The vast majority of asset classes — government bonds, corporate bonds, developed world equities — are at exceptionally expensive levels relative to background, indicating low prospective returns. At exactly the exact same time, we are also aware that trying to select market peaks in any extensive sector is a fool’s game that nobody has been able to play successfully.
This makes strategy hard. Investors are faced with two broad credible possibilities, the first of which is to simply stand pat and ride out whatever happens next.
The ‘do nothing’ approach has more benefits than its passivity suggests initially. It dodges any attempt to time the market and history shows that this is the most lucrative practice. Additionally, it allows for the happy chance that equity markets will get cheaper and more appealing in the best manner, an increase in earnings growth that pushes price-to-earnings levels lower.
The next investor option would be to de-risk portfolios — taking a little amount of gains on expensive stocks and longer duration bonds — and increasing cash. This strategy has one distinct disadvantage because it probably ensures short-term underperformance of applicable benchmarks.
De-risking does, however, offer the possibility of longer term outperformance at a Warren Buffett-like way. The Oracle of Omaha always carries a massive cash hoard, and this gives him the flexibility to pounce on undervalued investments during periods of market weakness. Patient investors that raise money levels will have the same opportunity, though they can not expect to have Mr. Buffett’s magical timing.
This is a tiny cop-out but I don’t have any type of prediction about which of those strategies will be successful. By temperament, I am personally more comfortable carrying extra money, creating a shopping list (Telus Corp., Red Hat Inc. and Stryker Corp. are already on this list by the way) and waiting as long as it takes.
— Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Chorus Aviation Inc. Only days ago this stock closed at its highest level in more than a decade. The inventory offers investors an attractive dividend yield of approximately 6 percent. The business is insured by nine analysts and contains a unanimous buy call. Halifax-based Chorus Aviation owns Jazz Aviation LP, Air Canada’s regional airline that provides solutions to many smaller communities.
Imperial Oil Ltd.. From the Canadian energy industry, where it has sometimes been hard to recommend stocks, one in particular stands out because of its lack of analyst excitement: Imperial Oil Ltd., the gas and oil company majority owned by global giant Exxon Mobil Corp.. Of the 21 analysts that cover Calgary-based Imperial Oil, two have buy ratings, while 13 have six and holds have sells, according to Thomson Reuters’ Eikon database. No other energy inventory in the Samp;P/TSX composite currently has over two sell ratings.
Inovalis Real Estate Investment Trust.nbsp; This REIT is only 3 percent shy of appearing on the positive breakout list. The REIT has a forecast total return of over 14 percent (including its 8 percent yield). At the near-term, the unit cost could escape and fall under the $10 price level, trading back into its historic trading group. By 2013, until recently, the unit cost was locked in a trading range, trading mostly between $8.70 and $10. This is a REIT to watch, .
Brick Brewing Co. Ltd.. The Contra Guys are seeing this beer inventory very closely. In July, 2015, they wrote about Brick Brewing, which was trading at $1.65 and seemed to have some gusto left. This was a stock which they knew well, as way back in 2003 Benj Gallander bought it at 67 cents. He sold under a year and a half later at $2.34. After that, the stock crashed, with bankruptcy a real chance. Undeterred, he purchased in at 25 cents in 2008, keying on the fact that George Croft came as the chief executive and president. Mr. Croft had recently engaged in a turnaround as president of Lakeport Brewery Income Fund, together with the company being sold in a beautiful premium to Labatt. Can lightning strike twice?
Home Capital’s Oaken Financial announces major cuts in GIC prices
The attractive returns that Home Capital Group Inc. has been supplying on its own suite of guaranteed investment certificates will be no longer: The other mortgage lender is dialling back its GIC rates next week, in a sign of improving assurance for the business. Its Oaken Financial branch has been tantalizing investors with GIC rates which were well-above most other Canadian GIC issuers, particularly the big banks, after Home Capital investors and depositors lost confidence in the creditor earlier this year. .
Gordon Pape: These ETFs offer ways to diversify your bond portfolio outside Canada
Looks at two ETFs which can help investors achieve more international bond diversification outside of Canada: the iShares Core Total USD Bond Market ETF (IUSB) and the iShares Core International Aggregate Bond ETF (IAGG).
Take our back-to-school investing quiz — if you dare!
You have been waiting all summer and finally it is here: Investor Clinic’s seventh annual back-to-school investing and cash quiz. John Heinzl tests your investing mettle.
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What is up in the days ahead
There is no hiding from a strong loonie. The most domestically focused investor has little hope of completely dodging foreign exchange movements, which may prove to be strong determinants of equity returns. However there are ways of dulling the impact of the year’s increase in the Canadian dollar. Tim Shufelt will describe how in Wednesday’s Globe Investor. Also, start looking for John Heinzl’s five-year recap of his Strategy Lab dividend portfolio and there’ll be more useful number crunching for the best TSX value stocks courtesy of Norman Rothery.
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Compiled by Gillian Livingston