Determining your "personal profile"

What You Have

"Equities" is really another term for stocks, and for our purposes, when I use the term "market(s)", I am referring to the equity/stock market(s).

In order to maximize your investment returns while minimizing the risk, there are two key elements to consider when investing in the market; namely, the Market Profile, and the individual investments.

Simply, we define Fixed Income as those investments that are designated to give your portfolio as much income as possible with little (or no) fluctuation in price. Typically this would include bonds (government, and top quality corporate), preferred shares, and money market funds.

We also provide some alternatives to the above noted products assuming they make sense for you.

First of all, it is crucial to know what market 'profile' we are experiencing. Are we in a BULL market, a SIDEWAYS market, or a BEAR market?

The market profile dictates our investment approach as each profile requires its own strategy

Bull Market

This market profile is characterized by a broad and continuous rise in stock prices for extended periods of time (typically 6 to 18 months). Choosing the right stocks, while still important, is not nearly as important as just being there (invested). Here, the most effective strategy is to 'buy and hold'.

When I first started in the industry I had a mentor who used the expression, "When the wind blows, even turkeys can fly"

We, the turkeys, love it when the wind blows!

Sideways Market

The sideways market typically cycles up and down without really going anywhere. This pattern can continue for quite some time (6 months to 3 years). It can be caused either by individual sectors moving conversely (eg. the financial sector is rising while the gold sector is dropping), or stocks in general are rising and falling due to a lack of economic 'drive'.

Here, generally, the 'buy and hold' strategy is not effective since most gains are lost during the retrenchment phase. Instead, the more effective approach is to be active. Although some use the expression 'trading', we prefer to say that we take advantage of intermediate lows (to buy) and intermediate highs (to sell).

This strategy requires patience and discipline, but when effected properly, it can take a relatively non-descript return and enhance it tremendously.

Bear Market

This type of market tends to drop broadly and severely for an extended period of time (typically 6 months to a year).

While considered the nastiest and most feared, as this is when stocks tend to lose much of their value, the bear market also has a cleansing effect. If you are positioned properly (in cash or equivalents), the bear market actually sets up a glorious investment opportunity.

The Challenge


While simply said, actually pulling this off is extremely difficult. Why?


The 'herd' mentality creates a huge wave that has an explosive effect (both on the upside and downside) on stock markets. Most of the herd is either in the middle or at the rear of this wave, which ultimately means that investors are buying high and selling low. The challenge therefore is to get ahead of the wave - buying when the masses are selling, and selling when the masses are buying!

A story I heard (perhaps an urban myth) describes a pig farmer who had made it rich in the stock market. A simple man, it seemed incredulous that he could outsmart the market. When questioned on his strategy, he replied, "Simple. I never read any newspapers, but what I do is read the headlines. When I see on the front page, the headline reads, "Markets In Free Fall, Investors Heading For The Hills", I get in my truck, head into Houston and I buy. When I read, "Markets Hit Record Highs Again, Nothing But Good News For The Foreseeable Future!", I get in my truck, head into Houston, and I sell.

Although this might seem a little simplistic, the point is clear. We tend to get TOO emotionally attached to our investments, and we lose sight of the big picture.

Everyday, our team meets and we always start with a look at the BIG PICTURE.

We take a relatively simple view when looking at what to buy. We choose a basket of top quality stocks (typically TSX 60), and use a mixture of 3 screening processes to decide which to buy and when.

We divide the basket into two main categories namely; CORE, and EXPLORE.

Core Stocks

We define core stocks (or core holdings) as stocks that are blue chip, defensive, and have very little downside risk. In other words, although they may fluctuate in price, the company itself is very stable, and has virtually no chance of any corporate 'funny business' (which seems to be rampant in many companies).

They pay good dividends, and when we buy these companies, we tend to hold them for a long time.

Explore Stocks

Explore Stocks (which can also include the core stocks) are stocks that we tend to trade. These are still very good (or core quality) companies. Here we are looking more to take advantage of shorter term opportunities which arise for various reasons. Again, most of these stocks are part of the TSX 60 and pay dividends, but they are less defensive and therefore are less attractive to us in terms of holding for extended periods of time.

Bottom Line: We are always trying to protect our downside. If we get caught holding a core stock during a bear phase, between the dividend, and its natural defensive quality, we are not worried. For this reason, we are comfortable holding them through thick and thin. The 'explore stocks' don't fit that same profile and we therefore tend to take a more nimble approach with them.