Games

DOUG By Guest Blogger Doug Rowat

Gertrude Stein once famously said, “Money is always there, but the pockets change.” Very true. And the job of a portfolio manager is to try and put a little bit more of it into the pockets of his clients.

How do we accomplish this? The simplest explanation is we employ a bit of game theory in order to anticipate market direction. Essentially, a portfolio manager is estimating how the market is likely to react to available information and adjusting their own decisions accordingly.

Game theory is enormously complex, but it basically means making the most advantageous decisions for yourself based on the likely decisions of other participants (in the case of capital markets, other investors). Now, we all employ some basic game theory every day perhaps without even realizing it. For instance, getting to work in the morning is most effectively accomplished by driving on the right-hand side of the road. Here we correctly anticipate that others will do the same and thus we get to work safely and relatively quickly. If we happen to be travelling in the UK then we’d do the reverse, but this is a simple adjustment as the actions of others are easily surmised.

On the opposite end of the game-theory spectrum is a question that economics professors Avinash Dixit (Princeton) and Barry Nalebuff (Yale) ask their students: You are to meet someone in New York City tomorrow. When and where do you go? That’s it. No other information is offered. Here you have to anticipate the actions of another with almost zero information. (Incidentally, most of their students end up saying Grand Central Station at 12 pm.)

Somewhere in between these two extremes lies the information that portfolio managers have available to anticipate market behaviour and form an imperfect but hopefully still advantageous strategy for better portfolio returns.

Naturally, available market information is limitless and complex, so we start first by simply employing small actions that will be effective regardless of market direction. We know, for instance, that rebalancing portfolios has historically yielded clear advantages. For instance, Morgan Stanley research has indicated that a 60% stocks/40% bonds portfolio rebalanced annually has actually outperformed a static 100% stock portfolio over the long run. Therefore, in the face of difficult-to-interpret information, it makes sense to adhere to the discipline of rebalancing.

We also know that new information will constantly be introduced that we didn’t anticipate (just ask Home Capital investors). Look at the above driving-to-work example: We’re pretty sure that traffic laws will be obeyed, but there’s always the possibility that an impaired driver will come in the wrong direction. Therefore, it doesn’t hurt to wear a seatbelt, have an airbag, etc. In the context of an investment portfolio, we account for this unpredictability through balance and diversification, which includes holding safer assets to guard against the unexpected.

Finally, we embark upon the difficult task of actually anticipating market direction itself. Here we might begin by looking at history. For instance, equity markets generally move higher, so, in the absence of any other information, it makes sense to simply overweight equities. However, the tough part is deciding when reducing our equity weighting is the correct strategy. Here we need to know what information other investors will prioritize and how they’re likely to react to it. For example, downturns in leading economic indicators and upticks in the unemployment rate signal US recessions, which in turn are almost always negative for equity markets. We’d be wise to look at more than just these indicators, but for simplicity let’s focus on these two. Right now they’re positive (see charts), but if they change, we’d better be prepared to act early because we now know what other investors know and therefore we’ll know what they’re likely to do next (start selling stock).

Still with me? It’s obviously important whether or not a recession actually occurs, but almost equally important is whether or not other investors THINK a recession is about to occur.

Downturn in Leading Indicators occurs prior to Recession: Currently Signalling No Danger

Source: Turner Investments

Steady Uptick in Unemployment Rate occurs prior to Recession: Currently Signalling No Danger

Source: Turner Investments

There are millions and millions of market participants. We would never assume we can outsmart them all. At best, we hope to gain a small edge and gain a few basis points of outperformance in an uptrending market and save a few points in a weak market.

What we do is disciplined, but it’s not scientific. There are never certain outcomes based on foolproof mathematical models. We try to anticipate the decisions of other investors as best we can and make the logical next decision, but we must also protect portfolios in the event that we’re wrong. Successful investing is as much art as it is science because information is imprecise and variable, and the actions of other investors are only probabilities. Anyone who tells you different doesn’t know how to play the game.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

84 comments ↓

#1 Mark on 05.06.17 at 3:26 pm

“Disagree all you want. The Fed will raise in June, and again at least once in 2017. The BoC will follow in 2018. — Garth”

2018? Good lord. If RE prices are falling, if not crashing in 2017/2018, where will the domestic demand come from? When the HELOCs can’t be drawn, and there’s no equity to refinance the credit cards, who is out there spending? With such large numbers of Canadian homeowners highly indebted, and our aging population, it seems that the Bank of Canada not only won’t be raising soon, but will most likely be force to cut and engage in QE to combat falling consumer demand.

Downturn in Leading Indicators occurs prior to Recession: Currently Signalling No Danger
Steady Uptick in Unemployment Rate occurs prior to Recession: Currently Signalling No Danger

Sure looks like the bull runs in those charts is getting pretty close to the apex. That is to say, sure, there might be a few more gains to future, but there could be quite severe losses as usually comes after such a bull run keeping with the cyclicality of those numbers. We have a Fed that seems hell-bent despite little to no evidence of the US economy meaningfully improving, and there’s a significant number of bubbles (ie: an unproductive tech sector, an auto sector which is way too large relative to demand, a new housing bubble, student loans, etc.) just waiting to pop. Sustainable higher rates is most likely just wishful thinking given the deflationary forces that are about to be unleashed on the USA, and Canada. Especially Canada.

#2 Nonbuyer on 05.06.17 at 4:08 pm

Rates will go down certainly. We just need a crisis that can be blamed on Trump of course. The bankers’ play has always been the same. Flood a nation with debt so they beg for their own currency insolvency.

Rest assured if China or Russia make a move with gold, it will be deemed BAD and those forms of money will be banned surely.

It’s the same show as always, you just have to turn off the tv to see it.

#3 NoName on 05.06.17 at 4:13 pm

For instance, getting to work in the morning is most effectively accomplished by driving on the right-hand side of the road. DR


qew

#4 Happy investing on 05.06.17 at 4:15 pm

I have owned, and continue to own, a small basket (under 10) of stocks in well run companies that continues to outperform index funds year after year. The time required to look through quarterly reports and daily news is trivial thanks to google finance. All That is required is looking out for companies that:
1. Have constant growth by growing revenue year over year
2. Are the best company in their sector or preferably have little to no competition. (i.e. Dollarama, Enercare,…)
3. Have an easy to understand way how they make money (so to avoid the next Nortel)

Happy investing!

#5 NoName on 05.06.17 at 4:17 pm

So true, QEW fastest lane during rush hour is slow lane, excluding pay lane that is not for working stuff.

#6 financial genius on 05.06.17 at 4:19 pm

can’t you just put all your chips in mawer’s balanced fund then cant you just fuggetaboutit?

#7 AK on 05.06.17 at 4:25 pm

What the Home Capital crisis reveals about the Housing Market

#8 OttawaMike on 05.06.17 at 4:25 pm

Sell in May and go away. Especially when the Trump bump gets this nonsensical.

#9 cecilhenry on 05.06.17 at 4:25 pm

Must admit, Home Capital Group has a very attractive dividend yield now: 17.78%

And a P/E of only 1.5!!! Wow. Caveat emptor…

#10 Fred on 05.06.17 at 4:32 pm

enjoyed reading Doug, thanks!!

active or tactical investing certainly can work. Studies show that portfolio managers (whether they use etf’s like you guys, individual stocks, etc etc) on average DO NOT beat the Index. Study after study tells us this. As high as 80% do not. Let’s keep in mind these are managers with extensive experience, have MAT certification, expensive computer tools..lots at their fingertips.

IMO, if one is going to use a portfolio manager ensure they have certain metrics to share;
alpha, beta, sharp ratio. On a risk-adjusted basis are they worth the pay?

With that in mind, returns isnt the only picture to look at. Helping in taxation, estate planning. Does your advisor/portfolio manager provide this? For some people this is important, those in the accumulation years may not need this and can go full DIY. Certainly getting another set of eyes from a flat fee advisor wouldn’t be a bad idea

#11 french fries on 05.06.17 at 4:42 pm

What would be the effect of a Le Pen victory?

#12 Ron on 05.06.17 at 4:52 pm

The 6% average return balanced portfolio often mentioned on this blog, I take to mean a 6% total return (income + growth).

Is there an impact to risk if one wanted to skew their portfolio more to the income or the growth side depending on their cash flow needs?

#13 Doug Rowat on 05.06.17 at 5:04 pm

#10 Fred on 05.06.17 at 4:32 pm

enjoyed reading Doug…returns isnt the only picture to look at. Helping in taxation, estate planning. Does your advisor/portfolio manager provide this? For some people this is important, those in the accumulation years may not need this and can go full DIY. Certainly getting another set of eyes from a flat fee advisor wouldn’t be a bad idea

Controlling emotion is another key service of a full-service investment advisor. Running to cash out of fear had constant allure in 2016: Oil at $27 barrel, surprise Brexit vote, Donald Trump. Selling in each instance would have been a mistake. Preventing such emotion-driven errors is why many need professional investment advice.

–Doug

#14 Doug Rowat on 05.06.17 at 5:10 pm

#11 french fries on 05.06.17 at 4:42 pm

What would be the effect of a Le Pen victory?

On the markets? Probably very little. Brexit and Trump have been good lessons for all of us.

Own a balanced portfolio and ignore the outcome either way.

–Doug

#15 Sorry but on 05.06.17 at 5:39 pm

If you don’t have a university degree in math, you do not understand game theory and should not be applying it.

#16 AK on 05.06.17 at 5:43 pm

#11 french fries on 05.06.17 at 4:42 pm

“What would be the effect of a Le Pen victory?”
——————————————————————–
We will never know, cause It’s not going to happen.

#17 AK on 05.06.17 at 5:58 pm

#14 Doug Rowat on 05.06.17 at 5:10 pm
“On the markets? Probably very little. Brexit and Trump have been good lessons for all of us.”
——————————————————————-
If the Democrats had a competent candidate, they would have won the election.

#18 the Awakened One on 05.06.17 at 6:02 pm

Thanks Doug,

Cool technical post: I learned something new + insight.
Woof woof !

#19 Fred on 05.06.17 at 6:16 pm

Controlling emotion is another key service of a full-service investment advisor. Running to cash out of fear had constant allure in 2016: Oil at $27 barrel, surprise Brexit vote, Donald Trump. Selling in each instance would have been a mistake. Preventing such emotion-driven errors is why many need professional investment advice.

……..

great point Doug

a well read DIY would be ADDING during a correction, not panicking. The average drop historically is 13%- then using history as a guide this is a great buying opportunity at 13% drop. The accumulation years are filled with savings and buying (DCA)- NOT market timing, fear.

#20 Smoking Man on 05.06.17 at 6:30 pm

As the mighty midgets set to mount a horse in Kentucky.

I’m going with 15,8, 5

#21 Pete from St. Cesaire on 05.06.17 at 6:33 pm

most of their students end up saying Grand Central Station at 12 pm
———————————————————
Fail them all. If they don’t know that there is no 12 P.M. nor a 12 A.M. they’re already lost. I won’t bother to expound on why that is, we’re all properly educated here, right? They deserve to fail.

#22 Tony on 05.06.17 at 6:57 pm

#129 For those about to flop… on 05.06.17 at 1:58 pm

#125 Smoking Man on 05.06.17 at 12:43 pm
Kentucky Derby
Triactor

15, 5, 8

////////////////////////////

Alright Joking Man ,here’s my trifecta…

14-5-11

Good luck…

M42BC

P.S. nice picking…

#23 mike from mtl on 05.06.17 at 7:28 pm

In my humble opinion any sort of market timing, “strategies”, or excessive rebalancing is pointless – unless doing individual holdings. That’s the major reason to be using index funds in the first place, no?

It has been proven and outlined countless times too much trading hurts total returns.

Though admittedly there is a overreaching plan like when to rebalance depending on account type (e.g. TFSA Jan contributions) & hedging which is of the upmost importance for Canadian investors. Ca$ has a missive range, e.g. USCAN 0.9 to 1.6 within span of a decade.

#24 Nonplused on 05.06.17 at 7:43 pm

I’m thinking both those charts indicate a recession is imminent (1 or 2 years away) if the blue lines occur on some sort of regular cycle.

#25 Pete from St. Cesaire on 05.06.17 at 7:45 pm

“What would be the effect of a Le Pen victory?”
We will never know, cause It’s not going to happen.
—————————————————–
She will win. Trump is in and Brexit passed because the powers-that-be wanted it to be so. She’s France’s Trump.

#26 Andrew Woburn on 05.06.17 at 7:46 pm

The incredible shrinking stock market

http://www.theglobeandmail.com/report-on-business/invisible-ipos-whats-to-blame-for-the-exodus-from-publicmarkets/article34910200/

#27 For those about to flop... on 05.06.17 at 7:54 pm

flop… on 05.06.17 at 1:58 pm
#125 Smoking Man on 05.06.17 at 12:43 pm
Kentucky Derby
Triactor

15, 5, 8

////////////////////////////

Alright Joking Man ,here’s my trifecta…

14-5-11

Good luck…

M42BC

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

I see my three horses finished 1st 3rd and 4th

One of them stopped in at a sales centre to put a bid in on an overpriced leaky stable halfway down the final straight.

Even horses get Fomo…

M42BC

#28 Tony on 05.06.17 at 8:08 pm

Before Home Capital Group there was Resmor Trust Company with Ally.
https://www.canadianmortgagetrends.com/2008/11/resmor-acquired-by-gmac-financial-services/

#29 Capt. Serious on 05.06.17 at 8:13 pm

#4 Happy investing

I have owned, and continue to own, a small basket (under 10) of stocks in well run companies that continues to outperform index funds year after year.

This isn’t really that outstanding; a concentrated selection of stocks will always have a chance at beating an index. I wonder if you also understand that you are taking on more risk than the market? Probably not. Everyone is smug until they blow up. Just because risk hasn’t knocked on your door doesn’t mean you haven’t sent out invitations.

#30 Doug t on 05.06.17 at 8:24 pm

It is a “game” – just like a casino – and if you think you know what your doing or that your a “player” than LOL good luck cause that’s what it’s about LUCK.

RATM

#31 espressobob on 05.06.17 at 8:31 pm

Today it seems with online discount brokerage accounts and a wide array of ETFs, more individual retail investors haven’t the need for professional assistance. Then again?

Balanced portfolios and rebalancing is the easy part. Market timing never actually works and geographical allocation tweeking have no guarantee.

Who saw the GFC coming?

But just to be fair, there are opportunities rare as they might be, for those complicated trades were a pros insight would have merit. What’s wrong with the odd side bet?

Just a thought.

#32 Smoking Man on 05.06.17 at 8:36 pm

Never bet on a Triactor sobar.

The 9pm rule. Shit you do to keep the wife happy.

#33 french fries on 05.06.17 at 8:54 pm

#14 Doug Rowat on 05.06.17 at 5:10 pm

#11 french fries on 05.06.17 at 4:42 pm

What would be the effect of a Le Pen victory?

On the markets? Probably very little. Brexit and Trump have been good lessons for all of us.

Own a balanced portfolio and ignore the outcome either way.

–Doug

—-

Thank you Dough.

It looks like Zero Hedge is following this blog, so they quickly interviewed “venerable French investor Charles Gave, who has been managing money and researching markets for over 40 years; as such France’s elder statesman of asset allocation perhaps best captures the mood ahead of the most crucial Presidential election in a generation. In conversation with Dr. Pippa Malmgren, Charles breaks down national politics to understand why voters have rejected the establishment and the market impact of both outcomes, and what to expect from tomorrow’s election.”

http://www.zerohedge.com/news/2017-05-06/why-charles-gave-expects-total-mayhem-france-even-if-macron-elected

#34 Well Hungarian on 05.06.17 at 8:55 pm

According to John Bogle, the grand daddy of the invention of Index investing, the absolute most that the average investor can expect in their lifetimes is the rate of return of the market, less expenses. This suggests that every time an investor tries to time the market, pays a higher than required MER, or has an ‘administration’ drag by an adviser of even the seemingly small 1% of assets under management, the costs can be substantial and costly over the long run. Although to your groups credit, you provide additional planning and tax strategies outside of the normal scope of Investment Advisers which adds additional value.

#35 Doug Rowat on 05.06.17 at 9:04 pm

#23 mike from mtl on 05.06.17 at 7:28 pm

In my humble opinion any sort of market timing, “strategies”, or excessive rebalancing is pointless – unless doing individual holdings. That’s the major reason to be using index funds in the first place, no?

It has been proven and outlined countless times too much trading hurts total returns.

I outlined just that in my last post (https://www.greaterfool.ca/2017/04/22/bad-timing/); however, occasional rebalancing is effective.

–Doug

#36 Ponzius Pilatus on 05.06.17 at 9:07 pm

Doug,
Investing is not a monopoly game.
You’re playing with real people’s money.

#37 Doug Rowat on 05.06.17 at 9:10 pm

#24 Nonplused on 05.06.17 at 7:43 pm

I’m thinking both those charts indicate a recession is imminent (1 or 2 years away) if the blue lines occur on some sort of regular cycle.

There is no regular cycle for recessions. Historically, US expansionary cycles have lasted as many as 120 months to as little as 10 months.

–Doug

#38 Ponzius Pilatus on 05.06.17 at 9:14 pm

Went to the fish market today.
Pristine BC. White spot shimps are are 30 $ a pound.
Basa fillets from polluted rivers in Vietnam are $2 a pound.
global trade, my ass.

#39 traderJim on 05.06.17 at 9:22 pm

@NoName

“That KISS was that really necessary?”

It’s very easy to send the wrong message unintentionally in text, especially if you hate emojis as I do. I didn’t mean that as a criticism, just my own policy.

I realize I often come across much harsher than I intend, a while back I made what I thought was a very obvious light-hearted comment and someone took it the wrong way.

Anyway, I meant to say my personal belief is to Keep It Simple.

However, I could be guilty of ‘do as I say, not as I do’, as I, like you, have timed several very big market moves almost perfectly. A little early each time, but not too bad.

For example, I sold all my real estate in Canada in mid 2006, getting the (temporary) peak almost to the month.

However, in hindsight, I could have just held on and done better.

I did have one big trade that paid off and made up for any other timing errors, but I have spent my life following financial markets, and very early on learned of the Austrian School, so I think I have a huge advantage over the average person.

So my advice to anyone who does not want to spend their life reading balance sheets like Warren Buffett, is: Keep it simple. Buy blue chip US stocks and try to never sell.

Unless it’s a REALLY obvious bubble like the dot com one, that was pure insanity. But right now I think stocks could go either way: way up or way down. Better to stand pat.

p.s. I also agree with the slumlord sentiment. Easy way to become rich, but not for me.

#40 Smoking Man on 05.06.17 at 9:27 pm

Hanging with power in the chairman lounge.

Not the pretend shit .

Got back up at dogapaluza. Bring it sjw.

#41 Entrepreneur on 05.06.17 at 9:29 pm

Definitely have to keep an eye out to know what to do.

On the first graph looks like an ugly head recession will happen soon as with all the upticks a downtick occurs. Did I read that correctly?

As for the second graph for unemployment rate: We all know the numbers are not accurate as when insurance runs out welfare, part time, a slow slide down but have to keep milk and bread on the table.

Part time jobs should not be included in the numbers, only full time.

#42 Doug in London on 05.06.17 at 9:32 pm

What would be the effect of a Le Pen victory?
———————————————————
European Equity ETFs may go on sale for a few days to a week.

#43 Blah blah blah blah blah blah blah, blah on 05.06.17 at 9:41 pm

http://www.wsj.com/livecoverage/berkshire-hathaway-2017-annual-meeting-analysis

#44 paulo on 05.06.17 at 9:48 pm

derby 14,15,5.

odds home capitol still around for the hearings in July?

50/50 even money

#45 paulo on 05.06.17 at 9:51 pm

42#

if le pen wins on a close margin w/coalition agreed, if majority win big problems for the EU and markets by extension

#46 Smoking Man on 05.06.17 at 10:13 pm

Doug ? You every ask yourself why Herdonomics is not teached in class. You schooled buggers never had the privlage of that class.

I know the answer but thats too fk up at the moment for an explanation . Got a horny sixty year old on my lap. Blond, under weight .

Only thing going though my mind is Heather running out of loot sees this hundred pounder willing to taste a smoking man.

I dart fast.

It’s all in my book.that no one purchased.

#47 Kelowna Puzzled on 05.06.17 at 10:17 pm

So i have the 60/40 split and i know i’m supposed to wait to end of year to rebalance but one of the Non-Canadian ETF’s is up over from when i bought it 2 months ago.
The Significant Other says “You’re not supposed to be looking at these funds till end of 2017”
I’m thinking… sell the thing and lock down the growth.

Thoughts??

#48 mike from mtl on 05.06.17 at 10:43 pm

#46 Kelowna Puzzled on 05.06.17 at 10:17 pm
I’m thinking… sell the thing and lock down the growth.

Thoughts??

///////////////////////////////////////////////////

Don’t

That’s exactly what it’s supposed to do, pull funds away from poloz peso. Unless we’re talking about 20-50% out of whack, don’t bother.

Eu€, Au$ and UK£ have more upside potential than Ca$ from simple currency standpoint, not to mention they’re far more diversified than us, hold tight. Even myself am tempted as TSE ETF is lagging behind everything however aware that any housing issues will cascade on even index funds. TSE is so highly weighted on banks it’s becoming risky by the day.

You or I cannot predict elections, breakups, bank failures, and so on. Rebalance on contribution.

#49 Tulips on 05.06.17 at 10:59 pm

Great post today Doug.

Reminds me how it’s not the fundamentals that dictate whether we are at the end of a bubble. It’s more about whether most other people think think we are at the end of a bubble.

#50 Arcs55 on 05.06.17 at 11:01 pm

Did game theory figure out that Hillary was going to lose the election?

#51 steerage steward on 05.06.17 at 11:05 pm

Now I don’t have to tell you good folks what’s been happening in our beloved little Country.

Houses 300% over fundamentals, leased Audis everywhere, people stampeded, and cattle raped.

The time has come to act, and act fast. I’m leaving.

#52 Ronaldo on 05.06.17 at 11:22 pm

#9 cecilhenry on 05.06.17 at 4:25 pm

Must admit, Home Capital Group has a very attractive dividend yield now: 17.78%

And a P/E of only 1.5!!! Wow. Caveat emptor…
——————————————————————
Kinda reminds me of Yellow Pages a few years back. Yikes.

#53 Ronaldo on 05.06.17 at 11:26 pm

#16 AK on 05.06.17 at 5:43 pm

#11 french fries on 05.06.17 at 4:42 pm

“What would be the effect of a Le Pen victory?”
——————————————————————–
We will never know, cause It’s not going to happen.
——————————————————-
Same was being said about a Trump victory.

#54 Ronaldo on 05.06.17 at 11:30 pm

”You are to meet someone in New York City tomorrow.”
——————————————————————

Tomorrow never comes. Kinda like the sign on the Pub window that advertises, ‘Free beer tomorrow’.

#55 NoName on 05.06.17 at 11:58 pm

@traderJim

I tend to misunderstand and overreact all the time, so i fly of the handle a bit more often than i should. I agree with you when it comes to keep things simple, and i “think” that i follow austrian school, Hayek must be spinning in his grave every time i say that.

You know whats funy, up to few yrs back i had clue what austrian school was, some time ago here at comment section there was serious debate for weeks, austrian school vs keynesian economics. I remember like it was yesterday, when i red first post that mentioned keynesian economics, first thing that went thru me mind was what african country with very small economy have to do with what is going on in western countries. tarp, qe1234… Then of course everything you ever want to know is on a youtube.

Keynes vs. Hayek v1.0
https://youtu.be/d0nERTFo-Sk
Keynes vs. Hayek v2.0
https://youtu.be/DS3oktTEwUs

Back to my experience with re, we bought or home at mini peak ofcourse %5 down, couple of years later guy on a street was selling his for 10% less than we paid ours, that got my attention, and in 2011 when RE was roaring everywhere other neighbour could not sell for 10% more than we paid ours. When that moment comes that you ask yourself what happened with re grows 3.5-4% per year, than i found this blog.

I am not big fan of bonds because i dint understand them, i know what bond is, and how is issued, who gets paid first etc, but i just don’t get it, on another hand smarter people than me tells me that i need them so i have them.

Probably because i dont understand them well enough, there is an idea festering in my head, if market goes down significantly to sell bonds and buy more equity, so there is an argument to be made that regardless how much i dont like them, there is some potential down the road…

#56 Russ on 05.07.17 at 12:17 am

Sorry but on 05.06.17 at 5:39 pm

If you don’t have a university degree in math, you do not understand game theory and should not be applying it.
===========================

Sorry Butt,

You don’t need a degree in math to understand and apply it.
Butt it will help you get a job in the field.

Like the best farmer… out standing in his (her) field.

#57 Alex S on 05.07.17 at 12:45 am

Residential Home price in Ottawa is 8% up this month comparing to a year ago. In previous years price increase was close to official inflation rate 1-2%.

#58 Chris on 05.07.17 at 12:58 am

Good info Doug. Just curious about your opinion on the rule of thumb that three consecutive months of decline on the Conference Board’s Leading Economic Index can predict a recession? Looking at it historically, it does seem to portend downturns. Thanks.

#59 acdel on 05.07.17 at 1:25 am

Doug,

Well informed blog; after all we are only human’s (well most of us) doing the best we can.

Interest rate rise in Canada regarding many that have posted in the current and past; I just do not see it, the American economy is in a very serious state, these stats they are releasing are just not to be trusted. I have posted links in the past proving the point but it has turned on deaf ears.

Canada just cannot compete in this day and age with these current ideals by a specific and very persuasive few , save young one’s save and retire elsewhere, seniors out number you now!

The only way that we can become the country is if we start acting like one. One can only hope!!

#60 That is American data... on 05.07.17 at 3:31 am

What do those charts look like for Canada?

#61 LP on 05.07.17 at 3:50 am

#21 Pete from St. Cesaire on 05.06.17 at 6:33 pm

Fail them all. If they don’t know that there is no 12 P.M. nor a 12 A.M. they’re already lost. I won’t bother to expound on why that is, we’re all properly educated here, right? They deserve to fail.
************************************

And for those who don’t, there’s only 12 midnight or 12 noon.

#62 Stock picker on 05.07.17 at 4:08 am

It’s never wise to overstrategize……cause…..shit happens….be ready for the things that you least expected. Buy good companies with a shotgun approach…..because even whole sectors can blow up in your face when a holes like Trudeau and Obama gain political power.

“Money always finds its way back to its rightful owner”. I don’t who said that…..but it’s absolutely true…..the dummies who win on lotteries always end up bitching about how they lost control and blew it all. Money hates stupid people…..it’s like pole opposite resistance of magnets.

All the twits in history have learned this and all the newly minted real estate millionaires will find this out very soon…..crash boom bang…..it happens when it’s least comfortable….. trust me you won’t be ready for it.

Buy the best stocks in the five main pillars of the industrialized world……buy the companies who benefit from their success. Safety investing is oversold…..you’ll never get rich that way. You need just a few super stocks in your portfolio to make you rich over time. Look at my house samples published here ad nauseous…..Tims at $ 14…..sold @$92…. now QSR has blossomed to double again……a money making machine…on one stock. PCLN…..bought under $1000 and now over $1900 USD!

A few stocks….welll invested turn dollars into millions of dollars. buy great stocks that pay dividends….then wai t….one may explode into a superstock and make you rich. If it was a miniscule number in an etf…..you’d get nothing. Back to tanning.

#63 James MF on 05.07.17 at 6:14 am

“Essentially, a portfolio manager is estimating how the market is likely to react to available information and adjusting their own decisions accordingly.”

***

I’d be interested to know if this is the approach Turner Investments takes or if, heeding the Morgan Stanley research cited in today’s article, TI portfolio managers assemble a 60/40 mix of growth assets and safe stuff and rebalance following major swings in market performance (which seems to be more consistent with Garth’s occasional suggestions on building and maintaining a portfolio). Is there any edge, net of fees, to actively anticipating market swings (gaming the markets) demonstrated over time?

Otherwise, thanks for an interesting article, Doug!

#64 When Will They Raise Rates? on 05.07.17 at 8:48 am

Vive la France, Vive la Liberte!

Go Le Pen!

https://www.youtube.com/watch?v=OaVQOabLQLw

She is a racist, xenophobic, nationalist, far-right Islamophobe, unfit to lead a historic defender of liberty and equality such as France. — Garth

#65 Shawn on 05.07.17 at 9:13 am

The probability of a prolonged uptrend in global stocks is high. Nasdaq > S&P500 > international equities

2013 was the beginning of a new secular bull market for equities.

#66 Doug Rowat on 05.07.17 at 9:26 am

#62 James MF on 05.07.17 at 6:14 am

TI portfolio managers assemble a 60/40 mix of growth assets and safe stuff and rebalance following major swings in market performance (which seems to be more consistent with Garth’s occasional suggestions on building and maintaining a portfolio). Is there any edge, net of fees, to actively anticipating market swings (gaming the markets) demonstrated over time?

Our clients pay for advice on everything from taxation to retirement planning, but they also pay for active management. However, we’re smart enough to know we can’t consistently gain outperformance with short-term trading. We always remain fully invested but will gradually shift our geographic and asset weightings based on our medium- to long-term view of global markets and economies.

–Doug

#67 re., JamesMF on 05.07.17 at 9:57 am

I’d be interested to know if this is the approach Turner Investments takes or if, heeding the Morgan Stanley research cited in today’s article, TI portfolio managers assemble a 60/40 mix of growth assets and safe stuff and rebalance following major swings in market performance (which seems to be more consistent with Garth’s occasional suggestions on building and maintaining a portfolio). Is there any edge, net of fees, to actively anticipating market swings (gaming the markets) demonstrated over time?
……….

its clear from this article and previous ones they use a ‘tactical balanced’ approach. Doug is this a fair statement

a quick search on globefund for ‘tactical balanced funds’ ;

average return over 15 yrs;
only 1 fund was over 6%.. Disturbing

average return over 10 yrs;
again only 1 fund was over 6%..very disturbing

returns from globally balanced funds are greater than tactically balanced over 10-/15- yr terms. With that said , the average returns for tactical balanced look decent for the 5 yr average- of course there was no significant market correction the last 5 yrs (see 2008). I think tactically balanced has its issues, just my opinion.

….

#68 AK on 05.07.17 at 10:03 am

#52 Ronaldo on 05.06.17 at 11:26 pm

“Same was being said about a Trump victory.”
——————————————————————-
We will see what happens.

Unlike Clinton, Macron is a very competent candidate.

A lot of money has been sitting on the sidelines waiting for this election to be done with.

#69 traderJim on 05.07.17 at 10:22 am

#54 NoName

I wrote a thesis on the Austrian school, but my ‘mentor’ told me the other profs would never allow it to pass, so he advised me to write a non-controversial one, which I did. Just one more lesson of the true nature of Universities and Profs.

Bonds: I am always surprised how confused some people are about bonds. Many people are completely surprised that their ‘government guaranteed’ bonds can lose a lot of value if interest rates rise.

One way I try to explain the nature of bond risk is to make sure the buyer understands that by purchasing a 30 year bond with a 3% yield they are effectively lending money for 30 years at 3%.

If that seems like a good deal, then go for it.

Personally, right now I would short bonds, except for the fact that I know central banks can never allow rates to rise significantly, so it puts a cap on the gains possible.

#70 Kool Aid on 05.07.17 at 10:59 am

Those charts are blinking “warning.”

The formulation of how “employment” metrics are measured was altered a couple of years ago to show employment “growth.”

Problems in 2008 have not been remedied, the debt growth continues… so the economic experiment continues. We’re at the end of the debt growth cycle, higher interest rates change everything we know.

The imagineers are repurposing the world, Robo, nano, bio, AI, new materials, new energy, new data/blockchain is the future.

What is bitcoin telling us about the state of world?

Bit Coin, blasted past gold recently hitting 1625 USD.

Oddly that’s where gold should be all things considered.

In 2009 13,000 bit coins could be purchased for 1 USD (this was the case for a period of about 1 year).

10 USD investment in 2009 is now equal to 208 million USD!

That’s right, somewhere in Cali a paperboy in 2009 is likely part of the uber elite, one of the 148,000 global individuals with more than 50Million USD outside of property ownership.

The total market cap of all the coins is now only 20+ billion USD, far away from golds 7+ Trillion.

The world will be unrecognizable in 25 years and the way we work will be too. Guessing how it bounces will be very financially rewarding, though I believe the changes in the pipe are so profound that the “rules” are about to change.

Capital has displaced labour, avoiding the obvious and many pending asset implosions as the new economy claims the old is where the money will be made, the usual X factors will be there.

RE/EQ/CASH

Happy guessing.

#71 NoName on 05.07.17 at 11:16 am

Big test, I am I fire resistant, starts now…

#72 More Trumpiness on 05.07.17 at 12:19 pm

Trump Administration Has Now Crossed Over…To The Twilight Zone — Forbes

https://www.forbes.com/sites/stancollender/2017/05/07/trump-administration-has-now-crossed-over-to-the-twilight-zone/#2dd1fb45c7ae

#73 Stock Picker on 05.07.17 at 12:29 pm

#38 PPilot……one of these reasons I love living in Thailand is the incredibly cheap cost of living. Right…don’t talk to me of globalization. Jumbo shrimp…..big like a babies arm are $8 dollars a kilo here in the market….regular shrimp…..twice the size of BC shrimp are far less….around $4 a kilo ……not the $30 dollars a pound or $60 dollars a kilo you report. The reason things cost so much in Canada are the taxes and the cost of supporting an overburdensome bureaucracy which pays itself like royalty.

Doug….I get one investable insight from your comment today…..that EU markets might go on sale for a short time. But…..as Inmentioned a few weeks ago…..the question is…..why are they suddenly up? It has only been since the alt left started feeling the pressure from Le Pen and similar forces in Germany and Italy that this “miracle” of an improving macro has appeared as headline news…..as Insaid back then…..I’m very suspicious that even with a Macron win, the fundamentals might reappear and the EU markets will sink anyway. But good luck if yer long.

#74 JP on 05.07.17 at 12:50 pm

#4 Happy investing on 05.06.17 at 4:15 pm
I have owned, and continue to own, a small basket (under 10) of stocks in well run companies that continues to outperform index funds year after year

#29 Capt. Serious on 05.06.17 at 8:13 pm

Mike Tyson – “everyone has a plan until they get punched in the mouth”.

#75 Doug Rowat on 05.07.17 at 1:18 pm

#71 More Trumpiness on 05.07.17 at 12:19 pm

Trump Administration Has Now Crossed Over…To The Twilight Zone — Forbes

Yes, “To Serve Man”. Definitely one of the creepier episodes. Don’t think we don’t check out the links you post.

–Doug

#76 AK on 05.07.17 at 2:14 pm

Emmanuel Macron Elected president of France

Le bon choix. — Garth

#77 For those about to flop... on 05.07.17 at 2:33 pm

07.17 at 2:14 pm
Emmanuel Macron Elected president of France

Le bon choix. -Garth “Thor”Turner.

/////////////////////////////

It won’t be official until Macron puts Le Pen to Le Paper…no?…

M42BC

#78 Smoking Man on 05.07.17 at 3:05 pm

La Pen

No suprise. See blew the debates. Not to mention the lefties got double ballots in the mail.

Can’t beat the machine.

#79 Alberta Skeptic on 05.07.17 at 3:11 pm

I don’t want to bust your bubble, but the unemployment rate curve seems to be at a turning point, indicating a soon to be recession.

#80 For the record on 05.07.17 at 3:14 pm

#75 AK on 05.07.17 at 2:14 pm

Emmanuel Macron Elected president of France

Le bon choix. — Garth

Macron on French radio, after ISIS deadly attack on police in Paris:

“This threat, this imponderable problem, is part of our daily lives for the years to come.”

https://www.theguardian.com/world/video/2017/apr/21/french-presidential-candidates-react-to-paris-attack-video

Seems ISIS wanted Le Pen elected, doesn’t it? — Garth

#81 Entrepreneur on 05.07.17 at 3:23 pm

I think it is about time collected data should not be on the bias side for a leader to get elected or look good. Those days are gone and thanks to the internet where we can voice our opinion and say “wait a minute, that is not correct” or “why is the news talking about…” #69 Kool Aid…good points. The world has changed already and in 25 years, hard to believe what it will look like.

Off topic…Hilary Clinton should go solo in her life; her sidekick is not helping her image.

#82 Entrepreneur on 05.07.17 at 3:26 pm

Meant to say “why is the news NOT talking about this” so bought and controlled.

#83 interpretations on 05.07.17 at 4:25 pm

Seems ISIS wanted Le Pen elected, doesn’t it? — Garth

Seems ISIS wanted to terrorize French voters, by sending a message to not elect someone who disturbs the pro-Islam Europe status quo.

Seems it is much more beneficial for ISIS a French president who thinks terror is normal, French citizens should get used to it and embrace it, in the name of anti-racism, anti-nationalism, far-left Islam support, playing the role as defender of liberty and equality.

Doubtful. Extremists crave disruption and leaders who will withdraw into their own borders and not participate in campaigns against terrorist organizations. ISIS likely wanted Le Pen, just as Putin wanted Trump. — Garth

#84 slick on 05.08.17 at 4:50 pm

so this is how Wynne is going to ‘balance’ the budget;

https://www2.scotiaonline.scotiabank.com/online/views/trades/newissue/execNIOrderEntry.bns

Hydro One Ltd. $8 Billion secondary offering