# Canada under-performing the world lately



## james4beach (Nov 15, 2012)

Anyone else getting frustrated by this? The TSX has been flat/down for many months, while seemingly everything else in the world rallies strongly: US, Europe, even emerging markets.

Or is this really the opportunity to buy more of Canada, instead of (for example) buying the US at new all time highs?


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## tygrus (Mar 13, 2012)

Worlds scared of T2 and his tax happy policies. He scared more capital away from the country than any recession ever could.


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## AltaRed (Jun 8, 2009)

It is my view that Canada will continue to lag much of the world for some time. Its economy is heavily resource based and the commodity supercycle lifted all boats during that period. Until there are more structural changes in our economy and/or the commodity supercycle returns, expect Canada to continue to lag. GPD growth doesn't always correlate well with capital markets and vice versa.

My view is NOT to buy ex-Canada at these levels, albeit continued strengthening the loonie (defies logic) makes ex-Canada purchases more attractive. The only thing I am keeping an eye on ex-Canada is XEF where I have about a half position and would like to pick up more....at a more reasonable price.

I am spending most of my time looking at a select number of Canadian multi-nationals for potential opportunities. I don't see the loonie staying here for long......will slide again when the market decides there will be no more short term interest rises later this year.


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## tygrus (Mar 13, 2012)

Let me show you another point of view Altared. Resources cant be outsourced or replaced by automation and are highly resistant to disruption.


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## 1980z28 (Mar 4, 2010)

I have been adding to Canadian equities for the last couple of months,,,mostly dividends ,,retirement income,,not to worried about capital gains just steady income,,,,if there is a bright spot Canadian stocks are for the most part on sale enjoy and buy,,,5 to 20 years out i do believe all will be up ,,,,,so no worries enjoy the opportunity at currant prices ,,i am shooting for 80 years on this planet now 56 so life is short enjoy


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## milhouse (Nov 16, 2016)

Pretty frustrated here as I've been overweight Canada due to a couple of reasons. The TSX has underperformed save for a nice rise last year but only after taking a hit in 2015. Canadian dividend stocks have done fairly well versus the TSX so I'm starting to dump my Canadian index funds and reallocate to US, EAFE, and EM index funds. It kind of needed to be done anyways as it still leaves me way overweight Canada due to my heavy position in Canadian dividend growth stocks. 

The double whammy though is the with the Canadian dollar rising, the small ex-Canada gains over the summer are being offset. I have nothing really to base this on but IMO, I think the 80 cent loonie is the new norm, though I do think the BoC will hike a quarter point again this year.


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## 1980z28 (Mar 4, 2010)

Will be buying USD as our dollar increases


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## AltaRed (Jun 8, 2009)

tygrus said:


> Let me show you another point of view Altared. Resources cant be outsourced or replaced by automation and are highly resistant to disruption.


Except there are a lot of resources elsewhere and recycling is making more of a dent. I have no doubt Canada's resources will be in demand for a very long time, but I don't believe we will return to the 'super commodity cycle' we've seen in the past where pretty much every commodity was hitting on all cylinders. We could sell anything and everything at a good price. Now it seems it will be more selective hits and misses, e.g. base metals now and more recently met coal. But agriculture is depressed as is potash as is O&G. 

Mixed results has an impact down the chain...from infrastructure to financials to consumer spend.


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## andrewf (Mar 1, 2010)

AltaRed said:


> It is my view that Canada will continue to lag much of the world for some time. Its economy is heavily resource based and the commodity supercycle lifted all boats during that period. Until there are more structural changes in our economy and/or the commodity supercycle returns, expect Canada to continue to lag. GPD growth doesn't always correlate well with capital markets and vice versa.
> 
> My view is NOT to buy ex-Canada at these levels, albeit continued strengthening the loonie (defies logic) makes ex-Canada purchases more attractive. The only thing I am keeping an eye on ex-Canada is XEF where I have about a half position and would like to pick up more....at a more reasonable price.
> 
> I am spending most of my time looking at a select number of Canadian multi-nationals for potential opportunities. I don't see the loonie staying here for long......will slide again when the market decides there will be no more short term interest rises later this year.


The economy grew by 4.6% in real terms over the last year. That is blazing growth--fastest since 2000. This is why CAD is strengthening.

https://beta.theglobeandmail.com/re...35826298/?ref=http://www.theglobeandmail.com&


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## zylon (Oct 27, 2010)

We definitely have some catching up to do.
Canada - way over to the right;
between Peru and Saudi Arabia.










h/t *@MarinKatusa* (twitter)


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## Pluto (Sep 12, 2013)

I have a lot of faith in the Canadian economy. It has its ups and downs, yet if one sticks to quality stocks one can do as well here as anywhere else. Just stock to the non-cyclicals as long term holds, and the cyclicals as trades, or avoid them all together. if you have a portfolio like that you won't be way over at the right. 

May GDP was .6. .6 x 12 months is 7.2. (Not saying the year will be 7, just putting the stellar month into annualized perspective.)


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## fatcat (Nov 11, 2009)

tygrus said:


> Let me show you another point of view Altared. Resources cant be outsourced or replaced by automation and are highly resistant to disruption.


true, but they *are* susceptible to both government policy (or lack of government policy) and social policy which can weigh heavily

it isn't just the price of oil that has all of these multinational energy companies getting the hell out of canuckistan lately


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## AltaRed (Jun 8, 2009)

Deleted. Will respond later.


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## gibor365 (Apr 1, 2011)

zylon said:


> We definitely have some catching up to do.
> Canada - way over to the right;
> between Peru and Saudi Arabia.
> 
> ...


This chart is not updated....Peru YTD = +11%, Saudia = +4%, 2 biggest losers are Canada YTD = -1.4% and Russia = -3%


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## gibor365 (Apr 1, 2011)

james4beach said:


> Anyone else getting frustrated by this? The TSX has been flat/down for many months, while seemingly everything else in the world rallies strongly: US, Europe, even emerging markets.
> 
> Or is this really the opportunity to buy more of Canada, instead of (for example) buying the US at new all time highs?


Not only months, but years: 10y XIU total return is just 3.7%! , to compare SPY 61% ... you would be better with HISA/GICs than with XIU 
and our TSX Venture is a complete joke 10y total return is -75%! They just should close this "business"


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## james4beach (Nov 15, 2012)

gibor365 said:


> Not only months, but years: 10y XIU total return is just 3.7%! , to compare SPY 61% ... you would be better with HISA/GICs than with XIU
> and our TSX Venture is a complete joke 10y total return is -75%! They just should close this "business"


Let's see, Morningstar shows 10 year XIU return to yesterday is 3.95%. Not a strong return at all.

But consider the starting date of that period (2007-07-27). This was pretty much the peak value of the TSX.

The 15 year return of XIU, however, is 8.90%. So I wouldn't be too quick to dismiss the TSX index.


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## gibor365 (Apr 1, 2011)

james4beach said:


> Let's see, Morningstar shows 10 year XIU return to yesterday is 3.95%. Not a strong return at all.
> 
> But consider the starting date of that period (2007-07-27). This was pretty much the peak value of the TSX.
> .


But this is exactly the problem that pretty much the peak value was 10 years ago , if SPY would perform like TSX, you also would tell about


> pretty much the peak value


 in 2007?!


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## tygrus (Mar 13, 2012)

http://nationalpost.com/opinion/nat...ness/wcm/e9f05ea9-8675-49cc-9faa-f97fb51a8d1c

National Post View: Petronas debacle confirms that Canada simply isn't open for business



Pluto said:


> I have a lot of faith in the Canadian economy.


I do too, but as OLeary said, with the right govt, we could eat the worlds lunch. Instead we twist ourselves into knots trying to appease outlier groups who will never stop opposing these projects.


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## andrewf (Mar 1, 2010)

gibor365 said:


> But this is exactly the problem that pretty much the peak value was 10 years ago , if SPY would perform like TSX, you also would tell about in 2007?!


SPY is also the most bubbly market in the world. The US is trading at 2x the valuation of Canada on a CAPE basis. Buy high and sell low if you like.


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## andrewf (Mar 1, 2010)

tygrus said:


> http://nationalpost.com/opinion/nat...ness/wcm/e9f05ea9-8675-49cc-9faa-f97fb51a8d1c
> 
> National Post View: Petronas debacle confirms that Canada simply isn't open for business
> 
> ...


Was Harper the wrong government?


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## AltaRed (Jun 8, 2009)

Not exactly on-topic to this thread, but I picked this up from that other forum https://www.oaktreecapital.com/insights/howard-marks-memos Also available as a PDF https://www.oaktreecapital.com/docs/default-source/memos/there-they-go-again-again.pdf

It is worth a read...but get yourself a cup of coffee beforehand. It will take awhile.


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## gibor365 (Apr 1, 2011)

AFAIR, I've read that inventor Dogs of the Dow strategy, several years ago swithed to another strategy.. He buys 3 worst performing ETFs at current moment and rebalanced annually or so... 
Thus,according this approach, now it's time to invest into Russia, Canada and KSA?!


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## james4beach (Nov 15, 2012)

andrewf said:


> SPY is also the most bubbly market in the world. The US is trading at 2x the valuation of Canada on a CAPE basis. Buy high and sell low if you like.


What's a good source for Canada's CAPE?

The US is now over 30. They've exceeded the pre-1929 stock bubble peak and starting to get into tech bubble territory. However, a common refrain is that "fundamentals don't mean anything any more".


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## AltaRed (Jun 8, 2009)

Dunno, but here is one for example. http://www.starcapital.de/research/stockmarketvaluation. Pegs the USA at 28 and Canada at 20.4... as of June 30 this year.

Also a bit of freebie data here but doesn't give enough without payment. http://siblisresearch.com/data/cape-ratios-by-country/


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## james4beach (Nov 15, 2012)

Thanks, wow that June 30 is pretty recent. I wonder if Canadian CAPE has the same historical range as the US?

For the US, that reading of 20.4 would be pretty fair valuation. Do you think the concept extends to Canada, using the same scale?


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## like_to_retire (Oct 9, 2016)

james4beach said:


> However, a common refrain is that "fundamentals don't mean anything any more".


Isn't that what I remember them saying during the dotcom bubble?

ltr


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## AltaRed (Jun 8, 2009)

I have no basis to speculate one way or the other BUT.......

I would be curious what Canada would be without energy/commodities/materials. I am guessing our CAPE ratio would be pretty high, maybe in the same territory as USA. We already know most of our pipelines, utiilities, rails, industrials, telecoms are historially and currently at higher P/E ratios than our US counterparts. No reason to doubt the CAPE ratios wouldn't be either. IOW, most of us who are light (devoid) of the resource sector may already be in CAPE 30 territory.


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## james4beach (Nov 15, 2012)

That's exactly my concern. If you look at the portfolios around this forum, all of us with 5-packs and 12-packs etc, have de-emphasized commodity exposure.



AltaRed said:


> I would be curious what Canada would be without energy/commodities/materials . . . IOW, most of us who are light (devoid) of the resource sector may already be in CAPE 30 territory.


I suspect that the common portfolio around here (including my own) is similar to the American CAPE 30 territory, which means we're just as vulnerable to an over heated market as an S&P 500 investor.


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## Eder (Feb 16, 2011)

Commodity based stocks are not investments but speculation. Important to give them a pass with case money.


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## gibor365 (Apr 1, 2011)

> I would be curious what Canada would be without energy/commodities/materials.


 Nothing!


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## tygrus (Mar 13, 2012)

gibor365 said:


> Nothing!


Lots of countries have no natural resources and do fine. Japan comes to mind. But our investment in training and education and technical skills would have to vastly improve. Dont think that is something we could do.


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## gibor365 (Apr 1, 2011)

tygrus said:


> Lots of countries have no natural resources and do fine. Japan comes to mind. But our investment in training and education and technical skills would have to vastly improve. Dont think that is something we could do.


Maybe this is exactly the problem that we have too much natural resources?! For God's sake, what we produce?! Compare Canada's population with Switzerland, Netherlands or Israel and what Canada produces comparing to them!


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## AltaRed (Jun 8, 2009)

What I was referring to was 'what would Canada's CAPE ratio be if one excluded the commondity sector. Not what Canada, as a country be, without the commodity sector. My guess... higher than the so called 20.4. Maybe as high as the USA although the FAANGs distort the US picture.


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## gibor365 (Apr 1, 2011)

AltaRed said:


> What I was referring to was 'what would Canada's CAPE ratio be if one excluded the commondity sector. Not what Canada, as a country be, without the commodity sector. My guess... higher than the so called 20.4. Maybe as high as the USA although the FAANGs distort the US picture.


COnsidering that TSX did nothing in last 10 years comparing to S&P, it's logical that US CAPE would be higher, no?!


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## AltaRed (Jun 8, 2009)

gibor365 said:


> COnsidering that TSX did nothing in last 10 years comparing to S&P, it's logical that US CAPE would be higher, no?!


On a TSX wide basis yes, but not ncessarily on a sector analysis... or by excluding certain sectors. We simply don't know.


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## humble_pie (Jun 7, 2009)

james4beach said:


> That's exactly my concern. If you look at the portfolios around this forum, all of us with 5-packs and 12-packs etc, have de-emphasized commodity exposure.
> 
> I suspect that the common portfolio around here (including my own) is similar to the American CAPE 30 territory, which means we're just as vulnerable to an over heated market as an S&P 500 investor.





global markets seem to be showing the earliest signs of a sea change. Very gradually the world is getting ready for the next commodity cycle. The rise in CAD vs USD may be one of the faint signs imho.

it could take 5 years or more for a resource/materials economy to develop, but the gigantic US boom led by the FAANGs & Co - actually with google's re-name we should be calling them the FAAANs - appears to be starting to lose steam.

US stock markets may be hanging on to peak prices by their teeth for the time being, but the rest of the world is punishing trumpland via the greenback. Markets could suffer their turn.

one country that appears to have understood about the next commodity boom is russia. A driver has been the future removal of energy & mineral resources from the general himalayan region to china & to the mediterranean by rail, stickhandled & project-managed by russia. China is involved. Canada's bombardier may be involved.


,


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## doctrine (Sep 30, 2011)

Canada is now faced with a worst-case scenario of a higher dollar (less exports), higher interest rates for investment, and a still low (but not cratered) oil price. Is it any wonder than the TSX has now adjusted for these facts?

The good news is that if any of those three pillars change, the TSX could move higher. The dollar also makes it a good time to invest outside the country; the S&P 500 is down 7% from its peak, in Canadian dollars.


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## like_to_retire (Oct 9, 2016)

doctrine said:


> Canada is now faced with a worst-case scenario of a higher dollar (less exports), higher interest rates for investment, and a still low (but not cratered) oil price. Is it any wonder than the TSX has now adjusted for these facts?
> 
> The good news is that if any of those three pillars change, the TSX could move higher. The dollar also makes it a good time to invest outside the country; the S&P 500 is down 7% from its peak, in Canadian dollars.


To me 7% doesn't seem like a lot, especially for an index that has produced a total return of about 100% in the last 5 years. I would consider the S&P 500 a "buy high" situation right now.

ltr


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## WGZ (Feb 3, 2017)

I'm considering moving to Australia TBH. I'm not sure what their economy is based on, but they seem to do alright. One thing that interests me is how min wage there is 20 bucks an hour and their cost of living is pretty much the same as Canada. Australia doesn't even have the advantage of bordering a country like the U.S., and they seem to do great?

We must have a very crappy and corrupt government. edit: and complacent for sure.


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## AltaRed (Jun 8, 2009)

Australia has a very significant trade presence with China and to a lesser extent other SE Asia countries. Their advantage has been not having an elephant next door


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## gibor365 (Apr 1, 2011)

> I'm considering moving to Australia TBH


 When my wife is pissed at her work,she is telling that we should move to Australia when our daughter finishes university


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## tygrus (Mar 13, 2012)

gibor365 said:


> When my wife is pissed at her work,she is telling that we should move to Australia when our daughter finishes university


Dont have to get that extreme. Just have to get T2s hand out of the cookie jar.


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## doctrine (Sep 30, 2011)

like_to_retire said:


> To me 7% doesn't seem like a lot, especially for an index that has produced a total return of about 100% in the last 5 years. I would consider the S&P 500 a "buy high" situation right now.
> 
> ltr


The US is hitting on all cylinders, plus THEIR dollar is weaker. US multinationals now face dual tail winds of higher domestic demand AND more competitive export business. You can sell and bet against this, of course, but weak currencies favour stock markets; you would be betting that the US dollar will strengthen or their economy will falter, and probably need both to be correct.


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## gibor365 (Apr 1, 2011)

tygrus said:


> Dont have to get that extreme. Just have to get T2s hand out of the cookie jar.


This is only bla-bla-bla talk . But if she gets 1year contract or so , it would be exciting ....


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## My Own Advisor (Sep 24, 2012)

Canada will rebound at some point. Taking some time for sure. Energy sector is not helping us.


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## canew90 (Jul 13, 2016)

james4beach said:


> Anyone else getting frustrated by this? The TSX has been flat/down for many months, while seemingly everything else in the world rallies strongly: US, Europe, even emerging markets.
> 
> Or is this really the opportunity to buy more of Canada, instead of (for example) buying the US at new all time highs?


This and other stories of which stock has out preformed, which sector shone are ones which get people excited or anxious. I'm grateful that we finally concentrated on how our income grew and continues to grow, regardless of how much total return or other matrics others use. As long as our income grows what does it matter if the TSX lagged the S&P. Maybe I could have done a lot better, but by switching in & out I'd probably do a lot worse in the long run. I'll stick with the slow & steady and leave the trading and guessing to others.


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## andrewf (Mar 1, 2010)

My Own Advisor said:


> Canada will rebound at some point. Taking some time for sure. Energy sector is not helping us.


Did you miss the news about Canada's economy growing by 4.6% in real terms over the past year? That is blistering growth for a developed economy. If that is not 'rebounding', I really have to wonder what that looks like.


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## andrewf (Mar 1, 2010)

gibor365 said:


> When my wife is pissed at her work,she is telling that we should move to Australia when our daughter finishes university


I'm pretty sure once you are there, you will find a multitude of reasons why Russia and Israel are better places to live than Oz, too.


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## My Own Advisor (Sep 24, 2012)

andrewf said:


> Did you miss the news about Canada's economy growing by 4.6% in real terms over the past year? That is blistering growth for a developed economy. If that is not 'rebounding', I really have to wonder what that looks like.


I did see something like that Andrew, very good indeed. I simply see the TSX vs. economy as a whole lagging other developed countries, such as U.S. this calendar year to date; given the U.S. is our largest trading partner. U.S. still dwarfs Europe and China as our largest trading partner.


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## AltaRed (Jun 8, 2009)

andrewf said:


> Did you miss the news about Canada's economy growing by 4.6% in real terms over the past year? That is blistering growth for a developed economy. If that is not 'rebounding', I really have to wonder what that looks like.


You've mentioned that before. That sound bite is data mining comparing May 2017 with an aberrant May 2016 and a specific boost from the oil sands this year. Fort Hills and Horizon will add yet more production before year end.

GDP growth may really be about 2.5% on an annualized basis..... which is still reasonable of course but mostly due to Suncor and CRNL.

Added: As was mentioned already, a significant contributor to the sideways movement of the TSX has been due to the commodity sector, O&G in particular, and the exit of foreign capital. e.g. the oil majors and now Petronas in particular. More will come as the other LNG proposals die on the vine. Canada is no longer a welcoming place with excessive impediments to development, government poliicies like carbon taxes and raising of minimum wages, Ontario's screwup of the energy file, charter of rights issues related to drug testing and prolific use of the courts by indigenous groups. There is just no reason for major capital investment in Canada relative to other global opportunities and we see it with our own companies investing their capital ex-Canada. We can't borrow our way to greatness without unmanageable debt burdens. Like it or not, we need continued 'major' foreign investment in our economy. Hence why, if one is to invest in Cdn companies, invest in those that have International presence.

I really thing the key to success with Canadian equities is to ensure they all have at least some, or more often significant, presence internationally. Fortunately, most of the companies we discuss do.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> You've mentioned that before. That sound bite is data mining comparing May 2017 with an aberrant May 2016 and a specific boost from the oil sands this year. Fort Hills and Horizon will add yet more production before year end.
> 
> GDP growth may really be about 2.5% on an annualized basis..... which is still reasonable of course but mostly due to Suncor and CRNL.




these are all straws in the wind. The point is, the trough looks to be forming or have formed.

baltic dry index has trended up since february this year. Volatile but tracking higher highs & higher lows.


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## AltaRed (Jun 8, 2009)

Click on the 10 year, or MAX chart in this link https://tradingeconomics.com/canada/gdp-growth for histortical perspective. This is through the period of the supercommodity cycle as well.


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## GreatLaker (Mar 23, 2014)

canew90 said:


> Maybe I could have done a lot better, but by switching in & out I'd probably do a lot worse in the long run. I'll stick with the slow & steady and leave the trading and guessing to others.


That's the key for most people to succeed as long-term investors. We can debate forever about investment strategies, asset classes and diversification. But for most investors, active trading is a losing game. Slow and steady usually wins and is a lot less stressful.

Treat your investment portfolio like a bar of soap. The more you handle it the smaller it gets.


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## AltaRed (Jun 8, 2009)

GreatLaker said:


> Treat your investment portfolio like a bar of soap. The more you handle it the smaller it gets.


+1 Hadn't heard that one before, but I like it.


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## tygrus (Mar 13, 2012)

AltaRed said:


> +1 Hadn't heard that one before, but I like it.


Yeah, and you might actually drop the soap in the process too. And that wont be pleasant.


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## andrewf (Mar 1, 2010)

My Own Advisor said:


> I did see something like that Andrew, very good indeed. I simply see the TSX vs. economy as a whole lagging other developed countries, such as U.S. this calendar year to date; given the U.S. is our largest trading partner. U.S. still dwarfs Europe and China as our largest trading partner.


Plenty of research out there showing that GDP growth and stock returns are not correlated.


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## Pluto (Sep 12, 2013)

james4beach said:


> Thanks, wow that June 30 is pretty recent. I wonder if Canadian CAPE has the same historical range as the US?
> 
> For the US, that reading of 20.4 would be pretty fair valuation. Do you think the concept extends to Canada, using the same scale?


http://www.starcapital.de/research/stockmarketvaluation


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## Pluto (Sep 12, 2013)

andrewf said:


> Plenty of research out there showing that GDP growth and stock returns are not correlated.


One factor in the apparent low correlation is that stocks are anticipatory - they trade now on earnings expected 6-18 months in the future. 
Often, when the economy is booming, stocks get weak because they anticipate central banks taking action to cool the economy. That means that in a given year, when gdp is booming, job growth is phenomenal, stocks can do poorly.


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## AltaRed (Jun 8, 2009)

Pluto said:


> http://www.starcapital.de/research/stockmarketvaluation


And if you click on the link for forecasts, you get this http://www.starcapital.de/research/CAPE_Stock_Market_Expectations They may be worth no more than what you paid to access this information, but it is data to construe whatever you wish.


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## gibor365 (Apr 1, 2011)

andrewf said:


> I'm pretty sure once you are there, you will find a multitude of reasons why Russia and Israel are better places to live than Oz, too.


Please don't insert words into my mouth! I never said it. I'm saying that some things in Russia and many things in Israel are better than in Canada.


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## andrewf (Mar 1, 2010)

Pluto said:


> One factor in the apparent low correlation is that stocks are anticipatory - they trade now on earnings expected 6-18 months in the future.
> Often, when the economy is booming, stocks get weak because they anticipate central banks taking action to cool the economy. That means that in a given year, when gdp is booming, job growth is phenomenal, stocks can do poorly.


Any evidence that they are correlated even with a specific lag? I haven't seen any.


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## andrewf (Mar 1, 2010)

gibor365 said:


> Please don't insert words into my mouth! I never said it. I'm saying that some things in Russia and many things in Israel are better than in Canada.


I didn't put words into your mouth. I'm just expressing my expectation that you will be disappointed with Australia, too.


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## zylon (Oct 27, 2010)

The thing about GDP is that disasters make for nice looking growth.

Just a few biggies come to mind:

Alberta floods 2013
Lac-Mégantic, Quebec 2013
Ft Mac fire 2016
BC fires (often) but especially bad 2017
P. Quebec floods 2017
Probably an ice storm or two I'm forgetting

Billions of dollars surely to boost GDP, but does it indicate a healthy economy?

https://en.wikipedia.org/wiki/List_of_disasters_in_Canada


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## AltaRed (Jun 8, 2009)

Stop it or you will make JT look bad. He'll spend anything to get those GDP numbers up.


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## gibor365 (Apr 1, 2011)

andrewf said:


> I didn't put words into your mouth. I'm just expressing my expectation that you will be disappointed with Australia, too.


After 18 years in GTA , I don't have too high expectation about any country . Actually Iknow couple of friends who moved to Australia and telling that it's amazing comparing to GTA, demographically, economically, politically and nature wide.
In any case, if we go there, we'll go for short-mid term contract and then we'll see


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## zylon (Oct 27, 2010)

# 64

Alrighty then - stopping


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## james4beach (Nov 15, 2012)

Here is a chart overlay of Canada (green) and US (blue). Ignore the absolute scale and focus on the _direction_ of each segment. This illustrates that the TSX and S&P 500 nearly always move in the same direction. There's near a perfect correlation in their direction at any given time:
http://stockcharts.com/h-sc/ui?s=XIU.TO&p=D&st=2014-01-01&en=today&id=p23399788531

What we're seeing right now is an interesting and rare divergence: the TSX is going down while the S&P 500 goes up! Over the last 20 years, I found only 3 instances where the two market went in opposite directions for a stretch of several months. It really is a rare phenomenon.

I don't know what to make of it, other than saying it's very unusual. In the past instances, the US market established the direction and the TSX moved to meet it. Perhaps this happens because of the dominance of US stocks. If that pattern holds, it would suggest the TSX will start rallying at some point.


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## lonewolf :) (Sep 13, 2016)

james4beach said:


> Here is a chart overlay of Canada (green) and US (blue). Ignore the absolute scale and focus on the _direction_ of each segment. This illustrates that the TSX and S&P 500 nearly always move in the same direction. There's near a perfect correlation in their direction at any given time:
> http://stockcharts.com/h-sc/ui?s=XIU.TO&p=D&st=2014-01-01&en=today&id=p23399788531
> 
> What we're seeing right now is an interesting and rare divergence: the TSX is going down while the S&P 500 goes up! Over the last 20 years, I found only 3 instances where the two market went in opposite directions for a stretch of several months. It really is a rare phenomenon.
> ...


 Its lonely @ the top


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## humble_pie (Jun 7, 2009)

james4beach said:


> Here is a chart overlay of Canada (green) and US (blue). Ignore the absolute scale and focus on the _direction_ of each segment. This illustrates that the TSX and S&P 500 nearly always move in the same direction. There's near a perfect correlation in their direction at any given time:
> http://stockcharts.com/h-sc/ui?s=XIU.TO&p=D&st=2014-01-01&en=today&id=p23399788531
> 
> What we're seeing right now is an interesting and rare divergence: the TSX is going down while the S&P 500 goes up! Over the last 20 years, I found only 3 instances where the two market went in opposite directions for a stretch of several months. It really is a rare phenomenon.
> ...




jas4 your stockchart only goes back to 2014, three years is too short a period for anyone to be able to pronounce a trend.

you do refer to a 20-year pattern but might you be able to produce a 20 year chart? a 25 or 30 year chart would be even better, i'd like to see the early & mid 1990s included.

i believe that the major divergences that would then be visible would be interesting. There would be commodity booms & boomlets. The TSX would fluctuate more than the S&P 500 would be my guess.

right now the TSX might be coming out of an anti-boomlet trough. What has propped up the toronto 60 & the 300 has been the combo of low interest rates, benign effect of low rates on big corporate debt plus investor appetite for dividend income.

in the context of flatlining north american markets, this might mean increased rotation of favoured stock sectors on toronto. Out-of-favour sectors are likely to rise again imho.


.


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## like_to_retire (Oct 9, 2016)

Here's 1992 to present. S&P 500 data only available from 93 and on.

TSX Composite vs S&P 500

View attachment 15898


ltr


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## humble_pie (Jun 7, 2009)

like_to_retire said:


> Here's 1992 to present. S&P 500 data only available from 93 and on.
> 
> TSX Composite vs S&P 500
> 
> View attachment 15898




thankx! i'm preparing one showing 1984 to present date, a span of 33 years. I just have to get it onto a 3rd party website so it will display to all viewers, not just logged-in parties.

until i saw the trajectories, i would not have believed the difference between 1984-2000 & the years 2000-2017. Similar, almost parallel paths before 2000. Wide divergences ever since. Look on your chart how the TSX drooped after the BREx years in the late 1990s.

strangely, my chart paths don't quite look like yours though ... perhaps because i'm not capitalizing the candlesticks enough .each:


.


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## james4beach (Nov 15, 2012)

lonewolf :) said:


> Its lonely @ the top


You might be right about this


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## james4beach (Nov 15, 2012)

humble_pie said:


> jas4 your stockchart only goes back to 2014, three years is too short a period for anyone to be able to pronounce a trend.


I just posted a short one so that the current multi-month divergence is very observable. To look over the 20 years, I used the same chart and adjusted the dates to look at 2 or 3 year periods at a time.

Again the issue I'm raising is not the performance but specifically the direction. For example, the US rising strongly while Canada rises less strongly is pretty normal; normally they both rise (or fall), but at different magnitudes.



> you do refer to a 20-year pattern but might you be able to produce a 20 year chart? a 25 or 30 year chart would be even better, i'd like to see the early & mid 1990s included.


Here is a chart of the early 1990s. I do actually see the same thing (happening today) in 1991-1992. The TSX is declining while the S&P 500 rising strongly. Indeed, commodities were weak at the time.

http://stockcharts.com/h-sc/ui?s=$TSX&p=D&st=1990-01-01&en=1995-01-01&id=p99129607517


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## Pluto (Sep 12, 2013)

andrewf said:


> Any evidence that they are correlated even with a specific lag? I haven't seen any.


anytime there is a recession, gdp is down, and stocks are down or were down. 
Our gdp is higher now than in 1970, and our stocks are higher than in 1970. 

If you look at the forest, you can see correlation. But if you look at one tree, or say 4 months at a time, there often is no correlation.


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## andrewf (Mar 1, 2010)

^Sure, but will a country with double the GDP growth have double the stock market return? I think the answer is no. Stock returns are all about return on capital, not GDP growth. As has been noted, natural disasters are great for GDP, but bad for return on capital.


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## olivaw (Nov 21, 2010)

My contribution to the thread: TSE vs S&P 500 since 1979

https://ca.finance.yahoo.com/chart/^GSPTSE#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%3D


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## james4beach (Nov 15, 2012)

Thanks for the charts. You can see what I mean there, how they are perfectly correlated in direction at any given time, and currently there is a divergence. It's noticeable even on this 38 year chart.

Don't get caught up on the absolute scale though. The TSX for example has a higher dividend yield than the S&P 500 so this will close the gap somewhat. It's hard to find total return graphs but from Morningstar I can see that the TSX (XIU) total return over 15 years is 8.6% per year whereas S&P 500 (SPY) is 9.0%. So Canada and US have effectively the same 15 year performance, ignoring currencies.

The USD has actually lost value over that 15 year period, so at least in these last 15 years, the TSX has the superior performance. Something to think about the next time you hear someone say that the US is the stronger market or better long term investment.


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## james4beach (Nov 15, 2012)

andrewf said:


> ^Sure, but will a country with double the GDP growth have double the stock market return? I think the answer is no. Stock returns are all about return on capital, not GDP growth. As has been noted, natural disasters are great for GDP, but bad for return on capital.


I agree with this. Shiller also showed this in a study, that the stock market is far more volatile than what fundamental valuations (and fair value) would dictate. Consider the issue of P/E multiples for example. Over the span of a few years, average P/E can go from 10 to 25. That's more than doubling the multiple on valuation... even if nothing else changes.

The great stock market rally of 1982-2000 was a period of massive multiple growth, from a CAPE of 10 up to 40+. More than quadruple the multiple, just because people "felt like it" -- that's not based on fundamentals.

Similarly, with current high multiples of 30, imagine a reversion to the mean of 16. Even if the economy doesn't change, and still grows, and corporate profits still grow, you could see 50% come off the valuation of stocks.


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## john.cray (Dec 7, 2016)

james4beach said:


> I agree with this. Shiller also showed this in a study, that the stock market is far more volatile than what fundamental valuations (and fair value) would dictate. Consider the issue of P/E multiples for example. Over the span of a few years, average P/E can go from 10 to 25. That's more than doubling the multiple on valuation... even if nothing else changes.
> 
> The great stock market rally of 1982-2000 was a period of massive multiple growth, from a CAPE of 10 up to 40+. More than quadruple the multiple, just because people "felt like it" -- that's not based on fundamentals.
> 
> Similarly, with current high multiples of 30, imagine a reversion to the mean of 16. Even if the economy doesn't change, and still grows, and corporate profits still grow, you could see 50% come off the valuation of stocks.


Great comment james. Please excuse my inexperience and humour me if you will, but I couldn't help to ask a question that's been bugging me and this gives me the perfect opportunity.

If the valuation is so fickle and emotion-dependant, then isn't this an argument against the total-return portfolio approach? What I mean by that is that if in your retirement you depend of spending parts of your portfolio to support yourself then you really are at the "mercy of the crowd" so to speak - hoping that the next guy's valuation will be good enough for you to sell shares and raise enough money to sustain yourself? If all of a sudden P/E drops from 30 down to 15, just because people felt like it, and it stays for a really long period of time then you'll be in a permanent state of sequence-of-return risk.

Maybe it's because I am really new to investing, or maybe because I am very risk-averse for some reason I tend to go back to dividends. If you count only on good stable yield and that's enough to support yourself then you depend only on the actual fundamentals and performance of the company and not what the next investor thinks about its share is worth. Of course it wouldn't hurt to get a better price over time. I realize that relying only on good dividend payers limits diversification and also requires more overall capital.

Hope I didn't stir the pot too much.

Regards,
JC


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## AltaRed (Jun 8, 2009)

As Andrew pointed out above. it is return on capital, e.g. ROCE, that really drives stock markets long term. Earnings (and thus return on capital) are the underpinning of capital markets. There are many short term (<10 year) metrics than can cause capital markets to undulate between extremes, even an order of magnitude or two, but markets will always revert to P/E multiples that the market can rationalize....and I mean 'real' earnings, not 'adjusted' earnings that is in vogue today. Adjusted earnings is really nothing more than excuses for mishandling of shareholder capital in most cases.

If our TSX is lagging, it is either because our collective 'real' earnings growth is not growing fast enough, or investors do not believe the TSX can grow earnings fast enough to increase P/E multiples. 

What factors into near term decision making depends on one's time horizon and that is where most individual investors are. Their times frames are short, e.g. 5-20 years, so they get caught up in dividend yield, dividend growth, free cash flow, etc. Nothing wrong with that for finite time horizons but don't expect individual 'fads' to last generations.


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## james4beach (Nov 15, 2012)

Good questions. How comfortable do you feel exposing your net worth to the whims of crowd psychology? Anybody in the stock market is exposed heavily to that, no question. That's intrinsic to the stock market.

This is where long term investing becomes essential. Over a short period like 5 or even 10 years, these multiples can swing around a lot. The short term volatility can swamp the long term effect. But the long term effect (20+ years) is also clear, that the stock market gains value, despite that volatility and fluctuations in mood/psychology.

I think of the main enemy as being *time*, not volatility.


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## james4beach (Nov 15, 2012)

AltaRed said:


> What factors into near term decision making depends on one's time horizon and that is where most individual investors are. Their times frames are short, e.g. 5-20 years, so they get caught up in dividend yield, dividend growth, free cash flow, etc. Nothing wrong with that for finite time horizons but don't expect individual 'fads' to last generations.


I love hearing your thoughts, as always. What are the consequences of what you describe here ... what are you proposing might happen?

Are you saying that you expect multiples (say CAPE) to revert to the mean, and stocks fall?


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## Pluto (Sep 12, 2013)

andrewf said:


> ^Sure, but will a country with double the GDP growth have double the stock market return? I think the answer is no. Stock returns are all about return on capital, not GDP growth. As has been noted, natural disasters are great for GDP, but bad for return on capital.


As I recall the forest fire in Alberta negativly impacted GDP as well as the earnings of some companies.


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## AltaRed (Jun 8, 2009)

Pluto said:


> As I recall the forest fire in Alberta negativly impacted GDP as well as the earnings of some companies.


GDP went down when oil sands production was down. That affected near term 2Q earnings too of a number of companies. Once production was back and the re-build was on, GDP improved. Lots of people at work spending money on goods and services. Part of AB's current GDP recovery is directly correlated to the major re-build program underway. 

However, that has not changed the intrinsic value of the oil sands players. If anything, their earnings and stock prices may be still feeling some impacts of lost production in 2016.


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## AltaRed (Jun 8, 2009)

james4beach said:


> Are you saying that you expect multiples (say CAPE) to revert to the mean, and stocks fall?


Ultimately....yes although maybe not perfectly. The collective human pysche may have changed enough to buy a few more years of earnings than previous generations. But 50-100% more? I doubt it.


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## john.cray (Dec 7, 2016)

james4beach said:


> Good questions. How comfortable do you feel exposing your net worth to the whims of crowd psychology? Anybody in the stock market is exposed heavily to that, no question. That's intrinsic to the stock market.
> 
> This is where long term investing becomes essential. Over a short period like 5 or even 10 years, these multiples can swing around a lot. The short term volatility can swamp the long term effect. But the long term effect (20+ years) is also clear, that the stock market gains value, despite that volatility and fluctuations in mood/psychology.
> 
> I think of the main enemy as being *time*, not volatility.


Does it make sense to think about it as appropriate to switch strategies from growth (total-return) to income (dividend) as one gets closer to retirement/no-income? In other words we ride the volatility for the first 30 years or so of our investment careers, hoping that this will bring a higher total overall portfolio value, but then once we decide to live off of the portfolio we convert to dividends?

A great article (http://www.moneysense.ca/save/retirement/a-better-way-to-generate-retirement-income/) I read not long ago suggests that it would be ideal to live off of dividends although it's probably not going to be obtainable by the average person due to the high capital requirements. So Dan shows how to do it with the total return approach. What bothers me is that if you happen to be unlucky and retire in a period of low PE/low valuations then you are more vulnerable and exposed to the "crowd". If the total portfolio value at retirement is enough to provide enough dividend income if converted to, then do we don't care about the market volatility.

One thing I can't wrap my head around in this case is how to solve the lack of diversification. I'd hate to convert a well diversified portfolio of US/International/Emerging/etc equities into an X-pack of TSX dividend stocks + some Canadian bonds.

Does anybody have a cure?

Regards,
JC


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## like_to_retire (Oct 9, 2016)

john.cray said:


> One thing I can't wrap my head around in this case is how to solve the lack of diversification. I'd hate to convert a well diversified portfolio of US/International/Emerging/etc equities into an X-pack of TSX dividend stocks + some Canadian bonds.
> 
> Does anybody have a cure?


If you're going to convert to a dividend strategy at retirement, then take advantage of the Canadian dividend tax credit. Create a portfolio of Canadian dividend payers that equally represents the different sectors in Canada. The 5 stock strategy is too risky. Create a portfolio of 20 - 30 stocks that are spread across all the sectors. You can skip the volatile sectors - they're only good for trading. Represent your fixed income allocation with corporate bonds and some preferred shares.

That's your cure.

ltr


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## AltaRed (Jun 8, 2009)

You have to go with a strategy you think you can live with AND manage. John's first 2 questions don't correlate. What is a Total Return portfolio? It is capital appeciation plus dividends. The only real question is whether you want more of it in capital appreciation or dividends. 

Investors get more conservative as their employment earnings fade away. So they feel better replacing monthly employment earnings with a dividend stream. It provides a sense of security. Whether a dividend weighted TR any better than a capital appreciation weighted TR has been a much discussed and studied subject for decades. That said, there are 2 things going in favour of a 'dividend' stream: 1) it is usually less volatile and thus easier to manage, and 2) companies with their credibilty staked on dividends are more likely to make more conscious investment and balance sheet decisions than those that primarily re-invest retained earnings.

Volatile porfolios don't have to be that hard to manage post-retirement if they follow strict rules on withdrawal methodologies. It is just that people don't normally have that kind of discipline. In my 11 years of retirement, I have trended to liking my Total Return weighted towards dividends too, but I won't pick a stock because of its yield. It needs to have a track record of Return of Equity (ROE). I've had my head handed to me on a few high yield stocks in the past 10 years and hopefully I have learned well.


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## john.cray (Dec 7, 2016)

like_to_retire said:


> If you're going to convert to a dividend strategy at retirement, then take advantage of the Canadian dividend tax credit. Create a portfolio of Canadian dividend payers that equally represents the different sectors in Canada. The 5 stock strategy is too risky. Create a portfolio of 20 - 30 stocks that are spread across all the sectors. You can skip the volatile sectors - they're only good for trading. Represent your fixed income allocation with corporate bonds and some preferred shares.
> 
> That's your cure.
> 
> ltr


Right, 5 is too few but still this only limits you to Canada. How about US, International, Emerging, REITs exposure?


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## john.cray (Dec 7, 2016)

AltaRed said:


> You have to go with a strategy you think you can live with AND manage. John's first 2 questions don't correlate. What is a Total Return portfolio? It is capital appeciation plus dividends. The only real question is whether you want more of it in capital appreciation or dividends.
> 
> Investors get more conservative as their employment earnings fade away. So they feel better replacing monthly employment earnings with a dividend stream. It provides a sense of security. Whether a dividend weighted TR any better than a capital appreciation weighted TR has been a much discussed and studied subject for decades. That said, there are 2 things going in favour of a 'dividend' stream: 1) it is usually less volatile and thus easier to manage, and 2) companies with their credibilty staked on dividends are more likely to make more conscious investment and balance sheet decisions than those that primarily re-invest retained earnings.
> 
> Volatile porfolios don't have to be that hard to manage post-retirement if they follow strict rules on withdrawal methodologies. It is just that people don't normally have that kind of discipline. In my 11 years of retirement, I have trended to liking my Total Return weighted towards dividends too, but I won't pick a stock because of its yield. It needs to have a track record of Return of Equity (ROE). I've had my head handed to me on a few high yield stocks in the past 10 years and hopefully I have learned well.


Thanks. I am trying to learn from the experience of others but I often feel I get overwhelmed. Thanks for providing guidance! It will take me some time to settle down on a particular approach and hopefully with more experience things will make more sense to me.


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## AltaRed (Jun 8, 2009)

like_to_retire said:


> If you're going to convert to a dividend strategy at retirement, then take advantage of the Canadian dividend tax credit. Create a portfolio of Canadian dividend payers that equally represents the different sectors in Canada. The 5 stock strategy is too risky. Create a portfolio of 20 - 30 stocks that are spread across all the sectors. You can skip the volatile sectors - they're only good for trading. Represent your fixed income allocation with corporate bonds and some preferred shares.
> 
> That's your cure.
> 
> ltr


That will still be a volatile portfolio in a major bear market. Preferreds and corporate bonds take a hit along with equities (as they did in 2008-2009). That said, that kind of portfolio will still provide a good income stream IF one has the cast iron stomach to see it through.


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## james4beach (Nov 15, 2012)

A portfolio of dividend stocks will fall just as severely as the broad market. So you will still see your capital "shrink" on paper. The income stream will be relatively stable, but a dividend-based income stream still could decline as well. I showed in another thread that the S&P 500 dividend stream has declined during past bear markets by as much as 40%. Perhaps the Canadian dividend stocks are immune to this effect, but I doubt it.

There is no escaping volatility risk with equities. If you really want to reduce risk, you will have to diversify into bonds. As a starting point, I suggest figuring out what stock/bond ratio would work for you. For retirees, allocations anywhere between 70/30 and 30/70 are defensible.

For example - I've been helping out an extremely loss-averse retiree and I suggested a 30% stock, 70% bond portfolio idea (20% XSB, 50% VAB, 15% XIU, 15% ZSP). Simply the best ETFs I know of. This construction has:

 10 year annual return of 4.9%
 15 year annual return of 5.7%
 2008 maximum drawdown of -13% (high to low)
 2008 calendar year decline of -4%
 relatively low interest rate sensitivity due to XSB

john.cray: Everyone has different tolerances for how much risk/volatility they can stomach, and what kind of returns they demand. It's very much an individual thing. But I can tell you're conservative, and using 100% stocks doesn't seem like a good fit for you. You must mix stocks and bonds. Maybe gold too, but that's considered a bit weird by some.


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## Eder (Feb 16, 2011)

If you can retire with a 70% bond allocation I suspect you could retire by putting your assets under your mattress as well...even less risk.


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## john.cray (Dec 7, 2016)

james4beach said:


> john.cray: Everyone has different tolerances for how much risk/volatility they can stomach, and what kind of returns they demand. It's very much an individual thing. But I can tell you're conservative, and using 100% stocks doesn't seem like a good fit for you. You must mix stocks and bonds. Maybe gold too, but that's considered a bit weird by some.


By all means. Not only conservative but also inexperienced. I've never been in a crisis situation to see my equities evaporate by 50% so I don't really know what kind of a stomach I've got.

I am trying to compensate for that by being extra cautious (I think). I am 37 years old and I've been investing for less than 1 year. Until recently I kept all my money in savings accounts and thought of the financial markets as too risky. Eventually decided to invest and read a few books (mostly indexing). Current allocation is: 30% of all my money is in cash (HISA). Of the remaining 70% - 30% is in bonds and preferred shares and the other 70% in stocks. So If you combine it all I'd say it's 50% FI and 50% equities. I think it's conservative enough to start. We'll see what happens later. Just trying to find my way of investing ... 

Thank you all for your help.
JC


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## gibor365 (Apr 1, 2011)

> I showed in another thread that the S&P 500 dividend stream has declined during past bear markets by as much as 40%. Perhaps the Canadian dividend stocks are immune to this effect, but I doubt it.


40%?! Just checked VTI,dividends 2008 vs 2007 fell 3%, 2009 vs 2008 12%


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## humble_pie (Jun 7, 2009)

john.cray said:


> I am trying to compensate for that by being extra cautious (I think). I am 37 years old and I've been investing for less than 1 year. Until recently I kept all my money in savings accounts and thought of the financial markets as too risky. Eventually decided to invest and read a few books (mostly indexing). Current allocation is: 30% of all my money is in cash (HISA). Of the remaining 70% - 30% is in bonds and preferred shares and the other 70% in stocks. So If you combine it all I'd say it's 50% FI and 50% equities. I think it's conservative enough to start. We'll see what happens later. Just trying to find my way of investing ...




this sounds like a perfect setup, not just for conservative investors but for all kinds of prudent investors at the present time, who are eyeing record market highs with no reason to em.

the above is 50% stocks, 21% bonds & a healthy 30% HISA waiting for opportunities to invest.

i wish i had that profile myself! it's the cash/HISA i'm in process of boosting.

.


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## john.cray (Dec 7, 2016)

humble_pie said:


> this sounds like a perfect setup, not just for conservative investors but for all kinds of prudent investors at the present time, who are eyeing record market highs with no reason to em.
> 
> the above is 50% stocks, 21% bonds & a healthy 30% HISA waiting for opportunities to invest.
> 
> ...


Thanks. Not sure if you'd really envy this portfolio if I told you that since I started building it (investing in the different components) since last November as of today it's practically 0% growth (including dividends). Part of it is because my US exposure is currently at 0%. I dare not put the money that I have allocated due to high valuations as you mention. Trump et al. didn't help. Not sure I know what I am doing but I recon if I didn't invest for most of my adult life I can wait another year or two in order to enter a market at a more reasonable valuation.


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## gibor365 (Apr 1, 2011)

like_to_retire said:


> Here's 1992 to present. S&P 500 data only available from 93 and on.
> 
> TSX Composite vs S&P 500
> 
> ...


EWC iShares MSCI Canada Index (ETF) is the closest TSX ETF in US$, 10years return = -6%+ . And this is in so-called bull market! Pathetic!


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## james4beach (Nov 15, 2012)

gibor, EWC 10 year return according to Morningstar is +1.39% per year (yeah, not great, but definitely not -6%)

Compare to the 10 year return of other countries, all of these in USD:

EWZ (Brazil) = -1.41%
EWU (the UK) = +0.55%
EWJ (Japan) = +1.38%
EFA (MSCI EAFE) = +1.69%
EWA (Australia) = +3.23%

Canada's 10 year return is just about average among international.

XBB's 10 year return by the way was +4.65%, and AGG (in USD) +4.30%. Another reminder to not rule out bonds. They can outperform stocks even over long time periods.


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## james4beach (Nov 15, 2012)

Eder said:


> If you can retire with a 70% bond allocation I suspect you could retire by putting your assets under your mattress as well...even less risk.


When using the constant withdrawal method (e.g. 4% of initial value plus inflation adjustment each year), the studies have repeatedly shown that there is very little difference in outcomes between a 30/70 and 70/30 allocation, if the goal is to make the capital last.

High stock allocations don't necessarily help you in retirement. With a constant withdrawal method, a 30% stock allocation performs better than a 90% stock allocation, due to sequence risk.


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## Eder (Feb 16, 2011)

With fixed income as low as it is theres little chance for success using 70% fixed income. Perhaps in the future when GIC's start yielding more than the inflation rate.


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## jollybear (Jun 28, 2015)

FYI......Podcast 10 on Canadian Couch Potato is now released and addresses the International vs Global exposure topic in the latter half of the show


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## milhouse (Nov 16, 2016)

james4beach said:


> When using the constant withdrawal method (e.g. 4% of initial value plus inflation adjustment each year), the studies have repeatedly shown that there is very little difference in outcomes between a 30/70 and 70/30 allocation, if the goal is to make the capital last.
> 
> High stock allocations don't necessarily help you in retirement. With a constant withdrawal method, a 30% stock allocation performs better than a 90% stock allocation, due to sequence risk.


I think this diagram by Wade Pfau indicates that a higher stock allocation generally fares better around the world. 
He also wrote a blog post about dynamic asset allocations with a rising equity glide path which seemed to suggest you may want to start with a lower stock allocation at the beginning of your retirement when your nest egg is at it's largest to limit the impact of a poor sequence of returns and then increase. This seems to fare well when early returns are poor and better than an aggressive allocation throughout. However, one negative is that you're increasing potential volatility in the latter stages in your retirement which may reduce your legacy.


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## Pluto (Sep 12, 2013)

humble_pie said:


> The point is, the trough looks to be forming or have formed.
> 
> baltic dry index has trended up since february this year. Volatile but tracking higher highs & higher lows.


It is interesting that the dry index bottomed about Feb 2016, (right when the tsx bottomed after a 1+ year aproximatly 25% drop. That was a made in Canada bear market, so I don't really buy into the narrative that we are in a bul market since 2009. Its more like a 1 1/2 year bull market.) I'm optimistic.


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## AltaRed (Jun 8, 2009)

Pluto said:


> It is interesting that the dry index bottomed about Feb 2016, (right when the tsx bottomed after a 1+ year aproximatly 25% drop. That was a made in Canada bear market, so I don't really buy into the narrative that we are in a bul market since 2009. Its more like a 1 1/2 year bull market.) I'm optimistic.


I've always considered the 2015-2016 commodity aberration in Canada a correction...rather than a bear. A bear market tends to be more broad based across all (most) sectors, albeit the TSX Composite qualifies it as one. This was/is a local (Canada) problem. Certainly not global. A good reason NOT to have one's eggs in one geographic market.


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## kcowan (Jul 1, 2010)

AltaRed said:


> A good reason NOT to have one's eggs in one geographic market.


Or to have too much net worth tied up in property. In OZ, the losses in 3 LNG plants, combined with the shutdown of the auto industry is bound to drag them down. And emerging markets have not been a good long term hold. China is too opaque. Diversification is certainly the only way to protect against such vagaries.


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## Pluto (Sep 12, 2013)

AltaRed said:


> I've always considered the 2015-2016 commodity aberration in Canada a correction...rather than a bear. A bear market tends to be more broad based across all (most) sectors, albeit the TSX Composite qualifies it as one. This was/is a local (Canada) problem. Certainly not global. A good reason NOT to have one's eggs in one geographic market.


yes, that was primarily commodities draging the index down, but financial stocks didn't do too well during that period. The comodity bust is a good reason to take a good look at them now, before it is too late. (I'm up 8+% on teck in little over a week since purchase.)


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## gibor365 (Apr 1, 2011)

james4beach said:


> gibor, EWC 10 year return according to Morningstar is +1.39% per year (yeah, not great, but definitely not -6%)
> 
> Compare to the 10 year return of other countries, all of these in USD:
> 
> ...


I see on google finance. 10 years ago EWC was 29.6, now 27.77 . Result -6.18%. Bull market?!


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## james4beach (Nov 15, 2012)

gibor365 said:


> I see on google finance. 10 years ago EWC was 29.6, now 27.77 . Result -6.18%. Bull market?!


You can't just compare ETF prices like that. Google finance is one of the worst places to look at ETFs, you need to include dividends & distributions. Morningstar shows the correct numbers: EWC has 10 year return at +1.39% annualized.

That's a pretty weak return, but it's positive, and it's about average in the world.


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## AltaRed (Jun 8, 2009)

Do you know the difference in the loonie 10 yrs ago vs now? Besides 2007 does not count as the start of the bull market. It was March 2009.

The EWC site says EWC total return grew 114% from Mar 12, 2009 to Aug 3, 2017 including forex effects.


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## gibor365 (Apr 1, 2011)

james4beach said:


> You can't just compare ETF prices like that. Google finance is one of the worst places to look at ETFs, you need to include dividends & distributions. Morningstar shows the correct numbers: EWC has 10 year return at +1.39% annualized.
> 
> That's a pretty weak return, but it's positive, and it's about average in the world.


Yes, -6.18% is w/o dividends and not annualized , it's comparing price 10 y ago with current price, SPY in same period was up 72%.

and I agree that bonds , GICs or HISA would've done better for those 10 years ifyou exclude US market.

10 years ago, Tangerine/ING 5 years GIC was 4.75% and HISA 3.75%


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## james4beach (Nov 15, 2012)

Ugh, TSX still doing very badly. gibor has a point: 3 year XIU return is now 2.4% per year. You'd do better in GICs.

So what do you think, is this the time to load up on Canadian stocks? Or will things likely get worse, with negative returns?


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## james4beach (Nov 15, 2012)

Could be the long awaited break-out here on the TSX. The TSX 60 index is now above its 200 day moving average. If it decides to "catch up" to the rest of the world, there could be a major rally - I hope!


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## crgf1k (Aug 8, 2015)

james4beach said:


> Ugh, TSX still doing very badly. gibor has a point: 3 year XIU return is now 2.4% per year. You'd do better in GICs.
> 
> So what do you think, is this the time to load up on Canadian stocks? Or will things likely get worse, with negative returns?


The part I struggle with is that even though the TSX and the Canadian economy seem to have potential, with some nice fat dividends at this level...if you overlay a 20 year TSX chart over the S&P500 chart, the TSX often falls hard in tandem even though it's angle of incline was nowhere near as steep as the S&P500. Makes me think that both indexes will be on sale sometime in the next couple of years.


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## james4beach (Nov 15, 2012)

crgf1k said:


> if you overlay a 20 year TSX chart over the S&P500 chart, the TSX often falls hard in tandem even though it's angle of incline was nowhere near as steep as the S&P500. Makes me think that both indexes will be on sale sometime in the next couple of years.


You're right, they have a very strong correlation sometimes (especially during down periods). Here is an overlay of the TSX and S&P 500 charts from 2001-2005. You can see they moved absolutely identically, and the TSX fell just as bad as the S&P 500

http://stockcharts.com/h-sc/ui?s=SPY&p=D&st=2001-01-01&en=2005-01-01&id=p71612589481


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## Pluto (Sep 12, 2013)

james4beach said:


> Could be the long awaited break-out here on the TSX. The TSX 60 index is now above its 200 day moving average. If it decides to "catch up" to the rest of the world, there could be a major rally - I hope!


I believe you are correct. My guess is market will be good for some months. During this crappy market I got rid of all my bonds, 100% stocks now.


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## Ihatetaxes (May 5, 2010)

Happy to see the portfolio hitting a new all time high yesterday and would love to see TSX go on a tear for the next while and finish the year strong.


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## james4beach (Nov 15, 2012)

I think that TSX rally is happening now. The index has been above its 200 day moving average for a few days now and is showing strong moves up. The dollar stabilizing also seems to be helping.

If I had to guess, I'd say this rally continues for a while.


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## Thal81 (Sep 5, 2017)

Yeah, after so many months of everything pushing the wrong way, it's nice to see the tides turn.

Now if only bonds could magically regain their lost value :rolleyes-new:


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## gibor365 (Apr 1, 2011)

Thal81 said:


> Yeah, after so many months of everything pushing the wrong way, it's nice to see the tides turn.
> 
> Now if only bonds could magically regain their lost value :rolleyes-new:


Don't you think this is only because if CAD$ that as anticipated started to drop and oil that started to gain?!


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## james4beach (Nov 15, 2012)

If you look at the chart of the TSX Index in USD (i.e. Canadian stocks from the perspective of American investors) -- for example using EWC -- you will see that Canadian stocks have been in a steady uptrend for 18 months:

http://stockcharts.com/h-sc/ui?s=EWC&p=D&yr=2&mn=0&dy=0&id=p22800084906

That's actually a very long duration uptrend, a bull phase lasting just as long as the current S&P 500 index rally. They've both been rallying together for over a year.

Looking at it this way, it means that *Canadian stocks have in fact been consistently strong for over a year*. It also seems to suggest that the sharp movements in the CAD/USD pair might have distorted the picture, making us (with CAD viewpoints) think stocks have been weak whereas in fact our market has been very strong as viewed by the rest of the world.

Curious what others think about this?


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## like_to_retire (Oct 9, 2016)

james4beach said:


> Looking at it this way, it means that *Canadian stocks have in fact been consistently strong for over a year*. It also seems to suggest that the sharp movements in the CAD/USD pair might have distorted the picture, making us (with CAD viewpoints) think stocks have been weak whereas in fact our market has been very strong as viewed by the rest of the world.
> 
> Curious what others think about this?


I suppose I could convert the C$ to any number of other currencies in the world, but if I want to see how the Canadian market is doing in Canada, I examine it in C$.

Looks pretty anemic to me.

View attachment 16346


ltr


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## james4beach (Nov 15, 2012)

I agree that from the CAD viewpoint, it's been anemic.


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## james4beach (Nov 15, 2012)

james4beach said:


> I think that TSX rally is happening now. The index has been above its 200 day moving average for a few days now and is showing strong moves up. The dollar stabilizing also seems to be helping.
> 
> If I had to guess, I'd say this rally continues for a while.


I'm going to pat myself on the back for this call back on Sept 27 

The TSX has shot straight up since then.


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## nobleea (Oct 11, 2013)

james4beach said:


> I'm going to pat myself on the back for this call back on Sept 27
> 
> The TSX has shot straight up since then.


Question is, did you do anything about it in late Sept? Or in classic j4b fashion did you worry about risk management, being overweight equities, and high risk bank stocks?


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## 30seconds (Jan 11, 2014)

In the event of a down turn will you be worried about risk management, being overweight equities, and high risk bank stocks?


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## james4beach (Nov 15, 2012)

I increased my long TSX exposure on September 5, benefitting from this rally.


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## james4beach (Nov 15, 2012)

If you're interested in what I do for risk management, I described my methods in this post
http://canadianmoneyforum.com/showt...n-protection?p=1717066&viewfull=1#post1717066

I always have my core stock exposure, and I trade around that position a bit. Overall I am conservatively positioned, but I still benefit from market rallies. My trading-around-the-TSX (as a risk control effort) has _not_ cost me performance in the last few years. Maybe I've just been lucky.


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