Reboot

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.

Consistency
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?"

DI4Y?
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.

Duh!
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?

September 2012 Returns

Click To Enlarge

September was not all that bad, this year, considering its history for being the worst month of the year.  It is a good illustration of how seasonality is based on probability, not certainty.  Having said that, I am still concerned about this market, particularly since we seem to be deviating from what I would consider to be normal seasonal patterns.  In itself, that wouldn't bother me so much, if it were not for the fact the major technical pattern called a head and shoulders, which I wrote about earlier this year, is still intact.  

Click To Enlarge

The momentum indicators I follow would indicate the market is heading lower.  If that turns out to be the case, the fact we did not make it above the previous high from last February is more bad news.  I would not be surprised to see the TSX drop below the 200-day moving average which is only some 150 points, or so, lower than the close of today's market.  We could get there in a single bad day!  

The returns shown above use the XIU ETF as a buy and sell signal.  The idea is to buy when XIU is above it's 200-day moving average, and sell when it is below.  Bad things can happen in the markets when they are below the 200-day moving average.  The real danger is, however, if we get down below the 11,000 mark.  A pattern such as this would indicate going back to the lows in the last Great Recession.  It will be interesting to watch - the markets normally finish the year stronger, but that was not the case is 2008, either.  If we do see these things begin to happen I will be looking for opportunities to short the market (using inverse ETF's) rather than looking for buying opportunities.

21 month return for TSX @ September 30, 2012 = -7.86 percent
Return for Basic Timing Model Using XIU =          11.97 percent
Return for Advanced Timing Model =                    -4.36 percent
Money for charity =                                            $0.00 

Are you expecting a year-end rally?

Expectations

Wide Open
Part of the reason for my fewer than normal updates lately has been my visit to western Canada for my son's wedding.  It is always a great joy for me to meet people there.  For a guy that lives in Southwestern Ontario, and spends a certain amount of time in Toronto, I am simply overwhelmed by the openness, and friendliness of western Canadians.  

Family
I suppose it is because the region where I was visiting is more rural, as a whole, that I seemed to find more people who work for a living rather than living to work (although not, perhaps if I was to spend time at Fort McMurray!).  Probably because of the wedding, there was a large emphasis on family, especially on their part.  People came from far and wide out there to attend the wedding, while few from my family in Ontario could interrupt their busy schedules.

Old Theme
While there, I found myself engaged in a particular conversation over and over again.  I may not notice something if it happens only a couple of times, but several times within a few days I found myself discussing the expectations of people, and how those expectations seem to have changed over the last number of years.  The actual conversations took different form, and involved different people, but each time the theme was the same.  That theme was, in short, immediate gratification.

The Lost Art
Whether it was the store owner, the retired worker, the corporate adviser, or simply, parents, I was surprised when the same theme kept coming up.  In each case, I found myself discussing the seeming loss by people to see any benefit in "paying their dues" or adopting a longer term approach as a means of achieving their goals.

Debt
We also see much of this in the media these days.  Apparently we taught our children everything we know.  The willingness of people to accept debt in order to get what they want today is what resulted in the last Great Recession.  Credit, in itself, is not so bad, but neither is saving first, before making a purchase.  I come from a humble family, and growing up, the family home was the only thing we purchased on credit.  If I wanted to buy anything, I had to save, not just ten, or twenty percent of the purchase price, I had to have an amount of cash equivalent to the total.  Think how much money I saved myself in interest payments!       

No Worries?
What I learned growing up was how to live within my means.  We need to budget not just for our expenses, but for our savings, as well.  Most people I talk to have very little in investments, other than the family home.  "No money!", they say.  Imagine if they took all of the money they have already paid in interest and could use that to create an investment account!  Most people point to their credit card when I ask if they have an emergency account.  No wonder Mark Carney of the Central Bank is so worried about household debt levels in Canada.   

A Line In The Sand
I understand the Banksters have done everything they can to get us into as much debt as possible, and how easy and harmless it is made to seem when it comes to not paying off that credit card balance at the end of the month.  Yet, there comes a point when one must draw a line in the sand.  If we are smart, that line is a whole lot less than our total income.  Understand that the world is currently in a deleveraging cycle which could last for a decade, or more.  Everyone is going to be demanding a larger share of our wallet.  We need to ask ourselves where that money is going to come from.

As for my son, everything I have seen would indicate his bride is as prudent with money as the rest of her family - one of her many great qualities!

Which way is your level of debt heading?

An Update From Harry Dent

Harry Dent's June 2012 Update

Canary in the Coal Mine
The major problem I experienced with the crash that resulted in the last Great Recession was that everybody was afraid to come out and tell the general public just how bad they thought things could get, with one exception.  I watched Mad Money with Jim Cramer on CNBC and one night he told his audience that if they had money invested in the stock market that they might need over the following five years, they should sell that portion immediately.  I did just that, but it was already too late.  While I did not lose as much as most people, it was still a big hit to my portfolio (i.e.: life savings).

The Media?
As it turns out, there were a number of people who came forward, later, to tell us what they knew and how things looked pretty bad to them, well before it actually happened.  The trouble is, what they were trying to tell people was not very popular at the time - certainly not with the broadcasting media.  As for the rest, do you think they would actually say anything to you and me, even if they suspected the worst? (That is where the term "whisper number" comes from - they'll say it to close allies, but not publicly).

Odds Are
Cramer took a lot of heat for telling people to sell.  Many in the industry called him irresponsible.  I appreciated the fact he had the courage of his convictions and was one of the few people I have ever heard actually telling people to sell.  The Buy and Hold types may scoff at the warnings, but as Mr. Dent says in this video, if things don't get as bad as he thinks it might, then worst case is we miss a little to the upside.  If he is correct, we miss a lot to the down side.  Any time I find myself in a situation with little chance of gain, and a huge chance for loss, I will gladly sit it out until the odds are more in my favour.

Technically Speaking
When do I get back in?  When the technical indicators say so.  I'll be one of the first to say when I see the technicals showing me a good re-entry point.  I am no investment professional, and can not advise others what they should do with their money.  Personally, I have been short, or out of this market, since before the year began.  I see no reason to change now.  For other peoples' sake I hope Mr. Dent is wrong, but right now, it just isn't a risk I am willing to take.

How do you see your chances?

Peter Hodson and 5I Research

Click Here To Play The Video

Interesting story how a former analyst and fund manager felt enough of a conflict of interest to start his own rating company.  He doesn't give Buy, Sell, Hold ratings since they are used to mislead investors.  Instead 5I Research uses a grade of A, B, C... etc..

In  his company, employees are not allowed to trade the stocks of Canadian companies since that is what they provide ratings for.  He also talks about how management of the companies he would meet with while working as a fund manager would always be giving him a sales pitch instead of being objective.  Compare Hodson's   approach to the major rating agencies that are paid by the firms that they do the ratings of and for.

Clearly, the major rating agencies contributed to the problems leading to the Great Recession.  I have said that I believe the ratings system is broken.  I guess it isn't just me who thinks so.