Thursday, August 26, 2010

My Agenda

I am searching for a better method of making money from the stock markets - the Toronto Stock Exchange in particular. Notice I did not say 'invest' in the stock markets. Right away we can debate the difference between investing and trading. I don't like using either word because of all the preconceived notions each invokes. Investors have a long time horizon; traders do not. Says who?!? Investors are loyal; traders might just as well be spelled 'traitors'. Who cares?!?

If you get your information from the Financial Services industry, you are in a lot of trouble. Buy and Hold is a marketing strategy - not an investing (there's that word again!) strategy. There is no shortage of information, and opinions on that information, when it comes to stocks, stock markets and strategies. The real key is to identify the useful information. Too much of what we hear in the media is just a smoke-screen. Too much of what we get from advisors is what their company wants us to hear. This goes double for small clients. Ask your advisor if they are rich. If the answer is no, then ask the question, "Why not?" Isn't that the advice we are seeking?

I don't claim to have all the answers. What I have learned is different times call for different measures. It took me some time to realize that in the current market volatility I needed to shorten my time horizon, and reduce the size of my positions. One method will not work all of the time. I can pretty much guarantee the top ten mutual funds from the past year will not be five years from now. Situations change - we need to change with them. Today, a passive investing strategy using Exchange Traded Funds (ETF's) is working great, but I wouldn't recommend starting one today. The risk of the market going lower from here is a lot greater than the chances of it going much higher. Even if I am wrong, how much can you lose? I plowed a pile of money into a mutual fund in early 1998. I proceeded to lose about 25 percent of my funds by the end of the summer. Nobody warned me the market was about to correct!

As a matter of disclosure, I should tell you about 80 percent of my personal portfolio is currently in inverse ETF's (the ones that make money as the market goes down). I do not recommend betting on the down-side unless one is actively managing their portfolio every day. Despite what the advisors say, there are better times than others to enter the market, and this is not the time. I am reminded of a Dilbert cartoon I read on the weekend. Perhaps you saw it. Dilbert is in a meeting with his manager and the product safety engineer. The engineer is completely wrapped in bandages from head to toe - including their face. The manager asks for an opinion on the company's product. The reply is totally muffled, so the manager turns to Dilbert and asks, "Did that sound like SHIP to you?"

What I am suggesting is despite the industry's desire to get more people into their funds, the stock market is not ship-shape, at the moment. My personal agenda is a little different from that of the financial services industry in that I want to make more than what they say is "realistic". More than that, I actually want to help as many others as possible to do the same.

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