A Comment -- General Comments From an Expert (A Commentary)

Markets. There is some activity in mining such as lower costs, 1 or 2 new mines being built, etc. This all seems to be ignoring the low level of commodity pricing. Oils will come up later, but you should own oils.

Markets. He is seeing a global slowdown. After 2008 we had growth on all fronts. We were spoiled with above historical normal returns. We are not going to see a resumption now that we have had a correction. The US dragged their feet raising rates and then could not when we hit turbulence in the last couple of months. He thinks they won’t miss the window again when they meet in December. If rates are raised, he will still be content with dividend yields. You aren’t going to see share price appreciation of the previous magnitude so you need to have dividends. He has 20 Canadian and 20 US dividend paying stocks for new clients. He shies away from ETFs. 2/3rds of his dollars are in the US. Yes you are diversified, but you are still heavily weighted very high in the largest companies of that index.

[12 year time horizon] You can achieve an income mutual fund performance with a small portfolio of good dividend paying stocks as it will have lower costs (MER). Canadian stocks are the best to go with so you don’t have currency risk.

Bank Dividends and DRIPs. The idea of reinvesting dividends into another sector is a good idea for diversification reasons, rather than reinvesting them in the same sector using DRIPs.

Markets. The “bad news is good news” is kind of going away now. We want to see more good news happening in the markets. In October we saw a big move upwards with the S&P and the Dow up about 9% or so. Interest rates and quant easing are happening in other parts of the world such as China and Europe, and that has helped the market quite a bit. The question will be “when will the Fed make their move”. That is going to linger into the marketplace along with earnings along with how strong is China’s economic growth and falling commodity prices. We are bumping up against the overbought zone in technical analysis and he sees a little bit of bumpiness in the market going forward. For a very long time there has been a lot of cash sitting on the sidelines. Now the question is, has the October thunder taken away or stolen from the Santa Claus rally. More than likely we are probably going to see that sideways movement again. We are at 17X forward earnings on the S&P 500. That is a point or 2 higher than the 10 or 15 year average. Sees technology as a space where you want to be a bit more overweight than some of the other sectors. Thinks resources will remain challenged for some time.

Companies with negative PEG ratios? If a company has negative PEG ratios, then it probably has negative earnings. You need to screen out companies with a negative Peg ratio. When you look at PEG, it doesn’t just stop at the PEG ratio and that’s it. You want to look at its competition. A Starbucks (SBUX-Q) might be a higher PEG ratio type of name, but it is really a leadership name with nothing competing heavily against it. A negative PEG ratio is not something you want to buy.

Markets. We are in pretty good shape right now. There was a big downdraft in August, it bounced around down there a little, and people didn’t know if the market was going to go down further or go up. Technically, the S&P 500 formed a double bottom. When we broke above that it was a very positive sign. That took place at the same time when we went above the 50 day moving average. We have now moved up to the 200 day moving average which is also a good sign. The market may pull back from here, but that is a good sign of support. Everybody focuses on the whole negative aspect and it is so easy to get sucked up into that. It is important to have discipline and to know when to get back into the market. Seasonally a 3^rd of corrections, 10% or greater, have all ended in October. Usually when you get past the period of high volatility, there is a good case to move forward.

Canadian Dollar? The best month for the Canadian dollar is April. There is also another smaller period in the summer months when it can do well. Up until mid December, this is not a strong period.

Markets. In the last 8 weeks, portfolio managers have really had to earn their keep. It has been really confusing, a lot of noise, a lot of leadership changing in the market. It felt like things were going to go the wrong way. The complexity of all these different macro economic factors, things that most investors have to pay attention to that you never did in your life before. Everybody is a Fed expert. The whole community has been egregiously wrong on what is happening with rates. What he has found to work in his approach is to just focus on incredibly good companies.

US banks? Very bullish on the US banks. Their expenses in legal and litigation have plummeted. They are cost-cutting. If we do have rising rates, it would be a good backdrop for the US banks. He owns Citigroup (C-N), J.P. Morgan Chase (JPM-N) and Goldman Sachs (GS-N).

Markets. Some roll-up strategies have been very aggressive in taking on debt to pursue acquisitions. This is a formula that has caused people problems in the past. They Buy a company, incorporate their earnings into their earnings, earnings go south a little, and they write a product off, so that doesn’t show up in the earnings. They keep the earnings growing, but what was bought is not as solid or accretive as they thought. They write that off on the goodwill line and it really doesn’t impact things. There is also one difference for Canadians. Our short selling rules are a little bit different, so it makes it an easier candidate. In the US, a short seller must uptick a stock; they have to sell the stock Short at a higher price than what it last traded at. People just get so frustrated with the game that they tend to stay away from the market.

Markets. You can’t load up on a stock that is going up so it is very overweighted. As it goes up you have to keep selling a little. The more concentrated your portfolio is, the more volatility you are going to have. VRX-T has a large market cap and so impacts Canadian indexes very much. In a taxable account it makes sense to have lots of Canada, but otherwise having more than a small portion is not a good idea. You need to diversify globally. Trailing earnings per share in the US are declining on a yearly basis. The currency is a big concern. China is going to do whatever they have to do keep the growth rate up to 7%. They are really struggling at this point. He thinks they are heading to 4-5% growth over the next few years.

Timeframe Analysis. A short term trader may look at day or intra-day charts. You take one time frame bigger than you are trading in. If you trade in and out every day you look at 1 to 5 minutes bar charts. Your long term trend will be the last week to a month. If you trade quarterly then you look at yearly and multi yearly charts. He warns against big block trades impacting short term charts.

Energy Stock Dividends. We are starting to see some dividend cuts. If there continues to be supply/demand imbalances for the next couple of years, then stocks could have pressure in anticipation of dividend cuts.

Educational Segment. Real Estate (like it was a stock). The guest is cautious on the outlook for real estate. House maintenance is like an MER is to mutual funds or ETFs. Real-estate is VERY expensive to maintain. It is almost becoming a luxury product. You should not fall in love with the value of your house as they rise and fall. Don’t sell your own house because it is overvalued. The current rental house in Toronto has a ‘P/E’ ratio that has risen from 5.1 to 8.5 since 2000. Vancouver is at 11 times and New York is at 6. Retirees want to extract maximum value from their house. Maybe they should think about selling in this kind of market. Condos are expensive also.