PWLCapital

Are market returns in January usually higher vs. other months of the year? The so-called January Effect has been discussed in academic literature and the popular press since the 70's. Today on CFRA, Business @ Night host Greg Hebert and I reviewed the January Effect, its possible causes and how individual investors may or may not be able to capture excess January market returns. 
 

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!

Lately, while out on the holiday party circuit, I’ve had a lot of individuals ask for my advice on how best to handle the current market crisis. I generally answer this question by first assessing what type of strategy the individual is presently following. Almost without exception, everyone indicates that they are buy and hold style investors. Having just reviewed the trading volumes of the top ten largest companies that make up the S&P/TSX Composite Index, I wonder if this is in fact true.

Using data provided by TMX Money through the TSX website, I’ve put together the following table that shows how many trading days it takes for all of the publicly floated shares, from the top 10 companies, to completely turnover:

There are approximately 250 trading days on the TSX each year, so every single one of the above companies’ total outstanding shares trades hands at least once per year. This is great news for the companies and individuals that facilitate trading on the TSX and collect transaction fees for their services. If the costs you incur to trade are excessive, history has shown that it will be very difficult for you to even match the market’s overall return let alone beat it. Ideas about where all the buy and hold investors have gone can be posted below.
 

Thank you to all the well wishers who offered congratulations upon my joining PWL Capital this past Labor Day. I am delighted to be here.

At that time the market was already acting poorly but few individuals would have had the temerity to predict the precipitous decline in North American stock markets. Since mid 2007 I have consistently counseled clients to stay aware from asset backed commercial paper and shortly thereafter dissuaded these same investors from purchasing shares of banks on either side of the Canada/Us border.

In answer to the many requests received from clients or interested third parties, I felt obligated to offer some thoughts and explanations as to some of the reasons or catalysts for the dismal market performance of the last 18 months or so.

In October I wrote “The Washington and Wall Street (Financial) Orgy.” This article purported to explain how Wall Street represented by strong lobby groups in conjunction with an atmosphere of laissez faire prevalent in Washington created the perfect environment leading to a nearly two decade march to the inevitable and destructive results that we have all witnessed, and to the demise of many a household name and the weakening of many others.

In November I posted another article entitled “Millions, Billions, Trillions or Schmillions – The (Sur) Realistic World of Credit Default Swaps (CDS).” The purpose of this article was to explain in plain and understandable language the dangers posed by certain derivatives known as Credit Default Swaps and how the totally unregulated CDS market permitted wagers to be made on the credit worthiness of a corporate borrower instead of simply providing an insurance policy to protect against an inability of the corporate borrower to repay corporate debts when due.

In future I will endeavor to post items of either general interest or specifically targeted items with the hope of serving a dual purpose; that of explaining sometimes difficult concepts and to incorporate these explanations into the management of client portfolios under the auspices of our Defined Objectives, the proprietary wealth management framework of PWL Capital.

You can also visit our Broadcast Centre, where we post Articles written by PWL Advisors, or visit our PWL In the News section to read some news articles in which PWL advisors have been quoted. In our Broadcast Centre you can also find PWL’s monthly Economic Pulse, PWL’s bi-annual Perspective Newsletter, and our weekly radio interview Webcasts.

We've all heard the lines "knowledge is power" and "you can never have too much information", but are these notions in fact correct? When you have an important decision to make, is it possible to have too much knowledge?

Today investors, either online or through their advisor, can gain access to huge amounts of investment information and opinions. This data, however, may give them a false confidence that they can accurately pick good stocks. Unfortunately, data related to a task is not always relevant to the task at hand. Suppose you wished to predict the next Lotto 6/49 numbers. Would the review of all previous winning 6/49 combinations be useful in predicting future winning results? What if you discovered that the number 25 had never been drawn in the past? Is 25 more likely to be drawn in the next draw vs. the other 48 numbers? The answer to both questions is no. Each Lotto 6/49 draw is an independent event and is not influenced by previous draws or results.

Similarly the price of a stock today is set by the forces of supply and demand. Supply and demand is determined by information. Today’s stock price is a reflection of all information known today about a company and its underlying stock. The information available today will most likely be markedly different than even 1 month ago, due to the speed of change that can occur in the global economy, company management, product lifecycles, competitor entry or exit, etc… Relying on the billions of bytes of available historical market data gives most investors no more ability to pick individual stocks than to pick the Lotto 6/49 numbers. Yet the first thing most people ask when presented with an investment opportunity is: how has it performed?

Naturally some of your friends and colleagues will succeed at picking winning stocks using historical information, and they will be certain that they knew all along which stocks would be winners. And those who fail will be certain that they too were right, but unlucky - this time.

The market has given us lemons this year.  It is year end and here is an idea to help you make lemonade. 

This week I spoke with Greg Hebert on CFRA’s and the Chartered Accountant’s Tax Tip Tuesdays about ‘tax loss trading’. This is a tax tool that can put cash in your pocket.  Listen here to find out more...
 

There is roughly $600 B invested in Canadian Mutual Funds.  As investors evaluate their portfolios, they should be aware of what a recent study from researchers at Duke University discovered: High mutual fund fees are actually a marker for lower expected returns from the funds in that fund family.

Cameron and host Greg Hebert discuss this study, and how individual investors can benefit.  Have a listen.

The Cycle of Emotions—where are you on this continuum?  We are interested in where you see yourself emotionally at this time with respect to your financial well-being, and will use this information to help us help you better cope with challenging market periods and other times of financial distress.

The Cycle of Emotions

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.