Ottawa Investment Advisor John Bruce

February 2016 Client Letter

March 4, 2016 · Print This Article

This January has given me the worst financial hangover I can remember since 2008.

I have been waiting for the selling pressure to subside so that I can buy good value companies at bargain basement prices. When the tide goes out it takes good ships with bad ships, it does not discriminate and fear has finally taken a breather in Canada after ravaging markets relentlessly for the past three months when we bounced off the lows on the S&P/TSX January 20th. The Canadian dollar has bounced off its low against the US dollar and seems to be treading water around the .72 cent area.

Canadian markets may have reached the point of maximum pessimism, and barring a global recession there IS a glimmer of hope for battered domestic stocks. The S&P/TSX composite index has jumped by nearly 12 per cent from its close January 20th. At that time, the benchmark had slumped to 26 per cent below its peak last year, and was back to levels seen 3 1/2 years ago. This rebound in Canadian stocks, will be tested by fourth-quarter earnings season, which hits full swing in mid-February.

So what are you to do and how do you benefit from this part of the cycle? Here are my thoughts on the issue.

1) RRSP/TFSA - If you have the money, top up your Tax Free Savings Account (TFSA) and put the money to work and /or contribute to your RRSP and get those tax dollars you have kissed goodbye to the taxman back in your hands to invest. You want to buy when the market is down, you do not want to wait for it to go back up before you buy. Sadly, many people just don’t understand this. They want to buy stocks when the market gets over heated and over inflated, then when it sells off and goes on sale they panic and sell. That is a surefire way to destroy wealth. You don’t buy high and sell low. You buy low and sell high. The market is low, that is the time to buy.

2) Dividend Reinvestment Plans (DRIPs) - If you are having difficulty saving you may still take advantage of the sell-off by registering any Canadian stocks you have that qualify for a Dividend Reinvestment Plan. Simply put, you use the dividends that the stock pays out to buy more stock whenever the dividend is paid out to you. Canadian companies that are qualified for this program allow you to purchase more of their stock without having to pay commissions. If you are holding the company for the long-term growth value of the company but lack the funds to buy more, using dividends is a great way to buy while the stock is low. When the stock recovers and moves higher, you will have put those dividend proceeds to good work. In effect this may create a powerful compounding effect when the stock moves higher.

3) Seek out good value – Focus on high quality, dividend paying stocks so that you will get paid while you wait for the recovery of prices. These companies will attract income seeking investors, and that may well start the ball rolling in bidding up those high quality businesses that have a history of growing their share value and their dividend payouts.

4) Smart debt – Consider borrowing to invest in your RRSP this month. The interest rates are very low and by borrowing now while stock prices are down you will have a higher probability of your stocks increasing while you use the tax refund to pay down the short term loan to buy the stocks.

5) Don’t succumb to negativity – or hide and freak out and do nothing. Sadly, that is what many investors do when the market sells off. They watch their holdings go lower and stress out, only to see their holdings rise back up when the economy recovers and then they wait for it to get hot and overheated and buy back in….only to watch it go down from the new highs that the market historically achieves and stress out again.

Break this defeatist mentality and profit when the market recovers. We have always gone to new highs whenever the market has gone down. Always! Although past performance is no promise of future results, history has tended to repeat itself over and over again in the equity markets, and what was a previous high gets pushed back as new highs are discovered.

Call myself or Kim O’Leary for instructions on how to easily make a deposit today into your RRSP/TFSA account via online banking with your financial institution. Do something, because the market waits for no one and when it takes off it usually jumps up and runs before you know it.

Sincerely,

John S. Bruce
Senior Investment Advisor

Mackie Research Capital is a national investment firm with offices in Vancouver, Calgary, Regina, Toronto and Montreal.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (“MRCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. This newsletter is intended for distribution only in those jurisdictions where both the author and MRCC are registered to do business in securities. Any distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. MRCC and its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. ¬©2016 Mackie Research Capital. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des √©pargnants.

The information in this letter is derived from various sources, including CI Investments, Signature Global Asset Management, The Globe and Mail, National Post and Trading Economics. Index information was provided by TD Newcrest and PC Bond. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances.

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