Monday, January 26, 2015

An all-time high today for overlooked CAE Inc.



During the latter stages of a bull market – investors should get more active with their investments either directly or indirectly by way of an advisor. The idea is to move away from an indexing buy-and-hold approach and move toward an active approach.

One strategy would be to seek out and embrace the current dominant theme  A dominant theme is usually associated with a long term secular trend in a particular asset class that tends to ignore the smaller boom and bust business cycle. A secular trend is usually associated with innovation and the emergence of the "next big thing", be it the age of steam, the railroads, the automobile, transatlantic air travel, the microprocessor and the Internet. Some current Dominant themes are: Health Care, Aerospace, Lumber, Food and Technology

In Canada the Aerospace Complex has few offerings - CAE Inc which is a liquid TSX listed aerospace related Issuer – other names in the sector are AirBoss of America Corp (BOS) which like Heroux-Devtek Inc. (HRX) and Magellan Aerospace Corp (MAL) are thin traders, The liquid Bombardier Inc. (BBD.B) just has too many issues leaving us with CAE which has today posted an all-time high price.

For U.S. dollar accounts look at the Powershares ETF Aerospace & Defense Portfolio (PPA:US) - The top five components are Lockheed Martin Corporation LMT, United Technologies Corporation UTX, Honeywell International Inc. Co HON, Boeing Company (The) BA and General Dynamics Corporation Co GD.

A very long term chart of CAE Inc. (CAE:TSX) $16.00+ has just printed an all-time high breaking above the three peaks of 2001, 2007 and 2014. A bullish opinion free of conflict – because I have no direct of indirect exposure.



Thursday, January 22, 2015

The Trimark Mountain Chart Is Back:



Just when you think the Trimark mountain chart is gone – thanks to the 2008 global financial crisis – this “thing” appears to-day in the Globe And Mail – Report on Business page B3. Invesco (or Trimark) use the mountain to illustrate how well investors have done from inception – to date using a buy-and-hold reinvestment of distributions strategy in the Trimark Fund Series SC  According to Trimark – “The Fund is a core global equity investment that can diversify a portfolio and potentially enhance returns. The MER is 1.72% and the current number of holdings is about 39.

The problem is that Trimark’s linear scale “mountain chart” suggests to the eye that newer investors are doing better than older investors – a compelling message that may influence confused investors during RRSP season.

The “illusion” is created by Trimark’s use of a linear (arithmetic) scale instead of a proper per-cent or semi-log scale. According to StockCharts.com - :Linear (Arithmetic) Scaling: On a linear (arithmetic) scale chart, the spacing between each point on the vertical scale is identical. Thus the vertical distance between 10 and 20 is the same as the vertical distance between 90 and 100. While this kind of scaling is intuitive and easy to recreate by hand, linear scaling should not be used on charts with large vertical ranges. A move from 10 to 20 is much better than a move from 90 to 100, but on a linear scale they both appear the same.”

Most technical analysts I know always use a semi log scale if the price on the vertical scale doubles – the U.S. based Market Technicians Association recommend a semi log scale if the price on the vertical scale changes by a third.

To illustrate my point I am using the SPDR Dow Jones Industrial Average ETF Trust (DIA) that seeks to provide investment results that correspond generally to the price and yield performance of the Dow Jones Industrial Average. The MER is 0.17% and the number of holdings is 30. By the way the DIA outperformed the Trimark Fund over 5, 10 and 15-yr periods

The first chart is the Trimark Linear scale world where newer investors – in the eleven year window since the lows of 2003 seem to do better then the older investors in the eleven year window of 1992 to the lows of 2003.

The second chart is the Real World semi log scale world where the older investors have - in reality – done better than the newer investors.

Trimark’s motto is “Knowing pays” – so to know more why not e-mail them at inquiries@invesco.ca or call at 1.800.874.6275.





Tuesday, January 20, 2015

The Nikkei 225 - the ultimate global laggard



Now with the current global equity bull getting old – investors need to adopt some type of defensive strategy. They could try to “time” the market, reduce leverage, raise the cash component – or seek out asset classes that may operate inversely to the broader stock bourses.

I would think any form of market timing to be a bad idea because historically the market advances about 85% of the time – I have 50 years of data from Ned Davis Research to support this fact. Most market timers if wrong – sell and then end up chasing their positions at higher prices  Market timers have to get it right twice – on the sell and the buy side. The strategy of reducing leverage, or raising the cash component make more sense – at least your still in the game. Most portfolio managers simply re-balance by cutting exposure to their winners and adding to their losers.
   
Seeking out inverse assets is a good plan – if you can find them. Japan could be a candidate because it has a history of operating inversely to most of the global bourses. Japanese stocks as measured by the Tokyo Nikkei 225 peaked in December 1989 and began a secular decline that ended at the global financial crisis lows of 2008 – 2009. Keep in mind the Tokyo Nikkei 225 is a direct beneficiary of lower crude prices and a weak domestic currency. The investable clone is the iShares MSCI Japan ETF (EWJ) which seeks to track the investment results of an index composed of Japanese equities.

The attached chart is a quarterly bar (thanks to MetaStock which I am not good at) of the Nikkei 225 spanning about 25+ years – note the completed 3-cycle secular bear count. 



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