The more things change, the more they stay the same. Southern Alberta finally gets summer

in late September and early October, and the historically worst calendar month for U.S. equity

markets- September - turns in its best performance since 1939. In our August 15th, 2010

edition of Views from the Crows Nest we were buckling up for a rocky ride in the 9 month,

though we did acknowledge the possibility of several rallies. Markets have an innate ability to

find ways to hurt most investors most of the time, leaving many people scratching their heads.

We are always happy to be wrong when it means that things get better for our clients.

In classically unpredictable fashion, markets once again ignored the soft economic data, choosing instead to take comfort in the fact that the rate of softening had slowed, not that the facts are getting much better. Hedge fund manager David Yetter captured the essence of current market sentiment when he told CNBC (your editor's paraphrasing) "If the data gets better the equity markets will do well; if the data gets worse the Federal Reserve will step in with Quantitative Easing and the equity markets will rise...so either way you should be in equities." There are myriad problems with this view longer term but for now he appears to be spot on with his assessment. Market sentiment is as fickle as Calgary weather and my putting.

Suspension of Reality. It's been said that if the world were logical, men -not women- would ride horses "side-saddle" style. Alas, the world is frequently illogical, and the markets are an example of humans at their most irrational. A small but influential group of traders (mostly hedge fund managers and computer-driven algorithmic types) have bought in heavily in recent weeks, causing the rational folks to temporarily suspend their knowledge of the world's truly fragile economic reality. Reality check: can the Federal Reserve and/or the Federal Government (in any country) really fix what ails our economy with various magic wands like Quantitative Easing, Infrastructure Stimulus, Wall Street bail-outs, etc.? The inescapable consequences of accelerating such marginally-effective policies are severe, but no one seems to care for the time being. All of the fundamental risks previously described herein still exist and new ones are emerging. These risks will eventually get priced into the markets, but our managers recognized weeks ago that sentiment has changed, so they've already adapted their tactics.

Year End Rally? The current bullish sentiment doesn't mean that we'll witness a vertical rise without pullbacks, but as long as this sentiment is winning out, the pullbacks should be relatively minor. The approaching U.S. mid-term elections could trigger such a pullback over the coming weeks, but perhaps the currently polling suggesting the Republicans will win control of the House will reduce the severity of such a pullback. The markets do need a rest on their upward journey, and such pauses create opportunities for our portfolio managers to tactically add equity exposure. Given our managers' Fiduciary Duty to clients, they lean toward caution rather than speculation, steadfastly maintain their discipline of process, and wait patiently for the next opportunity to arise. Our managers practice the philosophy of selective exposure to market risk based on a deep respect for clients' money. They understand that investment portfolios under their care are not just numbers...they are the fruits of our labour and the foundation of our financial independence. That's also why our managers (and we) invest in the same portfolios we recommend for clients. For now, the inmates are running the asylum, so our managers have adapted by joining the party, while soberly observing who's draining the punch bowl. They remain on alert for when "Old Man Reality" sneaks in to remove the punch bowl and turn up the lights.

Limitations and Priorities. One of the limitations of a bi-monthly newsletter is that market conditions change so quickly that our portfolio managers may have changed gears and/or direction several times between publications. This gives rise to two points; firstly, we've decided to reduce the length of each issue of Views from the Crows Nest and increase the publication frequency to monthly. Secondly, what matters most for clients is how our portfolio managers adapt to ever-changing conditions. The real-time adaptability of our chosen portfolio managers is one of our true competitive advantages.

Beautiful Lies. From time to time the financial industry promotes certain partial truths to placate or distract investors away from the true big picture. The "beautiful lie du jour" is that investors should focus almost exclusively on investments which provide yield. What is constantly ignored is the fact that an obsession with yield/income creates an unintended consequence: significant risk to portfolio stability. How happy would you be if you were over-concentrated in dividend-paying sectors in the pursuit of a 3 to 4% annual yield? You'd be happy IF the overall portfolio value were rising. Conversely, you'd be very unhappy if your accounts fell by 50% during a financial crisis, which the Canadian banks did 2 years ago.  I'm not "anti-dividends" but merely want to emphasize that in my experience, clients are (or should be) most concerned with overall portfolio stability and return rather than just the yield. Dividends, interest and capital gains/losses all contribute to a portfolio's bottom line. In addition, taxation of capital gains is usually more favourable than dividends, unless you have no other form of income.

Focusing on the Important. I've often quipped that the only people with shorter memories than voters are investors, unless there is an election soon. Humans have a habit of becoming distracted from the big picture, focusing on the urgent rather than the important. With the technology revolution permeating every aspect of modern life, humans have regressed to have the collective attention span of hummingbirds. The current hyper-focus on dividend-paying sectors is just the latest side show distracting investors from looking seriously at their own individual big picture, which is most important to each of us.

Your Big Picture. So, what does focusing on your family's big picture look like? It involves intelligent planning for the present and the future, with lessons learned form the past-where we should not dwell. In its simplest form, planning is about honestly assessing where we are, where we want to be, and then doing what it takes to fill the gap. Filling this gap happens over time, with many variables shifting along the way, and this requires ongoing management. But first, one needs to contemplate the principals behind all those other decisions. For example, what are the values, beliefs and priorities in your life, both individually and as a family? That's a big question, with no quick answers, unless you''ve already taken the time to contemplate them, which most people have not. It's a;sp an incredibly important questions because the answers will form the basis of your personal plan: your Life Goals.

Your Health and Your Wealth. Most people agree with the adage "if you have your health you have everything." We'll all eventually lose our health, but few people actually plan for the effects of changing health, particularly due to Aging. These effects include the potential for significant family conflict, caregiver burnout, unnecessary legal costs and complexity, and reactive housing transitions. denying the issues doesn't make them go away, it worsens them.

Our firm's philosophy is to proactively address foreseeable risks, so we are pleased to present our 35th Continuing Education Series workshop in Calgary on Wednesday November 3rd at 7:30pm. "Health, Wealth and Aging" will be taught by Janet Bullard and Greg Pearson, both experienced educators on the challenges of understanding and navigating our healthcare system related to our aging population. Whether you are currently dealing with the challenges of caring for Aging Parents or simply want to prepare your own household for these inevitable changes, you will definitely benefit from attending this free event.

Fear and greed are destructive to your financial wealth and mental health. Patience and discipline are the hallmarks of prudence and wealth preservation. Feel free to contact us at 403-517-2234 or andrew@integratedwealthmanagement.ca

If you're not already a member of our Client Family and are curious about how we might be able to serve your family, please call us at 403-517-2234 or click here: andrew@integratedwealthmanagement.ca

Cheers,  

Andrew H. Ruhland, CFP, CSA

Wealth Management Advisor

President, Integrated Wealth Management Inc.