Investment Q&A

Q: Hello Peter,

What a difference a month makes! In August you wrote an article on reasons to be bullish and a short month later you identified reasons to be bearish. It is now up to us to navigate in those cross currents. At the end of August, I had decided to raise some cash in my RRIF portfolio (I’m 71); it now stands at 15%. If a correction occurs and some of my holdings pull back, I will take advantage of opportunities.

But what worries me are the doom and gloom scenarios that some pundits elaborate and that forecast cataclysmic crashes. So I decided to research for the principal reasons that caused the tech bubble in 2000/01 and the more recent 2008/09 crash. I found out that the answer lies in the bond market, specifically in the yield curve. In the period prior to the tech bubble, the yield curve had flattened and reversed and in the period prior to the recent crash, the yield curve had flattened.

Why is that fact significant? Financial institutions borrow money on the basis of short term bond (lower) rates and, in turn, lend out on the basis of long term bond (higher) rates; they make their money on the differential. But if the yield curve flattens or reverses, these institutions will cease to borrow and lend; as a result, the liquidity in the economy will dry up leading to stagnation and crash.

Knowing very well that there must be other reasons for the downturns, I take comfort in falling back on the KISS principle.

So, I routinely (daily) make it a point to take a look at the yield curve and then move on.

I appreciate your comments,

Tony

Q: re: Mitigation Strategy (MS)and lagging equities

Saw your answer for Rita re the MS and your comment to reallocate into stocks that "are lagging."

Could you give us a few examples of your opinion re which equities you would consider are lagging?

Thanks for all your do

Gord

Q: When you mentioned that a stock is good for a long term hold.What time frame you do mean by this? 2 years? 5years?
Thanks
Dolores

Q: The stock market have had a nice run for the past 3 years. Is it a time to implement some sort of exit / risk mitigation strategy? If so, what will that be? Thank you as always!

Q: BYD, SJ, LNR & VET are all currently below their ascending trend line as well their 50 day moving average. Is this a good opportunity to increase my positions in these companies? Is their a reliable technical indicator to take out some of the guess work of adding to good companies? Please do not reply that this is not a factor to someone with a long term perspective. Thank you for your insight.

Q: Just a follow-up thought to the Legacy question, investors should be reminded that the price they paid for any security is irrelevant to the decison of whether to hold or not. "Hoping" to break-even is not the way to think about a security. Instead, the fair value means everything. The stock doesn't know what you have paid for it, and it shouldn't matter because the price is what the price is. I think you have done a good job of mentioning this in the past and instead focusing on whether the company is still a good buy/hold/sell going forward.

Q: What advise can you give to a person that just changed careers and their pension had to be moved to defined contribution plan with Sunlife Financial as to the type of products, ie ETFs,mutual funds,etc. and the weightings? time frame 20 years and very little investing knowledge.


thanks and we still consider5i as one of our top investments ever

Q: Hi:
I am trying to figure out whether I have a reasonably diversified portfolio. The process has been agonizing in deciding what sector to put my shares. For instance, the TSX lists AIM as Industrial. I had thought it would have been Consumer. Is there a relatively easy way to calculate diversity? Thanks a million for everything you do.

Q: Could you please provide me with a list of the Three sectors that got hit the hardest during the two recessions , and also the three that managed to escape with just a mild set back.

Q: What percentage do you recommend for small cap in a portfolio? There was a comment from someone who asked if they should trim DHX in which they had a 4 % weight and you recommend that they should trim.
Thanks
Dolores

Q: Just a general question about selling a stock......when is the best time to sell and how do you know when to sell one of your winners? It seems like when I sell a stock, say for a 20% gain it goes up another 20 and I am kicking myself.
Thanks

Greg

Q: Hello again Peter and Team. Would you be able to rate the Ten sectors as to their potential volatility within a correction or recessionary environment.I am sure that Financials would be the strongest suit, but not sure which way I would lean towards in considering the positive, or negative potential of Energy, Utilities and Industrials. I am particularly interested in where you would place Materials and Info Tech. Your thoughts please? Thanks again.
Rick

Q: Hello: Further to the August 06, 2014 question asked by Paul about the recent market declines... If someone has cash to invest, what would you recommend? Wait till close to the end of Sep.? Wait x weeks to see if the markets "settle down"? And, please tell us where and how to look for the volumes you mentioned? (Total market or individual stocks or etf's?)

Just a few days ago, I invested about $100K in some US etf's. They are, of course, now down about 1.5% to 2.5%. I have a further $275K to invest. Is it best to wait?

Q: I have about 20% of my portfolio invested in rate-reset preferred shares, with an average reset rate of about 3% over the 5-year rate, and with maturities of 3 to 5 years. I would like to increase the percentage to 25%, as there are two more I would like to buy, and I am getting more conservative the higher the markets rise. Do you think putting 25% in rate-resets is too much? Thanks

Q: Hi Wonder Team
Please give me your advice or guidelines on "Averaging Down"! For example I bought a junior company recently that was going through a rough patch. It had declined 35% in the past year so I thought it was a good time to buy. However I was early and it continues to drift down. So here are the questions...If you still believe in the company and nothing has changed since the purchase at what discount would it be worthwhile to buy more...in other words does a stock have to be down at least 15% or 20% before it makes sense? Also, if your original purchase is 4% of your portfolio where is the upper limit? Lastly is it wise to only average down once...in other words do not fall in love with a stock! Ha!Ha! Thanks!
Dr.Ernest Rivait

Q: Hi guys , great service been in for a year plus and am very happy.
Can you project what will happen to dividend flat and dividend growth stocks if we see a bump up in inflation and a rise in interest rates.To the point are dividend stocks overvalued historically, in the relentless search for yield.

Q: I am of the belief that interest rates are set to rise in the near term (although I have held this belief for the last Year). To play this thesis, I am looking at PROSHARES SHORT 20+ YEAR TREASURY ETF (TBF;NY). At today's price, this ETF is at a 52-week low so I feel that there will be greater upside potential than downside risk. I am looking at a 5% position as a hedge to my positions in interest rate sensitive stocks in the telecomm and enegy infrastructure space that will decline if interest rates do rise. Does this thesis make sense?

Also, in the event that the 10 Year Yield moves higher (say 3.0%), what impact will there be on Canadian and US Financials?

Thank You.

Q: Interesting article "Going Big". How would you suggest someone with the right risk tolerance approach such a strategy ie., would you start with say 5 or so stocks and double up with momentum by maybe selling a weaker performing stock? What stocks might be candidates currently? Thanks, Mike

Q: Hi Peter. I have been hearing rumors of a severe correction or even a crash of the markets. Last year in May, a friend of mine panicked and cashed in all his stocks and funds because of the same rumors at that time. It was obviously a huge mistake, given what the market has done in the past year. I know that no one can time the market with any real accuracy. However, I am getting a little nervous. Is it a good time to have more cash in my portfolio. In other words would you recommend selling stocks that have done really well in the last year in order to have the security of cash? Thanks for your great insight. Cam

Q: re: diversification, O& G and trending in general

I have consistently heard you loud and clear over and over again your sound advice to focus on long term rather than short term "market predicting" for lack of a better phrase.

Having said that there are at times when certain world wide situations effect a sector - such has the lessening of conflicts in the Ukraine & the middle east resulting in oil prices coming back down to earth.

The "majority" of recent commentary on BNN has suggested we may see a slight correction over the next few months - especially in O&G - after a very strong move. As such I have taken a small portion off the table from my O&G holdings and am now sitting on some cash.

What would you suggest would be a good sector to look at today and what names might you suggest in that sector that have good value based on their EBITDA and affordability with minimal debt?

OR... would you suggest sitting on 5% cash?

Thanks for all you do for all of us

Gord