Investing
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Of Note:

In the fall of 2008, they experienced sheer terror as stock markets took their Niagara Falls-like plunge, a deluge
that shattered investor confidence.

Then, for those who didn't cash out at least, there was there bound that began the following March, which sent equities
soaring like a geyser.

Equity markets look less thrilling today, but the mood is generally positive, albeit cautiously so. The problem is that
there is little agreement on where markets are headed.

"In this market, clearly not a bull market, you have to be in the right sectors as well as the right stocks,"

To succeed in today's climate, investors need to drill deep into the sectors that they invest in and pick the best of
the crop.

"Right now it is a stock-picker's market"


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Dig deeper


Paul Brent, Financial Post Magazine ·
September, 2010

In the past couple of years, investors have learned the extremes of what it feels like to go with the flow. In the fall of 2008, they experienced sheer terror as stock markets took their Niagara Falls-like plunge, a deluge that shattered investor confidence. Then, for those who didn't cash out at least, there was the rebound that began the following March, which sent equities soaring like a geyser.

Equity markets look less thrilling today, but the mood is generally positive, albeit cautiously so. The problem is that there is little agreement on where markets are headed -- up, down or sideways -- as a host of questions remain unanswered. Can the U.S. avoid a double-dip recession? Will the European Union sort out the troubled economies of its PIIGS countries -- Portugal, Italy, Ireland, Greece and Spain? And what of China? How will its emerging policies shape the investing landscape?

These questions -- and many more -- have created the kind of twitchy market that drives portfolio managers to distraction. While quality is still an important consideration, in many sectors fear is outweighing fundamentals, which has resulted in some companies rolling out record earnings only to elicit yawns from investors who still fear the worst a quarter or two out.

"In this market, clearly not a bull market, you have to be in the right sectors as well as the right stocks," says Peter Hodson, chairman and senior portfolio manager at Sprott Asset Management in Toronto. "If you are in the right sector and your company does well, Bob's your uncle. If you're in the wrong sector and your company does well, it doesn't matter, you are still going to get killed." Hodson, who is also the lead portfolio manager of the Sprott Growth Fund, which focuses on industrial products and technology companies, admits to some of that right-company, wrong-sector frustration. Even though the technology firms he follows are enjoying the best of times, they are for the most part out of favor with investors.

Still, Hodson has something of a kid-in-a-candy-store outlook: Technology companies are enjoying big earnings gains, a benefit of recession cost-cutting and balance-sheet repair work, and many are sitting on huge piles of cash. "Every quarter, every company that I own more or less is reporting record earnings." That has made him the odd manager out at his investment firm these days. "I'm the only really bullish person here at all," he says.

Whether you are optimistic or pessimistic about the economy going forward, you should abandon the "tidal" strategy that dragged equities down and back up in the past two years, regardless of their underlying pedigree. To succeed in today's climate, investors need to drill deep into the sectors that they invest in and pick the best of the crop.

"The big trade in 2009 was to add risk to the portfolio, whether it was commodities or resource stocks, anything that would benefit from inflation," says Paul Vaillancourt, chief investment officer of Calgary-based Canadian Wealth Management, a Societe Generale Group-owned investment firm. "That macro trend is over. Right now it is a stock-picker's market,"

Vaillancourt is operating on the premise that the world economy is slowly healing and will avoid another downturn while too many investors remain focused on lagging indicators. "We are looking for companies that have good growth prospects and earnings-per-share growth. But we want to make sure that we are not paying too much for them," he says.

Sectors that Vaillancourt likes currently include cyclical indexes that benefit from economic growth, such as energy stocks, materials producers, financial firms and consumer stocks that pay dividends. In mid-summer, his investment firm added to its position in former technology darling Research In Motion of Waterloo, Ont.

"We're hoping that some recent new launches will be profitable for them, they are extremely profitable," he says. "It is kind of a mix: We are looking at information technology because it tends to benefit when companies recover. Companies right now with lots of cash on their balance sheets, if they want to increase their productivity, will probably add technology rather than hire workers."

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TACTICAL ASSET COLLECTION

The market has gone sideways for only the sixth time in 160 years. That means the rules of investing have fundamentally changed, so investors should avoid high-risk stocks

Comedian Robin Williams famously mocked the masochistic sport of golf, a pastime in which the game's designers intentionally add obstacles such as trees, high grass and sand traps just to make things more difficult. Sadly, golf is a pretty good analogy for the more serious pastime of investing these days, says Peter Gibson, managing director and head of portfolio strategy and quantitative research at CIBC World Markets.

SO HOW IS INVESTING LIKE GOLF?

"You really have to use several different approaches concurrently, you have to do several things well... If you ever wanted to use the golf metaphor, now is the time."

WHAT MAKES THIS MARKET SO DIFFERENT? "We're dealing with a situation where we have too much debt, the Fed is trying desperately to avoid a debt crisis... It means that the rules of the game for investing are fundamentally changed for quite an extended period of time. For all intents and purposes, we have been in a bear market on average returns since 1998. The market has gone sideways for only the sixth time in 160 years."

WHAT ARE THE FIVE ELEMENTS OF INVESTING TODAY?

Tactical asset allocation "When the market is rallying? you tend to have some of the higher risk, higher beta stocks that are doing well. When the market is falling, you want to be in the more defensive equity names or the higher-yielding names, or more importantly, you want to be in bonds.

Gold "We have been buying gold and recommending it since 2001, which has been a home run for us. We knew the U.S. dollar was going to be devalued and that was what was driving gold. Now we are entering a world where it is likely that gold will go up even though the dollar is strengthening. The world is looking for two safe havens.

Avoid the torpedo stocks "It is super-critical in a low-return environment to get rid of the torpedo possibilities."

Play momentum "Price momentum-based trading has to be done properly, it has to be mathematically based, because it is not looking at fundamentals, it is looking at trends in the market."

Quality is your friend "[You want] a core portfolio of really good, high-quality stocks? or, more specifically, a core high-yield portfolio."

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SECTOR SNAPSHOTS


Mining

No. of Issuers: 333

Quoted Market Value: $356 billion

Equity Capital Raised: $6 billion



Energy

No. of Issuers: 117

Quoted Market Value: $334 billion

Equity Capital Raised: $4.2 billion



Technology

No. of Issuers: 70

Quoted Market Value: $51 billion

Equity Capital Raised: $77.8 million



Figures quoted are for June 30. 2010


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Why I trade Penny Stocks - Part 21


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sinvestment brought this pick to my attention. Thanks

Hope the trend continues. Nice long run so far.