What a difference a year makes. Last year, we collectively stared into the Abyss, watching our economy grind to a halt. Yet, as history has shown us over and over again, we picked ourselves up, dusted ourselves off, and business activity has resumed. Spending that was canceled, was really just postponed. Investment that was hesitant came back to life (at much cheaper prices). The financial system has been stabilized, people are beginning to catch up on postponed purchases, and businesses have begun to restock their inventories. Cyclical forces were held down too long, which is like pulling on a spring, eventually it needs to bounce back.

The last time Canada experienced such a severe drop off in the economy, was in the 1981-82 recession. The TSX index, over 12 months, fell 43%. Not unlike last year’s 50% decline that brought prices down to a six year low. What is often forgotten about the ’81-82 decline, was that the market went on to produce a stunning full recovery in only one year (see chart on page 3). While the circumstances are different between today and in ’81-82, the point is that recoveries happen much faster than people expect. Buying when the headlines are the bleakest historically is exactly when one should be buying. To borrow a quote from Warren Buffett: “be greedy when everyone is fearful and fearful when everyone is greedy”.

Read more…

Mark Zlotnik wrote an article about strategies to guarantee your income for life. The article was recently published in the Business in Vancouver newspaper. Here is the text from that article:

A person stands tallest when they have financial stability. Having money set aside, a plan for the future and income to make dreams come true, are goals I’ve taught my kids to strive for. Achieving them prevents a slouch from creeping into our stance.

Right now however, securing this confidence is a tough task. The world wide financial crisis has left many of us crouching, hoping to avoid getting caught in the crossfire. But hiding behind a tree, or lying low, can’t go on forever. Sooner or later, if one wants to achieve that sought after stability, we have to stand up, pick a path and take it.
Read more…

As investors, we all know that the ideal strategy is to sell out of the market before it goes down, then reinvest just as it begins to go up. However, as good as this sounds, in reality this strategy is impossible to execute. How do we know when to sell, and when to buy? There’s an old Wall Street saying that nobody rings a bell at the top of the market, or at the bottom.

After a sharp decline in the market, we naturally want to sell to avoid the potential for further drops in our portfolios. Not only does that lock in our losses, but it also raises the question about when do we reinvest again? Historically, there have been no indicators that have consistently predicted the direction of the market. Even the economy is not a reliable predictor as it often rebounds months before an economic recovery is evident.
Read more…