Tuesday, June 18, 2013

Market Volatility & Exchange Traded Funds

Exchange Traded Funds
The video that follows is about Exchange Traded Funds (ETF’s) and the growth seen in that type of investment product.  I have chosen this particular video for a couple of reasons.  The first reason has to do with managing expenses within our portfolios and the second is to talk about the way in which I use ETF's.  iShares used to be a separate company that offered ETF’s.  It is now owned by Blackrock and is a subsidiary of that company.  The good news about ETF’s is they are cheaper to buy and own than mutual funds.  The bad news is ETF’s are not actively managed like most mutual funds. Since ETF’s normally mirror a particular index, they don't need to be managed the same way as a mutual fund.

Personally, I like ETF’s because they offer better diversification than individual stocks, while at the same time, controlling expenses better than mutual funds (or buying the stocks individually).  I'm not a big fan of mutual funds.  The biggest reason is their larger fees which are not justifiable given most mutual funds under-perform the markets over longer periods of time.  I have owned many, many different mutual funds in the past.  Given the growth in the popularity of ETF’s in recent years, I have long since replaced all of my mutual funds with ETF’s.

Periodically I will also trade individual stocks, but with the volatility in the current markets, I find that ETF’s provide me with much more diversification and less volatility than simply owning a few stocks.  Since I'm not a buy-and-hold type of investor, my goal is to own whatever sector is outperforming at any point in time.

Constructing Portfolios
The discussion in the video talks about creating portfolios using ETF’s.  Personally, I think that most portfolios are way, way, way over diversified and that's largely because of the need on the part of the financial services industry to sell more products.  More product, in my experience has never improved returns.  Some would argue it's not about returns, it's about the safety of our portfolio.  By spending only a few minutes a day on my investments, I get both.  I see no reason if we're actively managing our portfolios why we need any more than the top 60 companies in the TSX.  I understand most people don't actively manage their portfolios, but I have to believe they don’t understand the magnitude of the increase in returns they can achieve in only a few minutes a day.

Less Is More
Regardless, there are a couple of portfolios listed in this video.  Some people may want to model their own portfolio on one of those shown, and that's fine for people who are not actively managing their portfolios.  Myself, I tend to largely use ETF's, rather than stocks or mutual funds, but, I hold a very small number of ETF’s at any particular time because I'm only interested in the funds that are performing.  That is why I incorporate Technical Analysis into my methodology.  The non-performers are dropped from my portfolio once they stop outperforming.  Either way, whether  you want to build a portfolio of ETF's, or you simply want to use ETF's to dampen  the volatility in the current markets, the use of ETF's will reduce expenses and, to me, provide a better alternative than mutual funds

Would you care to share your preference(s)?

Click Here To See The Video

Thursday, June 6, 2013


Spring Break
Hey.  I'm back after being away a long period of time.  I have no one particular reason for not blogging.  I have certainly been busy with family matters.  I also went south for spring break this year for the first time.  I have been busy with different things, but not so much with the blogging.  I suppose if I were more organized  I would have had some guest posts, or I would have had enough posts put together that I could schedule them in advance so they would appear at the right time.  I could also make better use of links to other people's blogs and other items in the media and in the news.

Interest Levels
So here's the thing - I enjoy doing my own thing but I also feel a need to help others and share what I have learned.  We all need purpose in our lives.  Lately, however, I have been feeling that I don't really know how much I am actually helping other people with this blog.  I also run an investing club, and I have to say, I'm getting less than a great response there, also - not a whole lot of interest, of late.

When I look at the reasons why that might be the case I think it probably boils down to one thing in particular and that would be a lack of consistent results.  If I could consistently show money coming in from month to month, no matter what, and have a track record to prove it, then, I think, people would be a little more interested in learning the ins and outs of how to do the same.

What To Do?
Why do I even care?  I care on a number of different levels, but mostly I go back to a discussion I had with an old friend at a car dealership, of all places.  I was waiting for my car to be serviced, as was he.  We got talking about the downturn caused by the credit crisis and what is now being called the Great Recession.  He was lamenting the amount of money that his portfolio was losing.  In fact, he said he was pretty much afraid to look at his statements because he didn't really want to know just how much money he had lost.  At one point, he turned and asked me, "What else is a person supposed to do?"

I felt like I had an answer to his question.  My suggestion would be for him to become more of a do-it-yourself kind of investor.  In my experience, the financial services industry is out to make themselves as much money as possible.  When it comes to making us anything, in return, its really not a concern of theirs.  However, given the lack of a  bullet-proof, step by step approach I could offer, I had to agree with him.

Market Direction
Last year, I started to revisit my methodology and to do some additional research in what I know to work.  Looking back, now, I think the main reason I've found for the inconsistencies which I sometimes experience in my own approach is not paying enough attention to the direction of the market.  While there's different ways of determining the direction of the market, whether it's up, down, or sideways, getting that right is the first step.

Having done that, the biggest thing which I've learned from my research over the past several months is that one needs to be investing consistently in that market direction.  To try to make money betting against the market, no matter how good the opportunity seems, creates inconsistent results in my returns.  It may seem to many as a no-brainer, but it is the largest factor which explains the variance in my results, to date.  I'm convinced it is the one change that will allow me to improve going forward.  Whether or not I'm right, I have to say that the results always end up speaking for themselves.

New Start
I am going to reset my monthly stats at this point in time, and we will start all over again at zero from the point that I make my next investment and going forward.  These investments will be the same ones we make with the money in the investing club of which I am a member.  It is a new start/beginning and I would invite you to follow along with me as I put my latest improvements to the test.

Care to share something with others you have learned about the markets during the past year?