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Saturday, April 29, 2017

Investing In a SideWays Market

Posted by Tim Stobbs on January 15, 2008

With the market going sideways I’ve decided to alter some investments to establish some cash positions. I won’t be selling anything, but I am going to stop buying anything for a while and adding my contributions to a money market fund instead.

For those of you wondering why let me show you a five year chart of the TSX index with 20 day moving average.

TSX with 20 Day Moving AverageTSX2

As you can see we are now moving more sideways than up right now. With the current market I don’t see any major movement upwards for a while. I think everyone is a bit too nervous about the US going into a recession to leave their positions of gold or cash.  I’ve been thinking about adding some cash to my portfolio for a while, so now seems like a good time as any.

That’s not to say that some individual stocks might be a good deal, I’m just sitting on the sidelines for the US and Canadian indexes for the next few months until after our second baby comes.  After that I will devote a little time to reassess the situation.

So that’s my thoughts, what do you think?  Should people be taking up some cash positions or continue to invest regardless of the current market and try to get some dollar cost averaging?

Comments

17 Responses to “Investing In a SideWays Market”
  1. As a big fan of dripping, I try to continuously add someting to my companies. But padding my cash position also makes sense in the current environment. So I am doing both — I keep putting some money into my drips, but also increasing my cash (particularly in my self-directed RRSP).

    Frog of Finance

  2. I know that if I had a large position in index funds (all I have now is a small account that I’ll add to my short-term savings if it gets high enough) I would be leaving it there and sticking to my allocations. You never know when things will turn around or a string of good news will cause a big jump. The things that have the biggest impact on the market tend to be the most unexpected. Even now a few unexpectedly good signs could stop a recession, although on a technical level the last few years of growth in the markets probably can’t continue for too long.

    The importance depends on how big your portfolio is already of course – if you have a lot already a small change in new investments won’t do much. It will be a while for me before new investments don’t cause most of my portfolio growth so I’ll have to carefully consider any reasons for not sticking to the plan.

    I would consider a real flat market to be something that lasts 5-10 years, which is a bit difficult to predict in advance. Some people are saying that now, but they’ve probably been around since the markets opened.

  3. Anjo says:

    While I am not sure whether I agree or not on market timing, have you given thought to putting your money into a mutual fund that resembles a savings account? Examples include the Altamira High-Interest Cashperformer (AIS100) currently at 4.00% and the Manulife Investment Savings Account (MIP510) paying 3.85%. Alternatively, some of the cashable GIC rates are pretty good as well. Not sure how money market rates are now, but these other products used to outperform, and often were accompanied with CDIC guarantees on the deposits to a certain amount.

  4. Nice post.

    Another thing that caught my eye was the volume chart on the bottom. You’ll notice that volume has dropped off. Sometimes this can indicate that the price movements are based on retail investors getting nervous. If you look at the average trade volumes, you’ll see that the trades are smaller – few number of shares trading hands which means that the retail investors are the ones bidding stocks down.

    Once the average trade volumes go up significantly (indicating institutional buying) it may be time to re-analyze your short term strategies.

    I think it’s quite possible for the active parts of our portfolios to have buying sprees for a year and then long periods of sheer and beautiful boredom!

  5. I’m of the opinion that the US Stock Market, all indexes, will be going significantly lower. Not sure how this will translate into the TSX index but my best guess is that the TSX will also go significantly lower. It looks like the TSX is just somewhat behind the US.

    At this time the Dow Jones Transportation Index is leading the pack downward.

    For the most part, I’m out of the stock market at this time.

    CM

  6. Lise says:

    I’ve never looked at the savings type mutual funds that Anjo talks about. I assumed I could do better with a regular high interest savings account (no MERs, doncha know). What do you think?

    I’m adding cash, but I’m also on a plan to buy RBC shares every 2 weeks. They’re so low right now, I feel it’s a bargain no too miss. I can really stock up for when they go up again (nice capital gain), and their dividends are good, so I like that better than cash right now.

    (OKay, full disclosure: I work there, so no fee to buy them, plus they match 50%.) But that’s a bonus, I’d buy some anyway.

  7. Dave T says:

    I agree with your reasoning, I stopped putting money into by balanced and equity funds, and switched to a real estate fund. I already had some money in this type of fund and it made over 15% last year, last month alone it made 3.5%. I’m also looking at a precious metals or resources fund to move other money into. With all of the problems in the US right now, spill over into Canada is just starting, my feeling is stock markets will be going sideways if not down for the next 6 months at least if not longer.

  8. garman says:

    i invested 20,ooo in the rbc precious metal fund in 2001 its now worth over 140,000 and this gold bull is still in early stages

  9. Canadian Dream says:

    Anjo,

    I’m not familiar with those accounts. I’ll have to have a look. Thanks.

    Preet,

    I agree. I think I’m going into one of those boredom stages right now.

    CM,

    I haven’t gone that far, but I’m at a different spot than you.

    Lise,

    Well with a 50% match I would be buying some shares too!

    Dave T,

    Real estate depending on where it is could be ok. I would be careful about any precious metals as they are heavily over heated right now by the price of gold. I personally can’t decide what would be best so I’m shelfing the decision for a while and moving into cash.

    Thicken,

    I agree. Cash is good. So when everything hits around the bottom you can inject some in.

    Tim

  10. telly says:

    I hear what you’re saying and while I agree, the indexer/couch potato/DCA’er in me says you should stick with your allocation reagardless of what the markets are doing.

    If you were planning to increase your cash holding though, then that’s as good an excuse as any to cheat. ;)

    Still, how about other uses for your cash? Maybe extra mortgage payments? I have a hard time justifying keeping too much cash around while still carrying a mortgage. Just an idea…

  11. nobleea says:

    I believe 2008 or 2009 will be the year of the gold bull. We’ll see a mania similar to the tech boom where companies sell for sky high valuations even though they have nothing. Everyone will be talking about it at the water cooler and suddenly become experts.

    I know people who have made 50-100% annual, compounded return investing in precious metals stocks for over 10 years. They are very good (of course) and do a lot of research and have patience and resolve that 95% of us could never match.

  12. garman says:

    nobleea you are right when everybody and their uncle is buying and talking about gold it will be time to get out.

  13. nobleea says:

    garman;

    have you visited the SmartInvestment discussion board? it is the best place to talk about precious metals companies. top notch posters and a civilized discussion board.

    it’s here now:
    http://www.mexicomike.ca/php/phpBB2/index.php

  14. garman says:

    nobleea; i used to follow coach or mike on stockhouse but he left because of all the idiots there thanks for the website.

  15. Canadian Dream says:

    Telly,

    The mortgage is always an idea and the default one when everything is said and done. Right now we are going into some uncertain times so I’m keeping lots of cash for now in case I need quick access to some extra funds.

    Tim

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