Marco's Musings:
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Dateline: 09/02/97
Occasionally my weekly column here will be a pot pourri of short comments on recent news and other miscellany. These will be titled Marco's Musings and subtitled with the lead off commentary.
Need Only the Rich Get Richer?
Saturday's newspaper brought news that the main benefiiaries of the current boom market have been the rich. So says a study prepared for the Toronto Stock Exchange.
The study showed that only 37% of Canadian adults owned shares directly or indirectly through mutual funds. This is a huge increase from the 23% recorded in 1989, nevertheless, 63% of adult Canadians are not investing.
A Price Waterhouse study done last year showed that 74% of adults do not own any mutual funds at all. When asked why they don't invest, people said they didn't have any money to invest or that they thought it was for the wealthy.
By income category, only 8% of households making under $25,000 a year own shares. 34% of households making $25-50,000, 54% of households making $50-75,000, 75% of households making $75-100,000, and 70% of households with incomes over $100,000.
It's noteworthy though, that there are some among the poorest in society who still manage to squirrel away some savings. It brings to mind the lesson taught to Arkad by his mentor Algamash in The Richest Man in Babylon, "A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn."
The amazing thing is that once you start putting aside ten percent of your income to savings, you don't notice it missing. A person earning $25,000 a year would net about $18,000 after taxes, or $1500 a month. He or she should save $150 a month or about $35 a week. It might be tough, but one can do it if one is determined enough. For the smoker, it might mean giving up smoking. For the barfly it might mean giving up a few brewskies. For the rest it might mean shopping more carefully, avoiding unnecessary luxuries and so on.
So while the TSE study may indeed show that the rich are getting richer, there is no reason a determined person of any level of income cannot save and create wealth for him or herself. "Pay yourself first."
Of Bulls & Bears
I have to laugh at all the flap in the media and among the pundits about the current bull market and the possible coming of a bear market. The financial columnist in our daily newspaper wrote that he has bailed out of equity funds and into money market funds.
And yet, that same newspaper has twice in the last few weeks printed a short blurb headlined "Market Timing? Forget It." The article quotes Eric Grove of the AGF Group of Funds with the advice that "It's more important being in the market when it's at or near its top, rather than being out of it at its bottom, with the hope of the market falling further and getting back in later."
Warren Buffett says he never pays attention to the stock market or to the economy. He doesn't care whether its a bull market or a bear market, whether we are in a boom or a recession. He buys a company (or its stock) based on the facts relating to that company. He doesn't sell because the market is up if the company is still a sound and growing company. Nor does he sell on a temporary downturn.
How can one apply this attitude and approach to mutual funds? Buy on the basis of the Fund's management philosophy (value investing) and/or diversify your holdings with some hedge positions, perhaps some sector funds, or foreign funds. Of course, performance history is a big factor to consider.
Then hold on for the long run. I have to admit, though, that I am curious about the possibilty of market timing mutual funds. It would be great to be in funds when they are advancing and out when they are declining. But until I can come up with a workable system, I'll stick to buy and hold, thank you very much.
I'll have more to say about market timing and mutual funds in later columns. I also have a few things to say about "doom and gloomers", who have never done me much good following their advice.
Don Reed of Templeton to be on "Wall Street Week"
Donald Reed, President & CEO of Templeton Management Limited and who manages the Templeton International Stock Fund and the Templeton Treasury Bill Fund will appear on Wall Street Week with Louis Rukeyser on Friday September 5th at 8:30 PM on most stations. The show is often repeated on the weekends. Check your local listings for times.