Hi friend! Ever wonder what High Net Worth (HNW) individuals have going for them? Well, stop wondering. This blog post – Awesome! HNW: No. 1 Wealth Warriors – will attempt to shed some light on their behaviour, and how you too can become an HNW copycat.
Bottom line, such people adhere to strict operating principles, and don’t gamble – no ‘Hail Mary passes.’
I normally write about all things trading but, from time to time, I am also going to give treatment to investing considerations, as in this blog post – given that, more than likely, you have investments of some sort that you want to nurture.
Read on, and you will surely be enlightened about high net worth investing.
High-net-worth individuals tend to read far more than the average investor. Warren Buffett takes it to a whole new level – beyond your wildest imagination. For more on his eye-popping obsession, stay tuned. You will be shocked (and hopefully inspired). I know I was.
Table of Contents:
Definition: High Net Worth
Talk About HNW!
How HNW People Think
The Outlook of HNW People
Bonds Equal Low Returns
The Trump Effect
Buffett on Stocks & Bonds
A Stock-Heavy Approach
The Dynamic DUO
A Word on Dividends
The Case for Low Dividends
How to Play U.S. Market
To Hold or Not to Hold
Best Time to Buy
My Favourite Stocks
Do Your Homework
Growth, Momentum, & Value
My Take on 2017
Canadian Stocks, Eh?
Market Forecasting Tool
High net worth statistics indicate that one million dollars in liquid assets is the most commonly quoted figure for membership in the High Net Worth (HNW) club. That is the definition for high net worth individuals.
A value less than that, but more than $100,000 is deemed ‘affluent’ – or perhaps ‘sub-HNW.’
What could be higher than Warren Buffett’s HNW?
He would most certainly fall in the ultra high-net-worth individual category, given that he is the second richest man in the word, and he would definitely be on the list of high-net-worth individuals.
I just read an article in The Globe and Mail (Jan. 5/17) about Buffett, written by Brian Milner. (Info also via Lawrence Arnold, Feb. 27/15, National Post.)
I thought I would share the salient points with you, as you will learn a lot from them (I know I did).
I am sure you will be stunned and amazed. I thought I read a lot, but nowhere close to Buffett’s voracious reading regime.
I will obviously paraphrase throughout this blog post, so as to preserve copyrights, and give credit where credit is due.
Mr. Buffett has an obsessive nature that extends to his own painstaking research.
He has a prodigious memory, and continues to be a voracious reader of everything he can lay his hands on.
His advice on the key to success… read 500 pages a day – books, magazines, newspapers.
Knowledge is power. It accumulates, like compound interest. He doubts that most investors will take heed.
BTW, Mr. Buffett used to devour 1,000 pages a day, and is still at it, but to a lesser extent.
As a teenager, he inhaled every book in the Omaha public library on investing and stocks.
He pretty much memorized the book, Security Analysis, the 1934 classic co-written by David Dodd and Benjamin Graham, the father of value investing and Mr. Buffett’s future mentor.
So, he was ready for Mr. Dodd’s class on investing at Columbia University, given that book was the course textbook.
Mr. Buffett wrote a foreword to the sixth edition in 2008. He touts the book as ‘a roadmap for investing’ that he has followed throughout his investing career.
That book has been the bible of stock-pickers for almost a century. Titans of investing, like Mr. Buffett, have very explicitly made their fortunes using techniques based on its principles.
Irving Kahn, who passed at the ripe old age of 109, was a Manhattan money manager who learned lessons from the Great Depression right through into the 21st century.
He assisted Messrs. Graham and Dodd in the research for this seminal work on finding undervalued stocks and bonds.
In the book’s second edition, published in 1940, the authors credited Mr. Kohn for guiding a study on the significance of a stock’s relative price and earnings.
Mr. Buffett’s all-time favourite book is still Mr. Graham’s ‘The Intelligent Investor,’ which he read when he was 19, when it was first published in 1949. He has since read it many times.
Mr. Kahn also worked on this book. Like Mr. Buffett, he was a voracious reader, reading three newspapers daily, and poring over technical magazines and scientific journals in search of investment ideas.
Like Mr. Graham and Mr. Buffett, he sought to be contrarian in nature – buying securities out of favour and in the dumps for some reason.
Mr. Graham preached the notion that investors need to get into the minds of business owners, and stop thinking like traders, when evaluating a company and its prospects.
An investor should make sure price includes a margin of safety, not attempt to time the market, and not sell when the masses head for the exits.
Mr. Buffett told Forbes in 2013 that chapters 8 and 20 of that book have been at the centre of his investing activities for more than 60 years.
He suggests that investors read those two chapters, and reread them every time the market falters or shows strength.
Other books worthy of mention, based on his public comments and letters to shareholders (courtesy Brian Milner/the Business Insider):
The Clash of Cultures (2012) – Jack Bogle, investing legend, Vanguard founder
The Little Book of Common Sense Investing (2007) – Jack Bogle
Common Sense and Uncommon Profits (1958 & 2003) – Philip Fisher (cover blurb by Mr. Buffett in 2003 edition)
Stress Test (2014) – one of the better insider accounts of the 2008 meltdown, by Timothy Geithner, former U.S. Treasury Secretary
The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success (2012) – William Thorndike Jr. Loved by activist investors like Bill Ackman. Mr. Buffett is one of the eight.
Warren Buffett’s Ground Rules; The Life and Business Lessons of Warren Buffett (2016)
Warren Buffett: Investing & Life Lessons On How to Get Rich, Become Successful & Dominate Your Personal Finance from the Greatest Value Investor of All Time (2015 & 2016)
The Essays of Warren Buffett (fourth edition) – on the must-read list for 2017 – a fat collection of his letters and notes over the course of his career
Memoirs of business leaders like Jack Welch, former GE hero
Now you know what laid the groundwork for Mr. Buffett becoming a very high net worth investor – due diligence, massive reading, research, and taking ACTION!
Courtesy Michael Nairne, Vancouver Sun, November 13/13, not mentioned, and outside the realm of Mr. Buffett for this particular piece, is The Little Book That Beats the Market by Joel Greenblatt, Managing Principal of Gotham Asset Management.
He is behind Formula Investing in the U.S., an online portfolio management service offering investors separately managed accounts that they can choose from a list of top-ranked stocks selected on the basis of well-defined formulas.
Investors can either ‘self-manage’ their accounts by initiating their own buys and sells from this stock list using the firm’s trading guidelines, or have it ‘professionally managed’ based on a predetermined model that buys and sells, at preset levels, from the same formula-generated stock list.
Let’s start off by saying that nobody can predict the future. With investments and trading, we are dealing with best guesses and probabilities.
In times of uncertainty and volatility, HNW individuals park their cash in GICs and T-bills or high-interest savings accounts. They don’t resort to ‘exotic’ notes or complicated structures in an attempt to squeeze every last nickel or dime from yield.
Such individuals are well diversified according to asset, geographic market, and investment style. They re-balance and re-allocate on a regular basis.
And, get this… they use stops, usually set at 20%. They even use rolling stops (read, trailing stops) to preserve their gains. This allows them to get stopped out in the event the market gets toppy, and looks like it is going to correct.
As well, they will purchase puts (the ability to sell a particular security at a certain price for a predetermined period of time) to set a ‘floor’ price, and limit possible losses.
They will even employ options to protect against broader, market-wide declines. They do so by purchasing puts on a broad-based index exchange-traded (ETF) fund. Should the market swoon, the options increase in value, thereby offsetting losses.
Most HNW investors hold long/short or market-neutral hedge funds. Such funds utilize short positions or paired trades to take advantage during volatile markets. Some also hold managed futures funds or commodities because of their low performance correlation to traditional classes.
You don’t have to be rich to benefit from alternative investments. Hedge funds are now widely available through ETFs and exchange-traded notes. Just make sure to keep the position balanced, up to a maximum of 40% of the portfolio being a good target. Professional advice should be sought in this regard. Also watch out for fees.
Update Jan. 23/17… as of late, HNW investors have upped their hedging activity, more so with uncorrelated private equity and other alternatives. As well, they are moving money to long/short managers who have the ability to short specific sectors, stocks, or the overall market.
This affords them protection to the downside, thereby facilitating the ability to avert crisis and seize opportunities.
Thanks to Thane Stenner (contributor to The Globe and Mail) for this.
According to Mr. Stenner (The Globe and Mail, Jan. 10/17), HNW investors are increasingly interested in making their money work for them in North America (mostly the U.S.). They are equally cautious about investing overseas.
In anticipation of a pullback in the markets, they are accumulating cash, exiting or trimming back winning positions, and taking a ‘wait-and-see’ attitude, before committing more cash to the markets.
Bonds may not be as safe a bet as you may have thought. Just leaf through the Credit Suisse Global Investment Returns Yearbook (just Google it), and you’ll soon be disappointed in bonds.
From 1900 to 2015, they generated small, or even negative, real returns in many returns.
Yes, the two World Wars were hard on bonds in many countries that were affected, but there were also long stretches in peacetime when bonds turned in poor performances.
Government bonds will likely produce annual returns of under two percent till maturity – and that doesn’t include fees, taxation, and inflation.
The outlook for bonds isn’t great. There isn’t much you can do, other than live with reduced returns, if bonds are your thing.
For example, the Canadian 10-year government bond pays 1.8 per cent, as at this writing, which is barely enough to keep pace with inflation.
Interest rate risk can be reduced by lowering a portfolio’s duration – opting for shorter-term bonds, higher interest savings accounts, etc. Regrettably, such alternative instruments offer tiny yields.
Higher-quality, shorter-term bonds – those that mature in five years or less – will suffer less, if rates start creeping higher around the world.
Financial stocks love higher rates, real estate and utilities not so much. Going into 2017, many forecasters see industrials as a favoured sector, but not telecoms.
Fixed-income yields have swooned to historic lows, forcing people to seek higher returns from dividend stocks and other instruments.
(Info via Norman Rothery, The Globe and Mail, Sep. 20/16)
According to George Athanassakos, Jan.13/17, The Globe and Mail, December, 2015, may have been the end of the bull market of the last 30 or so years.
Tim Shufelt, Nov. 14/16, The Globe and Mail… U.S. equities have rallied after the election with investors expecting rising economic and inflation pressure, given Trump’s drive to increase fiscal spending and cut regulations.
Looking ahead, stock gains should be fuelled by earnings growth and backed by fiscal stimulus.
In an era of ultra-low interest rates, stocks become more attractive relative to bonds and the multiples that investors are willing to pay for future earnings go up.
If you’re wondering if you should be in bonds or stocks, here’s what Warren Buffett’s HNW strategy says about managing his wife’s portfolio in his will: A tenth of his wife’s portfolio is to be invested in short-term government bonds and the remainder in a very low-cost S&P 500 index fund.
Somewhat consistent with Buffett’s will might be a blend of low-cost market-tracking index funds that follow Canadian, U.S., and international stocks.
Problem is, can you stomach such a stock-heavy approach? I know I can, and do.
The only thing to watch out for in the near term is Janet Yellen’s approach to interest rates. She has hit us with two increases so far, as at this writing. A third is when the markets usually correct.
Could it be that we only get one more rate hike in 2017, followed by a rate cut? Wouldn’t that be sweet? I’ll take that.
The thing to watch out for is the central bank having to raise the federal funds rate more quickly than currently anticipated to limit the degree of undershooting, and stem a potential build-up of inflationary pressure.
With global bond yields seeming to have bottomed, equities should do better than fixed income.
John F. Wasik Aug. 29/16, The Globe and Mail/New York Times News Service… Building a portfolio that will outpace inflation over the long-term requires that you focus on stocks that will combine dividends and growth (increasing stock investments during major stock market declines – i.e., being greedy when others are fearful).
Permit me to give you an example (info via John Heinzl, Jan. 11/17, The Globe and Mail)… Enbridge Inc.’s (ENB or ENB.TO/CA:ENB) yield now sits at 4.1%.
Following the January/2017 dividend increase, another increase is expected after the closing of its US$37-billion acquisition of Houston-based Spectra Energy Corp. (expected to close in the first quarter), bringing the total dividend increase for 2017 to 15%.
That would represent the 22nd consecutive year that the pipeline operator has increased its dividend.
This acquisition will result in North America’s largest energy infrastructure company, and facilitate further dividend growth.
Enbridge’s business is strong, taking into account its existing business, the impact of growth projects worth $2-billion that came on-stream in 2016, and expectations of further investments in 2017.
Beyond 2017, the company plans to raise its dividend 10-12 percent per annum from 2018 through 2024, thereby doubling its dividend by 2014.
When a company announces a dividend increase, it sends a strong signal of confidence about the future.
A growing dividend is good news. It suggests that the business is producing more and more cash, and it indicates that the company is preserving that cash wisely. (Info via Dennis Mitchell, senior portfolio manager with Sprott Asset Management, as reported by John Heinzl, Mar. 30/16, The Globe and Mail)
With dividend growth companies, investors expect increasing quarterly cash payouts, and their share prices tend to be robust accordingly. On the other hand, companies with high dividend yields invite concerns from investors about the sustainability of their dividends, and their share prices may suffer as a result. (Rob Carrick, Oct. 31/15, The Globe and Mail)
RBC Dominion Securities analyst Robert Kwan calls Enbridge ‘one of the go-to large cap stocks in North America.’
He asserts that the proposed Spectra deal improves the chances of the company being able to achieve similar dividend growth through 2024.
In concert with ‘My Favourite Stocks’ coming up, I am looking for an entry point on this stock as well, as other HNW investors are I’m sure, if they are not already on board.
Financial theory dictates that there is no convincing evidence of a stock paying a big dividend outperforming one that pays a small one, or none at all – and that a company can’t raise its stock market value by increasing its dividend.
According to Aswath Damodaran, professor of finance at New York University, history indicates that, from 1952 to 2001, high-dividend stocks performed only slightly better than their low-dividend counterparts.
There is further evidence that a large dividend didn’t provide any buffer in down-markets – just the opposite.
J.P. Morgan Asset Management advises against hunting for large yields. Instead, investors should concentrate on cash-rich companies that pay out only a small fraction of their earnings as dividends, and that also reward investors by buying back shares.
Despite all that financial parlance, the iShares S&P/TSX Canadian Dividend Aristocrats ETF (CA:CDZ or CDZ.TO) has performed remarkably well, except for the major swoon early 2016, which supports the notion that such a dividend player is not immune to market twists and turns.
This ETF holds Canada’s super-star dividend stocks, such as BCE Inc. and Exchange Income Corp.
In the same article (see attribution below), Ralph Nader offered that Apple executives’ US$90-billion share buyback program was designed to avoid paying dividends to shareholders, thereby intending to drive up the share price and the value of their stock options.
(Info via Ian McGugan, Report on Business, Dec./14)
Dividend expert Tom Connolly, long-time publisher of the dividend investing newsletter called the Connolly Report, preaches the merits of companies with strong recurring cash flow like telecoms and utilities. (Rob Carrick, Oct. 31/15, The Globe and Mail)
Actually, the stocks that pay the largest dividends are phone companies and utilities. (Marley Jay, The Associated Press, as reported in The Times-Colonist, July 16/16)
Just to show that low-dividend payers have just as much appeal as the higher-payers, let’s take a look at an example…
Cintas Corp. (CTAS – Nasdaq):
This is North America’s largest corporate uniform supplier (also providing restroom supplies, cleaning and other services).
It has a dominant market position and a track record of double-digit earnings growth.
Don’t be put off by this company’s meagre yield of 1.16 percent. It has raised its dividend 32 consecutive years. Its dividend is paid annually.
Assuming all dividends reinvested, it has posted an annualized total return of 12.3 percent over the past decade – beating the S&P’s annual total return of 7.1 percent during the same time.
(Info via John Heinzl, Oct. 12/16, The Globe and Mail)
As at this writing, the share price is swooning – setting up for a great buying opportunity, when MACD stops falling, turns around, and punches up through its trigger line.
“Seeing my dividends come in is the only thing that gives me pleasure.” John D. Rockefeller (another uber-HNW investor)
Given that gold pays no dividend, it tends to suffer during times of rising interest rates, as higher yields draw investors to bonds and other income-producing investments. It would appear that Janet Yellen is hawkish in her outlook towards interest rates, which is a negative for gold.
Scott Barlow, Sep. 22/16, The Globe and Mail… History shows that the price of gold has moved proportionately in the opposite direction of U.S. real (inflation-adjusted) bond yields and the U.S. trade-weighted dollar.
BMO U.S. High Dividend Covered Call ETF (ZWH) provides exposure to a dividend-focused portfolio with the benefit of collecting additional yield through a covered call write strategy.
BMO U.S. Put Write ETF (ZPW) can produce extra income by writing put options on U.S. large caps.
The S&P 500 posted a total compound annual growth rate of about 8.2 percent for the 20 years ended December 31/15. This, despite the fact that there were two massive bear markets – the technology meltdown of 2000-02 and the financial crisis of 2008-2009. The S&P 500 still exceeded the annual return of eight percent, even with those major setbacks.
Over the past 50 years, the S&P 500’s compound annual growth rate was even higher, coming in at 9.7 percent.
Taking inflation into account, the inflation-adjusted – or real return – of the S&P 500 over the past half century was about 5.4 percent.
The S&P 500 has turned in positive returns in about 95 percent of rolling monthly 10-year holding periods from 1926 to 2015 – this according to Morningstar data cited by Oppenheimer.
For 15-year periods, the return was positive 99.8 percent of the time.
Canadian stocks have delivered a real return of 5.6 percent a year since 1900, according to the Credit Suisse Globe Investments Returns Yearbook.
This approximates the 6.4 percent real return of U.S. stocks over the same 116 years.
The U.S. percentage is similar to the real return of 6.6 percent for U.S. stocks from 1802 to 2012.
(Info via John Heinzl, May 24/16, The Globe and Mail)
Dennis Mitchell, senior portfolio manager with Sprott Asset Management, as reported by John Heinzl, Mar. 30/16, The Globe and Mail… Mr. Mitchell’s core strategy is to buy excellent businesses that are trading below intrinsic value, and keep them for hopefully long periods of time.
(Wikipedia… In finance, intrinsic value refers to the value of a company, currency, product, or stock derived from ‘fundamental analysis,’ without reference to its market value. It is also commonly referred to as ‘fundamental value.’)
Lesson learned… stocks can be volatile in the short term, but tend to rise over time. The probability that you will come out ahead is higher the longer the holding period. The stock market has been making HNW investors wealthier for a very long time.
In the event of a bear market, that’s the best time to load up on dividend stocks – especially those with growing dividends, which is a sign of a strong company. That’s because yields are higher after the market drops.
If you missed the section entitled ‘A Word on Dividends,’ just click on that link, and it will take you there.
The best time to buy is usually when you are the most fearful, and feel like selling. HNW investors would agree, I’m sure.
Take the 2007/2008 financial meltdown, for example.
The worst move of my investing life occurred during that time. I unloaded everything I had, like many others did.
I had drawn a strategic line in the sand, and declared that, if the market went below that level, I was out. Worst move. Never again. Should have held on. Shoulda, woulda, coulda.
Visa Inc. (V) is the world’s largest payments-processing network operator. It is benefiting from the move away from cash globally.
Even more volume will come from platforms, such as Apple Pay and Android Pay, that require a credit card.
Visa is a low-yielding stock that has generated significant total returns. Over the past five years, it has gained about 33 percent annually, including dividends.
As at October 25/16, it reported better-than-expected quarterly profit and revenue.
This was boosted by the $23 billion-acquisition of Visa Europe, inclusion of its results, and by customers spending more using its network.
Total payments volume increased 47.1 percent to US$1.86-trillion in the fourth quarter ended September 30/16.
Visa’s net income rose 27.7 percent to US$1.93-billion, or 79 cents a Class A share. Excluding special items, it earned 78 cents a share.
Total operating revenue rose 19.3 percent to US$4.26-billion.
Over the past five years, Visa’s dividend has increased at an annual rate of 30 percent, and it would appear that there is more growth on the horizon.
(Info includes input via Dennis Mitchell, senior portfolio manager with Sprott Asset Management, as reported by John Heinzl, Mar. 30/16, The Globe and Mail)
Another thing I like about the Visa stock is technically it is following the pattern I addressed in my last blog post. I bought in when price and MACD were recovering, after both had gone way oversold – MACD well below the waterline.
MACD punched up through its trigger line early December/2016, and is now trending up. Price has put in a 1-2-3 bottom, and is likewise in an uptrend.
For you Canadians out there… BCE, Inc. (TSE – CA:BCE or BCE.TO) – The outlook for the business looks favourable. You can also buy BCE on the NYSE as BCE.
Its third quarter results were released early November/16. Revenue and wireless subscriber growth both topped expectations.
In the years to come, the company should continue to benefit from growing smart phone adoption and wireless data usage.
A significant benefit to owning BCE stock is its rising dividend. Based on its trend of raising dividends in recent years, another hike in February is a reasonable expectation.
(Info via John Heinzl, The Globe and Mail, Nov. 26/16)
Full disclosure: I own both Visa and BCE. I bought both on technical weakness and subsequent rebound, commensurate with the trading advice on MACD I gave in my last blog post.
A falling share price is no cause for concern, if a business’s fundamentals are healthy. It actually represents a great buying opportunity, as was the case for me with both of these stocks.
I am also high on U.S. banks – mentioned later on in this blog post – but, I am waiting for some price weakness on any one of them, before I jump – BK being my favourite.
If you can’t explain why you chose a particular stock to someone with no previous investing experience in less than 10 minutes, then don’t buy it.
Growth investors buy companies with rapidly expanding earnings and revenue.
Momentum investors buy stocks that are already ascending with the view that they will continue to rise.
Value investors buy stocks that are cheap, as compared with fundamentals.
(Info via Ian McGugan, Jan. 19/17, The Globe and Mail)
Value investors consider a price-to earnings ratio of 20 to be the most they would pay for a stock. (Norman Rothery, Jan. 27/17, The Globe and Mail)
Stop behaving like Eeyore, the endlessly gloomy donkey character in the children’s storybook Winnie the Pooh.
Canada’s economic growth closely follows that of the United States (Canada’s largest trading partner), where sentiment is improving. Canada has close economic ties with the U.S.
According to Kenneth Rogoff, professor of economics at Harvard University, we should not be concerned about a U.S. recession any time soon. He foresees a couple years of outsize growth for the U.S., even as high as four-to-five percent.
Megan Greene, chief economist at Manulife Asset Management, pegs the odds of a recession during the first two years of a Trump administration at roughly 20 percent.
Paul Ashworth, chief U.S. economist at Capital Economics, sees the risk of a recession over the next 12 months to two years as low. He asserts that it would be highly unusual for there to be a significant downturn.
According to Mr. Ashworth, recessions normally occur later in a President’s term – so, a downturn late in Mr. Trump’s four-year term is a possibility.
He further suggests that there is a 50 percent chance of a recession during the next four years, based solely on historical stats.
Recoveries don’t die of old age. They typically end when the economy overheats, inflation soars, and the central bank retaliates by pushing interest rates to an uncomfortable level to put out the flames.
The U.S. dollar should remain strong. This is because of the monetary policy divergence between the Fed raising interest rates and other central banks sitting on their hands or possibly easing further, not to mention the election uncertainties in France, Germany, and the Netherlands.
U.S. health care should put in a second-half surprise outperformer.
This one is a no-brainer, given the Fed’s hawkish stance towards interest rates… U.S. banks should continue to shine, as they get further rerated for looser regulation and capital-return characteristics. They will also benefit from higher short-term interest rates, as the Fed tightens policy further.
Rising rates are not only positive for banks, but also lifecos like Manulife Financial Corp. (MFC, MFC/TO, or CA:MFC), which benefit from reinvesting premiums. (Tim Shufelt, Jan. 24/17, The Globe and Mail)
Select Major U.S. Banks: (Dec. 23/16, Peter Ashton, The Globe and Mail)
Wells Fargo & Co. (WFC-N)
BB&T Corp. (BBT-N)
U.S. Bancorp (USB-N)
PNC Financial Services Group Inc. (PNC-N)
Bank of New York Mellon (BK-N)
Regions Financial Corp. (RF-N)
Wells Fargo is the largest bank on the list, with a low forward P/E ratio and a decent dividend yield. Its market capitalization, based on the value of its outstanding shares, is equal to Canada’s three biggest banks combined.
The one caveat with Wells Fargo is the recent imbroglio related to creating unauthorized bank and credit card accounts.
U.S. Bancorp has the highest operating margin.
Bank of New York Mellon announced third-quarter results Oct. 20/17 that beat analyst expectations on both earnings and revenue.
There are some really good picks in that list that won’t break the bank. Any one of those banks would be a good investment, in my opinion, given that the Fed seems intent on raising rates further.
I especially like BK. It’s just a matter of time before I pounce on that one, once price swoons to a level that is more to my liking, and MACD flashes its buy signal, as outlined in my last blog post.
Scott Barlow (Jan. 9/17, The Globe and Mail)…The steepness of the yield curve – the difference between the two- and 10-year yields – has been increased by the rising 10-year yield.
As a result, bank stocks on both sides of the border have rallied.
A steeper yield curve means higher profits for the banks, because they borrow funds at short-term rates, and lend them out at longer-term rates.
Higher 10-year yields also augur well for higher future economic growth and inflation rates.
Trump’s victory increased the likelihood of fiscal spending initiatives that will boost economic growth.
David Berman (Nov. 15/16, The Globe and Mail)… The Trump administration is expected to relax bank regulations and drive up inflation and bond yields, which can make bank loans more profitable.
Tim Shufelt (January 9/17, The Globe and Mail)… It could be said that American banks are that component of the market that are set to benefit the most from Mr. Trump’s policy agenda.
Rising interest rates, fewer regulations, and lower taxes could together disproportionately boost bank profits.
And, if the new administration’s policies mean improving business and consumer confidence, that could result in more borrowing – and spending (think my Visa stock pick).
The KBW Nasdaq Bank Index has risen 23 percent since the vote. The rise may be a sign of bigger profits ahead, should the Federal Reserve continue on its path of hiking rates further.
Analysts at Royal Bank of Canada concluded that some U.S. banks would be beneficiaries of rising rates:
Bank of America (BAC)
Citizens Financial Group (CFG)
JP Morgan Chase (JPM)
Regions Financial (RF)
Hamilton Capital likes:
First Republic Bank (FRC)
SVB Financial Group (SIVB)
Western Alliance Bancorp (WAL)
As you can see, there is a lot of interest in U.S. banks for reasons stated. But the portfolio managers at Hamilton Capital prefer Canadian banks.
They expect them to outgrow the U.S. mega-giants, in absence of material differences in either GDP growth rates and/or central bank policy.
I especially like Toronto-Dominion (TD.TO or just TD). It has a lot of U.S. exposure.
According to the Credit Suisse Global Investment yearbook, Canadian stocks have delivered better long-term results than the world average during the past 115 years.
(Info via Larry MacDonald, Jan. 14/17, The Globe and Mail)
As previously stated, since 1900, Canadian stocks have delivered a real return of 5.6 percent a year, as per the Credit Suisse Globe Investments Returns Yearbook.
Over the same 116 years, this approximates the 6.4 percent real return of U.S. stocks.
The U.S. percentage is similar to the real return of 6.6 percent for U.S. stocks from 1802 to 2012.
Momentum: Looks at the market’s current price relative to a multiday trailing average
A ratio greater than one indicates that the market is probably going up, and vice versa.
In theory, the higher that ratio, the stronger the prediction.
Let’s take Friday, January 6/17, for example.
The $SPX S&P 500 Large Cap Index INDX closed at 2276.98. Its 200-day exponential moving average closed at 2147.08.
The resulting ratio of 1.06 is suggestive of a modest bullish signal. This is up from 1.05 December 28/16.
This is a great tool if you are curious as to where the market will be in a year’s time.
The only caveat is that it does not predict turns in the market.
(Info via Nir Kaissar, Dec. 28/16, The Globe and Mail)
In industry speak, ‘Hotel Californias’ (echoing the Eagles’ lyrics) are investments where liquidity dries up. “You can check out any time, but you can never leave,” as the song goes.
What is inferred is that, when trouble starts and liquidity dissipates, investors can try to sell all they want, but their trades may not take until a much lower price is reached.
(Info via Scott Barlow, May 289/15, The Globe and Mail)
Not to worry in the forex market, where there is tons of liquidity – like ~US$5.3-trillion a day, every day, six days a week.
For more on how you too can participate in this dynamic market, go to Forex Wealth.
Other blog posts worthy of your attention:
I have received comments/questions from members. I will attempt to address them in upcoming blog posts. I ran out of room for this one. Thanks to those involved for your patience.
http://www.theglobeandmail.com/ – Oct. 25/16 (Reuters), Nov. 22/16 (Brian Milner), Dec. 20/22/31/2016 (Tim Shufelt, Jeffrey Jones, Ian McGugan, Thane Stenner, Norman Rothery, Larry Berman, John Heinzl), Jan. 4/17 (Katia Dmitrieva – Bloomberg News), Jan. 5/17 (Brian Milner)
“There is a tide in the affairs of men which, taken at the flood, leads on to fortune… ” Shakespeare (Translation: Take advantage of every opportunity that comes your way.)
“When you start out, you are paid to learn. Then, after about five years, you are paid for what you know. Somewhere in your thirties, you are paid for who you know.” Luis De La Torre (WilowWallStreet.com)
“Great networking isn’t about how epic and powerful you are right now. It’s about how generous you choose to be with other people each and every day. Luis De La Torre (WilowWallStreet.com)
“You miss 100 percent of the shots you don’t take.” Wayne Gretsky
“Selling is something you do FOR someone, not something you do to someone.” Zig Ziglar
“Concerning everything you do, knowledge is power, and the more you know about the task at hand, the greater your chance of success.” Jean Séguin, commercial realtor
“This is one of the most important things I learned from Warren Buffett: he thinks of cash differently than conventional investors – the optionality of cash. He considers cash a call option with no expiration date, an option on every asset class, with no strike price.” Alice Schroeder, Warren Buffett biographer
“One fake friend can do more harm than five enemies.” Anon
“List the things you want to be recognized for… take action – What steps have you taken this year that put you on track to becoming the person you envision? What steps can you still undertake?” Moorea Seal
“Professional success can emanate from affection for your craft.” Ruth Reichl
“It is my considered opinion that consistent effort is the key to entrepreneurial success. The people who ‘make it’ don’t necessarily have the best ideas or the most resources. Quite the opposite… they keep working, and making incremental improvements every day – no matter what hurdles beset them. This is what ‘true grit’ is all about. Focused learning and perseverance are the keys to achieving greatness in any endeavour. It evolves from cultivating more grit in themselves and the people around them too.” Casandra Campbell on Angela Duckworth’s book ‘Grit.’
“The path to entrepreneurship doesn’t always follow a straight line.” Lena Dunham
“Being clear about what you want in life, and controlling our emotional intelligence can get you ahead.” Kelly Cutrone
“The more specific you define your goals, the more likely you are to achieve them.” Brian Dean
“Strong in deed, gentle in manner.” Dwight D. Eisenhower
“It is important it to find things that we take pride in.” Jessica Tracy
“The ideal aim of the unsuccessful is to be normal.” Carl Jung
“Believe, as long as you have life and breath.” Mark Halperin
“This is your life. Make it what you want it to be.” Portia Gao
“Be fearful when others are greedy, and be greedy when others are fearful.” Warren Buffett
“God wants us all to be successful. If we’re not, we’ve chosen to follow the wrong set of blueprints.” Richard Tyler
That’s all there is my friend… everything you ever wanted to know about HNW individuals and their investing behaviour in a nutshell.
I offer private consulting lessons on investing and trading, which you can request here.
If forex wealth management, in the form of forex managed accounts, is of interest to you, that can be had at Tallinex.
I trust that you found the information in this blog post – Awesome! HNW: No. 1 Wealth Warriors – to be instructive. More blog posts on investing considerations are coming in the future.
If you need clarification on anything in this blog post, please let me know at the Contact link.
If you haven’t yet read my previous blog posts, here they are:
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HAVE FUN and ENJOY LIFE! Remember – FAMILY comes first!
Here’s To Your Success and Quality of Life,
Peter R. Bain
PS: Don’t let them steal your dreams!
PPS: I will help you achieve your dreams!
About Peter R. Bain
Peter R. Bain
I am a speaker, trader, writer, aviator, car nut, Harley enthusiast but, above all else, I am here for you at TradingSmarts, which I founded some 15 years ago.
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