Steady as she goes

Harold Macmillan, the last of the old-line British prime ministers, used to compare politics to sailing in paper boats. I strongly suspect we are going to feel similarly about investing well before 2000 is out!

Already a palpable stock market nervousness is everywhere to behold. Take the high-flying “tel-techs” and “dot-coms” out of the indices, and the equity markets are dragging their heels all the more. In their present moods, they are also markets not prepared to take any prisoners. Fall even a whisker short of expectations and share price comes crashing down, often bringing other stocks in the same sector down with them.

Hi-tech wreck?
The Internet may be the phenomenon of our lifetimes, but the realization grows that the myriad of companies it is spawning cannot all survive, let alone turn out to be good investments justifying the huge — often preposterous — market capitalizations that are being placed upon them. Does a “tech wreck” lie ahead? It wouldn’t surprise me.

Why, you might well ask, do we need any of this aggravation or market angst at our stage? Because, never forget that we are long-term investors needing to boost ouincomes, grow our resources and plan ahead for that ultimate hand-over to our beneficiaries — all the while heading off Revenue Canada as best as possible. In addition, we have still-to-be-realized plans and dreams that successful investing will help make possible, and we thrive on challenges. It’s only over the long term that well-planned investments work out best, and we must stay the course in this knowledge.

Warren Buffett, Fortune Magazine’s “investor of the century”, keeps emphazing “time in” the markets rather than “timing” the markets. Heeding his sage advice, let’s stay fully committed to strategies built on proper positioning and the attendant golden rules of balance and diversification. In practical terms this will mean the periodic re-balancing of portfolios that market volatility may have been thrown out of alignment, implementing carefully-designed individual strategies, and looking to take advantage of the manifold investment opportunities that market turbulence always brings.

For example, when the inevitable further interest rate hikes impact on bond prices, why not fill in the ladder of maturities that the fixed-income section of all portfolios should have with good-quality bonds (we definitely don’t need credit risk our stage) whose yields will be all the more attractive on an inflation-adjusted (i.e. real return) basis? Similarly, why not look for additional yield pick-up among preferred shares where there is also the benefit of an accompanying dividend tax credit? The same applies to blue-chip common shares with dividends that are bound to rise over time — you’d be surprised at the number that have already been pulled back to levels providing attractive yields (plus tax credits).