PWLCapital

Many of PWL’s clients are surprised to learn that their portfolios have not dropped as much in value as they hear about in the media and from friends.

Our initial focus of determining an appropriate equity/income asset mix for each client is the primary source of this protection.

Also, I have attached a link to an article written by Nobel Laureate Paul Krugman in which he explains the cause and possible cures for the current crisis. It is a bit long but well worth the read.

I wish you and your family the best of the holiday season and better markets in 2009!

Dan Richards has brought to my attention 2 other articles that address key client concerns, these articles are from the Globe and Mail.

The first Globe article points out ten good new items to offset the negative tone which dominates today’s media. The second debunks the myths that stocks went sideways from 1965 to 1981 and that it took 25 years to recover to 1929 market levels; both of these statistics are commonly quoted and both are dead wrong.

Good afternoon,

There is an interesting article from Morgan Stanley about why this recession is different from previous severe periods. It is somewhat technical but a good read.

On another note, the BCE stock price has crashed, further hurting Canadian Investors. I remind you that single company risk is never adequately remunerated by stock markets. PWL clients do not own BCE shares. 

Please call if you have any questions.

October 2008 stock returns will go down in history as one of the most difficult months for equity market returns in the last century. While returns were significantly negative, they were not without precedent. The table below illustrates what you have been hearing in the media:

It is important to recall that the PWL broadly diversified portfolios include a further 10-12 asset classes, some of which were less affected:

Recently, the turmoil in the interbank lending market has started to settle down and banks have started lending to each other again. This improvement is largely due to governments guaranteeing these loans, over and above their generous injections of capital to shore up many major international banks. In spite of this, market nervousness and volatility persist due to major declines in the currencies of several emerging countries. This is to be expected.

What does this mean for you?

1. As difficult as it may be, the only way to obtain decent returns is to invest in the global economies via the stock markets and hold stocks for the long term. Successful investors accept the risk of the equity asset classes as the key to generating superior returns.
2. Timing the market – i.e. trying to move in and out of the market at “the right time” - will inevitably lead investors to sell low (after the market has tanked) and buy high (after the market has soared). We firmly believe that the successful investors of the years to come will be those who ignore the sensational media reports and who adopt a rational, disciplined approach to investing in the markets.

Please consult October's Market Statistics. Thank you and best regards.

Market Statistics (PDF)

Statistiques de marché (PDF)

The latest statistics are regularly available in the Broadcast Centre, Market Statistics and you'll find my comments archived in my Market Statistics & Commentary page.

Recently, institutions like Desjardins and Manulife announced drastic steps to shut down their Principal Protected Notes (PPNs) and other complex instruments that rely heavily on derivatives markets. As an aggressive underwriter and seller of PPNs, one wonders if CIBC is next in line to do the same? Did these large financial firms have their clients’ best interests in mind when they sold these products? I think not!

Despite the continuing negative headlines, there are however some positive signs amid the recent equity market volatility. Around the world, banks have started lending to each other again, as evidenced by the dropping inter-bank lending rates. The yield on short term U.S. Treasury bills is increasing slowly as investors sell these ultimate "safe-haven" securities in search of bargains in other markets.

If we look back on previous bear markets, the declines lasted, on average, 15 to 17 months. Watching the current crisis unfold over the last 15 months begs the question: When will it end this time? While we can't predict this, we can invest in such a manner as to ensure that we capture and benefit from the lowest prices. By rebalancing and investing cash in measured tranches over a period of several months, despite knowingly purchasing equities before the lowest point is reached, we can confidently "frame" the bottom. If, on the other hand, we wait for the recovery to manifest itself, we know we would be paying more later and miss the opportunity that we are now presented with.

Implementing this strategy requires the courage to disregard gyrating markets and the sensational media. Approaching portfolios and markets with a rational, dispassionate and academically sound strategy, as we do, is the best way to realize your long term objectives.

I encourage you to pass this along to anyone who you feel has not had the benefit of sound investment advice in these trying times.