Wild Rose Country October 6, 2008
Oakville, ON, Canada Today I was a guest on CBC’s Wild Rose Country, a radio show based in Calgary. Investors are worried. I am worried. And, why shouldn’t we be?
One investor phoned to ask if she should buy into this stock market or pay off her mortgage. My answer focussed on her longer term investment goals, not on the current monster market sell off. If she is a conservative long term investor living a prudent life style, she should pay off her mortgage. If she is a speculator who wants to take a short term shot at fast stock market profits, she should invest later. The only people who should be entering the stock market at this time are day traders: IN in the morning, OUT in the afternoon. For our part, at CastleMoore, we manage investments for others. We will wait until this current sell off is over before we buy. When we sold out of the stock market in the spring, we hoped we would be able to buy back in September or October. Now we are thinking about holding off until November…
A second investor called to ask about oil and commodities prices. Would Alberta enter a recession because of the utter collapse of crude oil prices, natural gas prices and other industrial materials prices? He pointed out that energy prices were still at levels that made Alberta companies profitable. Why were the stocks selling off so much? I tried to tell him how big portfolio managers think and act. For them, it’s all about asset allocation. They think in terms of “what percentae of my portfolio is invested in energy stocks?” A year ago, when oil prices were rising so dramatically, the big pension funds and mutual funds were scrambling to add to their energy stock positions. Now that energy prices are collapsing, they are reducing their exposure. Because they all tend to think alike, the “herd instinct” applies. When they buy en mass, their collective buying usually pushes stock prices way too high. When they sell, their collective selling pushes prices way too low. What’s going on right now in the energy stocks, the fertilizer stocks, the metals stocks and [in July] the bank stocks. The herd is selling.
But the real shocker for me was a news short that CBC did when I was on hold waiting for my turn on the air. Apparently the City of Edmonton may have to raise taxes by 10% this year. It seems that last year they made $170 million from the stock market. 2008 has been a tougher year.
Those of us in Eastern Canada are not used to our governments saving us taxes by making money in the stock market. And we’re not used to 10% tax increases when they don’t.
Ken@CastleMoore.com
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