swanfinancial is thinking about….

After a week of ‘market corrections’ I have to think that 2010 is going to be a good year. When the herd mentality pushes stock prices too high, there is the inevitable correction and the herd brings them back down a little.

There is little reason to think that 2010 wasn’t going to be another good year for investors; the correction just makes it better. Now is time to buy in, while the market is down a little. That will help make your 2010 better than it would otherwise have been. Not that there aren’t concerns about the economies, or that investors shouldn’t be wary. But if you want guaranteed returns you shoudn’t be in the market in the first place.

But for those who last year, when propects were riskier, chose to take the risk, 2009 was a good year with some funds earning well over 50%. The questions now are whether this can be repeated, and where will the next 50% come from?  I suggest you look at history and make your choices. People haven’t changed, so the market will reflect what people (always) do.

If you are surprised that the markets are looking gloomy, it means you haven’t learned anything from history.

Summer is when the markets take a holiday, lay back, put their feet up, and snooze. And if there’s a disturbance, then they get annoyed and let you know in no uncertain terms that you should leave them alone until vacation is over.

But, don’t forget, if you want to get into the market, downtime is buying time.

Looking at the numbers for the last 6 months I read what I believe is confirmation of my thinking that Growth Funds are the place to invest in a recovering market. They tend to recover first, and produce a higher return than other funds.

What I saw in the numbers was growth generally in all funds over the last 3 months, but the final performance was muted because of declines in the first 3 months of 2009.  Except for Growth Funds which grew over both the first 3 months and the 2nd set of 3 months of 2009.

My conclusion is that Growth Funds tend to grow earlier and grow more than other funds in a recovering market. My second conclusion is that if Growth Funds are the first to recover, then indeed a general recovery is underway.

Summer is traditionally a period of negative numbers for investors. The recent swings in the markets display a sense of unease. Will this ummer be the traditional dog days, or will the depressed state of the market be a cause for this summer to be ‘happy days’?

The recent dip followed an announcement from the world bank that things were worse than it appeared. The markets dove in a scary fashion. Then the OECD said the economies were at the bottom, had levelled out, and implied good days ahead. The markets responded.

Obviously there is more economic confusion than economic projection.

In the absence of other advice, a conservative investor might go with tradition and assume dog days. An aggressive investor might go with happy days and invest accordingly.

We’ll know before the end of the year which path was the right one.

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.