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

Markets. Everybody is talking about needing a correction, but if everyone is expecting one, it doesn’t really happen. A correction would be healthy, but the market keeps going up. There won’t be a 5%-10% correction, because there is so much cash sitting on the sidelines. Every time we fall 3%-4%, people see it as a buying opportunity. The dividend component of the Canadian market is healthy. It’s north of 3% on the index, which holds up well against the US index. Dividends pay you while you wait, and gives you a cushion on the downside in a correction. He is more in a position towards the growth side in dividends. Probably the most expensive area of the stock market is those stocks that have reasonable yield, but also are defensive businesses with good growth prospects. These have been expensive for a while.

Trailing stops? Basically a trailing stop is a “point” at which you are going to sell, that moves with the stock. If the stock goes up, the level of the stop goes up as well. The trouble with setting these stops is that you can get whipsawed. If you don’t set them at the right place and you enter some temporary volatility, you get Sold out and then the stock bounces back. Normally you set this outside of a normal standard deviation and set it below that. Also, the issue is that once you have Sold a stock, you then have to decide when to Buy it back, which is sometimes a very difficult decision to make.

Markets. He recovered very quickly from the crisis because of the banks. Canada is a very healthy economically and there are a lot of companies outside the resource sector that are not affected by the world economy. The world is recovering very slowly so it is a stock pickers market. Any rise in interest rates will be very gradual and will be put off. You need to go down the food chain into mid caps to chase yield. You need a solid company that can grow the dividends.

Markets. He is waiting for continuing progress with holdings he already has. September should assist us. He buys companies, so he is not concerned with the month, the Fed or war. He is trying not to sell because that seems to be wrong. There is a lot of money on the sidelines ready to be deployed.

Markets. Because this is such a slow recovery, she thinks it is going to be much longer than what we are used to, so she is not really concerned. Seasonality is not great as we have had lots of corrections in past Sept/Oct. Geopolitical events correct markets, but for really, really short durations. We are still more sensitive, since 2008, to financial events as opposed to geopolitical events. Central bank leaders have suggested that increases in interest-rats is going to be slow, so people are not really worried.

Markets. We haven’t had a meaningful correction since the fall of 2012. What we have just gone through over the last few weeks is what we have seen numerous times, 3%-5% corrections and everybody expecting it to be the big one. There is so much liquidity on the sidelines that people are stepping in when they get any opportunity. It will end someday, but none of us really know when. Looking at investors sentiments, there is still fear in the environment. For example, bond buying still trumps equity buying, which is quite surprising to many people. Statistics show that there are more aggregate dollars purchasing bonds than equities, and he thinks that is a very good thing. He would look to industrials, technology and healthcare as being areas that have the wind at their back, in terms of natural or organic growth.

Shorts. When you see a high short position on a security, 1) what is a High Short position and 2) how does that affect your view of the investment? A High Short position is generally an opportunity, because you have buying powers. If the company does well, then those shorts have to be covered, which is fuel for higher prices. You make your decision and then you live or die by it.

Markets. Seeing revision upward for earnings for the balance of the year. Corporate balance sheets are healthy. There was a small pullback over the last couple of weeks and that was healthy. We might go sideways for a while. The biggest risk is geopolitical. Figures show economies are still expanding. There is no recession coming. Energy had a spike up when things were tense in the Ukraine and Russia, but now things have relaxed somewhat. She likes Canadian banks, expecting modest earnings growth and dividend growth. They have had a nice run so maybe they stay flat for a short while. She wants some exposure to US financials, but that is just for exposure to the US economy.

Markets. The volatility index VIX is a tool, just a tool. You can see sentiment in the market through volatility, i.e., how afraid people are of the market or how bullish they are. When this index is very low, it means people are pretty confident about the market. That might suggest that when people are a little too confident, maybe there is some volatility coming. Although the VIX is low, there has been a lot of movement in this low band. The chart shows that the general trend in volatility from 2009 has been generally down. However, from 2013 on, the band of volatility has been very tight. To him this means the market is expecting good times to continue, but that is often a sign that people are a little too complacent. At the beginning of this month, the VIX was very low at around 10 which created a bit of a selloff. He has about 24%-25% cash sitting on the sidelines to take advantage of this volatility and he can move in and out of stocks.

Markets. London is more biased to raising rates. In the end the ECB will step on the gas, though. The trend is inflation vs. deflation risks. Deflation is thought to be the bigger risk in the EU. People need to make asset allocation choices. Bonds have outperformed equities this year.

Covered Call Gold ETFs. Makes more sense if you want to play gold. Without the covered call you have zero return after inflation.

Educational Segment. You want components of fixed income and equity when you create a diversified, balanced portfolio. The strategy is difficult because of the low yields of bonds. The reality is that equities have twice the volatility of fixed income. When the market is strong like it is now, you want to rebalance.

Markets. Still thinks the second half of the year will be good, lead by US equities, where they resume their upward climb. We have an unusual time in the markets where bonds have rallied. Thinks stocks will win the day. You have buying opportunities, such as the industrial sector because of a partial correction. Don’t swing at everything. You should be selective and be prepared to wait. Avoid utilities, particularly in the US where they are highly levered and slow growth. They grow at the rate of inflations, about 2%. Canadian energy and materials are still relatively attractive and you could stay there. They will continue to do well.

Deep Value Investing. This means buying things when they are very, very cheap i.e. below intrinsic value, below transient Book Value or Breakup Value for sure. He is finding deep value in certain little niches. For example, in 1989 Japan was the hottest market in the world and the Nikkei index was 38,000. Today, even after a rally, it is at 15,000, so he is finding tremendous value in this area. A number of companies are trading at less than their cash. Some European stocks qualify because of difficulties in Europe. He is having trouble finding good, cheap stocks in the US. It is a tough hunting ground for a value investor. He is currently holding about 30% in cash. He never buys anything unless he knows what his exit strategy is.

Markets. Believes that the US is going to be the last country standing. Thinks yields in Europe are going to depression levels. GDP in most European countries are mostly negative. Japan has its own issues trying to get its economy going again. To him, China is a big ex-factor. Over the long term, money will migrate to the US because there are rates of return. Also large cap stocks in the US are still very cheap and all their yields are 150-200 basis points above 10 year US treasuries today. It’s going to be money looking for return, and he thinks you will get return on the US$ and any sort of US assets will be good for investors. About 30% of his clients accounts were in US$ when he made a call on the Cdn$ back in 2002. We had a secular bull market on the Cdn$ at $0.68 to well over par. He now has a reversal of this view. Client’s assets are now 30%-35% US, which will probably migrate up to 50% in the next year or so. He wants international diversification through large international companies which are trading 20%-30% below what he thinks is FMV.