Stay in Equities? Would you drive off a cliff?

swindlerIt’s time again to send up a warning flare. Markets haven’t really responded to warnings from Warren Buffet about bonds, and quotes like the following are becoming more abundant:

“Stay invested in equities. The break to all-time new highs in many stock markets suggests that the recent pullback is complete. We believe the higher lows in many markets speak to the strength of the medium-term bull trend that has been unfolding since 2009.”

What was just experienced was a hiccup, not a ‘pullback’. For the most part, I am in agreement (and wrote about it back in 2009, rather than in hindsight) that we are in a long bull trend – both global economy and markets. However this does not mean you should ‘stay’ with any asset class. Advice from large financial firms is always suspect. This quote is from A Maverick Investor’s Guidebook:

The larger banks and insurance companies, most now owning their own investment dealer subsidiaries, would like nothing better than to have your investments less volatile and secure even if they don’t grow at all. If your money just stays put, they can consistently charge you fees, forecast their revenues based on those fees, and invest revenues in real estate and other assets that will make more money for the firm.

I am not being critical of these companies, just realistic. All the services they provide (consumer and corporate banking, mortgage lending, international funds transfers, and so forth) wouldn’t be available if they weren’t in business, and to be in business requires them to behave as businesses.

Now that there is market activity after years of disinterest from the investing public, no financial services business wants it to end.

If the FED really is considering unwinding its quantitative easing (QE) program, then higher interest rates will impact the value of your investments; their fees will decline, but revenues will surely decline much more if you get out of higher margin securities…..i.e. equities. But as I outlined in an earlier posting – Rising i-rates: More than bonds will get hammered! – it is in your best interest to avoid danger when it’s imminent.

DSC_0176Put another way, you wouldn’t attempt to drive along the Pacific Coastal Highway in a straight line. Similarly, a buy and hold (‘staying’) approach in the markets is likely to end badly.

Why send up the warning flares I mentioned earlier? Over my career I’ve learned to expect trouble when:

warning flareSummer is coming!

warning flareInterest rates could begin to rise!

So don’t hesitate, if you feel the need to slow down and lean into the curve (sell stocks) it may cost you some commissions but ultimately save your bacon.

About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He recently authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.
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One Response to Stay in Equities? Would you drive off a cliff?

  1. Michael A. Dehn says:

    Hi Mal!

    Hope you are keeping well!

    I’ve been meaning to write a little blog on exploration and commodities – but maybe I’ll just put my ideas to paper and send them to you to for feedback in your blog.

    Hopefully this weekend the weather will be warm enough for you to take the Harley out.

    Cheers,

    Michael

    Jourdan Resources Inc

    jourdan logoMichael A. Dehn

    President, CEO & Director

    600 Orwell Street, Unit 14

    Mississauga, Ontario L5A 3R9

    647-477-2382 Tel

    416-301-4949 Cell

    647-477-2389 Fax

    http://www.jourdan.ca

    michael@jourdan.ca

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