MP Week In Review
Darren Pastro - Dec 20, 2018
As I sit writing this update equity investors continue to await the so-called Santa Clause rally, and with two trading days left before Christmas we see no signs of strength – in fact, this market is so weak that it cannot even muster a measly dead cat bounce. The Santa Clause rally was suggested, in fact it is always suggested, as a reason to maintain and even add equity holdings during the last month of each year. Our team was not buying the argument (we’ve been around for more than 20 years – we know that talking head narrative and historical comparisons tend to be very ineffective tools for successful investing results), as our MP Pivot model continued to suggest we maintain the cautious positioning that we have so carefully constructed since Oct 11th. So far this approach has been paying off, as witnessed by our mandate results during December which are flat, against a TSX that is down more than 6% this month and likely to trend even lower absent a rescue from Old Saint Nick. Those who believed in the power of the old guy during December have received nothing but large lumps of coal in their stockings.
In numerous discussions with clients over the years we have droned on about our philosophy of protecting capital when significant down-legs occur in the market. At the current point in time capital preservation is goal #1, #2, and #3. Nothing fancy now - although we have successfully traded some volatility units through December adding real, tangible value to portfolio results. We will maintain our extremely low equity exposures, patiently waiting and building our own investment list, until Pivot signals that it is safe to start buying high quality dividend paying stocks. Many clients have asked at what TSX level that will be – truthfully, we have no idea, and any level we suggest would be nothing but a guess. We are happy to wait out the storm.
Our wish for Christmas and the New Year would be a significant equity market drawdown given that our current positioning is set up for this result. So far in 2018 the TSX has managed to lose over 2,000 points (that’s down more than 10%). The current set up suggests to us that the New Year is likely to deliver more of the same for those who are unprepared – further loss. Remember, after a market washout the pickings are easy, and opportunities abound. The key is to get to those opportunities with your capital intact – those who get to the next up-leg with only 50% of their starting capital will not be able to take advantage, those with 95% of their capital will outperform. We are excited for the potential for future growth that we are actively building within mandates by avoiding downside.
To each and every client we wish you an excellent holiday season, and we thank you for the trust you have placed in our abilities as we eagerly await 2019.
All my best,
Darren G. Pastro, CA, CIM®
Branch Manager, Portfolio Manager | Independent Wealth Management