Don't do this

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Pay attention to what you forward

Much like the Tabloid cover, you must know the difference between fact and fiction.

 

Here is a storey that you don’t want to be on the wrong side of. I was absolutely in shock as it unravelled.

I had a call on November 11th from a person who was checking up on her advisor. This advisor found an article in an online industry publication that morning. He forwarded the whole publication to his client(s), telling her to look at the article titled: Careful: Canadian stocks near record highs.

This client knew the stock market in Canada was not near a record high on November 11th, and on top of that couldn’t figure out why such a title would be used ever. She reasoned that even if stock were near a record high, that is not enough reason on its own to be worried. “Markets are always expected to go to new highs over time” she told me. She decided to read on and then gave me a call to go over this confusing article. She had been following my blogs online and decided that I was the one to call.

The first thing I noticed was that the article in this November 11th publication was written on June 11th. Shame on the industry publication for sending this out in November. Then, as I read it over with her, I noticed more and more problems with the article. I looked at the following for July 11th, when the article was written:

  1. It referenced energy companies’ profit margins have benefited from the run-up in oil prices – oil had actually topped off at the end of June and was actually coming off at the time (already down 8%).  He was betting against the trend.  Oil ended up dropping from about $107 to $78 until November 11th, when this was published. Natural gas was falling on July 11th and was down over 28% from February.

  2. It stated that copper and gold prices had bottomed out and would boost mining revenues. Gold was also down about 25% on July 11th (33% on Nov 11), copper was down 15%, but on a mini rally at the time, and since has dropped further.

The author had an outside chance to be right on the first 2 mentioned here, as these commodities could have gone up in his mind. He was betting against the momentum though. But his reasoning for number 3 was right out of left field.

What was he thinking?

3.  He wrote the following: “Yet stocks aren’t relatively expensive, historically. The trailing price-to-earnings ratio of the S&P/TSX Composite is currently around 21, well below the high of 35.4 in 1999.” He was reasoning that just because the market’s PE ratio was 35.4 just before the tech correction of 2000, the 21 it was at the day he wrote the piece in July was not high.The accepted industry norm in PE ratios is between 12.5 and 15. I just can’t believe he wrote it, let alone the publication printed it.

I can tell you that even if this author ended up being correct over the next 5 months, it was only a guess as everything he wrote was ill-informed.

More Incredibly

What I found more incredibly upsetting was that this uninformed piece, written on July 11th and somehow published on November 11th was read by a supposed industry professional and passed on as an intelligent and timely piece to his client(s) on November 11th. I am hoping for his client’s sake that he was just sending this along unread. I shudder to think he actually read and agreed with this.

Warning

There are two warnings here:

  1. Don’t believe everything you (Client or Advisor) read just because it is in an industry publication

  2. Don’t just send along information without reading it and understanding it.

Finally

I want to thank this advisor for the new client. I can guarantee her a better thought process than she had been used to.

If you want to see what a truly independent advisor can do for you, call me at 905-846-9060, ext.3838, email me at Terry.McIntyre@manulifesecurities.ca or visit my website at www.terrymcintyre.ca.