Leith Wheeler - Investment Counsel Ltd. Well into the Future


Quarterly Insights - February 2012

RSP deadline, market volatility

– what to do with my investment portfolio?

We’ve wrapped up the end of the year and the RSP contribution deadline is looming. This is usually the time when investors think in more detail about their investment portfolios. Together with the market volatility we have experienced now for several months, the top questions we get from our clients around RSP contributions are usually focused on what’s next and whether or not to just stay in cash until things settle down. Our responses to these questions are never affected by current market conditions. Here’s why:

What are you recommending to do next? 
A: Stick to individual investment objectives

Our answer is – it depends. This is often not satisfying to investors who are seeking a feel good, short term solution to challenging markets.

Our advice to clients is not based on short term market events – it is always specific to each client’s individual investment objectives, time horizon and risk tolerance. We do not believe it makes sense for clients to invest in the current fad or based on what has outperformed recently. The reason being is that we (and no one else for that matter) do not know which asset class will perform the best in the short term.

Also, what is suitable for one client is not always appropriate for another. We often reply with a question: What has changed in your circumstances over the last year? If the answer is nothing other than being a year older and feeling fatigued by recent market volatility, then our recommendation to clients is to use their RSP contribution as an opportunity to rebalance their portfolio to their target asset mix. If they are approaching retirement and/or will begin to draw income from their portfolio in the next few years, we might suggest using the new contribution to adjust the asset mix to a more conservative one if necessary (but this requires more discussion).

Q: Wouldn’t it be better to just park the money in the Money Market Fund and deal with it when things settle down?
Avoid timing the market – look for value instead.

The second question is a way of asking if we should try to time the market. This comes up regularly during periods of poor equity market performance. It is a completely natural, yet emotional response to the constant bombardment of bad news we are provided with by the media. It is based on fear that the value of stocks will decline to zero.

Our view on market timing is that it is very difficult to do well consistently. The problem is you have to get both the timing of the decision to sell out of the markets right, as well as the decision to buy back into the markets. Most investors cannot do both well – they may be able to get the timing of the sell decision correct, but to buy when the markets are low, is particularly difficult – it doesn’t feel good. 

As value investors, we feel the best approach is to buy when stocks are inexpensive – like they are now. If investors sit on the sidelines and wait until they feel comfortable, they typically wait until the markets have bottomed and recovered significantly before they feel it is safe to venture back into the markets.  Clients who do this often end up missing out on the market recovery and hurt the long term performance of their portfolios. Studies of retail investors have shown that they consistently perform worse than the mutual funds they hold due to attempts to time the market.

Although there is a lot of economic uncertainty and investors are nervous, we feel that equities are attractively valued at this time. We are confident that good companies with consistent earnings and good management teams, trading well below their intrinsic values, will survive this current environment. 

As value investors, we aim to buy stocks when they are mispriced or undervalued. We feel that patience, taking the long-view and adhering to a disciplined, value investing style, is the best way to protect and increase clients’ portfolio values over time.

This article is not intended to provide advice, recommendations or offers to buy or sell any product or service. All tax decisions should be made after discussing your individual positioning with a qualified tax accountant, as everyone’s tax situation is unique. The information provided in this report is compiled from our own research and is based on assumptions that we believe to be reasonable and accurate at the time the report was written, but is subject to change without notice.

© Leith Wheeler Investment Counsel Ltd. All rights reserved. Phone 604.683.3391
1500 - 400 Burrard Street, Vancouver, BC V6C 3A6. LeithWheeler.com

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