Friday, October 16, 2009

For GT Blog October 10, 2009

More on investment myths and investment folklore

It has taken me years to discover that low investment costs such as cheap trading commissions and low management fees have little to do with successful investing – those low trading fees can encourage over-trading resulting in you “giving away” good stocks because of the removed commission barrier.

During the 2007-2008 financial melt-down those low MER exchange traded funds collapsed at the same rate as their more expensive mutual fund peers – does saving the extra 1.5% fee make you feel better when your down 35%?

The reality is most of your investment returns are determined by bull & bear markets, proper sector selection and the current dominant theme

The dominant theme will lead a secular up-trend which is a long-term trend that can persist for several years. These long trends are interrupted by the shorter, four-year bull and bear cycle, hence the term “secular trend.’

The first modern secular uptrend was the post-World War II boom of 1949 through 1966. It ended when the Nifty Fifty buy-and-hold asset bubble popped in response to rising oil prices. This introduced the first modern secular downtrend that persisted though the 1970s. The crisis was the 1973 Arab Oil Embargo.

In the early 1980s, the new-economy companies took flight and the great 1982-2000 second modern secular uptrend was on. All investors had to do was buy and hold. Today, the tech-laden Nasdaq composite at the 2,000 level is still ten times the 1982 level of under 200 on the index.

In the late 1990’s savvy investors enjoyed the energy theme which ended with the great crude spike of 2008 - a ten-year run that drove the TSX Energy index from a 1998 low of 50 to a 2008 peak of 470 – up over 800% for a 10-year annualized return of over 25%

Clearly we need a new dominant theme

I will be a presenter at the World MoneyShow Toronto - Metro Toronto Convention Centre Thursday October 22, 2009 from 4:15 pm to 5 pm. I will explain secular trends and seek out the new dominant investment theme.

I invite you to join me - follow this link for more information


BP said...


I always thought low commission discount brokers provided the reason for people to be impatient. I have a friend who often tells me look at ABC (obviously fake symbol), I cant believe it popped, I owned it and I sold it. I would ask, "why did you sell it" and the answer would be "it wasnt doing anything".

The low cost of moving in and out kept my friend from being proved right on a few occassions.

Can you imagine anything worse? Being right but so impatient you see it go up after bailing?

Love the site Bill, you dont talk in street language.

MrMoney said...

The secular theme in resources and emerging markets may still be in place fo the next 3-4 bull market cycle. Maybe the financial meltdown was just a correction not a top, similar to technology in 1998 when the currency crisis casued a major stock market drop, but then tech went onto new highs in 2001. Your thoughts?