September 9, 2008--follow-up to letter of Sept. 4

Greetings again!

I have had some good feedback on my newsletter of last week. One client responded by asking for "good news" as it comes along. Well, I have just been updated with August performance numbers for mutual funds that I use with clients and it confirms the perspective expressed in The Globe and Mail article that I included with my last newsletter--namely, that August was a very good month for value investors. September, in spite of the falling TSX, is a similar story.

So while I do not focus on short-term numbers, let's look at the recent August performance. First, the context--In my newsletters since November last year, I wrote that resource stocks had reached irrational price levels and, while not knowing when, I expected a sell-off as the price of oil moved down. When this happened, investors would move to value stocks [i.e. good companies with reasonable stock prices].

Remember that markets in the short term are driven by fear and greed. When one sector of the economy has stock prices driven up to irrational levels, a correction follows at some point when the direction reverses and fear kicks in. We can avoid, to some extent, the wild ups and downs of the stock markets by focusing on reasonably priced stocks in good companies, an example right now of value stocks being bank and other financial stocks. But there will be times when the value approach takes time to pan out and, certainly, the last year-and-a-half has tested the patience of you, my clients. I thank you for your patience.

So how did August performance of my mutual fund choices provide good news?

I'll just cite a few representative examples--

Canadian stock funds--in the month of August, the Toronto Stock Exchange [TSX] lost value while Trimark Canadian Endeavour fund was up 6.4% in the month. As for Canadian Balanced funds [~50% invested in Canadian stocks] Trimark Select Balanced was up 3.5%, Mackenzie Universal Canadian Balanced was up 4.0%.

On the global stock side, Trimark Fund was up 3.1%, Trimark Global Balanced up 1.7%; Mackenzie Cundill Global Balanced up 2.3% in one month.

What's happening right now with the Toronto Stock Exchange falling one day after another?

Here's a quote from The Globe and Mail late today--

"Jeff Parent, associate portfolio manager at Quadrexx Asset Management, expects commodities to continue their slump through the end of the year. He'll be looking to the financial sector to power any gains on the TSX for the rest of the year. Natural resources are getting killed," he said. "But I think there's a realization that the U.S. financial system is in somewhat of a recovery, and the Canadian banks are on fundamentally stronger ground. I think we'll see the financials start to take control of the index."

What to expect in the months ahead?

Month by month, expect volatility. And I would suggest you don't watch your portfolio month by month if the ups and downs are going to upset you. Want to know how your portfolio has done? Look at 5 and 10 year average rates of return [which I always give you when you come in to see me]. That's exactly what I do when selecting good mutual funds for my clients. Shorter-term performance is distracting, can be upsetting, and tells us nothing about what investments will do well in the long term.

Thanks for your comments and questions. You are always welcome to come and see me and, in fact, if we have not met face-to-face in the last year, please call me to schedule a meeting.

Warm regards,

Tom

Tom Buck, M. Ed., CFP
Certified Financial Planner
Assante Financial Management