Don't sell your stocks if you’re worried about a market decline

"investors are acting as if the market is perched on a knife’s edge. A recent report from the Center for Applied Research at asset management giant State Street Corp. found that investors in 16 countries around the world have increased their cash holdings over the past two years to 40 per cent, on average, from 31 per cent. Canadians were a little more adventurous than most, with a recent average cash position of 34 per cent. Considering how low returns on cash are, that’s still an exceptionally high level.

Sheryl Purdy, vice-president at Leede Financial Markets in Calgary, says she began hearing a year or so ago about brokers, who, in dealing with nervous clients, were keeping substantial parts of their portfolios in cash. This prompted her to do her own analysis of the market’s vulnerability to a pullback. Her conclusion is that anxiety about soaring stocks is driven more by jittery investors than by market fundamentals.

“I don’t think we’re in for another serious crash,” Ms. Purdy said. “I think what we’re dealing with is shell shock for a lot of clients.”

The last time the stock markets were this strong, a crash for the ages lay dead ahead.

Parallels such as this are hard to ignore, but they’re of little use in managing an investment portfolio. So stay in stocks, or at least make only modest changes to your portfolio. The market will fall at some point, but it’s pointless for most investors to try and predict when.

http://www.theglobeandmail.com/globe-investor/investment-ideas/should-you-sell-your-stocks-if-youre-worried-about-a-market-decline/article19165282/

 

Sell And May And Go Away? Maybe Not Read This...

If you didn't sell in May, stick around

42 minutes ago by Gordon Pape

Perhaps this was the year to sell in May and go away. And even though it’s June, there’s still time if that idea appeals to you.

Despite everything you’ve been reading about some indexes hitting record highs, the reality is that stock markets lack conviction and investors are confused. Many economists believe that stocks have become too expensive and that a major correction is long overdue.

But where else are you going to put your money? Government bond yields are barely outpacing inflation with the benchmark 10-year Canada paying a paltry 2.33 per cent. So-called “high interest” savings accounts aren’t even coming close to matching the 2 per cent inflation rate. As for gold, its price movements have become completely unpredictable. It goes up when it should go down and vice versa.

We’re consistently told that the global economy is gradually recovering but the evidence is hard to find. Exports continue to lag (Canada actually ran a surprise trade deficit last month), China’s financial and real estate woes are a growing concern, and in Europe fears of deflation have prompted the central back to go negative on its overnight rate.

The result is a rudderless ship with us as passengers wondering whether to hit the lifeboats or hang on and pray.

The performance of world stock markets so far this year reflects all this uncertainty. As of June 5, the closely watched Dow Jones Industrial Average was showing a year-to-date gain of only 1.6 per cent. European markets are showing the same lack of direction with the German Dow up only 1.3 per cent and the London FTSE 100 ahead about the same.

In Asia, Japan’s Nikkei Index, last year’s world leader, is down 7.4 per cent while Hong Kong’s Hang Seng is off 0.6 per cent. The Shanghai Composite is in the red by 3.5 per cent. Only India bucked the pattern with a convincing gain of 18.6 per cent for the year, fuelled largely by the election of a pro-business government there.

Canada is one of the few exceptions to the global market malaise. The S&P/TSX Composite is ahead 8.7 per cent for the year, led by a strong performance from the energy sector (+17.2 per cent) and a respectable 8.2 per cent gain by metals and mining, which last year was a black hole. But the TSX didn’t experience the explosive growth of the major U.S. indexes in recent years and we’re still a long way from catching up. Over the three years to June 5, the TSX gained only 11.1 per cent according to GlobeinvestorGold.com. The S&P 500, by contrast, was up 50.9 per cent.

At the start of the year, I believed we would see a significant correction of 10 per cent+ before summer, followed by a rebound in the fall as the economic outlook for 2015 and beyond improved. But here we are only a couple of weeks away from the summer solstice and the correction has yet to happen.

What now appears more likely is that the ship will continue to wallow for the next few months as investors wait for some clearer direction on where the global economy is going. We could still see that 10 per cent correction but barring some major geopolitical development a return to a bear market (a drop of 20 per cent or more) looks unlikely. Equally unlikely is a surge in stock prices such as we enjoyed in 2013. That optimism was premature and the stagnant markets we are now experiencing is the price we are paying.

So do you sell or stay? If your portfolio is mainly composed of sound, dividend-paying stocks, my advice is to stick it out. Go to the cottage, collect your quarterly dividends, and relax. The markets aren’t likely to do anything dramatic while you’re sipping your beer by the lake.

Gordon Pape’s new book, RRSPs: The Ultimate Wealth Builder, is now available in both paperback and Kindle editions.

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