Sunday, October 6, 2019


If you ignore day to day gyration of stocks, there are certain long term trends often called secular trends that drive overall return on investment portfolios. The slow and grinding process is fairly predictable which is how Warren Buffet makes his billions even though he may be under-performing stock markets in euphoric times like in late nineties when internet stocks shot up. Something similar is going on these days with market being enamored with hot stocks and sectors of the day. Last year it was Bitcoin and Marijuana stocks. They are now in the dumps. Then came new companies like Uber, Beyond Meat and Shopify. They too are suffering as I write this. Of course there will be bounces and collapses as we go on.

So it is not surprising to see S&P/TSX Total Return Index up by 2.5% this quarter and 19.2% year to date. In Can$ the US market S&P 500 is also up by 16.9%.

Trying to cash in on these fast trends may feel good when you succeed but does little to your portfolio and long term return that we need from our money. Bank deposits or bonds in the 1% to 2% range can't pay bills. We need to remember that a 30% drop in market requires a 50% return to just break even. While the current 15% plus return brings us back to even compared to last year. Both Canadian and US markets are barely in the positive territory if you compare the performance on a twelve month basis.

After the initial burst of enthusiasm, new companies like the IPO's of this year settle down into a normal trading pattern as you may see among Fang stocks, i.e. Apple, Facebook, Google and Netflix. The second and more stable phase comes when companies start to pay dividends. Long time ago, utilities and banks were also high flyers but now we rely on them for income.

This income orientation is our strategy. Not much has changed to shake us although the stocks and exchange traded funds we may use now represent the most reliable of the bunch today.

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