- Comments (13)
- Text Size: Down Up
moneysense.ca, 30/09/08
3Q-2008 Report Card
With 70% of the portfolio allocated to equities, the Sleepy Portfolio could not be expected to escape the carnage in the stock market. The portfolio was down 10% over the course of the third quarter. Canadian stocks were down 18%, US stocks down 7.5%, EAFE stocks down 15.5% and emerging markets (all in Canadian dollar terms) down 22%.
Cash and short-term bonds provided the only refuge. Surprisingly, real-return bonds are down 7.5% in value and real returns are now in excess of 2.0%. Is the market now starting to worry about deflation?
![[Sleepy Portfolio Performance for 3Q 2008]](http://www.canadiancapitalist.com/images/2008/3q2008.jpg)
As the majority of our portfolios are passively managed, our performance was in line with that of the Sleepy Portfolio (i.e. not pretty). On the bright side, I bought some Vanguard Emerging Market ETF (VWO), Vanguard Europe Pacific ETF (VEA) and Royal Bank (RY) in addition to regular contributions to my group RRSP account. Once I complete the process of moving our accounts to RBC Direct Investing, I’ll be rebalancing the portfolio by selling some bonds and buying equities with the proceeds.
moneysense.ca, 30/09/08
Hey, those are some pretty snipey buys you initiated there. I was much more active in my Canadian dividend portfolio and posted a snapshot with what I bought.
As long-term investors you can’t blame us for getting into the market, we know value when we see it, right?
Havng never switched myself, I wonder if you’ve previously posted about how the process goes for moving your accounts. I assume many people will be doing this soon to take advantage of the deal, so it may be of general interest. I’m a bit nervous about the prospect of doing this myself having heard one unpleasant story about lost tax information (although I’m fuzzy on the details now).
“Ignorance is the root of suffering” – Buddha
Seriously, I don’t know how you can go around talking about purchasing “cheap stocks” and “long term investments” during one of the worst and longest bear rallies in god knows how long.
Stocks are still incredibly over valued given that we’re about to go into a hard landing boardering on a depression. Banks are failing left, right and centre, and you are GAMBLING by puchasing more equities? That’s not balls dude, that’s ignorance – plain and simple.
Do you not get what is happening in the derivatives market? The CDS market? Don’t 600 billion dollar banks getting crippled in a matter of 2 or 3 weeks raise some questions about the long term stability of this market?
Do you really think a 700 billion bailout will really do anything to solve the MASSIVE problems in this crisis?
I’ve lost track of many analysts recently have echoed the old cliche that at times like these “cash is king”. Yet your cash holdings are 5% ?!?
Nobody is seeing a real bottom, because nobody can see a solid solution to this mess, and until that day comes, lower lows are what you’ll be seeing. The cheap, will get cheaper until it becomes worthless – like your investments.
Please educate yourself on at least the derivatives component, and the dozens of trillions that are about to BLOW UP wall street beyond anything we’ve seen so far. Monday’s “black monday” will be like a passing gray cloud on an otherwise sunny sky, compared to the category 5 hurricane that’s about to rock and roll the financial markets.
Please do yourself a favour and at least spend 1 hour reading the below and watching the videos. You are seriously out to lunch in the sense that you are using investment tactics that were very valid only 2 years ago, but they are antiquated now and WILL hurt you if you don’t get up to speed on what’s really going on quickly.
http://www.realestatetalks.com/viewtopic.php?f=8&t=36242
Good luck and please wise up buddy. Ignorance is only bliss until the truck runs you over.
Ignorance… you have a different OPINION than some of us, but that’s all it is. When we talk about long term stocks, our personal horizon might be 30, 40, 50 years, and historically stocks have done quite well over those periods.
The whole premise of your argument, the whole reason you are saying that everything will become worthless, is because “things are different this time”. That’s the same thing the bulls said when they were telling us stocks would go up forever… what the real estate agents were saying when they said real estate would go on forever. Why should we expect your extremist view to be any more justified than theirs? And if it is… if everything in the world is going to hell in a handbasket… then what’s the point of holding on to cash, it will be worthless when society breaks down. Personally, I don’t find the losses that will come from the default swaps any different than the losses that come from bankruptcies. They happen, they ripple through the economy, and it repairs.
Even your link basically talks about circumstances relating to a great depression, but those of us that follow history know that those that invested during the down period of the great depression did very well in the long term.
But hey, I don’t want to discourage or dissuade you, ignorance… after all, if the masses didn’t vaccilate between fearful and greedy we wouldn’t have the opportunities we do, and maybe you will be right and you can say “told you so” to us 30 years from now… or maybe we’ll be right and have a decent retirement because of the steps we took today.
I do agree with you on a few things… I think the bailout will do nothing to solve the problems, and I don’t think we’re at the bottom yet, I think there are some bigger drops still to come due to fear, which I hope to take advantage of, continuing to lower my average cost. But cost is not my biggest concern, because with a 50+ year time horizon, the flow of dividends is much greater for me than the appreciation in the stock price. Finally, I agree with you that it is a gamble, I could be wrong, which is why I’m not committing 100% of my retirement savings… but by the same token, I could be right, which would lead to a significant payoff. Nothing ventured, nothing gained…
Steve: A 50+ year time horizon? Are you 10? Do you not plan to retire?
Mat, I’m in my early 30’s, but I plan to live until 90 (or hopefully even longer!). However, I don’t intend to instantly liquidate all of my holdings at 65 if everything works out such that I can save what I expect to save and average the very conservative returns I’m hoping for. I should be able to fund my annual expenditures solely from the dividends from the stocks and the interest on my fixed income investments.
Of course, reality often finds a way to ruin the best laid plans, which is why I’m not saying an infinite horizon. And there’s no guarantee I won’t chicken out when I’m retired… if I have enough that I could live on the interest GIC’s provide when I’m over 65, and we’re having an incredible bubble market like we just had, I might be very tempted to cash out and switch to GIC’s. But I leave that for future me to figure out (assuming I’m even still alive then).
But I’ve been a big saver for a number of years… I haven’t changed my spending habits since my salary was half of what it is, as it went up I just increased savings and/or accelerated mortgage payments, so my goal isn’t to accumulate savings and then wind them down to 0 in retirement, my goal is to accumulate enough savings that I can live off the returns and then leave all the capital to the next generation.
Brad: I did buy VEA and RY at very good prices. VWO? Not so much. Wish I had waited a few weeks on that one.
Questioner: Great idea for a post. Thanks.
Ignorance: You said — “one of the worst and longest bear rallies in god knows how long”. Are you sure? This one isn’t even an average bear market yet. (S&P is down 27% from the peak; the loss in an average bear market is 31%). I don’t have a clue how derivatives will blow up but neither do you (nor the analysts, nor the CEOs of these companies themselves), so I’ll take the market’s guess of valuation to be correct, thank you. I’m happy to be the “dumb” money that knows its limitations.
Mat: If you take a 65-year couple retiring today, one can be expected to live to 91. That’s an expectancy of 26 years, longer than what most people would consider long-term. People don’t just sell all their stocks and go to cash when they are going to retire. When you are younger, you keep most of the portfolio in stocks and increase the bond component as you age, so that you have a fairly conservative portfolio (but still has a significant equity component).
Ignorance: I suggest you buy more shotgun shells, keep cutting your firewood and close all the curtains while you’re up in the mountains.
At 27 I’m more than capable based on education, experience and knowledge to navigate this market with relative ease. I’m not down anywhere near the market YTD and I don’t invest like the rest of the market either.
I understand the financial markets quite well and while banks are failing left & right I’m looking towards companies with enduring value. Even if we experience a down period of 3-5 years I will relish the opportunity to continue adding to my holdings.
Sit in cash….stuff it under your mattress all you want, but you’re not creating any wealth with that strategy and in real terms you’re doing quite poorly.
I do my due diligence and invest accordingly. Just because you have a different opinion doesn’t mean you’re right.
Here’s something about average durations of previous bear markets ( sorry for the self promotion):
http://dividendgrowth.blogspot.com/2008/07/average-durations-of-previous-bear.html
Actually if we are truly going to get into the next great depression then dollar cost averaging is the way to go.
If I were you CC, I would rebalance from fixed income to stocks very slowly.
But if it were truly different this then I guess we should be buying land and water resources and learn farming in order to become self sufficient..( and learn hwo to protect ourselves as well)
Though Ignorance did come on a little strong and seems to have some of your backs up, his underlying fears and concerns are being echoed by many in the current climate.
Though I don’t necessarily agree with all he is saying – I won’t discard it out of hand either. My biggest fear is that the buy-and-hold indexes for the long term (of which I am a proponent) that has become very popular over the last decade was popularized during an incredible bull era (1990 – 2006) and may not “work” over the next several decades. Isn’t it possible that there could be an incredible bear era from 2006 to 2030? My guess is that is IS possible so I refuse to not keep my mind open to others’ ideas, opinions, and strategies – regardless of how they communicate them.
That said, I am VERY impressed that CC kept Ignorance’s post up and continue to be impressed with his reviews of and respect for other people’s strategies and ideas. This is why I read his blog and think he will be a successful investor – not simply because of a certain strategy that I happen to agree with.
Dividend Growth Investor: That’s a very nice table.Thanks for the link. My usual preference is to rebalance when new savings are added to the portfolio. I think it may be better to have a rule on when to trigger rebalancing (say a 5% deviation from target) instead of on an ad-hoc basis.
Dave: Passive investing isn’t a popular strategy. David Swensen who advocates it in his book “Unconventional Success” titled the book because it is an unconventional method of investing. Regardless of how popular indexing is, it works in all kinds of markets because of a very simple logic: investors as a group can only achieve average results. So, any strategy that does better than average has a risk of under performing it as well. The risk is higher depending on how much fees, commissions, expenses and taxes are incurred in the “market beating” strategy.
Still, I don’t think accumulating cash is necessarily a bad strategy. But moving deftly between cash and stocks (which is what I think ignorance is advocating) definitely is. There is mountains of evidence that it simply doesn’t work.
Hi CC,
Do you factor in dividends when you calculate your quarter earnings ?
Cheers,
Julien: Yes, the total portfolio includes actual dividends paid into it. That’s the last row marked as “cash”. The returns of individual asset classes is based on price, not reinvested dividends because the dividends collect as cash.