# Anyone else getting hammered?



## favelle75 (Feb 6, 2013)

I know, long term, who cares, don't time the market, etc etc...but, like most I cán't help but periodically check the stocks every couple of days. Everything I have (except CLC) is getting clobbered. Is there a reason for this? My bread and butter BCE.TO was flying for months...now its losing 70 cents a day!

Anything happen recently I may have missed? Or is this the "sell in May" phenomona?


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## james4beach (Nov 15, 2012)

1. Bonds have been sharply declining, causes interest rates to rise rapidly. This reduces the attractiveness of any investment people chased after for yield.
2. There are new doubts that the QE program will keep expanding
3. Japan is experiencing high volatility and sharp selloffs, despite rapid money printing
4. Sustainability of high div payouts are becoming more questionable. Corporate earnings (in USA) peaked a year ago, March 2012

A suggestion I have is that if the declines feel painful to you, it means you're over-exposed to stocks. Stocks have hardly fallen at all, it has not been a big decline. But if it's enough to hurt you, you should reduce your exposure and keep more money in fixed income.


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## MoreMiles (Apr 20, 2011)

I wish there is a way hide "unrealized gain / loss or % change" from the holding view. This way, you can see all the holdings are still there, along with the real-time prices. But then you won't get worried when their values turn red. I do not think any discount brokerage online sites allow such function.

Psychology of investing is very very important... For most people, if their stock unrealized gain is over 10% they would not care about 5% fluctuation in prices anymore in that stock because you are not losing your principal money. However, if there is no such gain as cushion, they get nervous and sometimes behave irrationally. However, if you think about it, whatever the price you have, is what you own at the moment. So 10% or not, you should treat your money the same way. 

Those who bought BCE at $30 do not care about any change / fluctuation... because they may feel "their money is safe anyway". It looks that you bought late so you are upset about the recent fluctuation. But a dollar is a dollar, regardless you made it from a few years ago or just today, it should be considered the same.

Here is another example of psychological bias. http://www.mawer.com/knowledge-centre/mawer-blog/drop-the-anchor/
It's worth a read in my opinion.


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## donald (Apr 18, 2011)

I can only speak for my portfolio but ''safe'' blue chips like utilities/consumers ect were very over bought(buying yield)
I know(even though i have had a pull back)these last 2/3 mth has been great in cyclical sectors
Example i have had a great run in industrials(cmi)/metals(x) and recently financials(jpm)and gaming(wynn)
The market is looking for value now instead of just dumping in to avoid bonds and buying classic income stocks(that shift seems clear now imo)
That is my take and the reading of my own portf
The us market has been unreal-good(little shaky as of late)
I'm more usa centric though because i like the market over there more than cdn


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## favelle75 (Feb 6, 2013)

MoreMiles said:


> I wish there is a way hide "unrealized gain / loss or % change" from the holding view. This way, you can see all the holdings are still there, along with the real-time prices. But then you won't get worried when their values turn red. I do not think any discount brokerage online sites allow such function.
> 
> Psychology of investing is very very important... For most people, if their stock unrealized gain is over 10% they would not care about 5% fluctuation in prices anymore in that stock because you are not losing your principal money. However, if there is no such gain as cushion, they get nervous and sometimes behave irrationally. However, if you think about it, whatever the price you have, is what you own at the moment. So 10% or not, you should treat your money the same way.
> 
> ...


I'm still ok with BCE. I bought in at $40 and its at $46.85, plus I've had two quarters of dividends. I also have XIU which is still about 30 cents above my purchase price. My other is ZUT and its within 10 cents of what I bought it at. I think it was just the crazy run I had from January to April....stuff was going up every day (except ZUT)....and this is the first period of red ink for a week straight. Not worried at all, these stocks are buy-em and forget-em.....more just inquiring as to the causes.


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## favelle75 (Feb 6, 2013)

james4beach said:


> 1. Bonds have been sharply declining, causes interest rates to rise rapidly. This reduces the attractiveness of any investment people chased after for yield.
> 2. There are new doubts that the QE program will keep expanding
> 3. Japan is experiencing high volatility and sharp selloffs, despite rapid money printing
> 4. Sustainability of high div payouts are becoming more questionable. Corporate earnings (in USA) peaked a year ago, March 2012
> ...


Nope, no pain...more just curiosity. I figure that if I can understand the why, it'll be to my benefit in the long run for future buying and selling.


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## james4beach (Nov 15, 2012)

favelle75 said:


> My other is ZUT and its within 10 cents of what I bought it at.


I also hold ZUT. You should be aware that some of the utilities it holds have been cutting their payouts recently. For example its portfolio yielded 5.72% (before MER) back on 2012-11-09, but today the yield is down to 5.22%. Notice that even though the share price is virtually unchanged over that period, the yield is lower due to reduced distributions.

I forecast more of its companies to reduce dividends because they have unsustainable distributions. That will probably take ZUT lower.


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## doctrine (Sep 30, 2011)

> My bread and butter BCE.TO was flying for months...now its losing 70 cents a day!


BCE has returned 22% in the last 12 months including dividends. Stocks can and do move rationally and irrationally, especially in the short term. Some patience is required. 

BCE is down about 4% in the last week - it's not really that bad. I remember buying some Manulife in March 2011 and watching it drop from $18 to $10, or around 45%. I don't think BCE is going to drop that much, but if it did, I would be buying more. The last time I added to BCE was last November at $42.


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## favelle75 (Feb 6, 2013)

james4beach said:


> I also hold ZUT. You should be aware that some of the utilities it holds have been cutting their payouts recently. For example its portfolio yielded 5.72% (before MER) back on 2012-11-09, but today the yield is down to 5.22%. Notice that even though the share price is virtually unchanged over that period, the yield is lower due to reduced distributions.
> 
> I forecast more of its companies to reduce dividends because they have unsustainable distributions. That will probably take ZUT lower.


Yeah, ZUT also had ATP as one of its top holdings I believe....they've since dropped them, but not until after the damage was done.


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## favelle75 (Feb 6, 2013)

doctrine said:


> BCE has returned 22% in the last 12 months including dividends. Stocks can and do move rationally and irrationally, especially in the short term. Some patience is required.
> 
> BCE is down about 4% in the last week - it's not really that bad. I remember buying some Manulife in March 2011 and watching it drop from $18 to $10, or around 45%. I don't think BCE is going to drop that much, but if it did, I would be buying more. The last time I added to BCE was last November at $42.


Yeah, long term I can't see it going down all that much. Was more just wondering if some earth-shattering news was causing all the downward spiral.


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## james4beach (Nov 15, 2012)

favelle75 said:


> Yeah, ZUT also had ATP as one of its top holdings I believe....they've since dropped them, but not until after the damage was done.


They still hold ATP according to BMO's ETF web site, 3.62% of the fund (smallest holding). Far from dropping them, I think they will actually be buying more at the next re-balancing to bring it up to equal weight.


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## fatcat (Nov 11, 2009)

james4beach said:


> 1. Bonds have been sharply declining, causes interest rates to rise rapidly. This reduces the attractiveness of any investment people chased after for yield.
> 2. There are new doubts that the QE program will keep expanding
> 3. Japan is experiencing high volatility and sharp selloffs, despite rapid money printing
> 4. Sustainability of high div payouts are becoming more questionable. Corporate earnings (in USA) peaked a year ago, March 2012
> ...


your bear is roaring as usual james ... the sustainability of dividend payouts varies widely from stock to stock ... many of the greatest dividend payers are still in the 30s and 40s ... the average payout rise means nothing except that perhaps more companies are shifting toward a higher dividend approach ... ge and potash are two companies that have made it clear that they intend to increase dividends regularly

if zut (which i own) is yielding less that may well mean that the constituent companies are lowering payouts to grow their business or pay off debt which will make them better companies in the long run

we seem to be moving into the next headline driven fad which is to dump the defensives and shift to the cyclicals ...

in theory qe will only end when the market can stand on its own feet, if that comes about people will still be buying all the great dividend payers like johnson & johnson and coke and mcdonalds ...


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## james4beach (Nov 15, 2012)

fatcat said:


> if zut (which i own) is yielding less that may well mean that the constituent companies are lowering payouts to grow their business or pay off debt which will make them better companies in the long run


When you earn $100 of income and promise to pay out $110, you have problems. Reducing the dividend is not to reinvest and grow the business, it's to acknowledge the cashflow reality that you don't have the cash to make those dividend payments. From what I see anyway.


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## fatcat (Nov 11, 2009)

james4beach said:


> When you earn $100 of income and promise to pay out $110, you have problems. Reducing the dividend is not to reinvest and grow the business, it's to acknowledge the cashflow reality that you don't have the cash to make those dividend payments. From what I see anyway.


except this makes no sense, the top 3 holdings in zut which account for 51.25% of the fund have a weighted payout average of 28.97% ... the fund as a whole has a weighted payout of 35% ... if this is what you see, you need new glasses


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## favelle75 (Feb 6, 2013)

james4beach said:


> They still hold ATP according to BMO's ETF web site, 3.62% of the fund (smallest holding). Far from dropping them, I think they will actually be buying more at the next re-balancing to bring it up to equal weight.


Yes, there it is, right at the bottom. No wonder I missed it!  At $5/share, they probably will be buying more ATP. In fact, I wonder if I should be buying more ATP as well??


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## james4beach (Nov 15, 2012)

fatcat said:


> except this makes no sense, the top 3 holdings in zut which account for 51.25% of the fund have a weighted payout average of 28.97% ... the fund as a whole has a weighted payout of 35% ... if this is what you see, you need new glasses


I get a number almost double yours: 64% weighted average payout ratio, which isn't horrible but it's on the high side. You're right that most holdings are not imminently short of cash, but over 50% gets iffy.
Here's my spreadsheet including data sources

23% of the fund's assets in stocks with a payout ratio over 0.9, and that's a very big worry. It means nearly one quarter of the fund's investments are in danger of an imminent dividend cut, and could take steep losses. I've updated this other ZUT thread with more details
http://canadianmoneyforum.com/showthread.php/8393-ZUT-Utilities-ETF

Maybe we're talking a different dividend payout ratio numbers. I'm using this recent 2013 article on utilities with payout ratios. They use AFFO to determine payout ratio and I think funds from operation is generally the number used for utilities.


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## thompsg4416 (Aug 18, 2010)

I've obviously made some allocation errors in the last few months. US indexes are hitting all time highs I'm still flat since January.

I've pulled off a few small trades to bring in a few bux but I'm over weight on one stock which hasn't faired well and hopefully it'll pop.

I'm in BCE which has done well although down this week. Got into BNS and SU at the wrong time and both are only slight up or down.

Lets hope I'm not like the US economy squeaking by in good times and then crashing during bad times...


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## andrewf (Mar 1, 2010)

MoreMiles said:


> I wish there is a way hide "unrealized gain / loss or % change" from the holding view. This way, you can see all the holdings are still there, along with the real-time prices. But then you won't get worried when their values turn red. I do not think any discount brokerage online sites allow such function.
> 
> Psychology of investing is very very important... For most people, if their stock unrealized gain is over 10% they would not care about 5% fluctuation in prices anymore in that stock because you are not losing your principal money. However, if there is no such gain as cushion, they get nervous and sometimes behave irrationally. However, if you think about it, whatever the price you have, is what you own at the moment. So 10% or not, you should treat your money the same way.
> 
> ...


Questrade's iqWeb platform lets you customize which columns you see.


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## fatcat (Nov 11, 2009)

james4beach said:


> I get a number almost double yours: 64% weighted average payout ratio, which isn't horrible but it's on the high side. You're right that most holdings are not imminently short of cash, but over 50% gets iffy.
> Here's my spreadsheet including data sources
> 
> 23% of the fund's assets in stocks with a payout ratio over 0.9, and that's a very big worry. It means nearly one quarter of the fund's investments are in danger of an imminent dividend cut, and could take steep losses. I've updated this other ZUT thread with more details
> ...


i just grabbed payouts form the globe and mail ... the assumption that high payout ratios automatically mean trouble is just false

https://www.allianzglobalinvestors....t-ratio-high-earning-growth-in-the-future.pdf *At index level, the payout ratio is a good leading indicator of future earnings growth. An initially surprising correlation nevertheless applies: the higher the payout ratio, the higher – not lower – the future earnings growth, adjusted for the rate of inflation! The lead time is five to ten years, so the correlation applies as a relatively long-term trend and not over the short term.
*
payout ratios will vary by company and industry and by asset class ... i do agree that when you see a company with a high payout ratio you should be cautious but there are many factors

i just bought general electric and it has a payout ratio of 80% but i think it is a good company that is diversified, has global operations, is taking steps to repair ge capital by maybe spinning it off and intends to raise dividends etc etc ... sure it could bankrupt next october but what the hell ...

i confess your bearishness is getting to me james ... it colors every analysis your undertake, can you see that ? ... one gets the feeling that you don't look at the market but only for confirmation of your extreme bias

perhaps i am biased to think i have no bias, who knows ? ... peace ..


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## james4beach (Nov 15, 2012)

fatcat said:


> i confess your bearishness is getting to me james ... it colors every analysis your undertake, can you see that ? ... one gets the feeling that you don't look at the market but only for confirmation of your extreme bias
> 
> perhaps i am biased to think i have no bias, who knows ? ... peace ..


Thanks for the thoughts on payout ratio. I'm going by empirical observation that utilities that got very high payout ratios cut their distributions. I'm also observing that corporate earnings are in a slow-down cycle. I suspect that the observation 'high payouts correlates with future earnings growth' works in a corporate growth phase, where a company is *able* to generate more cash and thus catch up with that high payout ratio. Currently this is not the case. Corporate earnings have been weakening for approx a year.

Actually it's their analysis that is clouded and biased... they're mainly relying on 1947-2000 for their conclusions. This is just classic, ever-optimist bull thinking. Just like every other bull out there, they're basing their conclusions on the strongest growth phase of any modern country (a historical anomaly, by the way). They're looking at the USA during their best times ever, and coming up with a broad conclusion. That is a biased analysis.

My bearishness is a bias that colours my analysis... yes it is. Just like perpetual bullishness is a bias that colours 99% of everyone else's analysis. It's totally possible for two people to look at the same data and come to different conclusions


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## fatcat (Nov 11, 2009)

james4beach said:


> My bearishness is a bias that colours my analysis... yes it is. Just like perpetual bullishness is a bias that colours 99% of everyone else's analysis. It's totally possible for two people to look at the same data and come to different conclusions


we agree that there is a very strong and active bias toward bullishness that emanates from a very large investment industry that absolutely has a stake in encouraging people to invest, invest, invest and take on risk ... no question ... if i believed i would have a better risk/return ratio in a gic ladder i would do it in a heartbeat, absolutely ... i would like to think that i am neither bullish nor bearish, a smart investor prepares for both scenarios ...


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## Squash500 (May 16, 2009)

fatcat said:


> we agree that there is a very strong and active bias toward bullishness that emanates from a very large investment industry that absolutely has a stake in encouraging people to invest, invest, invest and take on risk ... no question ... if i believed i would have a better risk/return ratio in a gic ladder i would do it in a heartbeat, absolutely ... i would like to think that i am neither bullish nor bearish, a smart investor prepares for both scenarios ...


 IMHO the problem is that it's very difficult to short the market. That's why IMHO the active bias towards bullishness emanates. First of all...the DIY investor needs a margin account...which personally I'm not comfortable in getting. Therefore I can't buy put options or short stocks etc. 

Investors who use advisors have similar problems. Most financial advisors won't get their clients involved in options or in shorting stocks. IMHO the advisor doesn't have the time to closely monitor the option or short positions of each of their clients. Therefore that's why being bullish is the default option of the retail investment industry.


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## james4beach (Nov 15, 2012)

Squash500, well said

In the past, I did short stocks. During 2007-2008, I was an active short seller. The reason nobody shorts today is both because of QE (levitates all assets) but also because in 2008 the SEC, and other regulators including the OSC, had suddenly come up with a surprise rule that certain stocks are "unshortable".

That really screwed me and other short sellers. And it drove hedge funds and investment banks away from using short selling. Now I think everyone is hesitant to short sell, because on a dime the SEC could disallow it... screwing you out of your positions. I don't want to take that risk!

So today we have a market without short sellers. Central bank money printing policies discourage it, and the SEC's past actions make it a scary proposition. As a result you get many mis-priced assets, because the traditional price discovery isn't happening. Short selling is both a liquidity-contributing tool, and a valuable ingredient in the overall market's price discovery process.

So instead you get things like the S&P 500 rallying 17% on nothing fundamental. Earnings peaked in mid 2012, so there is no earnings growth happening. The business cycle is slowing. Yet the S&P 500 is up 17% since then. Normally people would come along and short the index, but that doesn't happen today.. nobody in their right mind would short the S&P 500 ! I sure wouldn't.


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## My Own Advisor (Sep 24, 2012)

I really hope the markets go lower. I want to buy more TD so I can DRIP it...getting closer to doing that.


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## gibor365 (Apr 1, 2011)

My Own Advisor said:


> I really hope the markets go lower. I want to buy more TD so I can DRIP it...getting closer to doing that.


I did it with TD about half year ago , so now I'm DRIPing.... Would like to add positions to some stocks I hold in order be able to DRIP at least 1 share, as example KMB, MCD, PG, APD, LMT


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## Jon_Snow (May 20, 2009)

Today was most excellent... Except for my IMG, but that's only 10k worth - the amount of cash I am sitting on dwarfs this. The way the DOW tanked right at the end of the day was quite something.


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## MrMatt (Dec 21, 2011)

favelle75 said:


> I know, long term, who cares, don't time the market, etc etc...but, like most I cán't help but periodically check the stocks every couple of days. Everything I have (except CLC) is getting clobbered. Is there a reason for this? My bread and butter BCE.TO was flying for months...now its losing 70 cents a day!
> 
> Anything happen recently I may have missed? Or is this the "sell in May" phenomona?


What do you consider "getting hammered"? 
What time period? 

I'm doing great, up piles YTD, but even a few months is a bit short of a window for stock performance.


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## humble_pie (Jun 7, 2009)

i don't see any hammering or clobbering
options income is welcome as we coast along

for buying, one has to wait for the LBGSLL signal


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## gibor365 (Apr 1, 2011)

humble_pie said:


> for buying, one has to wait for the LBGSLL signal


what is it?


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## doctrine (Sep 30, 2011)

> So today we have a market without short sellers.


I don't think so (I think you're just using hyperbole?), there's plenty of shorting activity out there. Especially in Canada these days. Home Capital Group hit 23% if its stock sold short a few weeks ago. 

This was the short interest on the TSX a couple weeks ago. http://www.tmx.com/en/pdf/short_positions/May15-2013.pdf 

Heck, there's almost a billion dollars of Manulife being shorted.


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## james4beach (Nov 15, 2012)

doctrine said:


> I don't think so (I think you're just using hyperbole?), there's plenty of shorting activity out there. Especially in Canada these days. Home Capital Group hit 23% if its stock sold short a few weeks ago.
> 
> This was the short interest on the TSX a couple weeks ago. http://www.tmx.com/en/pdf/short_positions/May15-2013.pdf
> 
> Heck, there's almost a billion dollars of Manulife being shorted.


Thanks for the stats on short interest, but that's just a snapshot and doesn't tell us anything about how much short selling is happening on the TSX versus historical norms. Just because HCG is heavily shorted doesn't tell us anything about overall short selling activity.

In the USA what I've read is that short selling has declined in the last few years, versus historical averages. Read more here:

http://www.forbes.com/sites/nathanvardi/2013/01/10/death-of-the-hedge-fund-short-seller/



> For hedge fund managers, shorting stocks has become increasingly tougher and hedge fund traders have become much more reluctant to bet against individual companies. This important new trend can be seen in the decrease of short interest activity in individual stocks—over 18 million shares on the New York Stock Exchange in July 2008 versus 13.3 million in October 2012
> . . .
> There are many theories floating around about why this has happened, but the inability to short stocks at a reasonable cost has robbed hedge funds of an integral strategy
> . . .
> Why has shorting become so expensive? JPMorgan’s prime brokerage unit gives a bunch of reasons that largely seem to be driven by *today’s low interest rate environment*, including rising demand for hard to borrow securities and lenders seeking higher returns by concentrating more of their lending on such shares.


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## doctrine (Sep 30, 2011)

All the more reason I'm glad I put most of my money to work over the last 2-3 years before people got 'interested' in stocks again. There's still not nearly as much interest in stocks as there was 10-15 years ago. I'm prepared to sell if market multiples got to silly status (i.e. 30) but I really still don't think everything is overvalued. A P/E of 14 expands to a P/E of 16... not a big deal. If it concerns you, sell your remaining stocks and wait for the epic crash...


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## MoreMiles (Apr 20, 2011)

Squash500 said:


> IMHO the problem is that it's very difficult to short the market. That's why IMHO the active bias towards bullishness emanates. First of all...the DIY investor needs a margin account...which personally I'm not comfortable in getting. Therefore I can't buy put options or short stocks etc.
> 
> Investors who use advisors have similar problems. Most financial advisors won't get their clients involved in options or in shorting stocks. IMHO the advisor doesn't have the time to closely monitor the option or short positions of each of their clients. Therefore that's why being bullish is the default option of the retail investment industry.


No... it's a question of ethics.

How would you feel that someone borrowed your home, sold it, then will later pay you back hoping your home will crash in value? You would say, WTF, that is my property... go away!

It's the same idea. If you can sleep at night selling the stock shares borrowed from your teacher or parent's RRSP holding, then it is your ethical choice. You are profiting from borrowing and crashing hardworking people's investment asset (ie, stock shares).

For most advisers and investors, we despise short sellers.


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## cainvest (May 1, 2013)

Ethics ... really?

I would think Squash500 is right, shorting is just to complicated for most. Your tyipcal retirement investor probably has no idea what a margin account is to begin with. BTW, I have no issues with someone shorting my companies stock, if they feel it's going to go down, so be it.


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## MoreMiles (Apr 20, 2011)

cainvest said:


> Ethics ... really?
> 
> I would think Squash500 is right, shorting is just to complicated for most. Your tyipcal retirement investor probably has no idea what a margin account is to begin with. BTW, I have no issues with someone shorting my companies stock, if they feel it's going to go down, so be it.


Yes, really. Do you own any store or professional practice? If you do, how would you feel if your business ownership is sold without your permission? Someone borrowed it from your broker/banker and sold it? That is what a short sale on stock shares means. As a business owner, you would not be upset? Oh well anyone that really cares about their company should be.


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## Yoqui (Mar 5, 2013)

lmao that is the funniest thing I have ever read. Their is nothing unethical about short selling and is very normal thing in the stock market. For one thing when you sign up with a broker their is a clause saying you allow your shares to be borrowed for shorting, in which your broker is probably earning a fee on. So unless you signed something your personal business is never going to be borrowed for shorting. Secondly, again, short selling is very normal and does come with risks, have you never heard the term 'short squeeze'? its a god send for bulls.


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## Squash500 (May 16, 2009)

MoreMiles said:


> Yes, really. Do you own any store or professional practice? If you do, how would you feel if your business ownership is sold without your permission? Someone borrowed it from your broker/banker and sold it? That is what a short sale on stock shares means. As a business owner, you would not be upset? Oh well anyone that really cares about their company should be.


 From what I understand....the stock or ETF that's being shorted has to come either out of the brokers own inventory or from the margin accounts of other clients of that brokerage. If you own stocks or ETFS in a brokerage cash account then the brokerage is not allowed to lend out the stocks or ETFS that you "own free and clear."


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## Squash500 (May 16, 2009)

Yoqui said:


> lmao that is the funniest thing I have ever read. Their is nothing unethical about short selling and is very normal thing in the stock market. For one thing when you sign up with a broker their is a clause saying you allow your shares to be borrowed for shorting, in which your broker is probably earning a fee on. So unless you signed something your personal business is never going to be borrowed for shorting. Secondly, again, short selling is very normal and does come with risks, have you never heard the term 'short squeeze'? its a god send for bulls.


 IMHO the stocks can only be borrowed by the brokerage if you own them in a margin account yourself. "Short squeeze" can be a godsend for bulls. Maybe that's one reason why the price of MFC has gone up so much lately? As Doctrine pointed out....MFC is one of the most shorted stocks on the TSX. The fact that the price of MFC has shot up so much lately....means that a lot of MFC shorts might have been getting "margin calls" which means that they are forced to buy back the MFC stock at much higher prices then they originally sold it for. This "short squeeze" causes the price of MFC to go even higher....regardless of how good or bad the fundamentals of MFC really are.


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## cainvest (May 1, 2013)

MoreMiles said:


> Yes, really. Do you own any store or professional practice? If you do, how would you feel if your business ownership is sold without your permission? Someone borrowed it from your broker/banker and sold it? That is what a short sale on stock shares means. As a business owner, you would not be upset? Oh well anyone that really cares about their company should be.


As a business owner and employee of a publicly traded company, why would I get upset ... there is no logical reason to do so. Anyone that cares about their company should focus on keeping solid fundamentals, end of story. I gather you'd also find it unethical to sell shares below the ask price?


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## GoldStone (Mar 6, 2011)

MoreMiles said:


> For most advisers and investors, we despise short sellers.


We? Do you have hard data to back your claim? If not, perhaps you should stick to speaking for yourself.

Personally, I see nothing unethical about short selling. It makes price discovery more efficient which is a good thing.


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## humble_pie (Jun 7, 2009)

every investor did, in fact, give permission to his broker to short his stock. Explanation plus signature request would have appeared in the terms & conditions documentation presented by every canadian brokerage to every new account applicant. All broker clients with cash or margin accounts have already signed such a permission.

brokers never short against stock in registered accounts, Miles, so perhaps you might consider adjusting your statement upthread?

brokers do utilize stock in clients' cash & margin accounts for lending to other clients who wish to short. This has been going on since time immemorial.

i for one am unimpressed by the Forbes article. Those cherry-picked months of july 2008 & october 2012 are meaningless. There were good reasons for high short interest summer of 2008, lower short interest fall of 2012. Plus it's likely that over a multi-year time span, short interest has tended to be higher in july, lower in october months.

those 31 top US hedge fund managers? they look real healthy to me

even more surprising, the forbes article laments the outlawing of naked shorting in the US of A. 

why are we supposed to feel sympathetic to naked short artists? naked shorting has long been associated with mob-controlled markets. Why are we supposed to feel sorry now that the mobsters have been shut out of US naked shorting?

they say that former naked short traffic in the US has now migrated north to canada where it's not illegal ... ah, but this is another story ...


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## MoreMiles (Apr 20, 2011)

GoldStone said:


> We? Do you have hard data to back your claim? If not, perhaps you should stick to speaking for yourself.
> 
> Personally, I see nothing unethical about short selling. It makes price discovery more efficient which is a good thing.


I know it's a standard practice just like a bank would loan $5 out for every $1 it gets for deposit, etc. There are many questionable financial practice out there, well known with GS or JPM, etc. It is one's view. I know it's very common. If you believe that there is nothing wrong to sell things you don't own, so that is your view. Most fund managers do not carry short positions in their strategies. Most elderly retail investors will be surprised to hear that you can sell their property because you simply share the same stockbroker. 

Another example, we all know most profitable stocks include tobacco companies... which kill millions of people because of lung cancer. I refuse to buy it regardless how good their dividend and rise is... Many people do not care, as long as they get their dividends. You see, it's a personal ethical choice, so that is my view on short selling too.


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## MoreMiles (Apr 20, 2011)

humble_pie said:


> brokers never short against stock in registered accounts, Miles, so perhaps you might consider adjusting your statement upthread?


I did not know that. Thanks for correcting me. It's good to hear that they do not touch people's registered investment funds. 

I heard if you put your shares for sale at a high asking limits, those share cannot be loaned out... not sure if it is a myth or not. If it is true, I will do that to all my holdings.


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## MrMatt (Dec 21, 2011)

MoreMiles said:


> I know it's a standard practice just like a bank would loan $5 out for every $1 it gets for deposit, etc.


No they don't.
They can only lend out up to the amount that was deposited, less a small reserve.

For example lets consider the bank of MoreMiles, If I deposit $5 with you, you can only lend out $5 to someone else. 
Realistically you'd get 5 people to deposit $5 each or $25 with you, and lend out only $20, leaving $5 in your hands. Then even if one of us wanted our money back now, you could give it to us without asking for any to repay their loans.

Expand to millions of clients on both sides and you have the fractional reserve banking system. Add in some more complicated lending and deposit agreements and you have a simplified version of todays banking system.


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## humble_pie (Jun 7, 2009)

miles generally speaking you are right about offering your shares as a modality to prevent broker utiliization for shorting purposes. However, the broker can override your limits & use your shares anyhow (yes, you did sign for this!)

in your strategy, normally a share owner would offer his shares at a price high enough that one would not reasonably expect the offer to be accepted. However, if the offer price is too high, broker may not accept the order.

alternatively, share owner can sell a call against his stock. If you think about it, this amounts to the same thing as preceding paragraph. Call selling wlll also mostly - but not entirely - lock down the underlying stock, because the short call means that the underlying stock has been set aside in case assignment occurs.

however, brokers occasionally do borrow even these already-restricted shares! i've seen this happen. It's rare, it usually involves only a small part of a stock holding, the broker always hurries back within a few days or few weeks at most to replace the stock it has double-borrowed.



> If it [offering shares for sale at high prices] is true, I will do that to all my holdings


but picture your account once you've sent those sell orders, Miles. All of a sudden your previously peaceful account is now studded all over with land mines. These have to be monitored on a daily basis to make sure that none explode. Do u really want to be doing all that monitoring? 

this is why i believe that selling a bunch of high OTM calls is easier. Example: stock is stable, presently at $18. Broker probably won't accept order to sell stock at 25. Investor could, however, sell a $25 call & the same mostly-lockdown effect would be obtained.


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## james4beach (Nov 15, 2012)

One has to be aware that brokers play all kinds of games that put account holders at risk. This is standard practice in the industry, and it's allowed. What it comes down to is that the assets you see in your account don't necessarily exist (the cash balances definitely don't exist)
Here's a good article on the re-hypothecation practice

Mind you, this kind of thing seems to happen more often in the case of futures brokers.

But what it comes down to is that any shares or bonds you "own" are definitely not marked in your name. The broker has a big inventory of the shares/bonds they hold, and then the client accounts have notes of which account holds how many units. Those lists don't have a 1:1 relationship... there is almost always a shortfall. The broker may not possess the asset that show up in your account. And cash is entirely a loan to the broker; there is no cash "held" for you somewhere.

This kind of thing goes unnoticed until the collapse of a broker. What happens when a broker fails is that client assets (# of shares of each thing) are simply transferred to a new broker. This only works as long as the broker has sufficient shares/bonds to fill each account's holdings. If the broker doesn't have all the assets, as was the case with MF Global and countless others, then the client has suffered a loss. If there was cash in the account, that cash is also gone as it never existed to begin with.

It's not much better if you use a mutual fund company, as they also engage in "securities lending" where they will lend huge amounts of the portfolio, 20% to 40% are routine, away to hedge funds and institutions. So again in many mutual funds and ETFs, many of your assets are not actually there.

All of these are additional risks to stock investing that nobody ever talks about. When I say that I want to stay away from the stock game and the unstable financial system, I'm also trying to reduce my exposure to these kinds of dangers. If a large Canadian broker were to collapse, it's quite possible account holders would lose money even if their positions were "profitable". This certainly happened in the collapse of American and Australian brokerages.


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## blin10 (Jun 27, 2011)

funny observation... when everything was going up like crazy, all those so called "pros" were hyping things up and cheering, now it pulled back a bit and all of them saying how it's over priced at these levels, lol... its too funny watching/listening these idiots


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## dogcom (May 23, 2009)

Blin10 the media is owned and controlled by a few companies and is not able to report independently so cheerleading is all you are going to get. When the market does correct or crash however then the media and the pros they put forward have no choice but to report on the obvious. James4beach this media problem is just as big as the stuff you warn us about and is something you may also want to look at as well.


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## Belguy (May 24, 2010)

Here we go again! Back to the future!!

http://www.reuters.com/article/2013/05/30/us-markets-structured-products-idUSBRE94T07I20130530

He who does not learn from history is destined to repeat it. These bankers will never stop inventing ways to make themselves rich even if it puts everyone else in peril.:disgust::disgust::disgust::disgust:


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## liquidfinance (Jan 28, 2011)

One of my worst days ever today! :hopelessness:


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## Eder (Feb 16, 2011)

Every down day is only creating more potential upside for our portfolio's. Thank God we might finally get a correction here...


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## Jungle (Feb 17, 2010)

Only have so much cash flow to invest.. also need to convert some USD, but our dollar has dropped quite a bit now.


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## Nemo2 (Mar 1, 2012)

Returned, last night, from the Great Czech Flood of '13........down some......(actually about a year's worth of the non CPP/OAS part of our annual expenditure)


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## jamesbe (May 8, 2010)

Well I need to dump $8k in my RRSPs as a lump for the year. i guess it may be a good time to do so!

I find that mid-summer it always drops very low so I may wait just a little longer.


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## HaroldCrump (Jun 10, 2009)

IMHO, this is not a correction deep enough yet to drool all over.
The major indices are not off even 5% from their highs a week or two ago.
That hardly qualifies as a correction.

Sure, there may be individual stocks that have corrected a lot because of company-specific or industry-specific reasons, but the overall market is not in bargain territory yet.
For the individual sectors that have corrected a little (REITs, utilities, telecom), IMO it is still a little too early to buy.
It's not bargains galore just yet.


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## Belguy (May 24, 2010)

Sell in May and go away??:encouragement::calm::friendly_wink:


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## fatcat (Nov 11, 2009)

this is from a story off bnn



> The average hourly wages of workers in the non-farm sectors of the economy saw their wages fall 3.8 percent in first quarter from the previous quarter, a report from the U.S. Bureau of Labour Statistics said on Wednesday. *It was the largest decline in hourly earnings since the agency first starting tracking that data back in 1947.*


this does not strike me as an encouraging statistic for a "growing" economy

hopefully it is a one off

i wonder how the fed will look at this

if the jobs report is bad tomorrow, will the market go up because it means the fed is still "in" or down because the fed has now signaled they are out and the market sees the recovery as unsustainable

i am gradually joining the group of unadulterated fed haters

one guy (the _bernank_) decides whether or not i eat cat food in my old age


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## CanadianCapitalist (Mar 31, 2009)

HaroldCrump said:


> Sure, there may be individual stocks that have corrected a lot because of company-specific or industry-specific reasons, but the overall market is not in bargain territory yet.
> For the individual sectors that have corrected a little (REITs, utilities, telecom), IMO it is still a little too early to buy.
> It's not bargains galore just yet.


I agree. REITs are off a bit -- about 9 percent -- but are still in fair value territory. Other major asset classes are down even less. So, we are not even in correction territory yet.


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## favelle75 (Feb 6, 2013)

So if we haven't dug down to the "correction levels" yet, is there anything worth buying into at this moment?


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## My Own Advisor (Sep 24, 2012)

A few U.S. stocks have low P/Es. I want to write about that:

AFL:US
COP:US
XOM:US

Just recently bought some COP for my RRSP.

Also:
http://live.wsj.com/video/warren-bu...F4.html#!7A3A75C2-0891-4747-A31E-97D7A7EB90F4


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## RedRose (Aug 2, 2011)

Thank YOU this makes interesting reading for a novice investor.
I just bought into the market over this last year, so bought a little high.
Yes today lots in the red today, but on the whole I am glad to be in and will be looking for that "correction" if it ever comes to buy more.
I certainly don't want to eat cat food in my old age...which is just beginning now.


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## Nemo2 (Mar 1, 2012)

Isn't cat food expensive?


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## Belguy (May 24, 2010)

I love it when folks say that a dropping market is a good thing because it represents a buying opportunity.

A rising market is also a good thing because it allows for profit taking.

Gotta love the stock market!! It's a good thing whether it's rising or falling!!

How can you lose if you don't buy and sell at the wrong times? But, then again, isn't that market timing which is another good thing if done right?

I love this game!!!:tongue-new::encouragement::biggrin-new::highly_amused:

It beats the lottery!!!


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