Zaid Jasani's talk was entitled "Portfolio Management Strategies for Active Investors". Zaid Jasani is a Managing Director and Partner with The Independent Investment Institute .
He got money in September 2008 and put it all into the market. This market is all about risk exposure. Nobody knows the future. It is all probabilities, a game of probabilities. The market could go bull or bear. Analysts of crowd fundamental drive the market in the long term. Tech will drive the market in the short term.
Human behavior is predictable. We do not like feeling uncomfortable. What is normal? Things not on the bell curve. What things are unlikely are things at both ends of the bell curve. In the middle is the normal distribution. Over reaction creates swings from expensive to cheap. Knowing this could help you buy better and sell better. This swing behavior happens all the time. He thinks that short term is less than 3 months and long term is greater than 3 months.
In the short term you can have a price ceiling where a stock is technically expensive. The faster a stock moves the more likely it is to go above this. The slower a stock is moving the more likely the price will drop. A high swing in price gives you a short term price ceiling and the stock is technically expensive. A low swing in price gives you a short term price floor and the stock is technically cheap. Who leads the swings? They are traders who make up 4% of the trades a day.
The S&P500 represents 35% of the worldwide market. Europe and the rest of the developed world represent 35% of the worldwide market and Emerging Markets represent 11.5% of the worldwide market. Canada accounts for 3.5% of the worldwide market.
Is the market swinging high now? Currently we are above the norm, but below expensive. Most recently we have backed off a bit, so our market is neutral. Is the Global Equity Market pull back over? Global markets have broken the trend and peaked in 2015. The largest explanation is the action of central banks. The US dollar is up and this put pressure on oil prices.
What will make the market go back up? The US is in trying to normalize interest rates. They want to have the ability to lower rates in a recession. Yellen started to talk down the US$ in February 2016. The lower US dollar has allowed oil prices to inflate. Global markets have inflated.
Can the US take the next rate hike? Did aggregate demand grow? Not really. We are also now seeing oil demand slow. Mr. Market did not like the last rate hike. This does not have to happen again, but since global demand is down, it probably will. If the rate is not hiked it will be a disappointment for Mr. Market. The market is not really pricing in a rate hike. If there is no hike the TSX will go up. If there is one it will go down by 10 to 12%. The market is not really sure what will happen.
How to manage emerging equities? They are close to normal. If there is not US interest rate hike then oil and other resources should go up. Gold is cheap. If no interest rate hike it will likely pop. If there is no interest rate hike then the US$ will go down. If there is an interest rate hike it will be bad for the US$.
What about REITs. If Yellen could take a hike and convince the market everything is good, this would be the best outcome for REITs. If she does not convince the market everything is fine, this will be a problem for REITS.
A current good buy is RBC (TSX-RY) or the iShares S&P/TSX Capped Financials Index ETF (TSX-XFN). Between 2008 and 2016, the banks were just below normal. We are at neutral now. Last year the financials outperformed and they are close to neutral now. Another ETF would be BMO S&P/TSX Equal Weight Banks Index ETF (TSX-SEB). If there is no interest rate hike, that you be good for RBC. An interest rate hike would be bad for RBC.
Independent Investment Institute is a community that helps each other and freely trades ideas. It costs $49.95. The community and coaching are all done online. They also meet once a year somewhere in Canada.
On my other blog I wrote yesterday about North West Company (TSX-NWC, OTC-NWTUF)... learn more. Tomorrow, I will write about Pason Systems Inc. (TSX-PSI, OTC-PSYTF)... learn more on Wednesday, November 02, 2016 around 5 pm.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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