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By Jonathan Chevreau
National Post
FP Investing
Thursday, June 15, 2006 |
So is the worst over? Yesterday's mild rebound in stock markets may have investors breathing a collective sigh of relief after words like "plunge" and "plummet" dominated headlines in yesterday's papers.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “If the market risks still feel comfortable, stay with the chosen asset mix. If a suitable mix of assets is not yet in place, now’s a good time to construct one.”
The hazard of declaring the worst is over was experienced first hand by Montreal-based market technician Ron Meisels, who last Friday reassured readers of his Phases & Cycles report that the worst was indeed over. "This is it. The worst is over," Meisels wrote, "Expect a slow, but steady recovery from here. Long live the bull market."
Despite this, Meisel was sticking to his guns yesterday: "This is option expiry week and the hedge players may continue to distort the action; but aside from this, the next few days will tell."
Asked if the worst was over, Patrick McKeough gave a two-pronged answer. "Yes, if you have a good solid diversified conservative portfolio, the worst is over."
And if you have a speculative portfolio on margin? "Then it's still not too late to upgrade" to better quality stocks or funds, said McKeough, Toronto-based publisher of The Successful Investor newsletter.
Many individual stocks have already bottomed out. "We just don't know which," McKeough says. He expects the overall market to be down to sideways until the fall, by which time a bottom should be in.
Contrast the relative optimism of Meisels and McKeough with Gordon Pape's gloomy "A new darkness phase is coming -- it's just a matter of time," used in his Investing Today newsletter. Pape urges readers to "take a more conservative approach to your money," avoid taking on debt, boost savings and hold more bonds and cash in RRSPs, and less stocks.
Nathan Mechanic, advisor with Toronto-based RBC Investments, insists "it's a correction, not a bear market, and one that was long overdue."
But veteran market watcher Richard Russell told readers of his Dow Theory Letter "the bear market that started in 2000 never ended. For that reason, I believe the end of the bear market lies somewhere ahead."
Saw it off half way and call it a "bearection." Whatever the term, it's sometimes true that she who panics first panics best.
On May 19, just as the rout was starting, Ken Robertson issued a portfolio alert telling his subscribers to liquidate all their equity funds. In retrospect that homage to the old axiom of selling in May and going away appeared to be a capital-preserving measure.
Of course, if a "buying panic" breaks out when least expected, those complacently in cash will be on the outside looking in. Most investment pros eschew market timing because they believe it's impossible to forecast market moves in advance.
The dilemma for investors is acting in the face of such contradictory views. Many advisors staunchly reiterate the "hold the course, the horse has already left the barn" point of view.
Their advice today is the same as it was last time we went through such a sell-off, and the time before that: If you're in a well-diversified, low-cost, tax-efficient portfolio, no action is necessary beyond yearly rebalancing.
David Bruce, a Toronto-based Scotia McLeod advisor, is in this camp. His clients are invested mostly in DFA index funds. Not one has called him this week to second-guess the strategy set long before. "Did I anticipate this? No. Is the world ending? No. Is it pleasant? No. Is there still an equity premium and does capitalism still work? I believe so."
So what of the fund companies' rhetoric about the need for Canadian-heavy portfolios to "go global?" Clearly, in a bearection, global markets all go down together. Some just go down more than others.
Still in the bear camp is National Bank Financial advisor Andy Filipiuk, who finds it hard to see how global stocks can flourish with the great American consumer throttling back. Indeed, the thrashing sustained by Japan and emerging markets is ominous for those who bought into the BRIC investing theme [Brazil, Russia, India, China].
George Morgan, manager of the more conservative Templeton Growth Fund, observes that in the current quarter, certain sectors have held up relatively better than others. They include big pharma, health care, utilities and consumer staples stocks. While tech stocks on the Nasdaq have been hard hit, Morgan is itching to snap up bargain-priced shares of America's premier software and semiconductor companies.
One advisor who doesn't buy the "go global" line is Vancouver's Hans Merkelbach, of Dundee Securities. Merkelbach's clients are way overweight Canada and most have 15% to 20% in gold funds. He still believes gold will pass $800 before the year is over. Eventually, he's convinced gold will reach $3,000, at which point he expects the Dow Jones Industrial Average to slump to the same 3,000 level.
Vancouver advisor Adrian Mastracci, of KCM Wealth Management Inc., says no one-size-fits-all prescription can apply to individual investors, all of whose circumstances are unique. His common-sense suggestion is, "If the market risks still feel comfortable, stay with the chosen asset mix.'' If a suitable mix of assets is not yet in place, now's a good time to construct one.
Thus, investors who have experienced more risk than they can tolerate should reduce exposure to equities. If capital preservation is the overriding consideration, there's nothing wrong with overweighting fixed income.
It's hard to quibble with that - whether or not the worst is over.
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