Saturday, March 5, 2016

Outlook January 2016

Linear thinking is the foundation of most surprises in stock market. When oil was in $100 range, many analysts, producers and investors thought it will go on to be $200. Now many in the same groups think it will sink below $20. Forecasters are always into a competitive spitting contest hoping to make a strike. What we have found useful and thus been able to avoid effects of serious sell off’s over two decades of service, is to be skeptical of these calls, both on the upside and on the downside. It’s hard but we simply try not to believe the noise.

This is not news to you that 2015 was a terrible year for most stock markets and asset classes except perhaps the price of Canadian houses, although even that seems to be under a bit of pall now. Worse, there seems to be little sunshine on the horizon in any of the asset classes. 

In such times, cash and cash equivalent a comforting choice. Some cash equivalents like short term bonds and certain preferred shares have started to appear on the market. Normally brokers and corporations hate to give you a product that is good for the investor; they want to make sure it is better for them. But when investors start to balk at the offerings, better deals start to appear. The old adage, buy when the seller is reluctant seems to work well. Now there are instruments that pay more than 5% yield which fit the bill. We are judiciously buying these.

Canadian banks have also been hit in spite of good yield and decades of evidence that they have a good handle on how to make money. Most Canadian investors already have bank stocks but this is the time when we will be thinking about adding more, or as they say going overweight in this sector. Other yielders have their own problems like telcos due to saturated cell phone market and utilities due to their taint to energy. We wait for some time before entering anything that touches energy.

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