Monday, October 13, 2008

National Do Not Call List

If, like a good many people, you are exasperated by unwanted telemarketing calls, a solution is now available. The Canadian Radio-television and Telecommunications Commission (CRTC) has established a National Do Not Call List (DNCL) ().

Since September 30, you may register your residential, wireless, fax or VoIP telephone number directly on the DNCL Web site. Your registration is valid for three years, after which you must reapply.

Thursday, October 2, 2008

Consumption of financial products: Caution!

I wish to make it clear right away that what follows strictly applies to stock market investments. According to experts, Canadian banks are strong and amounts invested in bonds, bank accounts, guaranteed investment certificates and other similar tools are safe. If you are unsure about the nature of your investment, contact your financial institution or advisor.

The purchase of financial products is a form of consumption. Today, given the recent fluctuations of financial markets I want to share with you my experience with these products.

Despite my knowledge of economics, finance and investments, I do not pretend to be a financial expert. However, my business career taught me to exercise utmost caution in the management of moneys under my responsibility. My governance principle has always been very simple: «To manage my employer’s assets as cautiously as if they were my own, perhaps even more so. » And I take great care of our assets.

Let’s go back in time. At the end of August 2008, world stocks markets had already substantially declined; this signal and others before, was a clear invitation to sell stock investments on which a fair profit had already been gained. Yet most investors, I for one, have ignored this warning, anesthetised by the gains made, amongst others from 2004 up to summer 2007’s «subprime» mortgages crisis. We were all convinced of the transient nature of the crisis and confident in an eventual recovery in medium if not the short term: it was a mistake!

Worse still, between September 15 and 29, a Monday as «black» as October 19 1987, markets have alternated between gains and setbacks; most of us still have not considered protecting our backs. Yet, the most basic investment principles advise to sell a stock investment after garnering a fair profit, many arbitrarily set at 20-25%.

During this period, I must admit, however, to have followed our investments’ evolution on a daily basis and devised an exit strategy to protect the invested capital, plus a minimum net annual return which I then set at 3%. Our financial advisor, with whom I discussed this strategy, confirmed its merits, for us anyway.

Friday September 26, I long hesitated to implement my strategy... finally deciding to wait a little; reassured by the comments of American leaders optimistic about the approval by Congress and then by the Senate, of the proposed rescue plan, I once again entertained the illusion that recovery was imminent. I also found it a pity to sacrifice the huge profits achieved... on paper.

I regretted this decision all weekend. Sunday, I decided that, whatever the vote of Congress and whatever happened on financial markets the next day, I would liquidate all our stock investments, namely rather conservative mutual funds. That's exactly what I did.

Of course, with the brutal drop of the markets, 840 points for the S&/TSF in Toronto and 777 points for the Dow Jones in New York, our investment portfolio decreased by 5.2% that day. I am nevertheless convinced that this was the right decision.

Despite the huge virtual loss, since our gains were only on paper, we managed to preserve the invested capital, our main objective; subsequent performance analysis revealed that we had even averaged a 6.2% annual gain between March 31 2003 and September 29 2008.

Since last Monday’s collapse, the markets have significantly increased on Tuesday, and then slightly decreased on Wednesday. Thursday October 2, although the Senate approved a modified rescue plan, the S&P/TSF crashed again closing down another 813 points, while the Dow Jones lost another 348 points.

Markets may increase tomorrow, or decrease again; no one knows. They will wildly fluctuate for a period impossible to foresee. They could also collapse without warning. Such a volatile context calls for the utmost caution, particularly from small investors.

I therefore urge you to make a detailed analysis of your investments with respect to their nature, their performance thus far and the invested capital. If you've turned a profit despite all the cumulative losses, perhaps it is time to cash in? If you no longer turn a profit but have not yet suffered a loss, perhaps it is time to at least preserve your invested capital? Finally, if you suffered losses, perhaps it is time to cut those losses?

Most financial advisors will disagree with me and instead advise not sell in a period such as the one we now live in. But it’s YOUR, hard-earned, money; it’s up to you to decide what to do with it.

Analyze your portfolio and markets’ outlook for recovery, assess your risk tolerance, consult with a cautious and experienced financial adviser... then decide. All I did was telling you what I decided.

Also read «Mutual funds suffer record redemptions».