Issues

Do you ever get bored with your investments? Many investors do.

In fact, we see many investors who sell their stocks out of boredom.
But this, more often than not, is a big mistake.

Stocks don’t go up in a straight line. Sometime they will go down. Often, they
will do nothing.

When bored, it is important to distinguish between a stock doing nothing and
a company doing nothing. Stocks do not always follow fundamentals. Sometimes
they are not even close.

Look at how your COMPANY is doing. If it is growing, paying down debt and
increasing dividends, then likely nothing is wrong at all.

Don’t let boredom take you out of an investment that you should be sticking with.

Over time, boring stocks can often get higher valuations, because boring means
less volatility, and smart investors know this. Weak investors, on the other hand,
look for “action”.

Sharing With You,

Peter Hodson, CFA
Founder and Head of Research
5i Research Inc.

Featuring: Rino Ravanelli, Lisa MacColl, Colin Ritchie, Rita Silvan, Bent Gallander, Richard Morrison, Keith...

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Well, finally the weather is getting warmer, at least here in Kitchener, Ontario.

Investors can start looking forward to a summer of BBQ's and vacations. In the 'old days' summers used to be very quiet in the investment business. It was hard for investment bankers to put deals together when everyone was on vacation. But no more. With technology keeping workers tethered 24/7, money now truly never takes a single day off.

But you don't have to be tied to your computer or phone. Are you comfortable with
your investments? Have you set up your asset allocation to meet your goals? Do you have
an investment plan? Are you diversified enough?

Take a cue from your portfolio: If you can't ignore your portfolio for at least two weeks,
and enjoy a stress-free vacation, you are probably doing something wrong.

Sharing With You
Peter Hodson, CFA

Featuring: Richard Morrison, Jason Heath, Keith Richards, Rita Silvan, Donald Dony, David Edey, Shiraz...

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IF you have been even a casual reader of MoneySaver in the past few years, then you should know at least the basics of dollar cost averaging (DCA).

Dollar-cost averaging involves investing the same amount of money in a target security at regular intervals over a certain period of time, regardless of price. By using dollar-cost averaging, investors may lower their average cost per share and reduce the impact of volatility on their portfolios. In effect, this strategy eliminates the effort required to attempt to time the market to buy at the best prices.

It is amazing how DCA works in real life. When I was a fund manager earlier this century, we were encouraged to put money into our own funds. In fact, at some of the investment companies I worked at we were not even allowed to have a personal stock account. So, every month part of my pay cheque simply went into units of the fund I was managing. Then, along came the 2008/2009 Great Financial Crisis. Stocks plummeted, companies
went bankrupt, and people lost their homes. Yet, still, every month, I was buying. In 2010, when it was safe to come out from under my desk, I was surprised at how unscathed my portfolio was. We had just come through a giant market crisis, and my portfolio was in good shape. Why? Because I kept buying constantly. My $600 per paycheque bought more and more fund units each month as the market declined.

So, I did some math on 2022, which was another horrible year in the market. Suppose an investor bought $1,000 worth of SPY, the S&P 500 Index ETF, every month on the 15th, or if the 15th was a weekend or holiday, then the 14th. For this exercise we will assume there were no commission charges, which is true at several brokerages these days, especially for ETFs. With a DCA strategy last year, an investor would have lost 5.9% for the year. But that compares to a 19.5% loss for the market overall. Certainly a much better performance.
Even better, those extra units bought when the market was down really help when the market recovers, as it did in the first six weeks of 2023. Today, at the time of writing, the 2022 DCA strategy would see an investor already UP about 1% in total. Think about this. A DCA strategy in the third-worst year in 30 years is already in positive territory, less than two months into the year.

If that doesn't convince you that the strategy works, then nothing will. Perhaps it's time to implement regular buying and forget about timing the market.

Sharing With You,

Peter Hodson, CFA

Featuring: Chris White, Ellen Roseman, Jason Heath, Ken Kivenko, Rita Silvan, Richard Morrison, Barbara...

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A couple of disparate points this month:

We think all investors need to work hard to avoid 'anchoring' and 'recency' bias:
Anchoring is when an investor sets expectations based on 'old' news or an old price. Recency bias is when an investor looks at the recent past, and expects that to continue.

Both can be portfolio killers. On anchoring, be careful if you catch yourself saying, ever, "I
paid $XX for that stock". The stock does not know what you paid for it. The market doesn't care. The buyer of your stock doesn't care what you paid for it. Frankly, unless you are considering tax implications, the price you paid for a stock is completely irrelevant, once you own it. The only thing that matters now is the future. A stock down 50% can still decline ANOTHER 50%, infinitely (until delisting at least).

Recency bias is never good, but this year could be more harmful. After a horrible year, where both stocks and bonds declined sharply, you might want to 'go conservative', or 'go to cash'. There is nothing wrong with that, if that meets your goals. But we would caution against making major changes AFTER a decline. We do not know if the market is going to rise this year. But we do know that it has always risen, eventually, after every decline. Something to think about before you go stick your head in the sand and hide from the markets this year.

Peter Hodson, CFA

Featuring: Matt Poyner, Rita Silvan, Fred J Masters, Keith Richards, Wynn Quon, Richard Morrison

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In case you hadn’t heard, the Tax Free Savings Account (TFSA) limit for 2023 has been
raised to $6,500, from $6,000 last year. That’s due to inflation, so there is at least one
benefit from the inflation problem that wrecked a lot of stocks last year.

We would strongly advise everyone to utilize their TFSA as much as possible. If you can’t
fund the maximum, put in what you can. Tax-free compounding is a wonderful thing.

Anyone over 18 can set up a TFSA and fund it with $6,500 in 2023. Someone who turned
18 in 2022 can put in $12,500 this year. The current lifetime contribution limit is now $88,000, assuming you have contributed the maximum since the TFSA’s inception in 2009.

TFSA withdrawals can be made any time, tax-free. All withdrawals can be put back into
account in the year after the withdrawal.

If you have children, and the means, we think the following is a good idea, to help your
childrens’ futures: Once they turn 18, tell them you will fund all, or half, of their TFSA
contribution every year. But, once they take ANY money out, that gift program stops. Sure, it is a bit of a bribe....but it will help show your kids that time is the most important factor when investing.

Sharing With You
Peter Hodson, CFA

Featuring: Brian Quinlan, Richard Morrison, Ed Arbuckle, Julie Petrera, Steve Benmor, Giles Jordan, Caitlian...

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