Stocks do go down

RYAN  By Guest Blogger Ryan Lewenza

Just in case you forgot, stocks do go down! It’s a fact of life, and understanding this can make you more equipped to deal with the inevitable market corrections and can even make you a better investor, since knowing this won’t cause you to freak out and sell at an inopportune time.

This week we put our rose-coloured glasses aside and examine the cold hard truth of equity investing – equity markets experience pullbacks (5%+ declines) and corrections (10%+ declines) pretty regularly, so get used to it, and better yet, try to take advantage of it.

This year has been a weird one to say the least. President Trump hired and fired his communications director “the mooch” in a record 10 days, researchers found a 106-year-old fruitcake in Antarctica that was in excellent condition and almost edible, in Oman a new world record for a daily low temperature of 111.6 degrees was recorded, and we’ve had almost no market volatility this year, with just 6 trading days experiencing a move greater than 1% +/-. To put this into perspective we had 139 trading days with moves greater than 1% in 2008 and 75 during 2015.

S&P 500 Daily Moves Greater Than 1% +/-

Source: Bloomberg, Turner Investments

In fact, the S&P 500 has gone on one of its longest stretches in history without a 5% pullback. In the table below we show the longest stretches since 1950 without a 5% pullback in the S&P 500, and with the current stretch of 285 days (since the Brexit sell-off last June), it’s one of only six times this has happened in nearly 70 years. And with the Dow and S&P 500 indices hitting new all-time highs day after day, it has lulled investors into a sense of complacency, with some investors surprised anytime there is a day or two of market weakness. Well I’m here to remind everyone that this is not normal and that market pullbacks and corrections are normal and, in fact, healthy.

2017: One of the Longest Stretches Without a 5% Pullback

Source: Bloomberg, Turner Investments

Frankly, I have no idea when the pullbacks/corrections are going to come (if I did I wouldn’t be writing on this pathetic blog) but I do know they are going to happen, and below I provide some strategies to deal with this reality.

First, just understand this happens and it’s normal, so don’t get freaked out each time they occur. I looked back since 1960 and found that the S&P 500 experiences three pullbacks (5% or greater) and one correction (10% or greater) each year on average. Now some years there are fewer like this year, and other years there are more, but on average this is what you should expect.

Expect 3 Pullbacks and 1 Correction Each Year

Source: Bloomberg, Turner Investments

Second, build a diversified portfolio that can better withstand these pullbacks. By building a portfolio with some cash, bonds, preferred shares and various global equities, you spread your capital across different asset classes which react differently in up and down markets. Sure holding cash and bonds in a raging bull market can be a portfolio drag, but they do help in a down market.

That’s what we try to solve for at Turner Investments. Equities provide the growth component and the cash, bonds and preferreds provide yield and downside protection. Our portfolio returns will be lower than an all-equity portfolio, but the ride sure is smoother.

Third, use market strength and weakness to rebalance accounts. Rebalancing portfolios a few times a year helps to: 1) systematically trim winners and add to underperforming assets; and 2) maintain a consistent risk profile. For example, in a bull market, equities will increase as a percentage of the overall portfolio. By rebalancing and taking the weights back to your “strategic” or long-term asset mix, you better control risk in the portfolio.

Fourth, from an investment strategy perspective, invest in long-term trends and don’t get caught up in the daily noise of markets. For example, take a look at the S&P 500 chart below. I’ve maintained a bullish stance on the equity markets for almost all of this current bull run because the long-term trend is clearly up. As they say “don’t fight the trend”. When this trend changes, then we’ll start to adjust portfolios by getting more defensive.

S&P 500 Is In a Long-Term Uptrend

Source: Stockcharts, Turner Investments

Equities are inherently volatile in the shorter term, but over the long run provide great long-term rates of return to help people achieve their investment goals. No one can consistently time markets by selling before market corrections. So remain disciplined and employ a balanced approach to help achieve your goals. And it is goals that we’re trying to solve for, not whether you called the market top or whether you outperformed the market. It’s whether you saved enough to purchase your first home, cover your kids rising education costs, or retire comfortably with a nice nest egg. That always needs to be the focus rather than what you see on CNBC or BNN (unless of course I’m a guest on those shows).

Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

85 comments ↓

#1 Guy in Calgary on 08.19.17 at 4:18 pm

I rebalance my portfolio once a year in October since it just keeps things simpler. Generally keep weightings the same year over year until I get older and I will start to risk off. You say in the article to rebalance a few times a year. Obviously the purpose of rebalancing is to keep the asset allocations and therefore, the risk of the overall portfolio in check. Do you (or other blog dogs) have certain thresholds that trigger a rebalance? Do you rebalance quarterly regardless of market moves? I am just curious if I am missing out on something by only rebalancing once a year. Modest portfolio, 280k. Used to be more but bought a house.

#2 DaleFromCalgary on 08.19.17 at 4:19 pm

Why do you keep writing about American stock markets instead of TSX and Venture? I dare say the majority of readers of this blog are Canadian retail investors who do not have the ability to buy or sell American stocks except through some brokerage fund or ETF.

It is like constantly quoting the price of gold in US$ for futures contracts when Canadian retail investors buy physical gold in C$. The true price of gold is about C$1,600 from a physical dealer (Kitco.com buying price), not $1,200.

#3 David on 08.19.17 at 4:25 pm

My policy is to buy only large Canadian companies in well established sectors. All of the big banks, telecoms, and pipelines qualify. When pullbacks and corrections come along, I reinvest as much of my dividends as I can afford. It has worked for me.

#4 Sayed Ahmed on 08.19.17 at 4:41 pm

Did I say anything wrong?
Has August become the Most Volatile month?
Blog, Money, Finance, & Investment by sayed

http://sitestree.com/has-august-become-the-most-volatile-month/

Historically, September was the most volatile month (for the Stock Market in the North America).

However, this August, 2017 also seems pretty volatile. Does all credit goes to Mr. Trump? or this is the regular summer time sell off? Apparently, this is for both (gut feeling and as I understand and as I see on Bloomberg)
Anyway, Today’s performance, for my ETFs of interest. Mostly down.

Is it a matter of worry? Investment when it is for long term, day to day craziness usually useless and should be ignored (theory and practical history) for the most part though long term trend formation might need to be kept checked. Many will use this volatile period to enter into the stock market; while some day traders might be making money on this volatility. probably, some day traders lost money because of this volatility.

For long term investors, such incidents really should not cause much worry (as I do understand, as I did study, according to historical performance, and according to my experience).

Anyway, Today’s performance, for my ETFs of interest. Mostly down. Prices are on the link

#5 Brydle604 on 08.19.17 at 4:42 pm

Well done, excellent advice Ryan

#6 mike from mtl on 08.19.17 at 4:52 pm

#2 DaleFromCalgary on 08.19.17 at 4:19 pm

…I dare say the majority of readers of this blog are Canadian retail investors who do not have the ability to buy or sell American stocks….

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

Get a new online broker.

#7 cecilhenry on 08.19.17 at 5:23 pm

Stocks do indeed go down, usually when its most stressful.

This should be heeded more than it does:

Median Price-to-Revenue Ratio Higher in All Deciles vs 2007, 90% vs Dot-Com Bubble: THE Choice

https://mishtalk.com/2017/08/06/the-choice/

https://mishtalk.com/2017/08/18/investment-advice-in-four-words-have-patience-avoid-bubbles/

#8 The Technical Analyst, CSTA, CPD on 08.19.17 at 5:39 pm

Oh look, technicals with a upward channel AND a 200DMA?

Wow, I’m surprised your post wasn’t deleted Ryan!

Sadly, I have found Garth has no use for technicals. And putting money aside? Buying low? Isn’t that his hated “timing the market” thing?

#9 Tony on 08.19.17 at 5:55 pm

I day trade and I’m long nothing presently, 100 percent cash. Looking for margin calls as an opportunity to buy gold and silver bars.

#10 A Yank in BC on 08.19.17 at 6:07 pm

#2 DaleFromCalgary

“Why do you keep writing about American stock markets instead of TSX and Venture?”

Simple. The U.S. stock market represents over half of the world’s total equity market.. the Canadian market only slightly over 3%. The S&P 500 is far more diversified, more global in scope, and therefore a better barometer for how the developed world’s equity markets and economies are doing.

#11 TurnerNation on 08.19.17 at 6:15 pm

No need for a TV, for comedic disbelief I can watch Youtube (1puglife) or Realtor.ca

This semi tear down (but you can’t) should be 450k max to close. With another 100k ex post facto going toward bringing it into this century’s standards for First World living.

https://www.realtor.ca/Residential/Single-Family/18315633/52-ELM-GROVE-AVE-Toronto-Ontario-M6K2J3-South-Parkdale

#12 TurnerNation on 08.19.17 at 6:36 pm

Re. blog comments y/n. Google used the latest staged event to put some blogs it hosts with truth/anti NWO/pro-country facts behind their login screen. Poohtube blocks content all the time, the algos scrape it. Enjoy what remains of free speech until the handful of NWO companies close it down online.
You may not post without their mark. Your self driving call will not work either due to your online ThoughCrimes.

Remember China? All our FANG companies built their Great Comm. Firewall for internet. Works well I see.

Closer to home…google exposed their upcoming A.I. to block our thoughts online. You can type your sentiment into its BigData capture net and see how it ranks:

https://www.perspectiveapi.com/

I typed:

real estate always goes up
11% likely to be perceived as “toxic”

we are slaves to central bankers
43% likely to be perceived as “toxic”

#13 random on 08.19.17 at 6:38 pm

Would you recommend an all equity portfolio for people in their 20’s?

#14 Cristian on 08.19.17 at 6:46 pm

“Rebalancing portfolios a few times a year helps to:…”

According to Vanguard (https://www.vanguard.com/pdf/icrpr.pdf) ” the quarterly rebalanced portfolio provided the same average annualized return as the annually rebalanced portfolios (+8.6%); however, the quarterly rebalanced portfolio had significantly more rebalancing events (335 versus 83), the cost of which would likely result in a lower total return for the portfolio.”

So, why balance a few times a year instead of just once?…

#15 InvestorsFriend on 08.19.17 at 6:49 pm

Mortage Interest Differential Penalties

#77 Ace Goodheart on 08.18.17 at 11:52 pm said:

Re: prepayments on conventional fixed rate mortgages: right now most of the fixed rate mortgages taken out in the last year or two actually have negative interest rate differentials.

So you can pay these mortgages with almost no prepayment penalty. Usually three month’s interest is the penalty.

Reason is rates have gone up since the mortgage was taken out.

*****************************************
Sounds logical but…

3 months interest is usually the minimum penalty

Interest differentials are calculated in ways the cause a differential even when rates have not fallen or have risen.

Example 5 year rate at 2.5% and you want out at year 3 when the five year is 3%. Should be no interest rate differential as rates have risen.

But bank says wait you have two years left at 2.5% and the if we re-lend that at 2 years the rate is (say) 2%, so they calculate an interest differential.

They do something like that. Or they say, wait, at the time you took the mortgage the POSTED rate was 5% and now the actual market (not posted) rate is 3% so you owe us an interest differential.

I don’t know exactly how it works but my understanding is that somehow they always seem to calculate an interest differential owed, even when rates have risen.

#16 Ryan Lewenza on 08.19.17 at 6:52 pm

Guy in Calgary “Do you (or other blog dogs) have certain thresholds that trigger a rebalance? Do you rebalance quarterly regardless of market moves? I am just curious if I am missing out on something by only rebalancing once a year.”

No rebalancing one a year is just fine. We rebalance 1-2 times per year depending on how much the weights have changed. We typically rebalance when the equity weights gets 2-3% above our recommended 60%. So if equities rally and our equity weight increases to 62-63%, then we sell 2-3% and get the portfolio back to 60%. So at a minimum once per year but will do it more frequently if the equity weight is far off from our 60% weight. – Ryan L

#17 Ryan Lewenza on 08.19.17 at 7:00 pm

DaleFromCalgary “Why do you keep writing about American stock markets instead of TSX and Venture? I dare say the majority of readers of this blog are Canadian retail investors who do not have the ability to buy or sell American stocks except through some brokerage fund or ETF.”

First, we’re global investors so our clients have lots of US and international exposure. Second, as an analyst when you’re analyzing the equity markets and discussing topics like asset allocation you almost always use US data/S&P 500. The data for the S&P 500 and other US indices is much more robust and goes back further which is one reason for this. Third, the TSX is somewhat insignificant when considered on a global basis. The US economy and stock market dominant the world which is another reason why we focus on the S&P 500. Finally, often the trends are similar between S&P 500 and TSX so you can use US data and make inferences for Canada. Lastly, sometimes I do use and focus on TSX but for the point I was trying to make US data is better for this post. – Ryan L

#18 For those about to flop... on 08.19.17 at 7:03 pm

I still haven’t worked out if the boss of this blog is going to take me for a drink and thank me ,or try to give me an atomic wedgie for having to moderate all my b-grade comments trying to show people what is really happening in Vancouver real estate,when and if we ever meet up.

I suspect he will compromise and take me to a low end establishment with a dubious sanitary record and order the spiciest food they have on the menu and at the end of the meal utter the words…

” Thanks for giving me the shits Flop,now we’re even”…

M43BC

#19 Ryan Lewenza on 08.19.17 at 7:05 pm

Random “Would you recommend an all equity portfolio for people in their 20’s?”

Sure since you likely don’t have much capital. I know I didn’t. But I would still like to see a bit of fixed income so I would recommend a small weight to preferred shares. Maybe 80/20 asset mix with 80% in stocks and 20% in preferred. – Ryan L

#20 GFD on 08.19.17 at 7:07 pm

Never mind stocks, look at GTA RE.

http://hibusiness.ca/2017/08/19/vancouver-real-estate-news-heating-up-2/

Claudio Polito, a Toronto appraiser and principal owner of Cross-Town appraisal Ltd., says lenders on value, as opposed to income and credit history, are really trying to stay on top of a market that appears to be changing rapidly.

According to his estimates, the prices in the Greater Toronto Area have plunged anywhere from 5% to 15% over the last month. The next set of data from the Toronto Real Estate Board are due out Monday and will mark the first full month of data since provincial changes to cool the market that included a tax on foreign buyers, effected.

#21 TurnerNation on 08.19.17 at 7:09 pm

Re. blog comments y/n. Google used the latest staged event to put some blogs it hosts withanti NWO/pro-country facts behind their login screen. Utube blocks content all the time, the algos scrape it. Enjoy what remains of free speech until the handful of NWO companies close it down online. ThoughCrimes.

Remember China? All our FANG companies built their Great Comm. Firewall for internet. Works well I see.

Closer to home…google exposed their upcoming A.I. to block our thoughts online. You can type your sentiment into its BigData capture net and see how it ranks:

https://www.perspectiveapi.com/

I typed:

real estate always goes up
11% likely to be perceived as “toxic”

we are slaves to central bankers
43% likely to be perceived as “toxic”

#22 The China Problem - Wealth, Corruption and Debt on 08.19.17 at 7:20 pm

DELETED

#23 FLHTK on 08.19.17 at 7:38 pm

Best blog you’ve written is “are you ready” about retirement! Very helpful, and insightful

#24 conan on 08.19.17 at 7:49 pm

IMHO, the best time to re balance is after making a boatload of money. Returns in excess of 20% qualify in my book. I would then re balance a sector, but not necessarily, the whole portfolio.

#25 For those about to flop... on 08.19.17 at 8:06 pm

In a month or so I will go to the doctor and ask for my InfLewenza shot.

It makes me immune from doing any stupid trades in the winter time…

M43BC

#26 confused on 08.19.17 at 8:12 pm

‘As they say “don’t fight the trend”. When this trend changes, then we’ll start to adjust portfolios by getting more defensive.’

…………

earliar you said no one can time the market. Then you go on to say if the market trend changes to get defensive? Aren’t you essentially trying to ‘time the market’ or ‘panicking’ as the market has turned and getting ‘defensive’?

#27 crowdedelevatorfartz on 08.19.17 at 8:27 pm

Re Dale From Calgary and Ryan’s rebuttal
“the TSX is somewhat insignificant when considered on a global basis….”
++++++
As much as we Canucks think we’re really important in the grand scheme of things…….we’re not.
World wide? Our population, our financial clout, pffft. But if Maple Syrup becomes the new gold standard….Quebec will rock!

#28 crowdedelevatorfartz on 08.19.17 at 8:29 pm

@ The Flopster.

Egads man! The visual of garth’s “spicy revenge” will haunt me for ages. Just dont take any elevators for at least an hour after the aforementioned meal.

#29 InvestorsFriend on 08.19.17 at 8:38 pm

Alberta Rising From Recession

I visited a Volkswagon dealer today in North Edmonton. The place was jammed. Barely found a place to park.

This dealer certainly appeared to be selling plenty of cars.

There is a cluster of dealers there all owned by the Go Auto group. I think they were all jammed with people today.

Debt financed? sure, but the point is the economy in Alberta is recovering and a large group of people are confident enough to be buying new cars.

Debt and credit is the grease of the economy. This will continue to be the case.

#30 FOUR FINGERS WATSON on 08.19.17 at 8:39 pm

#3 David on 08.19.17 at 4:25 pm
My policy is to buy only large Canadian companies in well established sectors. All of the big banks, telecoms, and pipelines qualify. When pullbacks and corrections come along, I reinvest as much of my dividends as I can afford. It has worked for me.
……………………..
My strategy exactly and it has worked well for me too. I bought in 09 and i am still laughing.

#31 random on 08.19.17 at 8:59 pm

Thanks Ryan!

#32 espressobob on 08.19.17 at 9:12 pm

Good post Ryan. Answered a thing or two.

Pullbacks are not only healthy, but the opportunistic take advantage of a good thing. This can be one of the toughest lessons some retail investors never learn.

https://en.wikipedia.org/wiki/Contrarian_investing

#33 For those about to flop... on 08.19.17 at 9:13 pm

Before becoming financial advisors, Garth Thor Turner ,Ryan InfLewenza Lewenza and Doug Robax Rowat were part of the R and B group TLC which despite popular misconception stands for Trading,Liquidity and Conservatism and are responsible for the 1995 hit…

Don’t go chasing dividends…

M43BC

https://m.youtube.com/watch?v=8WEtxJ4-sh4

#34 For those about to flop... on 08.19.17 at 9:21 pm

I have a five ice cream bet that Thor Turner has already used this photo.

Anyone out there want to back me up?

There is 2 and a half ice creams on the line for the person that finds out he coresponding post.

Don’t worry the half ice cream was consumed by Bandit and he is up to date on all his shots…

M43BC

#35 AR on 08.19.17 at 9:23 pm

3 corrections and 1 pullback. Got it. The chart seems like overkill?

#36 Frank on 08.19.17 at 9:34 pm

Rebalancing causes taxable gains in cash accounts, and reduces returns if you are shifting to bond funds or preferred shares.

If you look at the monte carlo analysis in http://cfiresim.com you quickly realize that 100% equity portfolios do the best in the long run.

Considering taxes on interest, dividends, and capital gains the tax advantage is again in all equity portfolios.

A temporarily depressed by 50% equity portfolio in a crash, by far exceeds your returns mixing in bonds or preferred shares.

#37 Ace Goodheart on 08.19.17 at 9:39 pm

Reading all this alt right support the haters stuff here anti immigrant rant and rave sort of stuff. One of my friends is an immigrant. Dark skin. Beautiful person. Born in Iran. I get to thinking sometimes these people actually want to hurt my friend? And that’s not the only friend. My buddy I work on my old cars with is South East Asian. Also an immigrant.

Oh and gee my parents are both immigrants. I was born here. They were not. Mother is from Scotland father from England. First generation Canadian!

I remember back when I was about 12. Saw this greasy haired girl around my own age dirty track pants t-shirt that used to be white. Brown skin. Dark hair. She was not trying to be anything. She was just walking through the field behind my house. I fell in love. With what was really pure soul and spirit. She was my field creature. I didn’t want to call her a princess or really name her at all. That would just put a space between her.

I did not end up even ever talking to her. 12 year old boys are kind of shy.

Sometimes as a person you get a glimpse of pure soul.

If that happens to you, you realize that human soul is not black or white or brown. It does not matter where you are born or what your parents did for a living or what country counts you as a citizen.

Soul is soul. We try to hide it. We contrive around keeping it secret.

Every so often a pure soul makes itself known just really by accident and because there was nothing else to do.

Then we all understand race and culture and identity

Just for a moment……

#38 SW on 08.19.17 at 10:19 pm

#35 AR on 08.19.17 at 9:23 pm
“3 corrections and 1 pullback. Got it. The chart seems like overkill?”

Let’s look at the chart again, dear :-)

(Good post Mr. L. Thanks again!)

#39 The China Problem - Wealth, Corruption and Debt on 08.19.17 at 11:08 pm

DELETED

#40 Henrik on 08.19.17 at 11:16 pm

Ryan,

Thanks for writing interesting articles about the financial markets. I’ve been reading this blog on and off for some years. While it has always been housing-heavy, I feel it’s gotten even more gravitated towards that one topic in the last year or so, maybe for obvious reasons. Not complaining. Just saying that the financial markets and investing one’s money smarter than in housing, are more interesting for me. Or maybe it’s just so simple that it’s boring to repeat the same mantra of a balanced portfolio?

One actual question: preferreds. I see that a lot in this blog. I think understand the mechanics of those types of shares. What I don’t fully understand is whether Canadians have an advantage of say, US investors, from a taxation perspective? It seems they aren’t such a big deal or attractive investment outside of Canada.

#41 Mark on 08.19.17 at 11:20 pm

” Rebalancing causes taxable gains in cash accounts, and reduces returns if you are shifting to bond funds or preferred shares. “

If one is contributing, and the assets that one is rebalancing between are putting off dividends, then the rebalancing process often doesn’t cause much, if any taxable capital gains. Rebalancing need not be a discrete event, but rather a continuous process.

For instance, if you have 5 equal-weighted ETFs in the portfolio, and one lags behind, an investor can simply take the dividends from all 5 ETFs, and invest in the lagging asset.

In the accumulation phase, of course, not only will there be dividends and interest coupons coming into a portfolio, but also new contributions.

Having said that, there’s other tax tweaks that individuals can use in order to minimize realized capital gains. For instance, in that hypothetical 5-ETF portfolio I suggested, its often possible to sell the lagging asset, and re-invest the proceeds into a nearly identical asset (but not truly identical, or else the CRA will deny the capital loss). Such capital losses can be used to offset gains. Likewise, when someone has been investing for a while, they may find themselves rebalancing into asset classes for which their existing shares have fairly low relative cost bases — buying similar, but not truly identical ETFs (ie: buying XIC instead of XIU, or buying IVV instead of SPY) can create a low-cost cost base longer-term portfolio, as well as a high-cost base portfolio which can be depleted for rebalancing or consumption purposes with lower realized capital gains.

#42 Palmateer on 08.19.17 at 11:32 pm

Smoking Man is now going off on twitter saying that German Chancellor Angele Merkel desires to be sexually assaulted.

Garth, Doug, Ryan: you guys run a serious business.

Unfortunately, I’d say you would be wise to disassociate yourself from Smoking Man, and to desist from mentioning him on the GreaterFool blog, or meeting him at the Belfountain General Store.

The guy is an alt.right whack-job.

#43 Alberta Ed on 08.19.17 at 11:48 pm

There is nothing really unusual about 106-year-old edible fruitcake.

#44 AR on 08.20.17 at 12:00 am

#38 SW

Dear?? Really?

Are you presuming a gender and mansplaining? Do you have information others don’t?

#45 Smoking Man on 08.20.17 at 12:02 am

DELETED

#46 Buy only on 08.20.17 at 12:08 am

Anyone have any thoughts on only buying to rebalance Vs selling and buying? So if one of my stocks or ETFs goes up 15% one year, I don’t sell that, but I just don’t buy anymore till I’ve reached balance by buying the other ETFs to reach balance. Saves commission on selling and you don’t worry about missing out on further growth. Only works if you’re still saving of course. Or maybe it doesn’t work at all, opinion?

#47 DON on 08.20.17 at 12:10 am

#37 Ace Goodheart on 08.19.17 at 9:39 pm

Every so often a pure soul makes itself known just really by accident and because there was nothing else to do.

Then we all understand race and culture and identity

Just for a moment……

*************
Beautiful Ace!

Some folks are too caught up in perception and not substance.

Ryan – Thanks for the info today!

#48 Cloudy on 08.20.17 at 12:18 am

Exellent post Ryan. I really enjoy reading your work as I find it has very valuable information and a good explanation of how and why your formula works well.

#49 steerage steward on 08.20.17 at 12:39 am

Great to know we live in Canada.

https://www.nytimes.com/2017/08/18/opinion/the-test-of-nazism-that-trump-failed.html

#50 steerage steward on 08.20.17 at 12:46 am

Until we have been tested, there is no sense in boasting of our goodness; afterward, there is no need.

We might choose to forget these slogans and these events from the years before World War II, but American Nazis remember the history in their own way, and so does President Trump. The Confederate statues he admires are mostly artifacts of the early years of the 20th century, when Hitler admired the United States for its Jim Crow laws, when Mr.

Trump’s father was arrested at a Klan rally, before America passed its test. The presidential slogan “America First” is a summons to an alternative America, one that might have been real, one that did not fight the Nazis, one that stayed home when the world was aflame, one that failed its test.

#51 Kikuyu on 08.20.17 at 12:49 am

I love Ryan Lewenza’s posts. I wish you would post every Saturday. Factual good advice with good charts. You need to take advantage of every 5% pullback and 10-20% big draw downs in the market.

#52 Macduff on 08.20.17 at 6:02 am

How about this: 99.5% of portfolio invested in a moderate-conservative portfolio, and 0.5% invested in junior miner Novo Resources which has just made one of the largest gold discoveries in the last 100 years. Its stock is going ballistic.

#53 Emille on 08.20.17 at 6:26 am

Balanced portfolio. I do not mean now, but earlier….why not index funds…iShares etc…they beat “balanced” portfolios all the time….or bitcoin, ethereum. 1 USD 7 years ago in bitcoin would have given you 1.4 million USD today. Did I buy…noooo, but I did at around USD180. Just sold and dumped most of it into gold and gold derivatives, like TSXV gold miners. Adding to existing positions. Think outside the box.

US markets are manipulated and Federal Reserve driven through the FAANG stocks. S&P500 index will be 600 soon enough. Just watch, get some pop corn.

#54 Al on 08.20.17 at 7:50 am

Influenza,

Your not allowed to call this a pathetic blog. Only garth can as he is the founder.

It’s an unwritten rule (until now).

Sorry.

Txs

#55 -=jwk=- on 08.20.17 at 8:27 am

@#34 doesn’t look like it…

google image search of GF;

https://www.google.ca/search?q=site:greaterfool.ca+OKAY-modified.jpg&source=lnms&tbm=isch&sa=X&ved=0ahUKEwjAnbqw5uXVAhUF_IMKHZQbAIAQ_AUICigB&biw=1366&bih=638

#56 Ryan Lewenza on 08.20.17 at 9:17 am

Confused “Earliar you said no one can time the market. Then you go on to say if the market trend changes to get defensive? Aren’t you essentially trying to ‘time the market’ or ‘panicking’ as the market has turned and getting ‘defensive’?”

Two points. First as I stressed in the post its very hard to time pullbacks and corrections so don’t try. But we are always on the watch for those dreaded bear markets which come very 6-8 years with equities declining in excess of 30%. While we don’t try to time pullbacks (5%) we’re always on the watch for those bear markets and try to adjust portfolios ahead of them. I have a number of indicators and tools to help me with this. Second, we’re not talking about selling everything and going to cash. We’re talking about tweaking portfolios and reducing equity exposure and adding to fixed income. So we’re still invested but we have more of our assets in fixed income or safer assets. Also if we believe a bear market is coming we adjust the equity holdings by holding more defensive equities like selling small caps and adding to low volatility and dividend paying stocks. So we’re not saying don’t do anything. We’re just saying don’t try time to time the smaller and frequent pullbacks and make big moves around them. – Ryan L

#57 Ryan Lewenza on 08.20.17 at 9:31 am

Henrik “One actual question: preferreds. I see that a lot in this blog. I think understand the mechanics of those types of shares. What I don’t fully understand is whether Canadians have an advantage of say, US investors, from a taxation perspective? It seems they aren’t such a big deal or attractive investment outside of Canada.”

I think there is a slight tax advantage of dividends for Canadians vs US which may explain the increased importance of them in Canada. Interest income is taxed at your marginal tax rate and marginal tax rates are lower in the US then in Canada, so the effective tax difference between dividends and interest is more meaningful for a Canadian investor. This may explain why Canadian prefs are more attractive for investors for US investors. – Ryan L

#58 crowdedelevatorfartz on 08.20.17 at 10:13 am

@#22 & 39

Hmmmm Deleted Twice.

A peculiar trait amounst the “Delete-oids from Planet Denial” and as dentally challenged as the chain smoking men from the Planet Nictonite….

Not to worry humans.

They can be easily recognized by their combination of halitosis and the amazingly stubborn ability to repeat the same inane drivel over and over and over(irony intended) until they become bored, wander off without their parental guidance units to restraint them, to the next intellectually stimulating belly button lint picking session…..

The only frightening thing is…….They vote.

#59 NoName on 08.20.17 at 10:14 am

as TN would to point every once in a while, there is no replacement for displacment.

http://gulfnews.com/business/sectors/markets/tesla-s-priced-for-perfection-bonds-fall-within-week-of-sale-1.2077006

#60 Jamie Dimon on 08.20.17 at 10:16 am

So I finally took the plunge and have began courting advisors to get my portfolio set up. I was told since I’m in my very early 30’s and have no debt that I don’t need any bond exposure as this is the time to take on more risk as I could absorb more of a hit and recover. I don’t have any immediate worries about this as the logic that was presented makes sense. However the inner blog dog in me has alarm bells. Could anyone on here perhaps lend some expertise in the matter agree disagree?

Disagree. Novice investors invariably get rattled when markets inevitably go through a correction (small or large), and almost always sell at a loss (fearing more losses) then go and buy a condo because they think investing sucks. This is why, regardless of age, you should never be talked into an all-equity portfolio by some advisor who makes a greater commission on stock-based funds than preferred or bond funds. You are correct to question this. It’s wrong. — Garth

#61 SW on 08.20.17 at 10:17 am

#44 AR on 08.20.17 at 12:00 am
#38 SW
“Dear?? Really? Are you presuming a gender and mansplaining? Do you have information others don’t?”

No, you read the chart incorrectly, dear sir/madam/thing.

An old lady can say anything she wants, ffs.

#62 jess on 08.20.17 at 10:40 am

12 TurnerNation on 08.19.17 at 6:36 pm

following along with your post: who are the new “analyso(e)rs”

….”NLP goes hand in hand with business intelligence usage. The data based on which BI works can be made more accessible thanks to NLP. Interaction with databases and large data sets with the help of Natural Language Interfaces can change the way we interact with complex systems. In this way, it can help put more people in jobs that seem too technical. This drives many organizations to explore NLP as a way to connect non-technical users with the data they need to support critical decisions with…

“Applying NLP to BI tools makes it possible for non-techie people to just jump in and start analyzing data themselves, rather than wait for IT analysts to run complex reports. The best way to call it is probably the ‘democratization’ of information access: everyone involved in the business process can have full access to information in order to be able to make informed decisions.”
natural learning programing
https://friendlydata.io/blog/nlp-business-intelligence
http://www.nytco.com/the-times-is-partnering-with-jigsaw-to-expand-comment-capabilities/

#63 Thank you Ryan on 08.20.17 at 10:44 am

Two points. First as I stressed in the post its very hard to time pullbacks and corrections so don’t try. But we are always on the watch for those dreaded bear markets which come very 6-8 years with equities declining in excess of 30%. While we don’t try to time pullbacks (5%) we’re always on the watch for those bear markets and try to adjust portfolios ahead of them. I have a number of indicators and tools to help me with this. Second, we’re not talking about selling everything and going to cash. We’re talking about tweaking portfolios and reducing equity exposure and adding to fixed income. So we’re still invested but we have more of our assets in fixed income or safer assets. Also if we believe a bear market is coming we adjust the equity holdings by holding more defensive equities like selling small caps and adding to low volatility and dividend paying stocks. So we’re not saying don’t do anything. We’re just saying don’t try time to time the smaller and frequent pullbacks and make big moves around them. – Ryan L

…………..

for taking the time to answer my query thoroughly

kind of you. Enjoy the day!!

#64 For those about to flop... on 08.20.17 at 11:25 am

jwk=- on 08.20.17 at 8:27 am
@#34 doesn’t look like it…

google image search of GF;

https://www.google.ca/search?q=site:greaterfool.ca+OKAY-modified.jpg&source=lnms&tbm=isch&sa=X&ved=0ahUKEwjAnbqw5uXVAhUF_IMKHZQbAIAQ_AUICigB&biw=1366&bih=638

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

Hey jwk, thanks for trying.

It looks as if I get the whole 5 ice creams as this photo was used on November 12th 2015 in a post called DELETED…

M43BC

http://www.greaterfool.ca/2015/11/12/deleted/#comments

#65 Gravy Train on 08.20.17 at 12:13 pm

Ryan, you might find the attached article amusing.
http://articles.latimes.com/2005/may/11/nation/na-nobel11

Even Nobel Prize-winning economists have trouble making investment decisions.

“I think very little about my retirement savings, because I know that thinking could make me poorer or more miserable or both,” quipped 2002 Nobel Prize winner Daniel Kahneman of Princeton University.

“I would rather spend my time enjoying my income than bothering about investments,” said Clive W.J. Granger, an emeritus professor at UC San Diego and a 2003 Nobel Prize winner.

“I know it’s utterly stupid,” confessed George A. Akerlof, a UC Berkeley professor and 2001 winner of the Nobel Prize in economics [referring to his keeping his wealth in money market accounts and the like].

#66 For those about to flop... on 08.20.17 at 12:36 pm

This is one of the houses I was referring to yesterday when I was talking about my observations ,at and on the way to work.

This house was only competed a few weeks ago and must have been for sale during construction though I don’t remember seeing the sign until the other day.

They saw fit to knock 1.4 million off the asking price in pretty short time and give it a new listing to make it look all fresh and new.

It was picked up for 2.85 in 2015 and bulldozed,it looks from the outside to be decent construction and so they still have a generous profit margin but obviously not as much as originally expected.

I bet the developers I am currently working for are watching to see what happens with this one as it could affect their pricing.

The house on the left side of the picture is one of my Pink Snow cases as was bought for 5 million and is currently for sale for 4.98 after being for sale for over half a year and originally asking for something closer to six…

4010 W 34th Avenue, Vancouver

Mar 1:$8,800,000
Aug 18: $7,388,000
Change: – 1412000.00 -16%

https://www.zolo.ca/vancouver-real-estate/4010-w-34th-avenue

#67 Windjammer on 08.20.17 at 12:43 pm

Love this blog. I have followed much of the advice offered here. I have compiled a portfolio of index funds, 6.5% returns, preferred, 5.5% Riets, 5% and bonds, 2.5%. No matter how I try I can’t get it to add up to 6%.
Were is my error? Great info today, thank you.

#68 For those about to flop... on 08.20.17 at 12:51 pm

Pink Lemonade stand in Burnaby.

I have featured these guys before ,but will put it up again after the just took another 50k off and are in loss territory after picking it up for 1.51 despite being by Vancouver standards in the affordable range.

Let’s see if the latest reduction gets the job done.

Here’s Johnny…

M43BC

5656 Carson Street, Burnaby paid 1.51

May 25:$1,649,000
May 30: $1,599,000
Change: – 50000.00 -3%

5656 Carson Street, Burnaby

May 25:$1,649,000
Aug 18: $1,549,000
Change: – 100000.00 -6%

://www.zolo.ca/index.php?sarea=5656%20Carson%20Street,%20Burnaby&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzV0ZCRA==

#69 Old Dog on 08.20.17 at 12:52 pm

#60 Jamie Dimon
“Could anyone on here perhaps lend some expertise in the matter agree disagree?”

Garth gives good advice on this point. Give yourself a few years to understand yourself in the market and grow a relationship with your advisor. When markets tumble it can be gut wrenching. I always have to smile when people say, ” when markets correct big time I’ll just jump in and buy up all those bargains.” Do you know how difficult that is when the sky is falling. Yeah, good luck on that one. People often despair and sell. I’ve seen it many times. Follow the safe route till you know your own limits.

#70 NoName on 08.20.17 at 12:54 pm

#65 Gravy Train on 08.20.17 at 12:13 pm

Ryan, you might find the attached article amusing.
http://articles.latimes.com/2005/may/11/nation/na-nobel11

Even Nobel Prize-winning economists have trouble making investment decisions.

“I think very little about my retirement savings, because I know that thinking could make me poorer or more miserable or both,” quipped 2002 Nobel Prize winner Daniel Kahneman of Princeton University.

“I would rather spend my time enjoying my income than bothering about investments,” said Clive W.J. Granger, an emeritus professor at UC San Diego and a 2003 Nobel Prize winner.

“I know it’s utterly stupid,” confessed George A. Akerlof, a UC Berkeley professor and 2001 winner of the Nobel Prize in economics [referring to his keeping his wealth in money market accounts and the like].

—-

Daniel Kahneman is psychologyist not an economist, dont you think that is funny that psychologyist is give Nobel price for economics to psychologyist.

here is funy thing about that dude, he did HAPPINES study some time back, went to some univercity and asked two questions
q1 are you happy
q2 how often you have sex

result shoved that people were happy regardle how much sex they had.

than study was repited but question were asked in reverse order,

q1 how often you have sex
q2 are you happy

boy did they ever get different results… so tell us now, are you happy?

#71 NoName on 08.20.17 at 1:00 pm

Gravy Train watch this

80min long
https://www.youtube.com/watch?v=MMBclvY_EMA

#72 For those about to flop... on 08.20.17 at 2:03 pm

Pink Lemonade stand in Vancouver.

The ink has barely dried on the last contract and this condo is back up for grabs at a no-gain price.

The history below shows May but b.c assessment in the meantime has recorded a sale and seemingly expedited the process which only seems to happen when the property is back on the market sooner than their normal updating time frame.

On the hook for 1.25 when the ink dried only a few weeks ago this move doesn’t seem to make much sense on a 13 y.o condo, but maybe they were surrounded by people telling them that condos are still hot.

So hot,it will burn a hole in your wallet…

M43BC

2706 1077 W Cordova Street, Vancouver

May 10:$1,388,000
Aug 18: $1,325,000
Change: – 63000.00 -5%

https://www.zolo.ca/vancouver-real-estate/1077-w-cordova-street/2706

https://evaluebc.bcassessment.ca/Property.aspx?_oa=RDAwMDAwWlI5Rg==

#73 Jamie Dimon on 08.20.17 at 2:26 pm

Thanks Garth, thanks Old Dog. Very much appreciated.

#74 For those about to flop... on 08.20.17 at 2:45 pm

Pink Lemonade stand in Vancouver.

I’m pretty sure these guys know that they are possibly in trouble by now even though they picked this place up in late 2015.

On the hook for 6.25 million buyer and developers have options on this side of town.

If you want to go move in ready a million more gets you the house I showcased this morning.

https://www.zolo.ca/vancouver-real-estate/4010-w-34th-avenue

Or if you want to go the other way I showed this Pink Lemonade case yesterday in which they are on the hook for 3 million in a similar area and are struggling to offload it and leaves you plenty of room to build your dream home.

These guys could have their money tied up for two years and still take a decent size loss…

M43BC

https://www.zolo.ca/index.php?sarea=3755%20W%2013th%20Avenue,%20Vancouver&filter=1

4170 Crown Crescent, Vancouver

Jun 5:$7,998,000
Aug 16: $6,288,888
Change: – 1709112.00 -21%

https://www.zolo.ca/index.php?sarea=4170%20Crown%20Crescent,%20Vancouver&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAwMDAzVg==

#75 Keith in Calgary on 08.20.17 at 3:01 pm

Despite what “ALL” financial advisers say about how easy it seems to get a 6-7% annual return…………you’ve got to wonder why pension funds in North America, who can supposedly hire the best and brightest, using the same market, cannot get any more than 1-2% per annum.

RED FLAG #1.

Ten-year return for CPP administrators is 6.7%. Stop embarrassing yourself. — Garth

#76 For those about to flop... on 08.20.17 at 3:05 pm

Pink Lemonade stand in Richmond.

Here’s another one that’s got me rubbing my eyes in disbelief at what I am seeing.

These guys paid 1.6 for this place in Feb 2016 ,with an assessment that topped out at 1.49 ,this drastic price adjustment will obviously not be their target sell price but the number of owners and realtors that are having to resort to this tactic is telling.

Shock and awe ,baby…

M43BC

12511 Wescott Street, Richmond

Jul 13:$1,788,000
Aug 16: $1,300,000
Change: – 488000.00 -27%

https://www.zolo.ca/index.php?sarea=12511%20Wescott%20Street,%20Richmond&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDA1WERUNQ==

#77 Gravy Train on 08.20.17 at 3:15 pm

#70 NoName on 08.20.17 at 12:54 pm

“Daniel Kahneman is a psychologist, not an economist. Don’t you think it’s funny that a psychologist is given the Nobel Prize for economics.”

You do know that he contributed to the literature of behavioural economics, right?
https://en.m.wikipedia.org/wiki/Daniel_Kahneman

#78 construction cost adjustments on 08.20.17 at 3:19 pm

Are construction cost, including permits, etc. adjusted to perceived market value of a house?

I am looking at cost of replacing old houses on existing lots in Toronto and it is around twice what the original property was sold around 2000.

This tells me that the price of new houses will not go lower than 3 x of the selling price in 2000.

#79 Spock on 08.20.17 at 4:58 pm

#75 Keith in Calgary on 08.20.17 at 3:01 pm

Maybe the Keith Pension fund which has hired their namesake has the returns that you have mentioned – of course not sure of the best and brightest part for this particular pension fund.

Take a look at CPPIB.ca or ask any member of HOOPP/OMERS/TPP for their annual statement (these are Ontario pension plans) and you can see the returns.

1-2% – fitting the numbers to suit your agenda. Get a life.

————–

#75 Keith in Calgary on 08.20.17 at 3:01 pm

Despite what “ALL” financial advisers say about how easy it seems to get a 6-7% annual return…………you’ve got to wonder why pension funds in North America, who can supposedly hire the best and brightest, using the same market, cannot get any more than 1-2% per annum.

RED FLAG #1.

Ten-year return for CPP administrators is 6.7%. Stop embarrassing yourself. — Garth

#80 Ace Goodheart on 08.20.17 at 5:23 pm

Elon we know you have a beautiful car we all love it. It’s awesome. But you know you are kinda running a company with a val that is like more than GM BMW Ford and Chrysler so people kind of expect that you would be BUILDING CARS. So like when you say stuff like “it”s going to be really hard to build this car” and “manufacturing hell” we all get a little worried.

Please. Build. Some. Cars. Elon.

Please…..

#81 Ace Goodheart on 08.20.17 at 5:28 pm

Oh and Ryan LTB (That is like hack speak for “Love the blog”)..

Cheers.

Just spent the day building a bunkie at the cottage. Measuring time in beers. Best clock ever….

#82 Prince Polo on 08.20.17 at 7:12 pm

#12 TurnerNation on 08.19.17 at 6:36 pm
Closer to home…google exposed their upcoming A.I. to block our thoughts online. You can type your sentiment into its BigData capture net and see how it ranks:

https://www.perspectiveapi.com/

I typed:

real estate always goes up
11% likely to be perceived as “toxic”

we are slaves to central bankers
43% likely to be perceived as “toxic”

=============================
ha!

It’s okay to not trust realtors
8% likely to be perceived as toxic

Garth Turner is the best!
4% likely to be perceived as toxic.

I think the 4% are realtors! LOL.

#83 Keith in Calgary on 08.20.17 at 7:47 pm

Whose embarrassed ?

Want me to start the list of pension funds in trouble or recently bailed out ? US and Canadian.

Better buy more RAM firat.

#84 Joe on 08.21.17 at 1:52 am

Thanks for the article Ryan. I always wonder about the famous advice that warren buffet gave for his wife on his demise: 10 per cent in a bond fund and 90 per cent in an s and p etf. I understand that owning bonds smoothes out the ride. But, doesn’t it make sense that if you believe stocks are going up in the long run, and you have enough to cover your expense, that one would be better off to follow buffet’s advice right up toour own demise?
Thanks joe

#85 Tccontrarian on 08.21.17 at 3:15 am

Just wondering. Are any of your indicators telling you that a crushing bear market looms on the horizon?
Some very respected/seasoned investors think as much.

TCC

No. — Garth