Alison Griffiths on Lang & O'Leary Exchange

Interview with Alison starts at 47 min. and 30 sec. into the video

The first thing I want to talk about the interview is what she had to say about using advisors.  In her words, "Very few advisors add value to most investors."  She isn't saying advisors never provide value, but that few do, most of the time.  She also said up to 75% of the portfolios of people she talks to are in the negative position!  Even if it is only 50%, that means the average advisor is making more money than the average investor!  She says that, "Advisory services are about selling product."  Of course, Kevin O'Leary disagrees, and he isn't the only one who compares investing to brain surgery.  I agree with Alison - it doesn't need to get that complicated!  Again, advisors and people like Kevin want us to believe that so they can sell us more product.

Alison says "Don't buy junk."  I agree, stick to quality.  We don't get more RRSP contribution room because we lost money buying junk.  She also makes the point that depending on how much money you have saved, GIC's (guaranteed investment certificates) might even work (despite losing to inflation).  She recommends we  forget mutual funds (too expensive); buy broadly based exchange traded funds (ETF's), instead.  Keep it simple - we don't need a lot of product.

When asked about yield she failed to mention REIT's.  There are ETF's which consist of Real Estate Income Trusts.  Globeinvestor.com shows the yield of iShare's XRE as 4.8%.

I haven't read her book, but I may do just that after seeing the interview!

Are you a fan of what Alison Griffiths is telling us?

Using The 200-Day Moving Average

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The 200-Day Moving Average
Plotting the 200-day moving average involves computing the average price for the previous 200 days,  then for another 200 days starting one day later, and so forth for the specified duration.  The reason for using moving averages is to smooth out some of the day to day volatility.  The longer the current price is above the 200-day moving average, the higher the average, resulting in the line on the chart curving higher.  Of course, the inverse is true when the price remains below the average.



Technical Analysis
Any student of technical analysis soon learns of the 200-day moving average.  When the price is above the 200-day moving average, that is taken as a positive sign.  When the shorter 50-day moving average crosses the 200-day moving average from below, that is also seen as positive.   Since there are 5 market days in a week, the 200-day moving average is also the 40-week moving average.  Today, not many people would probably assign much importance to a period of 40, but in the Bible, it was always seen as a significant period of time, whether days, weeks, months, or years.

Transition Point
The Basic Timing Model I propose on this blog uses the XIU Exchange Traded Fund (ETF of the largest 60 stocks on the TSX) and the 200-day/40-week moving average as the transition point from a good market to a poor one, or from a poor market to a good one.  It can also serve as a level of resistance when the price is below, and a level of support when the price is above.  The direction the price is headed will often reverse right at the 200-day moving average.  Whether this is self-fulfilling, or not, is irrelevant.

XIU
Such is the case with the price of the XIU ETF on the TSX.  The price has been steadily rising since before the end of last year, crossed yesterday, only to go lower today.  For people without the benefit of any knowledge of technical analysis, yesterday's price crossing the 200-day moving average would be taken as a buy for equities traded on the TSX.  Myself, I prefer to play the probabilities afforded me through technical analysis.  The above chart shows us the trend is growing rather tired.  Longer term, and perhaps even in the shorter term, the price would appear headed above the 200-day moving average, but the probability is the price will go lower than it is currently before continuing the uptrend.  I always look for the possibility of buying lower and selling higher.

Net Return
It may make little difference in the long run, but careful analysis could prevent us from bouncing in and out of the stock market as the price struggles in an effort to cross the 200-day moving average.  Regardless, buying  as the price crossed yesterday (after selling when it crossed going lower last summer), would result, according to my calculations, in an almost 6 percent gain relative to those who rode the market all the way down, and back, again, since the moving average has dropped that much during that time.  If/when the price rises above the 200-day moving average, it may signal a more favourable market, but given the headwinds the stock markets are facing, I am still quick to take profits when I can.

Questions?  Comments?

More Reasons People Can't Invest

Here are a few more reasons people say they can't take control of their investing.

"You can't time the market!"
Many would say this is true, but my experience is different.  Because some people don't  know how, that doesn't make it impossible.  

"I don't know where to start - there are so many unanswered questions!"
Questions are good.  First, practise.  Start small.  Seek help.  

"I know lots of people who have lost half their life savings!"
Does that mean you will?  Was it during the last great recession, perhaps? What if I told you there was a better method?

"It's too difficult!"
Most people would also say that about learning to ride a bike, or learning to skate.  It isn't so bad once you know how.  Mostly, it takes a willingness to try.

"Lousy timing!"
The sooner one begins, the greater the returns.

"Too time consuming!"
The amount of time required is largely proportional to the level of return desired.  Significant gains can still be achieved with a relatively small investment of time.

"Doesn't work for me!"
We are all different, but others like you have already learned to be successful.

"It's too much like gambling!"
While investing is like gambling in that the law of probabilities is involved, the odds are stacked against the gambler, whereas they favour the informed investor.

"If it is that easy, then why isn't everyone doing it?"
We only need to figure out what works for us.  Let others do their own thing.  Without them, there would be no market.

"You are not a professional, why would I listen to you?"
Neither have I any conflicts of interest.  I cannot advise people what they should do, but, I can share what I have learned over almost 20 years in the stock market.

Any other reasons I have missed?

Twelve Reasons For Not Investing/Taking Control

Being a bald guy, there aren't too many bald jokes I haven't heard.  I think I have a pretty good sense of humour, but after a while, even a funny joke starts to get old.  Likewise, I have been around long enough that there aren't too many reasons I haven't already heard from people who say they can't invest in the stock market, other than mutual funds.  Bald jokes I don't care about so much.  I do care about the reasons people feel they can't generate at least a little income by putting some of their money to work in the stock markets.  Here's a dozen, I will add more next time.

"I have my money in mutual funds, why change?"
There was a time when mutual funds made sense for the personal investor.  Today, Exchange Traded Funds (ETF's) are cheaper, and as such, can often outperform all but the best mutual fund.  Also, there is no penalty for selling an ETF, just a regular commission.

"No money!"
Ever see the Fram Oil Filter commercial - "You can either pay now, or pay a whole lot more later!"  Even a very small amount of money can grow to a reasonable amount given a sound strategy and the power of compounding.  Catching up later requires much, much more capital.

"You make things sound worse than they are - I am happy with the way things are!"
Expect higher taxes, more expensive health care, more volatility in the stock markets, slashes to pension funds, lower paying jobs.  I don't think people who have suffered the ill effects of any of these would say I am exaggerating.

"You are just putting others down!"
On the contrary.  Many people have done remarkably well, given the current environment.  That doesn't mean there isn't a better way.

"Clearly, you  have some sort of hidden agenda!"
I play with my hands above the table for all to see.  What you see is what you get.  I have no difficulty showing people what I do.  If nothing else, I want them to become more educated in dealing with the people who are after their money.  Anybody who knows me can tell you just that.

"What about ROI, or free cash flow, or company management, or preferred shares, or rental properties, or... ."
They are all important.  It is normal for newer ideas to raise all sorts of questions.  However, we want to focus, and concentrate on the things that determine our expected outcome.

"You can't live on the income from $5,000.00!"
The important thing is to start now.  I have yet to find "someday" on any calendar!
 
"I don't have enough money to do everything!"
It isn't this or that, it's both.  We should put a little money into other things, and use a little to learn how to improve the returns on our equity investments.  Once that begins to happen, we will find ourselves putting more money into the things that give the greatest return (those without exceptional risk).

"I'm not interested in a get rich quick scheme!"
Get rich quick schemes don't work.  Improving returns will not make us rich overnight, but it can make us more money in a shorter period of time.

"Why does it have to be all about making money!"
Money is only a unit of exchange.  More money means more time for friends, relatives, self, and others.  Few are truly motivated by money - usually, it's what we can do with the money that is most important.

"How can you say anyone can do it?"
Knowing what to do is one half of the solution.  People with a willingness to practice applying it is the other half.

"How can you/we possibly expect to do better than the professionals?"
Actually, the professionals are involved in an entirely different game than us, for a whole variety of reasons.  Few realize it, but our smaller size is our greatest advantage over the professionals.  Also, the internet has made available the tools and information which can benefit the personal investor like never before.

Do you see yourself in any of the above reasons for not getting more involved and taking greater control?

Harry Dent On 2012

Click Here To Play The Video

Harry Dent isn't just making this stuff up.  The big difference between what we have experienced over the past 50, or so, years, and what we are seeing now is largely explained by demographics.  I have to believe it would be very prudent to listen real carefully to what he has to say in this video.  Does that mean things can only get as bad as he claims?  No, but even if he is partially correct, then exercising caution could save us a whole lot of capital.  We could debate how bad it might get, totally ignore what he is saying, or keep our portfolios mostly out of harms way.

We can't go wrong avoiding storm clouds as they appear on the horizon.  Now is the time to remain vigilant, before the markets take any big hits.  If nothing else, now would be a good time to establish the maximum amount we are comfortable losing, and hold ourselves to it, should that time come.  If we do get another drop, and this time is anything like the previous ones, nobody is going to blow the whistle to clear the pool.  Only after the real damage is done will we hear, "If you are still in the market, then it is too late to sell now!"

I know a lot of people are inclined to just try to ride it out.  That is exactly what the people they are paying want them to do.  Surprised?  Do you remember the excuse from the last time?  "Oh, but nobody could have seen that was coming!"  As it turns out, there was a minority who did see it coming.  The problem was nobody (especially the media) would listen to them.  Myself, I would rather be sitting on a pile of cash after the worst is over than having to wait, hoping to eventually get back to even!

Do you think we are hearing Dent the researcher, or Dent the salesperson?

Portfolio Management

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As I said in my comment to my previous post, Anonymous’ questions raised a number of interesting points for me.  I will address them in the order they were raised.

XTR
First,  XTR (iShares Diversified Monthly Income Fund) is a fund of funds.  What that means is it costs me more to hold this particular fund.  Given the performance of XTR over the past three years, though, it would have been worth it.  Despite the (Canadian) diversification (equities, bonds, and REIT’s) the correction in 2008 was still around 50 percent.  This is why I believe even long-term holders should have a maximum loss, or stop loss at which they can take their money out of harms way. (and, why I don’t use mutual funds).

A Signal
I have misled Anonymous into thinking my approach using XIU (iShares TSX 60 ETF) is to put everything into that ETF and watch the 200-day moving average.  My stop loss is when the price of XIU crosses the 200-day moving average from above.  That is my signal to stop out of any Canadian equities at that point in time (if I haven‘t done so already).  This would not necessarily work so well for XTR since it is a blend of stocks and bonds (albeit Canadian ETF’s).  For XTR, I would simply use its own 200-day moving average as an indicator to begin stopping out.

How Much Is Too Much
If I didn’t know much about stocks or investing and was comfortable in thinking the returns given by the TSX are likely to be okay, I would not have a problem in putting everything into something like XIU (as long as I had a stop loss in mind), just not everything at once.  Jim Cramer seldom recommends ETF’s, but he does suggest doing one hour of homework per week for every stock we own.  On that basis, not many of us are going to have the time to manage twenty stocks.  XIU has sixty of some of the best companies in the world!  I know the TSX is under-represented in a number of sectors, but I, personally, would rather that than assume the risk associated with companies in emerging markets, and/or having to deal with the currency exchange.
 
Size Matters
I do like the suggestion by Anonymous to divide my portfolio into four, or five equal parts (personally, I subscribe to the 80/20 Rule).  I know some people advocate varying position size, but I make them all the same (in dollars) and stop out as soon as I begin to take a loss.  I use different markets (through Canadian ETF's),  seasonality (www.equityclock.com), and technical analysis (www.stockcharts.com), to determine what I want to invest in, and since I will take profits when I can, I never feel the need to be 100 percent invested all of the time.  The markets go up, down, and sideways.  I never try to get in early to wait, but normally, only put my money into newer trends.  I say normally because sometimes a trend will appear to break, and then, later, resume again.

Moving Averages
I would not, however, use moving averages less than 200 days as a signal to get in, or out.  For me, I just don’t see the reward.  For whatever reason, the 200-day moving average is a turning point for the market, and stocks in general.   Using a moving average of a lesser duration tends, too often, to result in getting out at one point, and getting back in again at a higher one - not what I want to do.  My own preference is for trend analysis - I take profits as the longer term trend grows tired (especially if it exceeds my target), and begin looking for the next one.

Again, thanks to Anonymous for the questions.

Anyone wish to share their point of view?  Does this bring up any other questions?

A New Investing Era

 

Non-Standard View
I write and say a number of things in this blog which are not exactly in line with your standard financial advice.  If all I wanted to do was make a buck from every poor soul who didn't know what to do with their money, I would be a financial advisor playing that game by those rules.  My own conscience prevents me from doing that.  I gradually learned over many, many years that what the little person is being told to do with their money has little, if anything, to do with us making any significant return on our investments.

The System
I am not saying they are doing anything illegal, but too much of what goes on is less than ethical.  Nor am I saying most of the people we get to deal with are unethical.  The people you and I and our modest retirement savings get to deal with are usually sales people with training in "the system".  This system dictates that we are to divide our money up and allocate it in as many ways as they can charge fees for and then, hope that economics work in our favour.

Lousy Luck, Or...
I guess I almost always had money to invest at exactly the wrong time.  Time and again, I would hand my money over to someone with all of the seemingly correct training and proper track record, only to end up a few years later with less money than I had started with.  Fool me once, shame on you.  Fool me twice, shame on me.  I began to wonder if I was just having a run of lousy luck, or whether there was a pattern starting to emerge.

Buy Low; Sell High
I have always been a bit of a do-it-yourselfer.  So, at the same time as I was hiring people to look after my money, I also began to search for information that would improve my success.  I didn't know anybody who could tell me what I should do differently, so I began to read about various facets of investing.  I soon learned my problem would not be a lack of information, but rather an over-abundance of misinformation.  It was obvious a large number of people were making a lot of money by simply jumping on the band wagon and putting their spin on the things that everyone "knew" to be true.  I became suspicious of proprietary, complex, and expensive systems which were designed to make their creators wealthy while doing little for a client with a little money to invest.  After all, in its simplicity, the entire process boils down to one thing: buy low and sell high.

A New Paradigm
During this time I have seen the evolution of the financial services industry.  The first iteration was the broker-centric model.  Here, the flow of information was controlled by the broker.  People had to pay large fees to gain access to that information.  Not only were they the gatekeepers of information, they were also the gatekeepers with access to the markets.  Next, came the internet.  Eventually, more and more information became available through the world wide web.  Brokers created web-based accounts.  Now clients could enter and monitor trades on their own.  Now, I believe we are on the verge of a new paradigm - the client-centred model.

Client-Centred Investing
The client-centred model is one which places the customer in control.  Brokers who want to maintain a presence in this new world of investing will recognize their job is to facilitate, rather than control.  The primary goal of this approach is to make the greatest return possible for the client while the broker is compensated for their ability to assist in this generation of wealth, rather than the other way around.

Education
This third iteration of investing is not going to happen overnight.  The financial institutions have wealth and political power.  They will not surrender quietly.  Yet, if you have ever been to a candle-light vigil that starts with one candle, you know how quickly the light spreads and grows.  In this case, the light is the light of education.  It is time to show the world that the universe does  not revolve around the financial services industry.  It is long past time to expose the myths funded by the enormous marketing budgets of financial institutions designed to empower them and disempower those left bewildered by it all.

Please Participate
My new year's resolution is to try to do a better job educating people about this new era of investing.  There may be prettier blogs, and better written blogs, but I want this blog to be the one which makes you, the reader, the most amount of money, not just now, but for years to come.  I don't know everything, and I make my share of mistakes, so I encourage people to challenge my reasoning, and ask questions about anything they don't understand which may be wasting their money.  I would rather spend my time on the things that are of importance to you and your wealth.

Are you happy with your investment returns?  Want to do better?

December 2011 Portfolio Update

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December began well for me as I successfully followed the TSX lower during the first half of the month, but gave back all I had made, and then some, when I had to stop out of the Materials ETF I was holding near the end of December.  Of course, I would have been fine, now, if I had just held on, but when a position unexpectedly goes against me, I have to sell in order to make sure a smaller loss doesn't turn into a larger one!


Materials and Financials are seasonally strong during January.  I want to get back into Materials as soon as the opportunity presents itself.      

The return I am showing for XIU (iShares TSX 60 ETF ) remains at the same level as July (when it crossed the 200-day moving average) since it continues to be at a price below its 200-day moving average. 

Twelve month return for TSX @ December 31, 2011 = -10.89 percent
Twelve month return for Basic Timing Model using XIU = -0.98 percent
Twelve month return for Advanced Timing Model (my returns) = -3.23 percent
Money for charity = $411.27


I would like to wish everyone a prosperous and Happy New Year!