October 2018 Investment Update

“…Weather’s good there in the Fall…”

Ian Tyson – Four Strong Winds

Morning walks – Ignoring October Market Fluctuations

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October Results

We haven’t had one of those kind of months for quite a while – glad it’s over and hopefully the rest of the year will be more stable.  The TSX lost 6.5% for the month and at one point it was down almost 9% – certainly correction territory.  The Canadian market is now down almost 7.3% on the year.

The Dow and S&P were down 5% and 7% respectively, wiping out most of the gains for the year, leaving a YTD gain of about 1.5%.  These markets were down 9 to 10% at the low point in the month – again, correction territory.

It is always impossible to predict the markets, but I don’t expect any major drops for the rest of the year, but don’t expect 2018 to be one of the better years.

My portfolios beat the market in both Canada and the US.  The portfolio is designed to protect on the downside, and a month like this reinforces that objective. I still had losses for the month, but considerably smaller losses than the general market.  For the YTD, I still have a 5.49% gain on my US portfolio, much better than the markets; and in Canada I am down 6.23% vs 7.29% for the TSX.  My combined portfolio is up a half a percent including exchange rate fluctuation.

My net worth is 4.65% below the maximum I reached in November 2017, but is 18% above the minimum I had in Sept 2015.  I am still almost 12% above where I was on retirement date in June 2014.  I am about the level I was at in October 2017, meaning that for one year I have had no growth (or shrinkage) in my net worth I was happy with my net worth at that time, so there is no reason why I shouldn’t be happy with the same number now, despite the rocky October. (Note: net worth grows or shrinks based on my portfolio growth, including dividend income, less any spending.)

Oct YTD
TSX -6.51% -7.29%
DJIA -5.07% 1.60%
S&P -6.94% 1.43%
BB CDN portfolio -4.76% -6.23%
BB US portfolio -3.07% 5.49%
BB Total (no FX) portfolio -4.14% -2.02%
BB Total (incl FX) portfolio -3.22% 0.48%

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October Fluctuations

Following are a couple of thoughts on the October problem we are looking at.  For the record, I do not plan on taking any action as a result of recent turbulence.  My dividends still provided my growing income.  I am fully invested, so I don’t plan on making purchases, but this might be a good time to add to your portfolio – I typically made my purchases in late October for this very reason.

Here is an excerpt from “The Motley Fool”.  I don’t necessarily agree with their recommendations, but the quote identifies the situation.

https://www.fool.ca/2018/10/21/avoid-the-october-curse-and-sidestep-overvalued-stocks-like-these/

What is it about October? Post-earnings season and pre-Christmas seems to be whatever the opposite of a sweet spot is when it comes to the markets. There have been a few really bad Octobers in investment history: many of our readers will no doubt remember the 1987 crash, (perhaps fewer that of 1929), 1989’s famous Friday the 13th sell-off, the twin crashes of 1978 and ’79, and of course the great nosedive of 2008. All occurred during the notorious tenth month. Is October cursed for investors? It certainly seems that way.

Regular reader, David, provided the following article from the NY Times talking about potential actions in a down market:

Excerpt:

For many investors, that raises a reasonable question: Should I be taking some money off the table?

The answer is the same as it always has been: If you have a well-constructed financial strategy, and your personal circumstances have not really changed since you put it in place, there is probably no reason to do anything at all.

If, however, you think you will be tempted to unload a chunk of your stocks now that the market has tumbled sharply, then a new plan or tweaks to the one you already have could make sense.

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Reader Question: (timely, given October market fluctuations)

I have a question about what happens if (more like when) this stock market bull run runs out of steam. There seems to be a sense that it will at some point. 
I know you mentioned that you did nothing during the 2008 collapse and markets eventually came back in about two years to pre-2008 conditions. Is that a strategy to use going forward should the markets turn bearish?  What about cutting back on exposure by selling some of one’s position,  taking out cash and waiting? 
I know timing the market is not an investment strategy, but leaving cash on the sideline, taking some money off the table while the markets go down, would that be a way to allay losses? 
Or is the strategy to have enough cash on the side to live on for a few years and leave the stocks alone?  
Curious to hear your views.
My Response:

Will the stock market run out of steam?  That requires a prediction: “It’s tough to make predictions, especially about the future.” (Yogi Bera).

The US market is definitely on a long bull run, but it has had a few corrections along the way.  A bull market is a sustained, but likely slow, drop in the market of up to 20%.  A bull market is possible, a crash is much less likely, but a stagnant market is also a possibility.  The US financial and trade policies over the past couple of years have certainly put the markets in a precarious position (looser financial regulations, trade wars, etc.).  My guess is either a stagnant market or a pullback of some kind. (note: this “prediction” was made before October market dropped)

The Canadian market is not on a bull run.  It had a nice jump in 2016 and 2017, but this year is pretty flat. I don’t see a significant drop in the near future.  Many of the stocks on my list are at low levels and could see considerable upside in the next couple of years.

I will not sell on any guess or speculation.  If you need cash from your portfolio, now is as good a time as any to put some money on the side, but remember, timing the market seldom works.  I get my cash to live on from my dividends, so I don’t have to sell to support my lifestyle.  My dividend stream will not drop, even if the market drops.

For sure I would not make buy/sell decisions on a guess about the future market moves.

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Canadian Dividend Stocks

HERE is an article on why Canadians should own Canadian dividend stocks:

The dividend tax credit makes owning some Canadian stocks worthwhile, despite the poor returns of the TSX.

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Stock Suggestions

Click on the link below to get my file on timeliness of stock purchases in October.

Oct 2018 stock selction

My top 5 US picks at this time:  T, CVX, IBM(?), CVS, XOM

My top 5 Canadian picks at this time:  MFC, SU, TRP, ENB, BNS

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Happy Investing!!

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About borgford

Feel free to contact me with questions: brianborgford@hotmail.com
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