A Comment -- General Comments From an Expert (A Commentary)

Markets. Through the ‘90s you had falling inflation, expanding multiples and if you were an investor there were themes. In 2012 you had a market that was dominated by cyclicals. Market contracted through that rally. As of 16-18 months ago, correlations started to fall and themes started to emerge. Consumer tech and technology started to lead again. Stock picking becomes more important now. The themes are more persistent and corrections are shallower. Thinks we are in a new secular bull market. The risk is that people hold out, waiting for a better pullback. The average investor has 20% cash and equivalents. Subsequent pull backs will be shallower.

Markets. Record highs on S&P 500 and Russell 2000. He thinks the stock market can have a reasonable rally through 2014 because there are a lot of positive things going on. Rates have been relatively stable and low. There has been reasonable economic growth in Europe and the US. Some numbers are negative and some are positive, but the trend is that they are positive. Thinks you will see better revenue growth and cost cutting yielding better margins. The US has the opportunity to outperform Canada.

Markets. There are compelling cases for real estate stocks. Correction was caused by them being overpriced and the fear of interest rate increases. The bottom has been tested several times. The real estate has not declined in value and in fact is up 10%. A good time to pick up companies below NAV. Thinks the US economy will outperform the Canadian Economy. There are REITs that let you play US real estate. There has been a pull back in interest rates since the tapering tantrum, but stocks did not acknowledge. Inflation is good for real estate since they can raise rents.

Real Estate and Reits. Because of interest rate concerns, REITs toppled off. When we get a re-affirmation that rates will stay low or rise only gradually, then money will come back into Real Estate and REITs. It is happening right now, in fact. Buy the dips. This will be a lumpy year.

Markets. The market pull back was not unexpected for him. He predicted short, sharp, shallow corrections. Thinks there is cash on the sidelines. There are those that have missed this run for the past several years. People have a fair amount of confidence and any time there is a correction they will step in. You want the focus to be on earnings. Companies have to earn their stock price. Given where earnings are expected to be this year, he hopes we get only a 10% increase in equity markets. If it were 15% he would worry about it ending badly. Materials were a laggard last year. His clients are balanced so they have money in US, Canada, equities, fixed income.

US Banks have not done well generally this year. They are considered from a fundamental view point as tough. Loan growth is anemic, but deposit growth is fine. If the economy moves to a normal run rate, there is a lot of opportunity in US banks. BAC would not be his favourite. Prefers C-N.

Markets. What we are seeing now in equity markets are like 2007. QE is starting to be removed from the system. He looks at market sentiment, margin debt and long term valuation and we are now seeing them in the top decile or more so. It is never a time to be a long only investor when the market is flashing these three signals. The broader deleveraging cycle will take hold after the QE is removed. You would not see a new fed chairman react to a market selloff. She wants to establish her credibility early.

Markets. People are scrambling to get their money in for the end of RRSP season. Check the most recent notice of assessment. People might want to get a jump in for 2014 to invest it now. The TFSA might make more sense than an RRSP if you are earning relatively little, e.g. near retirement. Mutual fund fees are too high. Minister of Ontario wants to get more involved in regulating financial planners.

4% rule for people retiring in 30s and 40s. 4% withdrawal per year is sustainable unless you hit an awful situation like ’08. He doesn’t recommend it unless you are in your 60s and have a balanced portfolio.

If you sell to trigger capital losses, make sure you don’t buy the security back within 30 days. Contributing something ‘in kind’ to an RRSP triggers a capital gain unless it is a loss and then you lose the loss and can’t claim it. If you just sell the security you can’t buy the same security in the RRSP within 30 days to claim a loss.

Behavioral Finance. We all have behavioral quirks. Most people who sell ‘A’ to buy ‘B’ would have done better a year later if they kept ‘A’. His bias is to trade less. Sell those things that are up to take money out of your RRIF.

Think of your carry forward room because it carries forward for the rest of your life. If you contribute a huge portion of your salary in one year you will get a huge tax savings.

They have US$ accounts even for RRSPs so that you do the currency conversion only once but you have to think of the US tax consequences (e.g. dividends) as well as currency swings when you come to convert the money from the account back to CAD$.

Sell stocks to buy ETFs? Most people in only stocks don’t have good international exposure. Many people aren’t even diversified across sectors, so he supports moving to ETFs.

RESP with Bonds? He doesn’t recommend income for the first 9 or 10 years. $80k portfolio after 18 years would be enough for a Canadian University but may not be enough out of country.