|
By Ray Turchansky
Edmonton Journal
Your Money Section
Saturday, April 22, 2006
To financial advisers and planners, the words "it's different this time" are like fingernails running down a blackboard.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says,“Let's put high equity allocations into perspective. A 70- to 85-per-cent mix of equities is an aggressive investment profile, while 85 to 100 per cent in equities is speculative.”
The great fear is that people who suffered when the tech bubble burst in 2000 haven't learned from the experience.
And especially in Western Canada, there's worry that investors who sported bumper stickers asking for another oil boom like the one in the 1980s and vowing not to blow it this time are about to do just that.
Call me an eternal optimist, but somehow I do believe it is different this time. (You can hear those fingernails now.)
From a corporate standpoint, the obvious difference between the tech bubble then and the oil boom now is that this time we're talking about companies with real profits rather than virtual ones.
Oil company stocks are rising not just due to skyrocketing prices of the commodity, but also in reaction to financial statement profits. Most tech companies never saw actual profits at the turn of the century.
Another thing is that everywhere you go, the recurring question among investors is "when is it going to end?" There's concern out there, most investors have shed their irrational exuberance and people are paying attention, poised to withdraw at a moment's notice.
Just look at what happened this week.
On Wednesday, one national newspaper ran a story headlined "Stocks Lure Foreigners," showing that foreign investors had bought $9.5 billion worth of high-flying Canadian equities during the first two months of 2006, more than in all of 2005.
The same day another national paper ran a front-page story with a headline simply saying "OIL," in a size normally saved for the death of a monarch.
That same day, TD Economics released a report titled Speculators Move Into The Driver's Seat, in which it warned: "In light of the fact that the activities of speculators are erratic in nature, we are now even more steadfast in our view that a correction in crude oil and base metal prices in the order of 20 per cent is in store for later this year. The major catalyst for the pullback is likely to emerge on the demand side, when U.S. economic growth shows signs of slackening by summer's end."
So what happened?
The very next day, the S&P/TSX composite index withered by 173.66 points, or 1.4 per cent.
Granted, gold and oil prices fell off a little that day, but this reaction by investors was a defensive move based not on fundamentals such as falling profits or warnings before upcoming corporate earnings reports.
These are investors poised to take some profit off the table, then reinvest if and when a falloff in stock prices presents a buying opportunity.
Unlike the tech days, when people except Warren Buffett were siphoning their life savings into stocks they knew nothing about, there really isn't a lot of new money from Canadian investors going into energy stocks.
While foreigners are now the ones coming late to our party, Canadians are actually doing the opposite, putting much of their cash into international stocks which they ignored during the energy and commodities run-up of recent years.
Most Canadians who are overweight in resource and materials are so not because of recent purchases, but because investments made in those areas some time ago have swollen so much as to be out of line with prudent asset limits.
For those people, Vancouver-based financial adviser Adrian Mastracci of KCM Wealth Management cautions: "I have to squint to find a fund, among the glut, that has traces of bonds or treasury bills somewhere in its holdings.
"Let's put high equity allocations into perspective. A 70- to 85-per-cent mix of equities is an aggressive investment profile, while 85 to 100 per cent in equities is speculative."
It's hard advice to follow when bonds are tanking, like the instruction that when your car goes into a skid you should "turn your wheels in the direction of the skid."
A soothing sense that Canadian investors are not courting disaster during this boom comes from figures just released by the Investment Funds Institute of Canada.
They show that during the first three months of this year, the fastest-growing sector of mutual fund purchases was foreign stocks, up 48.4 per cent since Jan. 1, followed by balanced funds, up 26.3 per cent.
Behaviour like that should keep the fingernails at bay.
|
