included.

2 – Consider small company stock sector.  Small companies with a strong history purchased at low valuations (P/E ratio’s) have significant upside.

3 – Hang in there until the next bull – which always follows a sideways market.

Here is a link to an article about her presentation focusing on opportunities in a sideways market.

Article

Abundance may be closer than you think

 

It’s often difficult to stay positive about our future with the emphasis on bad news in the media.  I recently picked up a fascinating book by Peter Diamondis and Steven Kotler called “Abundance – the future is better than you think.”   The book described all the technologies expected to become available in the next 10-20 years that will address the challenges we face with respect to our environment and global warming, poverty, hunger, energy, healthcare and education.  If you ever worry that we’re leaving a mess for our kids – read this book!  It has restored my hope for the future.

This video is a talk by Steven Kotler about some of the technologies in the book – well worth watching.

 

You tube video talk

Why full Pensions Can’t Start at 65

 

This video of Keith Ambachtsheer from the Rotman International Centre for Pension Management will give you an interesting perspective on the future of pension planning.

Video

 

What’s your life expectancy?

I’ve said before, my goal is to live to 100 – and with a quality life.  So I try to do the things that I’m told will not prematurely end my life.  Here is a quick quiz which will give you a perspective of how long you might live. So far I have a high probability of reaching 88 years.

Life Expectancy quiz

 

 

Gates and Buffet talk currencies and current market sell off

 

Warren Buffet just has a way of explaining his views on the economy in such simple terms.

CNBC Video

Money Can buy Happiness

I thought this short video on a study about how money can buy happiness was interesting.

Ted Talk video

 

No Victoria – there is no money monster

This article puts into perspective the video of 12 year old Victoria claiming private Canadian Banks are at fault for our economic woes.

Article

Here is how to access your tax information on-line

Need to find out the status of your refund? What about review prior years’ tax returns and carryfoward information? Can’t find your T4 or T4A slips for last year? Good news – all this information can be found online using the Canada Revenue Agency’s “My Account for Individuals.”

To use the full system and get access to all of the above information and more, you need to register. To do so, you need to obtain a CRA user ID and password, which can be applied for online. You first provide some personal information, create a CRA user ID and password and create security questions and answers. You will then have to wait for a security code, which will be mailed to you from the CRA, which you enter to gain full access.

Once you’re registered, you can view your past ten years’ of tax returns online, along with lots of other handy information.