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

Markets. S&P and TSX have broken out from a technical point of view. When we look at fundamentals (trend of fair market value), it is weakening. The market could use a little bit of a correction and then let’s see how the individual stocks respond. He combines fundamentals with technicals. He looks at what the monetary authorities are doing and what they will probably do during the coming year and he sees quantitative easing programs not working out particularly well and he wonders if as this year moves on if we start to see the same weakening from Europe and Japan, could we see it in North America.

Canadian Banks in General. Earnings outlooks show very little earnings gains (momentum). There is not a lot driving it. When markets are moving up, people look for what to buy and decide to buy banks. That is what is driving them, rather than strong fundamental momentum. As interest rates start to go up we will start to see some tail winds, just as in insurance stocks.

Markets. Investors in the last few years have focused on the Federal Reserve and what it was going to do, but things have changed, probably starting last spring when Ben Bernkie announced he intended to taper and the market reacted so violently he decided to take a little bit of that back. Although they did start to taper in December, it is going to be very, very slow. We have now entered a period where the economy is going to start to stand on its own 2 feet. Some inflationary pressures are going to start to enter the market and we will start to see that affect the types of companies that will do well. This is not a roaring economy, it is a soft economy, but the feds action has worked. Some complacency will naturally be built into the market in certain parts and corrections are a solution to complacency. Corrections are normal.

Markets. We are in the midst of a Santa Clause rally. The January effect involves small cap moving. Usually the stocks that are the most beat up at the end of December have rebounded by mid-January as a group. The biggest trend he saw last year was the activist investors bullying companies to buy back their own shares. He is not encouraged by it.

Gold. $1180 is big time support and we are back there again. Thought Gold would be crushed today, but it wasn’t. He thinks the first few weeks in January should be quite good for the sector.

Investment Resolutions:

#1: Trade less and in a more strategic manor. Be focused and disciplines. Think with each trade.

#2. Pay off non-deductible debt as soon as you can, e.g. credit card debt, before investing.

#3. Generate an investment policy statement, 4-10 pages long, your mix, tolerance for risk, goals, etc.

#4. Don’t chase past returns. E.g. stock is up 50% so get into it.

#5. I will not attempt to time the market.

Frontier Markets. They are relatively volatile. He does not know of an ETF in Canada that addresses them. FM-N can be used in the US. FRN is another ETF for these markets.

Should one self-invest? It takes time, temperament and timing. He thinks investing is relatively simple but temperament is the hard part. As your accounts get bigger, using a full service advisor makes sense.

REITs. Doesn’t think you will get hurt too badly with REITs. But they will get hurt as rates go up. He is not sure that it will materialize in 2014 so in that case you could skate through 2014 with some REITs.

Dollar cost averaging. He is in favour of it. You defer your taxes until you sell, if you don’t trade.

Investment Resolutions (Continued):

#6. Read at least 1 book on investing or planning.

#7. Be sure to understand both risks and returns before investing.

#8. I will review my statements regularly.

#9. Seriously consider replacing more expensive products with cheaper ones. E.g. replace a mutual fund with an ETF.

#10. Carefully consider the tax impact of investment decisions.

Dimensional fund advisors: He is a huge proponent. He has been associated with them since they came to Canada. There is a tilt toward small cap and value.

Dividends from an indexed fund: You could take the cash or reinvest, but you get the dividends from the securities.

Copper ETFs. He doesn’t know of a Canadian one. Those that have copper included in a basket of things, they have all been dropping like a rock. COPX-N is a US ETF on copper.

Markets. Strength of Japanese Yen has hurt the export sector. But their stock market is up 80% in 2013. Their aging demographic will be a real problem in the near future. He thinks this is just a blip for Japan. UAE and Argentina had phenomenal years but are not accessible to Canadians.