[Rickson9]

DOW 7.6%
S&P500 12.5%
NASDAQ 28.0%
S&P/TSX 23%

Some great returns for those who took advantage of the huge buying opportunity at the beginning of the year during the meltdown. Congrats guys!

 

[leslie]

The TSX total return is 24% ytd. See. Don't know where you got your numbers.

And you would have had an even better return with an critical selection of Preferred shares, AS WELL AS missing the 20% downdraft and subsequent 20% recovery in the interim. Better on both counts - risk and return.

 

[Rickson9]

The TSX total return is 24% ytd. See. Don't know where you got your numbers.

Admittedly I eyeballed the TSX numbers and I was off. LOL! It seems that the S&P/TSX opened at 8,951 on 2-Jan 2009 and now it stands at 11,017 which is a 23% return YTD. Damn that's good!

Either way, my wife and I and any other Canadians who poured money into stocks at the beginning of the year are doing very nicely! (now if only the RE market would crash and burn it would be great!)

finance.yahoo.com

 

[Mockingbird]

Congrats to you also!
Yes, pretty good year so far even though I've missed out on deploying last 25% of cash.
Now now, be gentle on that RE crash statement. Many people already own homes you know.

(Note: YTD is calculated from the close price of Dec 31. For TSX Composite Index's case, it was 8988, thus 22.6% gain as GlobeInvestor stated. TSX Total Return includes reinvestment of dividends and capital gains)

 

[IanBC]

I'm curious to know if anyone sees a large downside to the markets in the next few months. Their rise, particularly of late, seems completely out of touch with reality but I'll admit that I'm a complete novice at watching the stock markets. Isn't the S&P500 P/E up to 127 or something, and there's an end-of-day ramp today after consumer credit was reported to have dropped in July 6X more than expected. How is that good news for the market?

Much of what I'm reading online indicates the US market is being gamed by a few big players with cash direct from the Fed buying treasuries. For individual investors, is the assumption that this is not happening or is it that it is happening but it can continue for some time to come?

And I guess my other question is, how insulated is the TSX from the US markets? They seem highly correlated on a day-to-day basis, but if there are large movements (either way) in the US can the TSX chart its own course or is it always dragged along for the ride?

 

[Rickson9]

I'm curious to know if anyone sees a large downside to the markets in the next few months. Their rise, particularly of late, seems completely out of touch with reality but I'll admit that I'm a complete novice at watching the stock markets. Isn't the S&P500 P/E up to 127 or something, and there's an end-of-day ramp today after consumer credit was reported to have dropped in July 6X more than expected. How is that good news for the market?

My vision into the future is poor so I don't bother looking.

If the market tanks I have the cash to take advantage (again). If the market doesn't tank, then I sit and enjoy the gains I have already made and wait for the next opportunity.

How is that good for the market you ask? Nobody knows what is good for the market or what is bad for the market. Nobody knows where the market is going so to think about it is a massive waste of time and energy. There is absolutely no way to make money thinking about things that are unpredictable.

Tell me anybody who predicted the dot.com bust and the RE bust and I'll show you a billionaire (or a liar).

Much of what I'm reading online indicates the US market is being gamed by a few big players with cash direct from the Fed buying treasuries. For individual investors, is the assumption that this is not happening or is it that it is happening but it can continue for some time to come?

Again, this line of thought has no benefit for me so I don't bother thinking about it. An analogy would be, if the gym has a small population of hardcore atheletes and they're experiencing an average of 5 lbs in weight gain; will this continue and should I bother working out today? The short answer is that this is irrelevant.

And I guess my other question is, how insulated is the TSX from the US markets? They seem highly correlated on a day-to-day basis, but if there are large movements (either way) in the US can the TSX chart its own course or is it always dragged along for the ride?

Again, it doesn't matter how correlated the TSX is with the U.S. markets. I can't make money with that information because that information isn't useful or actionable. Let say somebody tells me that the TSX and the U.S. markets are correlated - so what? I can't do anything useful with that information. On the flip-side, lets say that somebody tells me that the TSX and the U.S. markets are not correlated - so what (again)? I can't do anything useful with that information either.

No offense, but your ideas show that you are very new to investing (which you admit to). I would read up on some investment books - they will give you a good handle on some solid questions to consider.

 

[Murph]

I'm curious to know if anyone sees a large downside to the markets in the next few months. Their rise, particularly of late, seems completely out of touch with reality but I'll admit that I'm a complete novice at watching the stock markets.

Their return is completely out of touch with reality. Anemic job growth, stagnant wages, people in debt up to their eyeballs, record deficits. Doesn't sound too positive to me. We have been in a bear market since 1999, and bear markets can last a long time.

 

[PMREdmonton]

Warren Buffet seems to be a bit bearish right now.

I have personally switched from an asset allocation of 75% equities and 25% bonds to 80% bonds and 20% equities. I'm just going to sit on the sidelines and see how it works out.

I'll probably start doing some DCA in November and slowly work back to my new long-term preferred allocation of 60% equities and 40% bonds.

 

[Rickson9]

I'm still 90% equities and 10% cash (outside of my RE properties).

 

[IanBC]

Thanks for the reply, Rickson9. From your website you clearly seem to be someone who has been successful as an investor, so I value your opinion. But I'm still not sure I understand your point of view.

My vision into the future is poor so I don't bother looking.

If the market tanks I have the cash to take advantage (again). If the market doesn't tank, then I sit and enjoy the gains I have already made and wait for the next opportunity.

Yes, but if the market tanks then you lose some of the gains you have now, correct? My sense is that you hold shares in a small number of stocks and it doesn't seem that dividends are your primary focus. So if you risk losing a large chunk of your capital appreciation why is that not a concern? I understand buy-and-hold, but say if you bought a stock for for $5/share and it's now $10. If you thought there was a 50-50 chance that in 6 months it would be worth $4 why wouldn't you take some of that money off the table.

I'm not suggesting that you look into the future, I'm saying that today looking at the state of the market the valuations of stocks appear untethered from the reality of the underlying companies. What happened to being fearful when others are greedy?

Tell me anybody who predicted the dot.com bust and the RE bust and I'll show you a billionaire (or a liar).

I don't know about the dot.com bust but if you spent any time reading Calculated Risk (as one of many examples) in 2007 and 2008 then the RE bust was absolutely foreseeable. I'm not savvy with economics but for me it was like watching a slow motion, scripted to the detail, train wreck. To say no non-billionaires predicted it is false.

Again, this line of thought has no benefit for me so I don't bother thinking about it. An analogy would be, if the gym has a small population of hardcore atheletes and they're experiencing an average of 5 lbs in weight gain; will this continue and should I bother working out today? The short answer is that this is irrelevant.

No, that's an incorrect analogy. The point is that a small number of institutions are claimed to be gaming the market and driving up the entire index, so if you're buying stocks at today's prices then it's entirely relevant. In August something like 30% of the volume of the *entire* S&P500 was from 5 stocks (C, CIT, AIG, FNM FRE) all of which are walking zombie financials. The US Fed buys billions of treasuries in the morning and then there's a flood of equity into the markets that drives them up in the afternoon. You say on your website about 2008 "The prices of stocks declined regardless of their financial status." Isn't that reversed right now?

Again, it doesn't matter how correlated the TSX is with the U.S. markets. I can't do anything useful with that information either.

If the TSX can hold while other markets tank then it's a safer investment for someone who, like me, thinks the US market is going to tank.

No offense, but your ideas show that you are very new to investing (which you admit to). I would read up on some investment books - they will give you a good handle on some solid questions to consider.

Thanks - good advice which I'm already trying to do. I've read Benjamin Graham's The Intelligent Investor (which is why I think most stocks are overvalued right now) and I enjoy looking at numbers and graphs so I'm doing that too (occupational hazard - I'm a scientist). I have this same problem with RE at the moment - it would cost me 2.5X my current rent to own the nice little house we live in (after a 250K downpayment). I can't understand why I would want to buy given those numbers. Buyers carry more risk than renters so I should actually get a discount over the rent if I were to buy.

I understand the risk inherent in the stock market, I'm just a bit mystified why more people wouldn't try to avoid foreseeable risk. Insider selling:buying at the end of August was 60:1, so I worry that insiders are foreseeing something. You have 1/4 of your portfolio in Fossil and the chairman of Fossil has sold almost 1M shares in the last week. That would be concerning to me, even in a buy-and-hold situation, but maybe that's just me. Perhaps I'm just foreseeing risk that isn't really there.

Anyway, obviously more for me to learn. Thanks for the input.

 

[Rickson9]

Yes, but if the market tanks then you lose some of the gains you have now, correct?

The market tanking is irrelevant to whether I make money or not in the long run. You make the incorrect assumption that a gain actually reflects business value. If a stock moves from $10 to $100 the stock is worth neither $10 or $100, it is just moving. There is neither a $90 gain or a $90 loss. It is my task to determine if there is an opporunity within that price movement. If there isn't, I do nothing. If there is, I buy.

My sense is that you hold shares in a small number of stocks and it doesn't seem that dividends are your primary focus. So if you risk losing a large chunk of your capital appreciation why is that not a concern?

Because I haven't really lost anything. The business wasn't "worth" $100 nor was it "worth" $10. Dividends don't even factor into this; dividends are a side-issue.

The sooner people recognize that they're wasting their time thinking about market movements the sooner they can move on and create their fortune. The longer they take to recogonize this (and some people think about market movements until they're 6 feet under) the longer they will spend making no money.

Dividends are another story entirely. I wouldn't use dividend income, hence I don't invest for dividends. I invest to find a business that can compound money at a rate faster than what I have going now, but that's another story.

I understand buy-and-hold, but say if you bought a stock for for $5/share and it's now $10. If you thought there was a 50-50 chance that in 6 months it would be worth $4 why wouldn't you take some of that money off the table.

First, 6 months is a ridiculously short time span. A stock moving from $10 to $5 within a year shouldn't be unexpected. Conversely, you say that if I knew that it was a 50-50 chance that the $10 stock would be worth $5 why wouldn't my mentality be to establish a position at $10 and load up like crazy at $5? Why not? Because most people are short-term profit oriented, not long-term business oriented. They want their $5 p sh profit and move on to the next thing. I want to establish a position that I can look back in 30 years and say that selling out at $5 would have looked silly.

Second, I would never know there was a 50-50 chance. Nobody knows to make this kind of prediction. I would never know what the chance is.

Third, the fact that the market can price a business (with earnings, profits, accounts paypable, accounts recieveable, inventory etc.) at $10 and then at $5 within 6 months means that the market has no idea what the business is worth - and therein lies my opportunity. If somebody had a 6 or 12 month outlook they are just looking to gamble anyway.

I'm not suggesting that you look into the future, I'm saying that today looking at the state of the market the valuations of stocks appear untethered from the reality of the underlying companies. What happened to being fearful when others are greedy?

First, you are suggesting that I look into the future - how else are you determining a 50-50 chance (which is impossible to "determine") anyway?

Second, people often quote the fearful and greedy comment but they have no idea what it means (like novice RE investors quoting "location, location, location"). Individuals don't know when they should be greedy or fearful because they don't know what opportunity looks like.

An important skill of an investor is to be able to recognize opportunity. If you can't recognize the DOW going from 14000 to 7000 as an opportunity to invest in the DOW then you won't be able to recognize anything more subtle (b/c that kind of opportunity is the most blatant kind). You won't be able to recognize the opportunity of a strong company that is increasing in inventory, offset by cash-in-hand and lengthening accounts payable being priced incorrectly.

When opportunity occurs, either in the market as a whole (see NASDAQ going from 4800 to 1300 or DOW going from 14000 to 7000, etc) then you are greedy (and vice versa). When the opportunity occurs on a smaller scale (as in the case of an individual company) then you are greedy again. When the price moves in the opposite direction then you are fearful and keep your cash. Again, most people wouldn't know opportunity when they see it.

Thinking about the future or determining how I "felt" things were going to go would be a huge waste of my time (and money).

I don't know about the dot.com bust but if you spent any time reading Calculated Risk (as one of many examples) in 2007 and 2008 then the RE bust was absolutely foreseeable. I'm not savvy with economics but for me it was like watching a slow motion, scripted to the detail, train wreck. To say no non-billionaires predicted it is false.

You're speaking like everbody after every crash and recession mankind has ever had in the last 200 years. Everything is "foreseeable" after it happens.

Hey, if somebody thinks that they can "foresee" the next boom, bust, etc, they should go ahead and create a fortune from it because I know I can't.

No, that's an incorrect analogy. The point is that a small number of institutions are claimed to be gaming the market and driving up the entire index, so if you're buying stocks at today's prices then it's entirely relevant. In August something like 30% of the volume of the *entire* S&P500 was from 5 stocks (C, CIT, AIG, FNM FRE) all of which are walking zombie financials. The US Fed buys billions of treasuries in the morning and then there's a flood of equity into the markets that drives them up in the afternoon.

I don't see how, if 30% of the S&P500 volume is from 5 stocks, that impacts me. How does that information help me determine that stock ABC at $10 p sh is a bargain? I wouldn't even bother thinking about information like that, but again, that's just me.

You say on your website about 2008 "The prices of stocks declined regardless of their financial status." Isn't that reversed right now?

I would say that the bargains that existed at the end of 2008 don't exist any more.

Going back to my comments on opportunity - if a person wasn't able to recognize the DOW going from 14000 to 7000 as an opportunity there will be very little chance that they would be able to find the tiny opportnities that exist within an individual company.

I have the ability to see giant opportunities (ie market collapse) and smaller company-specific opportunities in specific company-types, but even I am blind to the millions of opportunities out there.

However, 95% of individuals don't even recognize the giant ones which is probably one of the reasons that a vast majority of the world's wealth is controlled by a tiny percentage of the world's population.

If the TSX can hold while other markets tank then it's a safer investment for someone who, like me, thinks the US market is going to tank.

You could also view it this way: the TSX has remained overvalued for longer than the other markets, therefore I should invest in the discounted markets and avoid the TSX. If there are 4 elevators on the 80th floor and 3 elevators have crashed to the 2nd floor, the safer elevator, for me, would be ones that have crashed to the 2nd floor. I personally wouldn't feel "safer" on the elevator still sitting on the 80th floor.

I don't understand how people feel that a market is "more risky" AFTER it has tanked, sell, and move into bonds. I just don't get that point of view. It makes no sense to me.

Again, most people feel safe when their risk-adjusted, asset-allocated, diversified portfolio have prices that are rising or stable. For me, it makes no sense because those are the most dangerous.

Everybody says stocks are overvalued after a crash (which I find weird; what were they thinking when the DOW was at 14000? I definately didn't hear many people holding cash as I did as per my website letter). Right now I have almost no cash on the sidelines. As I mentioend before, most people can't recognize opportunity when it strikes them in the head - so there's an even smaller chance that they would be able to recognize an opportunity in an individual security.

I understand the risk inherent in the stock market, I'm just a bit mystified why more people wouldn't try to avoid foreseeable risk.

I do not see the existance of "foreseeable risk". I just see expensive or not expensive. I don't see anything as "foreseeable".

Insider selling:buying at the end of August was 60:1, so I worry that insiders are foreseeing something. You have 1/4 of your portfolio in Fossil and the chairman of Fossil has sold almost 1M shares in the last week. That would be concerning to me, even in a buy-and-hold situation, but maybe that's just me. Perhaps I'm just foreseeing risk that isn't really there.

A CEO selling shares is meaningless to me. Again, this kind of information is similar to the 30% volume thing. I don't see why people worry about these things because it absolutely has no impact on me to make a decision.

Best regards.

PS: Thanks for the post. It gives me a lot of material for my 2009 letter!

 

[IanBC]

You misunderstood a lot of what I wrote, Rickson9. My fault, I'm sure. I agree that DOW 7,000 is a much better deal than 14,000 and am sitting with cash waiting for it. My entire point is that the markets seem overvalued at this point in time and so I'm wondering why would people invest at this point in time.

(And Calculated Risk has archives going back to Jan, 2005. He did indeed see the unsustainable nature of the RE market and predicted (i.e. ahead of time) it's eventual collapse.)

 

[Rickson9]

You misunderstood a lot of what I wrote, Rickson9. My fault, I'm sure. I agree that DOW 7,000 is a much better deal than 14,000 and am sitting with cash waiting for it. My entire point is that the markets seem overvalued at this point in time and so I'm wondering why would people invest at this point in time.

I probably misunderstood because my reading skills are poor and I tend to digress (horribly).

The markets don't appear to be overvalued to me. Just fair. But that is irrelevant to me because I don't invest in the market. And DOW 7000 has already come and gone and most people just watched it pass them by. Hopefully it happens again so that they can get another chance at it (although I think that if the market tanked from 9500 to 7500 that people would just wait and do nothing (again); fearing 6500).

Why would people invest right now? I just bought stock a week ago (small nibble compared to what we deployed earlier in the year), but I agree the number of fairly priced securities are greatly diminished now. Individuals would invest at this point in time if they see a good price for a security. In a fairly priced environment there are more deals to be found than in a highly priced environment; there are deals in all markets. It will just be harder to find them.

(And Calculated Risk has archives going back to Jan, 2005. He did indeed see the unsustainable nature of the RE market and predicted (i.e. ahead of time) it's eventual collapse.)

If he can do it, I'm sure he will do very well over time. I would be curious how he made money with the information (shorting REITs and investment banks?). Also, when does he predict the housing market to fully recover and how does he recommend taking advantage of the upside? (there should be no reason why foretelling shouldn't work both ways)

"Thousands of experts study overbought indicators, oversold indicators, head-and-shoulder patterns, put-call ratios, the Fed's policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can't predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack."
- Peter Lynch, One Up On Wall Street

If you believe it works or that you can do it, I wish you great fortune with it. Since I don't think foretelling can be done nor do I have the skill or ability to do it, I don't pay attention to it.