The Joy of July 8th, 2015

August 17, 2015

If history is to repeat itself, and all those who study history know as certain as the morning sun, it does, then given the reaction to market events that occurred on July 8th, 2015, the bull market that began on March 9th of 2009 has more points to run.

On Wednesday, July 8th of this year, you may recall that Greece was on the edge and potentially about to “Grexit”, China’s stock market bubble was imploding and the New York Stock Market, where millions of shares of stock trade every minute and in the middle of this global implosion, suddenly shut down for several hours.

When three un-related global events occur such as 1 – the inevitable bankruptcy of a relatively small economy, 2 – the decline of an inflated market like China’s and 3 – a computer glitch could initiate worldwide financial fear, we know that history has re-affirmed our truth.  Specifically that public psychology (fueled by the media) continues to be driven to panic and that fear wins over greed when a 4% peak to trough pullback in the stock market can inspire mindless panic.

Now, you may have missed all this if you were 1 – on vacation or 2 – not watching or reading the news – both preferable alternatives.

Our position is we are still early in the stages of a bull market and it likely has years and many more points to run.  It will not end until the cashier at our local grocery store recommends a stock we absolutely must own and our neighbours recommend we mortgage the house to invest.

Behavioural Finance – How we may decisions based on “Framing”

May 19, 2015

You have just read your investment statement and see your portfolio performance shows a 5 year average return of  8.3% and are pleased.  Later that day you come across an article about the 15% average return of the S&P500 over the last 5 years and become a little disappointed.  How information is framed can impact our “feelings” about our situation – and our “feelings” are often misguided.

Article – Framing Investment Desisions

Interest Rate Party May Be Ending Soon

April 17, 2015

Current predictions are Canadian prime interest rates could be at 4.75% within two years.  But Canada may lower them again before raising them!

The short term potential decrease in Canadian rates notwithstanding, Canada will follow (likely lag) the US in their interest rate policy. The US Federal Reserve recently indicated they are going to be bringing an end to the near zero percent interest rate policy.  If they do, Canada must raise rates too.  Predictions suggest an increase of 1.75% over the next two years.  Immediate impact on equity markets could be increases in volatility and potentially temporary declines.  Interest rates are not the only factor in what markets do over the short term – global events, consumer spending patterns and of course the profitability of businesses are all factors.

Equity Funds have done well in the higher interest rate environment of the 80’s and 90’s and when it comes to business success, it’s not so much the cost of money (lending rate) as it is the access to money from lending institutions.  Businesses need access to borrowed money to expand.  As long as businesses continue to be profitable lending institutions will provide them money!

So my short term answer is no, I’m not worried about interest rates increasing.  Long term historical probability suggests, a diversified portfolio, properly managed and with sufficient cash for short term income and emergencies will do just fine.

Fed Ready to End the Party