Tag Archives: TSX

Markets are Falling: When Should I Buy Now or Later? When Will Prices Reach the Bottom?

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Buy low, sell high, right? Ah, if only we knew exactly when the market was at an all time high and about to go down, or at an all-time low and about to power up, we’d all be billionaires. Unfortunately, while it is dead easy to see you should have sold around May 2008 and bought around February 2009, there’s no “future performance” chart to look at to know what to do over the next few months. Given that markets are in retreat right now and prices are falling some of us are left trying to decide should I buy now or wait a bit longer? Have prices reached the bottom yet?

Market Timing Isn’t Possible

Ok everyone has agreed on that right?

But if, like me, you have some money sitting in cash ready for your next round of investing, you still have to pick a moment to click Buy.

And while the detached analytical types will just say “I always buy on the 15th of the month” or something similar, many of us will stare at the day’s chart and dither. Now? Tomorrow? What if the TSX rebounds 200 points in the next hour? I’ll be mad I didn’t buy now. But what if it drops another 500 over the next 2 days? What’s the rush to lock in if it’s going down?

Let’s be clear about this: There is NO WAY to know when is the best time to buy.

Wishy Washy Investors Suffer GREATLY from Buyer’s Remorse

Unlike the detached analytical types, who admittedly are most likely to end up with the highest overall portfolio value for the same number of dollars invested, Wishy Washy Investors spend a lot of time agonizing about their mistakes. They beat themselves up for buying when the TSX is at 14 900 if the next day it drops to 14 700.

They also end up waffling a lot trying to avoid Buyer’s Remorse by procrastinating. Obviously, that can have an even worse impact on their investing decisions.

So they need a strategy to buy (and sell) that lets them blame the strategy, not themselves.

(Yes, I know at least one reader is screaming: the strategy is buy immediately when you have money to invest and you have reached the efficient point at which to buy based on commissions. However, many of us just don’t live our lives that way. Yes, some of us are also fat.)

A Wishy-Washy Investor’s Guide to Buying Low

So what do I intend to do?

Do You Have Enough Capital to Invest More than Once?

Well, I’m in the enviable position of having a tidy sum to invest, should I want to. My fixed income has grown higher than I need so I can re-balance by taking the profits of a few recently matured GICs and popping them into the equity market.

Normally, though, you have to consider the size of the trading commission versus the amount you have to invest as part of your decision process. Michael James on Money, for example, did the math to figure out how often to invest if you are a small investor.

If you only have a small amount to invest, say, $500, just use a “jumping into cold water” rhyme, hold your nose, and click on Buy. At least you’re buying when the market is somewhat down, which should feel a bit good.

If you have a large amount to invest, you can probably split it into 2 or more parts and invest each separately.

How Much Do You Have to Pay Per Trade?

I have another blessing: right now I have free trades available at both CIBC in my unregistered account and at RBC Direct Investing in my RRSP account.

If you don’t, take a look at the amount you have to invest and the trading commission you would have to pay each time you click Buy. If the market is down, say 5%, but you would have to pay 9% of your investment as a commission, that’s not really a good choice. Even 1% of your investment seems a bit steep. Do the math and think about how many commissions you can reasonably accept.

Then divide your capital into that many chunks (up to some reasonable number like 4. If you’re dividing your money into 3500 pieces it’s getting a bit bizarre.)

Execute one Buy immediately with the first chunk.

So for me, the Wishy Washy Buy Low Strategy says: invest 25% of the money now. The TSX composite is already down about 1500 points (over  9%) from its 52-week high.

Then, if the market retreats another 250 points, I’ll buy in another tranche of 25%. And repeat till all 100% is invested.

What if the Market Starts to Climb Again and I Still Have Uninvested Capital?

Well, you’d better think about that from the start, because it’s bound to happen. Look at the way the Dow bounced (in the week of October 6-10, 2014.)

Just because it goes up a bit doesn’t mean it won’t come down again, either.

So you should set yourself limits and stick to them. Perhaps you’ll pick, buy each time the market drops 1%. If the market climbs 2%, invest all the rest immediately.

The percentages don’t actually matter as much as having a clear plan. You need to have a plan, even if you’re Wishy Washy and can’t stomach just putting all of the money in the market at once and hoping for the best.

What Should You Do After the Money Is In the Market?

Walk away from your computer.

Turn off your stock alerts.

Flip the channel if the radio or TV starts reporting on the equity markets.

Don’t look again until it’s time for your annual re-balance.

I dare you!

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Do you approach investing in a cold, mechanical manner to optimize your long-term portfolio? Or do you spend a huge amount of time second guessing yourself, berating yourself, applauding yourself and generally being emotional about investing? Please share a glimpse of your investing personality with a comment.

Why Do Markets at All Time Highs Mean a Crash Is Coming? Don’t Stocks Have to Go Up to Be Worthwhile?

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As soon as markets start to go up and stay up for a few months in a row, someone starts predicting that they will crash. And when the TSX and NYSE hit new “record highs” the buzz became almost deafening: Now a MAJOR market meltdown was inevitable–it was just a matter of when. But why? Why do people assume that markets reaching all time highs mean a crash is coming: if the stock market is supposed to return an 8% or higher average, doesn’t it mean it MUST set new records and fairly steadily?

Why Does Anyone Invest in the Stock Market?

Investing for Income

Some people invest in companies listed on the stock markets to get dividends and distributions. Their investment choices are driven by a need for income.

Not all companies offer dividends or distributions though. Why would people buy shares in those companies?

Investing for Capital Gains

Many other people are investing in companies’ stocks to try to win a capital gain. They want to pay $20 for a share and sell it to someone else for $40, or more. They are willing to buy shares that don’t pay anything to investors but which may be worth more in the future than they are now.

Obviously, sometimes these investors are unlucky. The perceived value of the company drops and if they sell their shares they realize a capital loss.

Shouldn’t the Stock Markets Indices, Over Time, Go Up?

If you go to a site like Yahoo Canada finance, or sign in to a brokerage website, you should be able to look at a graph of the S&P TSX Composite Index over several years. Go to https://ca.finance.yahoo.com/q/bc?s=^GSPTSE&t=my&l=on&z=l&q=l&c= and if necessary click on: Max

It should have jagged peaks up and sharp valleys down, but there should still be an overall trend in an upwards direction. Or at least there should be if you believe that investing in the stock market should yield you a capital gain, over time, if you invest a tiny bit in every company in that market index.

If you look at the last 10 years of the S&P TSX Composite, you will likely notice it spiked up to a nice point at about 14 000 in 2011 and it’s currently (in September 2014) at 15 000 and still climbing. In 2008 it also reached over 15 000. On January 1, 1985 it was under 3 000.

The overall trend from 1985 till now is up.

So why, just because we are finally trading in the 15 000 plus range, are people shouting it’s going to crash?

For people who had all of their money invested before May 2008, and who invested for capital gains not for dividends or distributions, it must seem like the party is just about to start. For years they’ve waited patiently, pocketing any useful distributions and dividends, but biding their time waiting for some big ticket capital gains.

Unless there’s some “invisible ceiling” at just over 15 000 why should anyone be panicking?

Doesn’t Couch Potato Index Investing preach that you don’t try to time the market, you just buy steadily and hang on for the ride? I’ve never read an index investing article that said there is a maximum the market is allowed to rise.

Why I Am Still Investing a Bit a Month Every Month Into the Index Funds Mirroring the Stock Markets

I’m not the usual type of investor. I’m very conservative and very risk averse. So my portfolio stands on a wide, thick platform of fixed income securities. Enough, in fact, to provide a modest retirement income if all of our other investments failed.

Most of our new money, however, is going into the equity markets.

We are still vacillating about whether to invest the majority of it into income-generating investments or into “buy the entire market” index investments.

While we are deciding, we are putting some of our new investment funds into both. It’s wishy washy but it beats having everything sitting in cash.

So every month, we put a bit more into the stock market in the form of “buy the entire market” “ultra low fee” ETFs.

And I don’t see any reason to stop doing that just because the markets are at “all time highs.” If they never pass today’s “all time high” then there is no actual capital gain ever to be made by investing in index funds. A whole branch of the investing industry is mistaken. They will all lose money and never be able to speak on CTV or CBC again.

That seems unlikely to me. Yes, there may be a market pullback or even a radical plummet. But if you believe that capital gains can be made by investing in an index-matching-style then sooner or later, the money you invested in an index should return to parity and should, ultimately, increase in value.

I don’t like the uncertainty. I don’t like wondering if I might be buying just at the time when the rug is about to be pulled and the market will tumble into a trench it will take years to climb back out of. But that’s the uncertainty I have to accept if I want to invest in index-linked products in order to (theoretically) capture some capital gains worth more per dollar invested than my fixed income investments can yield.

Wish me luck!

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Do you index or couch potato invest? Do you have faith that the S&P TSX Composite must eventually keep rising about 15 000 and in fact above 16, 17, 18, 19 and even 20 000? Or are you selling out, buying food and ammo, and building a bunker out of gold bricks? Please share your views with a comment.