For decades we could approach the cash desk and hope secretly the clerk would make a mistake and charge us the US price shown on the object we were buying , instead of the Canadian price. I don’t recall it ever happening, but I never gave up hoping.
For the past year, as the Canadian dollar rose in value against the US dollar, those old hopes were exposed not only in myself, but in hundreds of thousands of Canadians who knew with certainty the difference between the two prices was not justifiable, except when there was old stock they had purchased at the old price. We waited. The months went by. Politicians actually suggested prices should drop. When they didn’t, Canadians flocked to the USA to purchase goods at substantially lower prices. Even with transportation and accomodation costs worked in, they still saved significant amounts of money, plus got a free vacation.
Be patient we were told; prices are coming down. Wal-mart even abandoned some manufacturers who refused to allow US pricing in Canada. The battle lines were being drawn.
So, now that old stock is gone and the dollar remains basically at par, can we buy at US prices? You bet your last penny we can’t!
This sounds to me a lot like the big savings we were to realize when the government reduced the GST, which many retailers never passed on to anyone. Another 1% profit for themselves on top of the previous 1%.
Retailers have done the math. How much more can they charge consumers before they will actually go to the USA to shop in significant enough numbers to matter? When they do shop in the USA, will they shop in the US version of the Canadian store (called keeping the money in the family)?
So Canadian pricing, which might have been justified once by the actual difference in the dollars, is now justified by the new economic model: all the market will bear.
I can’t recall when it started, but for many, many years I have heard every year in December about how mercantile Christmas has become. We have lost the spirit of Christmas with all the gifts and decorations and parties. Get back to basics, the True Meaning Of Christmas, they have been saying. I have even been told to my face that I spend too much money on Christmas. (And I loved every minute of it!)
So, now that the Season is over (are we still allowed to call it the Christmas Season without offending someone?) I’ve been reading numerous reports about how disappointed retailers are that we didn’t spend more money at Christmas in 2007. And even worse, this lack of effort on our part is partly to blame for this current (pending?) recession and hightened fears we are going to have a depression.
I might be wrong but generally advertising works. So if we are bombarded for weeks every year with how evil we are spending money at Christmas time, then should anyone, least of all retailers, be surprised if we spend less than they like?
For the record, I didn’t spend less this year. but I did budget better for it and had most of it done before Remembrance Day. So, yes, I am guilty. I spent less at Christmas time and enjoyed myself more at my retailers’ expense. I am sorry if I have caused a recession.
Yesterday I wrote about a Globe and Mail article by Rob Carrick. I should have pointed out it appeared in their on-line edition. Today’s print edition carries a revised copy of the article.
After reading the article yesterday I emailed the author who was kind enough to reply that my comments were fair. In my email I objected to speaking about Seg Funds as if they were the same thing as Principal Protected Notes. You know, of course, they resemble mutual funds, not PPN’s.
I am pleased to be able to say today the print edition of Mr. Carrick’s column was revised to delete the incorrect information about Seg Funds. You can read the print edition by following this link.
http://www.theglobeandmail.com/servlet/story/LAC.20080122.RCARRICK22/TPStory/TPBusiness/?query=
Rob Carrick wrote today in the Globe and Mail that “This is no time to sell quality”. In fact, that is the headline of his piece.
He says: “Selling quality right now is probably the worst error you can get fooled into making by a plunging stock market.” I totally agree with him. Selling now is locking in your losses, and what’s worse, probably locking them in for a long time if you switch into guaranteed funds. The market has plunged deeply in only a few days. History shows it can recover with the same speed. Getting back into the market is usually done after the recover has started and you have missed the opportunity to make a significant gain in value. It’s a good example of locking the barn doors after the horses have left.
Unfortunately he also says: ”
Another mistake is to give up on the risks of the stock market and instead buy guaranteed investments like principal-protected notes or segregated funds. The appeal of these investments is obvious – you get exposure to stocks with no risk of losing money in down markets like we’re seeing today. The problem is with the cost of the guarantee – it cuts into returns so deeply that it’s simply not a good value.”
How could he get the main point so right, and then make so many errors in a following paragraph?
Segregated Funds resemble mutual funds and are not the same as Principal Protected Funds.
Although Segregated Funds have guarantees at maturity and death, there is no doubt that you could lose money in a down market, which is what would happen if you withdrew your funds from a Seg Fund right now.
The cost of the guarantee is an old maid’s tale as far as I am concerned. It reminds me of the banks saying their car insurance is cheaper because they don’t pay commissions. While it is true they don’t (usually), they pay salaries instead. Many Seg Funds expenses are lower than those of mutual funds which do not have any guarantees, but he does not say they are ‘bad value’.
Perhaps he is speaking from the point of view of a stock investor, rather than a mutual fund investor. He obviously has strong - but misguided in my opinion - thoughts about Seg Funds.
But I certainly agree with his view that a wise investor who is in it for the long haul would do themselves a lot of financial damage if they withdrew from the market at this point.
Almost everyone who invests in a market fund knows the markets ( and therefore their fund value) will go up and down. But it seems that almost everyone, when the market goes down, is gripped with the fear of loss. Their reaction is to ‘get out’ even though they know the market will go back up. Getting out is a certain way of locking in your losses. Getting out does not protect your money. The only way to protect your money is to wait for the value to return. I’ve never had anyone tell me “I have gained so much money I should get out now.” They only want out after they have had a loss.
Most, but not all, market downturns is simply the method the market the market has to correct over-priced stocks, to bring their price in line with their value. This is normal and happens all the time, sometimes in a very dramatic manner, but usually it is an ongoing process that alarms no one.
People who exit the market when their funds are low will always lose money. The market has always come back, some time very quickly. Even one day can produce dramatic gains. A recent survey I saw showed that if you were to miss the best day of a market gain you could lose 20-30% of the value of your funds. Just as losses can happen very quickly, in a day or in a very few days, so the market gains can happen in just a few days of the year. The only way to catch these, is to be there before they happen.
People like to chase winners and drop losers. History shows this is the perfect way to lose money because it means you are judging the winners and losers based on yesterday’s data. The fact is that by the time you see that data, it is too late to make a decision on what you should have done the day before yesterday.
Sometimes the market jitters can be unnerving. If this is more than you can handle, then you have to be satisfied with the returns on guaranteed funds. But the switch from the market funds to guaranteed funds should be made when the market has produced a satisfactory return for you. It should not be made when the market has just dipped.
The 7 Whines of Christmas
7. I always GAIN weight at Christmas.
6. The WINE gives me a headache.
5. Eggnog is SO not good for you.
4. There’s always TOO much turkey left over.
3. PEOPLE just drop in unexpectedly.
2. Why do they keep sending a Christmas CARD?
1. Do I have to get up THIS early?
Managed funds make money when the value of the stocks they hold in the fund increase in value. Just because there is a recession does not mean that all stocks will decline in value. In fact, a company could improve it’s bottom line during a recession and it’s stock value could increase. If a fund holds stocks in companies which manage the slowed economy well, then the fund could increase in value. This is just as true as saying that during an economic boom a company’s stock might decline in value because of bad management, and funds which hold this one in their portfolio would obviously decline as well.
This is the reason some funds limit both the amount they hold in any one company, and the amount they hold in any market segment. It is one of the great values to having a Seg Fund as an investment versus personally owning stocks. The Fund allows you to spread the risk over a larger number of segments and stocks, as well as providing you with professional selection.
With all the talk these days of a possible/pending/likely/but maybe not recession, it seems to me that news reports do a poor job in their headlines when they report economic news. While the words might be technically true, the real story is usually not told either in the headline or in the body of the story.
When I read a headline that says “Bank Profit Falls 40%” I know that does not mean the bank is losing money. They are still making a profit, just less than last year (when they increased their profit by 30%). The reality is their profit may have slipped only 10 % over a 2 year period. Hardly cause for alarm to anyone but the CEO who’s bonus might be cut by a few million dollars.
I was at a meeting recently where an overview was given of how a Seg Fund company invests their clients money. You always learn at these meetings some tidbits of information which are revealing of how the funds work.
For example. they had invested in two stocks in 2006 which they sold in 2007 after they had increased in value 100%. Unfortunately they continued to increase after the company sold them. The point they were making is that buying and selling has to be disciplined, and they sold when their established procedures said it was time to sell. The subsequent increase in the stocks value came as a result of unexpected events (such as a natural disaster) which they could not predict.
They also explained that while their international funds had increased in value, the Canadian dollar has also increased in value. International funds are frequently held in US funds, so the increase in value of the stock portfolio was offset by the decrease in value of the US dollar.
For obvious reasons I am not saying which company meeting I was at, and which stocks they had bought and sold, but as an old shopkeeper acquaintance of mine always said, “Trust Me.”
Accept that the amount of insurance you carry should be based on the value of what’s being insured. It’s interesting to see how people judge value. Value is in the eye of the beholder. A photo, which has no monetary value and is irreplaceable, might be priceless. A large building which is being used only because it exists, has an obvious physical value, but might be worthless to it’s owner, it’s loss of no significance. The loss could even be viewed a beneficiary because it was not valued and now has been removed.
When you enter into an insurance contract, value becomes something tangible. The contract will state the basis of valuation, and there are terms such as assessed value, cash value, actual cash value, depreciated value, replacement cost, agreed value, etc. The term used will vary with the type of contract. Life insurance has an agreed upon value. Car insurance has (usually) cash value. Property insurance can be Replacement value, but it can also be assessed value or actual cash value.
People always overvalue an object after it is lost, and undervalue it when purchasing insurance. The reasons for doing this are obvious. What’s interesting is how value can be made to mean anything you want it to be.