Newsletter #21 - It's Noisy Out There


Will the US Federal Reserve raise interest rates this December? Will OPEC freeze production? What will be the long term effects of BREXIT? Will crude oil go to $30, $60 or both? Is Canada in a real estate bubble? Will Donald Trump or Hillary Clinton become the next president of the United States?

The truth is, no one knows the answer to these questions and how it will effect global equity markets. Stocks will do what they do no matter what the outcomes of the above questions. The speculation of the correct answers only benefit those in the business of printing stories. 

Paying close attention to the onslaught of headlines will only cause confusion to your decision making process. The amount of "noise" on any given day is absolutely daunting and 95% of it needs be ignored.

A great way for passive investors to ignore the noise is to index their portfolio. This is becoming an extremely popular choice with the creation of low cost Exchange Traded Funds (ETFs). These investment vehicles trade like stocks and are quickly replacing high cost under-performing mutual funds. A good piece from BNN shows that mutual fund investors are still getting the wool pulled over their eyes: Personal Investor: Mutual fund investors still in the dark on fees

If you're new to investing and starting with a small account indexing is something you need to consider. Index-tracking funds account for more than 30 percent of the market. A recent article in the Globe and Mail explains why: Shift to Index investing only in "early Innings"

If indexing isn't your cup of tea and you would rather invest in individual stocks then using a common sense approach to stock picking is probably best. It will allow you to have the confidence to ride out the volatile times in the markets because you know that the companies you own will be around longer than you: Common Sense Investing



Make Volatility Your Friend

Volatility can equal opportunity even if you're a passive investor. It can pay to make volatility or "noise" your friend.

Volatility is created by uncertainty. The market hates uncertainty and in most instances stocks get sold. These reactions can create great entry points to stocks or ETFs that you've been waiting for better prices to enter.

Take the BREXIT vote that occurred around June 24 of this year. The markets initially plunged on the news but recovered within a few days. This market volatility allowed the astute investor to take advantage of short term noise to get better entry points on new positions.

As an example the TSX Composite Index moved lower by 4% and the S&P 500 by 6% on the news. A passive investor planning on getting exposure to North American equities through index funds, was given a great opportunity to put fresh capital to work at lower prices.

Events that cause major sell-offs in the market need to be looked at as opportunities. However, because there is no way to know how long the sell-off will be it's a good idea to wait at least a day or two for prices to stabilize before entering. You don't want to get caught trying to catch a falling knife.


Investing Trends

Move over baby boomers - In the USA millennials have now surpassed baby boomers as the largest living generation. With this shift comes a trend in Socially Responsible Investing (SRI). It's becoming an integral part of how investment managers target the millennial generation (Gen Y - ages 19-35). The growth of SRI ETFs is growing every year and will continue to grow to meet the needs of millennials. Check out this list of some of the more popular SRI ETFs in the US

The Numbers are Big and Getting Bigger - A good article, Value Walk - Resposible Investing: More Than A Trend, takes a look at some of the numbers which include how SRI assets under management have reached 6.57 trillion in 2014.

There's a Canadian ETF for That - You make the choice: Meritas Jantzi Social Index Fund with a 2.18% MER (Management Expense Ratio) vs. Ishares Jantzi Social Index (XEN.TO) with a 0.50% MER. They both track the exact same socially responsible index but one will cost you 1.68% more to own. What?

This is just another example of how Exchange Traded Funds are the obvious choice not only because of the low fees but for the variety of investment options.



What's Happening?

  • BlackRock cuts ETF fees ahead of new financial advice rule - GlobeAndMail
  • First Oil and Gas IPO In 2 Years Is a Winner - Wall Street Journal
  • RESPs: free money from the government that half of Canadians... - YahooFinance
  • RED ALERT - Get ready for a "severe fall" in the stock market - BusinessInsider
  • What if The Oil Rebound Never Happens -
  • 2 years without a job: Calgary in the downturn - YahooFinance
  • Canada's household debt is now bigger than its GDP - CalgaryHerald
  • How GoPro's Karma Is Better Than DJI's Drone - ValueWalk