DIVERSIFICATION, DIVERSIFICATION, DIVERSIFICATION.

IF THERE IS A MANTRA FOR SUCCESSFUL INVESTING, THIS IS THE ONE

April 25, 2016

Some investors get very fixated on the fact that they made too large a “bet” on something or too little on something else.  Making “bets” is not investing.  Putting “all your eggs in one basket” is not investing.  It’s gambling.  If you’re lucky, you can make a lot of money gambling.  The vast majority of the time, though, you will lose.  These thoughts come to mind because I saw an article a couple of months ago, the premise of which was to focus one’s investments in Canada.  I thought that premise was very misguided, but I wanted to go through the piece to see if maybe I might be missing something. 

The article listed five reasons to stay in Canada when investing.  Let’s go through it and look at all of the arguments.  I will give you my thoughts.  I’m sure you will all have your own.  But keep this thought in mind:  Canada accounts for approximately 3% of global equity market capitalization.  In our Traditional Model portfolio (a balance between equities and fixed income) our current equity allocation to Canada is about 9%.  Are we over weighted in terms of market cap?  Yes, we are.  But we think that a 9% allocation is not excessive.

So, let’s have a look at some arguments for having a purely Canadian investment portfolio, as presented in the article.

The first reason advanced for staying in Canada with your investments was the prospect of “fiscal stimulus.”  Will that happen?  The jury is out.  But even if it does, the additional debt load that would be created may cancel out any stimulus benefits.  It is too early to tell on this one.

The second reason is the falling Canadian dollar.  I know that the popular wisdom is that a lower dollar will provide a substantial economic impact.  I will believe that when I see it.  We don’t make very much in Canada anymore, so how, exactly, does a lower dollar help?

The third reason put forth is that the down cycle in commodities is nearing its end.  Is it?  I don’t think there is much evidence to support that.

The fourth reason advanced is that Canada has a strong housing market.  Yes, there is.  But in a handful of locales.  And will it continue?  We will have to stay tuned on that one.

The fifth reason is attractive market valuations.  That is true vis-à-vis the S&P 500 and the TSX.

So let me sum up my thoughts on this.  The arguments put forth with respect to the Canadian equity market being a great buying opportunity do not resonate with me.  And even if they did, it would result in a modest increase in our Canadian equity exposure.  To focus on any market or index and put down the big bet there is not investing.

I believe that the trajectory of our market and our dollar will be dictated by the price of oil, and I believe that all of them will be higher by year-end than they are now.  Does that mean putting all of one’s eggs in the Canada basket?  No.

Diversification.
Howard Goodman
President, HG Partners Limited
Director, Private Client Group &
Senior Financial Advisor,
HollisWealth Advisory Services Inc.

This article was prepared solely by Howard Goodman who is a registered representative of HollisWealth Advisory Services Inc. (a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation).  The views and opinions, including any recommendations, expressed in this article are those of Howard Goodman alone and they are not those of HollisWealth Advisory Services Inc.

HollisWealth is a trade name of HollisWealth Advisory Services Inc. ® Registered trademark of The Bank of Nova Scotia, used under license.

HG Partners Limited is an independent company. Scotiabank companies have no liability for activities outside of HollisWealth.