Trailing Returns

If you had invested EVERYTHING into the S&P 500, based on Dow Theory analysis and reinvested all of the dividends, you would be sitting on a 21.99% annualized return.

For long term investors, this is spectacular. Most long term investors want an average return of 10%. 12% is considered excellent over the long term. So consider that next year or the year after will see some movement into a bear market (maybe!). When that comes, we will either want to average down as the market bottoms, or we will want to have the guts to cash out proactively, ride the wave down and re-invest when the indexes confirm a reversal in trend.

A New Way to Think about Risk

There are too many investment options out there, so I thought I'd take a step back to look at some excellent places you can park money. I also want to introduce a new way to think about risk tolerance.

What to do About Real Estate In Canada

Here's the macro picture of Real Estate in Canada.

In many parts of Canada housing has been white hot. The data is rather shocking from an investment standpoint. Let's take a look at some numbers.

Canadian house sale prices on average, rose by 8.2% year over year.
Two Story single family home prices alone rose by 21%
Townhouse/row unit prices rose  by 17.9%
One-story single family homes rose by 16.6%
Apartment/condo units rose by (16.3%)

http://creastats.crea.ca/natl/index.html

Toronto and Vancouver remain Canada's lava-like hot spots for housing. If you bought a single family home five years ago in Toronto, chances are you are now sitting on a 70%+ gain. That's INSANE! Real estate doesn't produce those kinds of gains so quickly in a normal market. Usually, you could expect your property to gain 2-3% per year. Not 15-20%.

What we are seeing in Toronto and Vancouver is a red-hot, white streak, run away housing market, which is creating a housing bubble. And it started with Canada's exemplary financial system. After the crash of 08, Canadians realized that our banking system had protections in place which prevented us from being shocked like the US by housing. One of those protections was our limited exposure to sub prime mortgage securities, and strict mortgage lending rules.

Well, those strict mortgage lending rules are no big deal for the wealthy folks migrating over from Asia, who have been snapping up real estate in Vancouver and Toronto for years, driving up prices in the process. So as far as people who were born and raised in Canada, the rules generally work, but that's also the problem. The same rules that work for Canadians to keep a lid on our housing market make no difference or impact on the ability of wealthy foreigners to drive up prices with foreign funds while us working stiffs are stuck renting (which is also becoming ridiculously over-priced), or living an hour (or more!) commute from work through mile after mile of snarling traffic.

On top of this, mortgage rates have stayed at near all time lows. Today, a $500k mortgage will set you back $2,000 per month if you opt for the monthly payment plan. If you make over $100k a year, it's doable. But if you are like the rest of us and make less than that, it's not feasible unless you rent out the basement and most rooms in the house.

If you own a home in Vancouver or Greater Toronto (or a second rental property), the advice I'm getting is that it's a fine time to sell and move someplace that isn't jam packed with people, smog, and a cost of living so high that you can be house poor even if you make 100k a year and live in a modest townhouse. In fact, the time may be quickly passing to jump ship out of the GTA and Greater Vancouver housing bubbles since both Ontario and BC have passed/are about to pass new laws which restrict the ability of foreign buyers to purchase property. This is going to put a hard lid on housing prices going forward.

Still, could prices climb higher? Yes, they most certainly could. At the height of Japan's housing bubble, it was said "the value of the Imperial Palace in Tokyo exceeded the value of all the real-estate in California". So yeah, prices could still go higher. The question is, do you have the guts to get out when things hit the roof? If you don't, you'll likely go bankrupt if you can't wait out the carnage.

So what am I doing? I have decided to sell. I have two properties. I will be selling one, and using the proceeds to pay off a second mortgage, effectively taking my exposure to a housing market shock to zero. Since I'll be living in the second property, it doesn't matter if the price crashes by 80% ... because I need to live somewhere and I'm young enough to be able to wait out a recovery.

Although I would strongly like to get into the market in Southwestern Ontario, I'm staying far away until I can actually afford the housing there (which might be never, and that's OK).

Still Waiting for it ....

The dow Jones ended the week up 2% to hit new all time highs, and the transportation followed suit but not to all-time highs, as they had sold off the week prior ahead of the Dow. The current set-up isn't calling for a correction, but again, we'll need to wait it out another week.

The gold market is capitulating like CRAZY. I've mentioned that the GDX was a great buy last year when the Gold space showed some serious weakness. Well, now it's an iNsAnELy good buy as a value play ... and there may be more downside to come. I averaged down on my position this past week.

The S&P 500 inverse play is obviously not panning out as expected yet - but was still worth the minimal investment to gain the courage to go long the market knowing I'd be protected in the case of a correction.

The thing to remember that a small percent gain on a large sum of money invested conservatively (i.e the gain from going long the market this past month) can be worth about the same in terms of the amount of money gained vs a large percent gain on a small amount of money invested in riskier assets.

This is how it is with small-cap stock picking or indexing. You can get gains of 40-50% on this part of your portfolio (which should not make up more than 10% of your assets) to make the same amount of money that you would on a 10% gain on the core 50-90% of your portfolio. It's prudent to invest more in conservative stock choices, and use small caps as a kicker. until you have enough capital to make investing in small cap stocks worth the pay-off.

Here's an example:
Let's say your have $20,000 to invest.
A 50% gain on the $2,000 investment in a small cap index would give you a $1,000 absolute gain.
A 5.5% gain on an $18,000 more conservative investment of dividend paying stocks (70%), bonds (20%) and gold (10%) gives you the close to the same $1,000 return for much less risk.

Combined together, your overall return in this scenario would be a respectable 10%, but your risk profile would still be fairly conservative since the bulk of your investments are in more conservative options.

This is, of course not reproducible, but is just an illustration to show that it's the amount of money you are gaining from your investments which counts - chasing % gains can become a fool's errand, so it might be better to simply focus on your asset allocation and rebalancing your asset mix when appropriate.

Strategies to Adopt in Bull and Bear Markets

By Ryan McGuire

The strategy you should use in bull or bear markets is always the same, but it will be the reverse of what you might think. In a bull market, you should re-balance your portfolio to sell or take-profits on your big winners and hunt for some value plays. For example, if there is a bull market in finance and consumer stocks, utilities and some resource stocks might suffer. If there is a bull market in resources and commodities, finance might suffer. Pay attention to how each sector plays off of the others, and pay attention to how bonds react to equities.

Signs are Conflicting

There's some confusing and conflicting data out there about where the stock market is headed. On one hand, the markets look oversold (in a big way), plus all of the market pundits are screaming 'take your money and run!'

On the other hand, Dow theory has signalled that this market is currently a 'buy'. The theory has been wrong before, giving false buy signals. Depending on how you allocated your resources, this may not be one of those false signals.

Despite the fact that the market is overbought, dividend stocks represent an excellent way to both return your money through dividends, and protect your principal from market shocks should they occur. This is especially the case for companies that have raised their dividends for more than 20 years in a row, as it means they have been able to do so through all kinds of good and bad markets.

"Safe" Emerging Market Plays

An article posted by our partners at money morning gave several dividend-paying US domiciled stocks that have, according to Keith Fitzgerald, potential to succeed well in emerging markets. Let's look at each one according to its asset class to see where these companies could fit into a portfolio.


Colgate Polmolive - NYSE: CL - Consumer Non-cyclical
Exxon Mobile - NYSE:XOM - Energy - Integrated Oil and Gas
McDonald's - NYSE:MCD - Consumer services - Restaurants
3M - NYSE:MMM - Capital Goods (construction, healthcare, transportation)
Pfiezer - NYSE:PFE - Healthcare

Essentially, in these companies you have concentration in just 3 out of the 5 economic sectors. The five main economic sectors we are interested in are as follows (but it can be as simple or as complicated as you wish).

1. Finance
2. Utilities
3. Manufacturing
4. Consumer
5. Resources

Colgate and McDonald's are consumer-based, Exxon is firmly a part of the resource sector, while 3M and Pfizer are, broadly speaking, manufacturing-related. Since they are all massive, each of these companies has their hands in several parts of their respective industries, plus they are globally diversified in terms of where they operate their businesses. These are all good things to consider when purchasing equities in today's scary investing climate. These companies may not give you double your money back, but they will surely help you build wealth over the long-haul.

Other Sectors Are Important, Too

So, the only two sectors not covered here are the Utilities Sector and the Finance sector. For the utilities sectors, consider telecoms such as Telus. For finance, TD bank could be a solid choice as it trades on the US exchange, has been steadily profitable through its acquisitions of US businesses in the sector and benefits from being domiciled in Canada, which has more stringent rules for it's banking sector than the US. This helped TD to fair well through the 2008/2009 meltdown.

Beyond these major corporations, you can diversify into small cap companies, as well as contrarian plays like Gold and Precious Metals mining, which are currently being decimated by shareholders.

All of This is only if you are interested in buying individual stocks. Our preferred method of exposure to stocks is through stock funds that weight different part of the economy, but right now especially funds that are focused on dividend paying companies. More on this later ...

Happy investing
R

Emerging Market Plays Domiciled in the US

By Ben Stern
www.moneymorning.com

If you're looking for ways to profit from soaring emerging market growth, you don't have to go overseas. Some of the best investments to play emerging economies are in the United States. Investors need exposure to emerging market growth, as U.S. GDP grew a paltry 2.2% last year, ranking 137th worldwide. The prospects for this year don't look much better.

By contrast, economies in countries in emerging markets in Asia, Africa and Latin America are growing three to four times faster than the U.S.

Panama's 2012 GDP growth was 8.5%; China, 7.8%; Ghana and several other African nations, close to 8%; Indonesia, 6%; and India, 5.4%.

And some of our favorite U.S. companies have huge percentages of their revenue coming from economies that grow at three to five times the rate of the United States.

Money Morning Chief Investment Strategist Keith Fitz-Gerald has consistently recommended U.S. companies with a healthy global presence.   The best of these companies, Fitz-Gerald says, have great management, pay dividends and offer products and services the world needs instead of merely wants.

"Global companies are great places to hang out if the rally continues and super places to be if things turn defensive," Fitz-Gerald said. "That's because history shows the markets treat them far better than their non-global, non-dividend-paying brethren when the stuff hits the proverbial fan."

Here are some of the best investments among U.S.-based companies operating in emerging markets.

Best Investments: U.S. Companies with Strong Global Growth

Colgate-Palmolive Co. (NYSE: CL): Colgate derives 78% of its revenue outside the United States. Latin America, its biggest market, accounts for 29% of sales; Europe and the South Pacific, 20%; Greater Asia and Africa, 20%; and North America, 18%. Besides its namesake Colgate toothpaste and Palmolive soap, the New York City-based consumer products maker has several other brands, including Irish Spring, Fresh Start detergent and a variety of pet nutrition products. CL currently yields 2.3%

Exxon Mobil Corp. (NYSE: XOM): As the world's largest oil and gas company, Exxon will profit as more emerging markets become developed. That process will require a massive influx of energy in those regions and the Irving, TX-based company is poised to profit from the transitions. Non-U.S. revenue accounts for 67% of the company's total sales. Europe, Canada, Japan, Singapore and Australia comprise its biggest markets outside the U.S. XOM currently yields 2.55%.

McDonald's Corp. (NYSE: MCD): With more than 33,000 restaurants in 119 countries, the Oak Brook, IL-based company is now the second largest fast-food restaurant in the world by stores, behind Subway, but remains first in revenue. McDonald's generates less than one-third of its sales in the United States. Europe accounts for the most, with almost 40%, and 23% of sales come from the Asia-Pacific, the Middle East and Africa regions combined.

3M Co. (NYSE: MMM): The maker of Scotch Tape and Post-it notes also makes healthcare, electronic, industrial, telecom and other consumer products. Based in St, Paul, MN, 3M generates 65% of its revenue outside the U.S. More than 30% of sales come from the Asia-Pacific, 22.5% from Europe and the Middle East, and almost 12% from Latin America and Canada. MMM currently yields 2.4%.

Pfizer Inc. (NYSE: PFE): Pfizer is a great way to invest in emerging markets, as well as a solid healthcare play. Pfizer, based in New York City, derives over 61% of its revenue outside the U.S., 20% of that in emerging markets. PFE currently yields 3.3%.

Money Morning's Keith Fitz-Gerald has been following the global growth story for years, picking the next best investments to profit from this trend. And he's delivered our Money Map Report subscribers some huge winners this year - like the world's best "sin" stock that's up over 100% since his recommendation. To learn how you can hear about all of Keith's picks - and to avoid missing the next triple-digit gains - click here.

Source: http://moneymorning.com/2013/04/05/the-best-investments-to-play-emerging-market-growth-may-surprise-you