Warren Buffet Weighs In

Warren Buffet is widely recognized as one of, if not the most, successful investors of our time.

He was recently interviewed Charlie Rose on PBS and provided some fantastic insight into where our economy is and what he recommends in terms of our own personal response. Below is just a small exerpt from that interview and above is a link to the entire document.

Happy Reading!

Charlie Rose:
There is a time to accumulate and a time to spend.

Warren Buffett:
Absolutely. You want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple.

Charlie Rose:
What are they now?

Warren Buffett:
They’re pretty fearful. In fact, in my adult lifetime, I don’t think I’ve ever seen people as fearful economically as they are right now.

Charlie Rose:
Are you satisfied with that rescue plan?

Warren Buffett:
Well, I don’t think it’s perfect, but I don’t know that I could draw one that’s perfect. But I’d rather be approximately right than precisely wrong, and it would be precisely wrong to turn it down. We need — we have a terrific economy — it’s like a great athlete that’s had a cardiac arrest. It’s flat on the floor, and the paramedics have arrived. And they shouldn’t argue about whether they put the resuscitation equipment a quarter of an inch this way or a quarter of an inch this way, or they shouldn’t start criticizing the patient, because he didn’t have a blood pressure test or something like that. They should do what’s needed right now. And I think they will. I think the Congress will do the right thing. I think that they’ve — you know, they got into certain arguments and they start worrying about assessing blame, and there is a little demagoguery, but in the end, something this important, they’ll do the right thing. So this really is an economic Pearl Harbor. That sounds melodramatic, but I’ve never used that phrase before. And this really is one.

The long and short, doing what feels so “wrong” may be just the answer. Don’t be afraid to take advantage of a market that is largely on sale. After all, if it works for the greatest investor of our time, maybe it will work for us!

Until next time, have a Fantastic Friday!

Chris

Volatility and the Canadian Market (S&P/TSX)

Stay Focused, Stay Invested, Stay Diversified

There is no question that you have heard a lot about the recent volatility the Canadian market has seen in the last couple of months, and specifically the month of September.

I can say that I understand your fears and reservations when it comes to our current Canadian and Global economies. I am still confident however in market trends and the fact that with every great fall comes a great rebound, historically speaking.

Your Take-Away: Considering the overall “gloom and doom” we are reading about or hearing about every day recently, I wanted to provide you with a great education piece entitled “Stay Focused, Stay Invested, Stay Diversified”. This document speaks specifically to what we saw in early January when the S&P/TSX market tumbled a total of 605 points and then recovered with a rebound of 508 points the very next day. It also speaks to the importance of staying focused and staying invested by demonstrating the result on a portfolio if you were to miss the best 10, 20, 30, 40, 50, and 60 days in a ten year window.

Rest assured that I personally understand the feeling of watching my own portfolio take a hit over the last few weeks and months. I urge you to take a look at the document attached and ensure that you don’t make any rash decisions. Simply put, stay the course and I am confident you will reap the rewards.

Until next time, have a Wonderful Wednesday!

Chris

Last Week was Rough on the Canadian Market

It is no longer news that last week was a rough one for the S&P/TSX.

In fact, the Canadian Market fell over 900 points within the four trading days that the market was open which just happens to be one of the worst single weeks in Canadian history. Although we avoided a recession in the second quarter of this year by only 0.3%, it is clear that we are definitely still hurting in terms of our market strength.

Your Take-Away: The results of last week are not easy to swallow, especially if you were like many others and saw your investments take a pretty steep fall. Despite the fact that I work within the financial world, it’s still not fun or easy to see my portfolio fall the way it has over the last few months. That said, I also believe that although we are probably not at  the bottom of this fall, we have the chance to buy stocks and funds while they are on sale and God willing, just before they rebound. I’m not telling you to invest everything you have in the market, but it may not be a bad idea to take advantage of “Dollar Cost Averaging” and start getting back into the market in smaller amounts over the next few months.

Keep this in mind. Warren Buffet once said that he “sells when others are buying, and buys when others are selling”. I know that’s a paraphrase, but the concept is crystal clear. It’s up to you what you do, but I’m definitely taking advantage of this market as opposed to running from it.

Until next time, have a Magnificent Monday!

Chris

Should I Pay Down My Mortgage or Invest in the Market (Part 2 of 2)

In my last post, I discussed my perspective of whether to pay down your mortgage sooner with your extra cash flow, or whether to invest that money in the market. In this post, I thought I would share an alternative reason as to why I choose to invest in my RSP’s with extra cash flow rather then pay off my mortgage with that same amount of money. 

The strategy I’m referring too is to invest your extra cash flow into an RRSP on a monthly basis. Each deposit will go towards your total RRSP contribution for that year and thus create an annual tax deduction. If you are like most Canadians, you will then receive a tax refund sometime in the early part of the following year that you can then put directly against the principal of your mortgage. This strategy allows you to grow your RRSP and also pay down your mortgage sooner.

Your Take-Away:  Think of it this way. If you have $10,000 to put against your mortgage, why not put that into your RSP and create a tax deduction of $10,000? If you are in the highest tax bracket of 46%, you would receive a tax refund of $4,600 which you could then put directly into your mortgage. Right off the top you have turned your $10,000 into $14,600 and have both grown your RRSP and also reduced your mortgage debt.

In the end, sticking to your regular mortgage payment plan or paying it off sooner becomes a matter of preference and a decision based on “Opportunity Costs”. Only you can make that decision, but if you can handle a bit of debt and stay with your original plan, why not take advantage of a market that is largely “on sale” today?!?

Until next time, have a Fantastic Friday.

Chris

What’s Happening with Fannie Mae and Freddie Mac

The U.S. credit crisis is well under way, and two of the biggest names in asset backed securities are Fannie Mae and Freddie Mac.

When these two institutions make the news because of their risk of insolvency, there is no question that they spark some interest and in turn, some fears. In fact, these two company’s are now being referred to as the “epicenter” of the U.S. financial crisis, and dominate the market for U.S. housing finance. Consider them a much larger company similar to that of CMHC and GE. If they did not exist, housing prices would continue to fall at a much larger rate then we’ve seen even to date.

What most are not aware of however, is the fact that Mae and Mac are no longer simply a ”too big to fail” American financial institution. Over the years, these two institutions have become central to what has turned U.S. mortgages into securities held by the world’s central banks. In fact, statistics show that these central bank’s hold up to $925 billion in these types of securities around the world.

Your Take-Away: It is impossible to predict the future of our economy considering the recent volatility we have all seen over the past 12 months. What we can say however is that although both of these institutions are definitely in a financial crisis, the fact remains that we are confident that the U.S. Goverment will be forced to inevitably step in and provide a possible solution for what has and is happening. If they don’t, they would be solely responsible for a further global economy slow down to the tune of multi billions of dollars.

Again, there is no way of predicting with absolute certainty that Fannie Mae and Freddie Mac will eventually get themselves out of their current financial situation. If they don’t however, we will be dealing with a possible global catastrophe that no one in the world would want to see. Better yet, the last country that would want to allow that to happen would be the U.S. based on the fact that they would be the primary reason for a further decline in global economies.

Until next time, have a Terrific Thursday!

P.S. For a far more in depth read of this story and the details involved, please visit http://blogs.cfr.org/setser/2008/07/12/too-chinese-and-russian-to-fail/

Chris & Elisseos

Is Your Money At Risk if Your Bank Goes for Broke?

It’s not news for most that some banks in the US are running into severe financial difficulties. What may be news however is that the CIBC may be on the brink of financial insolvency themselves.

Earlier this week, Dundee Capital Markets released a report explaining how CIBC could actually become insolvent. After all, many Canadians are taking their money out of their banks and putting it “under the mattress” where at least they know they won’t lose any money outside of their “inflation losses”.  John Aitken is an Analyst with Dundee Securities and he says “Financial services consolidation is closer than most investors would allow, and significantly closer than it was even three months ago”. It’s happened before with financial institutions, in fact 43 times before since 1969.

 Your Take-Away: The question most are asking then is what happens to my money if my bank happened to go under? In Canada, we are lucky to have the Canadian Deposit Insurance Corporation (CDIC) who will protect deposits up to $100,000 per depositor with each institution. In other words, if you have less then $100,000 with a bank that goes insolvent, you are guaranteed to get your money back. If you have more then that magic number, you will max out and lose any of the excess above and beyond the protection you are provided.

That said, it may be a bit early to start moving money from one institution to ten others in order to be free to claim with CDIC in the event of an insolvency, but I would suggest not going into this time in the market blindly. Talk to your Advisor, Bank Manager or even Accountant and determine if this is something you should consider. It’s a lot of work, and most likely for nothing considering that most realize that Canadian Financial Institutions are much further ahead then the US, but if nothing else, it doesn’t hurt to know your options.

Until next time, have a Wonderful Weekend!

Chris

What is Happening to our Economy?

No doubt you have read or heard that the TSX tumbled 500 points last week and started this week off tumbling yet another 300 points as of the end of day today.

There is no doubt that these times can be a little scary or overwhelming for anyone with money in the market, regardless of their knowledge or experience. According to Eric Bushell, Senior Vice President at Signature Global Advisors, “The implications of the U.S. credit shock migrating to the world are beginning to be understood.” What’s interesting however is that he goes on to say “Our expectation of a global growth scare remains intact, only now it will be accompanied by a global inflation scare. This double whammy is not to be feared, it will be a time to buy.”

Your Take-Away: You have every right to be weary of what is happening both in Canada around the world. After all, consumer spending is down which impacts manufacturing, shipping and multiple other industries. As well, with inflation on the rise, it poses yet another concern for investors. The econonmy is definitley hurting, and will most likely continue to do so for some time now.

That said, we have been here before. Depending on your age, we have all seen the rise and fall of the markets and the incredible fear that creates. As Bushell himself says, we cannot argue that we are heading into some very rocky times, but as opposed to running and hiding until the markets recover, he is planning on using this opportunity to buy and add to his position in the market rather then sell and create more cash.

In other words, things will get tough for a while, but don’t be afraid to look at ways to take advantge of the current status of the market, rather then just thrown your hands up and hope for the best.

Until next time, have a Magnificent Monday.

Chris

Diversify, Diversify, Diversify!

Diversification is one of those “hot button” words that we hear so much about in times like these, but it may just happen to be one idea that is worth understanding.

The word diversification is defined by www.investopedia.com as “A risk management technique that mixes a wide variety of investments within a portfolio.” They go on to say “Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others.” Some big words for sure, but the most common phrase used for this term is “don’t put all your eggs in one basket”. John Paul Getty once said that he’d “rather have 100 employees earning him just one dollar then one man earning him one hundred dollars”. I’m guessing he understood the theory of diversification very well, even beyond his personal investment portfolio.

Your Take-Away: There is absolutely no question that we have all seen the incredible volatility that has been taking place in the world economy over the past 12 months, and the last couple of weeks has been no different. It is hard to watch your portfolio go up and down like a yo yo at times, but that is just part of the game if you hold any money in the market at all. The reason you made the choice to invest the money you did then should be no different then it is now, despite what you’ve experienced over the last few months.

Take advantage of this market and really review whether your portfolio is well diversified. Things to look at would include an appropriate balance between income and equity funds, regions like the US, Canada and world, and even asset classes such as resources and financials. Diversification is the one thing that could help to prevent you from huge swings in a market like this, so it’s definitely worth ensuring that your portfolio has taken advantage of this wonderful strategy.

Until next time, have a Terrific Thursday!

Chris

Bank of Canada Leaves Rate Unchanged - Now What?

This is somewhat old news by now, but it could provide some interesting changes.

As you already know, the Bank of Canada (BoC) shocked many Canadians yesterday by leaving the overnight lending rate unchanged at 3%. This was especially surprising because most, if not all, Analysts were expecting a 0.25% rate cut with fairly strong confidence. To top it off, they also made it clear that there is currently no need for “further monetary stimulus” which says they don’t really feel it is necessary to continue the downward trend of cutting rates moving forward.

Your Take-Away: With the BoC focusing on curbing or slowing down inflation rather then stimulating the economy, there is a very good chance that we will start to see fixed mortgage rates begin to climb over the course of the next six months. If you currently have a mortgage in place, it would be a great time to revaluate your terms in regards to staying with or changing too a fixed or variable rate mortgage. On the other hand, if you are looking to buy your first home or structure a new mortgage, a simple pre-approval could save you literally thousands of dollars over the next five years.

With the recent volatility we have seen, now is a great time to talk to your Mortgage Advisor…it could save you some very real money!

Until next time, have a Wonderful Wednesday!

 Chris & Elisseos

Interest Rates set to Rise or Fall?

Are interest rates on the rise in Canada, or are they set to continue to decline based on the US economy?

That seems to be a fair question, especially considering the shaky economy in the US and the question mark that looms over our Canadian Economy. To make matters worse, TD released a report yesterday saying that they “expect another 100 basis points in rate cuts out of the Bank of Canada to help fend off any fallout north of the border”. Ironically, on the very same day, CIBC World Markets released a report stating “Higher prices for food and energy will reverse the direction of interest rates in the next 12 months, and lift energy and materials stocks to new record highs”.

Your Take-Away: With drastic contradiction like these two reports create, it is very difficult to know just what is happening and more importantly, what to expect. If I were to be forced to make a decision of whether to choose a variable or fixed rate mortgage in this economy, I would make the same one as though the economy was strong and fruitful. Don’t let yourself get caught up in the hype and try to time the market, and definitely don’t step too far outside of your comfort zone and make a decision you would not normally make because of one report or the other.

 At the end of the day, do your research and do what you are most comfortable with for yourself and your family. It is impossible to know what the future holds, which is why sticking to your guns and your core values (otherwise known as gut instinct) is key in this environment.

Good luck with your decision making, and until next time, have a Terrific Tuesday.

Chris & Elisseos

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