Market Timing

From the Hoss's Mouth

Market timing, in the opinion of Hoss Cents Free Financial Money Magazine, is no different than betting on the horse races. It’s a gamble no matter how you look at it. What is Market timing? It is a strategy used by investors or money managers of making buy or sell decisions of financial assets by attempting to predict when the market will change course.




Horse players, when attempting to predict winners, will review all available data for all the horses in a particular race. They look at many variables such as the horse's win percentage, ability at the distance and weight it will carry in today's race. Some even develop computer programs to calculate all the variables and predict a winner.





Sound familiar? Market timers also use data, only their data is of an economic nature, found in the Wall Street Journal or similar publication, or on the Internet. Market volume, price to earning ratios and cash flow are just a few of the many variables they use to predict stock market fluctuations. Some market timers even develop (yes, you guessed it) computer models which employ technical and/or fundamental analysis for predicting changes in the stock market.
Now for the main and perhaps most important similarity between horse players and market timers: there are more losers than winners. Just in case you missed it, I repeat, there are more losers than winners.

This is not just the opinion of the Hoss. Most reliable studies of market timing demonstrate that market timing usually results in reduced returns. For example, The Hoss refers you to the following two studies: Determinants of Portfolio Performance by Gary Brinson and Investment Policy by Charles Ellis, both of which concluded market timing did not result in improved returns.

If Market timing was the only investment avenue available, The Hoss would rather enjoy a day at the races than waste his money on market timing.


Stay on track,

The Hoss


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Green Mutual Fund Investing

From The Hoss's Mouth

Today, Hoss Cents Free Financial Money Magazine discusses Green Mutual Fund Investing.

There are many mutual funds that are called green, ethical, socially responsible, or that support a clean environment. In many cases a close look at their investment portfolio will reveal investments in companies one would not normally consider "Green." Why then do they bill themselves as a green mutual fund? Because they invest in companies that have socially responsible business practices. A simplified prospectus of such funds would state that the fund invests primarily in companies that:

• show leadership in environmental practices

• are committed to complying with environmental regulations

• respect workers' rights

• encourage equal employment opportunities

• adhere to strong corporate governance practices

• do not support the acts of repressive regimes

Further, the prospectus may also detail companies whose securities the fund intends to avoid because they produce, promote or distribute:

• alcohol

• tobacco

• gaming

• military weapons

• pornography

Did you notice the use of the word primarily rather than exclusively and intends rather than will. The Hoss is not trying to criticize these funds, many of which are managed expertly by environmentally conscious people, and have a relatively high exposure in green. He is pointing out that to find a stand-alone or purely Green Mutual Fund will require close scrutiny of the fund's prospectus and of the companies it holds in the fund.

If the investing public demands purely Green Mutual Funds, then we will see the development of such funds alongside the current socially responsible green mutual funds.

Stay on track,

The Hoss

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Exchange-Traded Funds and Segregated Funds

From The Hoss's Mouth

Exchange-traded funds and segregated funds are the topic of today's Hoss Cents Free Financial Money Magazine post. The first to enter the starting gate will be:

Exchange-Traded Fund (ETF): A fund that trades on a stock exchange and holds the same mix as a stock or bond market index. Some ETFs are actively managed more than others but they usually follow a stock market or bond market index. Just like a mutual fund, your profits are a trifecta made up from earned interest, dividends and/or capital gains. When you sell your units or shares, you will have a further capital gain or loss depending on the selling price as compared to your purchase price.

When you purchase or sell units or shares of an ETF you will pay a commission. Management fess and operating costs are the responsibility of the fund. As with other fund types, the risk is dependent on the type of fund you choose to invest in.

NOTE: When an ETF manager simply follows an index, less buying, selling, and research is required by him or her, therefore an ETFs fees and expenses are frequently lower than that of a regular mutual fund.

Segregated Fund: Investment funds combined with insurance coverage. It is an insurance product. Once again you hit the trifecta: earned interest, dividends and/or capital gains are your method of profit. Capital gains or losses also occur on the sale of your units or shares. These funds have the same cost as mutual funds and they have an annual insurance cost.

Insurance companies issue segregated funds and they hold these assets separate from other assets.

Segregated funds are bought and sold under an insurance contract. In most cases, if you hold the fund for ten years, all of your investment is protected against a market down turn. They typically come with a death benefit that guarantees a certain amount to your beneficiaries.

Risk, once again, is dependent on the fund type.

The Hoss and Mrs. Hoss have scheduled some personal time, so until next post time...

Stay on track,

The Hoss

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Beginner Investing

From the Hoss's Mouth

Beginner Investing

Investing, in The Hoss's opinion, should not be considered unless or until you have:

• Eliminated debt or the debt you have is classified as good debt
  

• You and your family have established financial priorities

• Have set up a budget which provides funds for investing

Remember that old cliché: Don’t put the cart before the horse." That is exactly what you would be doing if you start investing before you have successfully completed the above steps.

If you have been reading this blog faithfully, you have already decided what you want to accomplish with your money. Now it's time to refer to your short, intermediate and long term goal lists that you established when setting your financial priorities, and decide on a beginner investing program which will assist you to achieve these financial goals. Increasing your wealth is like building a house; you start with a proper foundation. After the foundation is set, you can expand your investments.

The Hoss understands that the world of investing is indeed complex and foreign to many people. The mere though of comparing stocks, bonds, mutual funds, term deposits and the like can be as difficult as understanding the daily racing form. If you do not understand your investment choices, there are many financial advisors available to assist you with these tough decisions. My next blog will provide information that will aid you in selecting a financial advisor.

You, and/or you and your financial advisor ,will have many things to consider when creating your personal beginner investment plan:

• How much money is available for investing?

• What is your tolerance for risk: high, medium or low?

• Which investment products best suit your risk tolerance level?

• What do you know about the stock markets?

• How familiar are you with mutual funds?

• What asset mix will best achieve your financial goals?

• Will your employment income remain constant or is it subject to change?

• What is your investment time horizon?

The Hoss reminds you that you, and/or you and your financial advisor, must monitor your investment portfolio on a regular basis. When required, make adjustments to keep your portfolio in line with your beginner investment objectives.

Future posts of this blog will contain detailed information on stocks, bonds and mutual funds; what they are and how to purchase them.

Stay on track,

The Hoss

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