Friday, June 5, 2009

How to Make 50% Returns In The Market - Update

Every now and then, it's important to reflect back upon past stories and predictions. In looking back six months, I came across something of great interest.

Let's flash back to Dec 4, 2008 in the pages of this blog.

Obviously, yours truly has suffered some form of a stroke or other mental disorder. The above statements tend to bring to mind the infomercials you see on BNN that show everyday investors how to time and beat the market. It always amazes me how many people get duped into buying these - makes you wonder why true professionals (fund managers/economists) ignore them.

George Vasic, strategist and chief economist at UBS believes that the Toronto Stock Market will hit 12,500 in 2009. That's a 54% increase over current values. Now, who the heck is George Vasic you may ask. George Vasic is the Equity Strategist and Chief Economist for UBS Securities Canada Inc. In this capacity he is responsible for the Canadian market and economic outlook, sector rotation and asset mix recommendations. He has consistently ranked in the top 5 in both the strategy and economics categories, has won several awards for forecast accuracy, is widely quoted in the media, and for five years was a contributing editor to Canadian Business magazine.

Obviously, Mr. Vasic made this rather bold statement due to his lack of knowledge, or because he wants the entire business community to perceive him as having gone off the deep end. He wouldn't actually say something like that because of a deep-seated belief that things are ripe for a quick turnaround now would he? More and more people "in the know" are pointing to a bottoming for the market, and if you would harken back to past blogs, you would see the date December 4, 2008 as a predicted market bottom from yours truly (courtesy of the work of very smart people). We will see how accurate these forecasts are over the coming weeks.

Has his opinion changed over the past six months - not really. In mid-May, he reduced his forecast slightly to 12,000 points
, but that still represents a 50% increase from where we were. How accurate was his prediction? Well over the past six months, the TSX has risen, fallen and risen again - to it's now lofty 10,470. How much is that you may ask? That change represents an increase of 29% so far. Could we actually expect to see another 21% increase over the coming 6 months? Remains to be seen, but so far, he has been right on target.

Last December, most of the world was in a panic, watching their investment values tumble and hearing nothing but more bad news. When I originally penned this blog entry, I did so for one simple reason. I wanted people to realize that things would turn around and markets would recover. Markets are cyclical in nature. As has happened before, and will happen again, markets declined and then markets rose.

As more companies complete the painful process of cutting and gutting, a new economy will begin to emerge. New alliances will be formed, big companies will continue to gobble up their smaller counterparts (making some people very rich), and eventually this will all come to an end. In that same December column, I asked whether people would change their investment patterns (RRSP) for the future. Some said no, but several said yes. They were afraid because of what had happened without realizing that this was nothing new. Was a market recovery a great surprise to your truly? Not at all. I not only knew it would happen but simply wondered when and how much. The when seems to have already been answered. The question of how much remains to be seen.

Stay Well and Pay It Forward.

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