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

How do Moving Averages work? These are simply trend followers. The only thing you should use a Moving Average for is to determine if the trend is in a particular direction at this particular moment. It is not a great trading vehicle per se, so if you are trying to time your entry or exit off of a moving average, he is not so sure he would do it. He would prefer just the basic formations and use things like oscillators.

Markets. We have been going through an18 month market transition. In 2012 what worked was China and the countries that supplied into the China growth story. As the growth story in China slowed, the consumer-lead growth story started to lead. The one commodity that held up in value was oil. Then the oil producers sold off starting with the weaker ones. He steadily reduced his producers to zero starting in September. The broad market then started to step away over the last 6 weeks. The net is that this is a continuation of what has been happening over the last 18 months. It sets up a very positive environment for the consumer market. There is likely to be a really strong economic tail wind. He is focused in developed markets. He would use this strength as a continued opportunity to sell. You have to look at the impact of emerging market debt. As the US dollar goes up, that debt is going up.

Banks. The banks are set up for the environment that is coming toward us. You have to pick your spots. RY-T is probably the most attractive because it has such a large wealth management division. The other bank he likes is TD-T because of the US footprint where they are executing well. He would prefer a US bank because of the dividend growth. WFC-N is one pick.

Pipelines. Pipelines stocks are a group a lot of people have made money in. It was a big weight in his income portfolios over the last 5 years. Pipelines are the least correlated to the price of oil, but what has happened is that people have lost confidence in the pipelines and multiples have contracted. They have long term contracts. Low energy costs for 18 months could cause some volume loss, however. IPL-T is probably one of the more resilient ones. He would not put on any new positions just yet, however.

US$. He thinks the appreciation will continue on for years to come. The Canadian dollar is not appreciating against world currencies as quickly as the US.

US Healthcare Sector. The biggest industry in the US. He would pick JNJ-N. PFE-N is good also.

Economy. It is generally conceded that next year we will still see global growth pretty sluggish and tepid. This makes it more important for investors to keep their costs low. If Real Return is fairly constant (Real Return is the return above inflation) and inflation is very low, then right away the nominal return is low. If we have tepid growth, then returns might be even lower still. We have muted growth and very little inflation, so the total return for the equity markets might be mid-single digits for the next little while. If that’s the case and you are using a traditional mutual fund where you are paying a 2.5%, that is half your return. Whatever you can do to in reduce your costs is really important. That includes the cost for advice you are getting. People who have a 7 digit portfolio should be paying less than 1% for advice.

2015 Investing Resolutions.

1. Keep track of your household net worth (total assets -total liabilities) annually - it should be growing.
2. Resolve to cut costs in 2015; financial advice for a 7 digit portfolio should cost >1%, IMO.
3. Trade less. Research has shown repeatedly that trading correlates negatively to performance.
4. Do all tax loss selling and make all charitable contributions before Christmas.
5. Maximize all government plans if possible.

• RRSP room can be found on your Notice of Assessment

Lifetime TFSA room is $31,000 with another $5500 in room coming in January.

Converting a stock portfolio with a lot of capital gains to an ETF? The deadline is Christmas Eve Dec 24^th to have those capital gains pertinent to 2014. If you are prepared to wait for one more week, you can do the Sells and they can be counting against your 2015 tax liability, which allows you to push the tax bill back by 12 months. Make sure you keep the asset allocation consistent. On the other hand, you can do part of it for 2014, an additional part in 2015 and the rest in 2016. That will spread the tax bill out over 3 years.

30-day rule. If you sell a stock in a self-directed cash account with a capital gain, and at the same time purchase the same stock in a self-directed TFSA, does the 30 day rule apply? His understanding is that the answer is Yes.

Buying US stocks with Cdn$? He generally does not encourage doing this. If you have US$ already, then buy the US stocks with the US$'s.

What does it mean for an ETF to be Canadian dollar hedged and why is this advantageous? What you have to think about is whether or not the Canadian dollar is going to go up or down relative to the US dollar. The US dollar has been appreciating relative to the Canadian dollar for the past 4 or so months because of the drop in oil prices. As a result an unhedged position would be advantageous for you. However, if you ever thought the Canadian dollar was going up relative to the US dollar, putting the hedge in place is the way to save yourself from getting money back when you convert the currency back.

Gold bullion ETF? Doesn't think that there is one in bullion. He would not recommend gold in general. Gold has been hovering around $1200 and he does not think it is going to change anytime soon.

Energy. Has limited exposure with about 8% weighting to oil. The oil companies he has exposure to, although senior, have been impacted to a degree, but are going to be the long-term beneficiaries of this episode. This is a classic cycle where things are good, people become overextended, debt to cash flows get extreme, banks turn their backs on exploration companies and the larger, more stable producers gobble them up at cheaper prices. He expects that this will happen again. Although he has an 8% exposure to oil, he also has some beneficiaries in the retail space that will benefit from this type of situation. This spurs spending at all levels of the economic strata, but it also increases confidence. That not only increases the multiplier effect of dollars being spent, but the velocity of those dollars being spent.

Gordon Reid’s website articles. Everybody is welcome to read these articles on such things as estate taxes, T11 35 requirements if you hold foreign assets, wills and will estate allocations, market timing, simple math on bonds and how they actually work, etc. He also asks for ideas from anybody on an article and what they would like to see. You can email him at [email protected].