Surviving the Volatility

Throughout the past 3+ months this blog has repeatedly recommended caution and reducing equity positions. I have also recommended when making equity purchases, to focus on defensive stocks which provide for high dividend payouts to compensate for unpredictable capital gains. Please review how some of these and other recommendations have succeeded this past week.

• Selling into Strength: Following the big rise in New York on Monday (when Canadian markets were closed), this offered a perfect opportunity to sell early Tuesday AM into market strength. As a result, 7 of the 9 stocks I sold were above their original purchase price of the past 1-4 months. Had I not sold into strength, 8 of the 9 stocks would have ended the week below the Tuesday AM selling price. The difference was a 2.7% portfolio gain versus a 1.8% loss.
• The Importance of Dividend Paying Stocks: Over 80% or 2.2% of the 2.7% market gain I achieved on selling into strength Tuesday AM was based on dividend payouts. During periods of market instability or flat performance, dividends can provide for the gains required to insure portfolio growth. These days that can make the whole difference. Another corresponding strategy to be looked at in the future is to sell covered calls on these same stocks. This can provide for a regular flow of income without having to alter positions and trigger capital gains, losses or sales commissions.
• Watch out for Market Volatility: Try to pick stocks in the same sector that move in opposite directions. 2 weeks ago, Industrial Alliance (IAG) decreased 7.06% while Sunlife (SLF) increased 6.48%. 2 ½ weeks ago, after hitting a new 52 week low, Manulife (MFC) bounced back 12.6% from this low within a week. This week Manulife dropped 14.14% and hit another 52 week low.  Last week Brookfield Properties (BPO) neared its market top by two pennies and then dropped 8.18%. This week it dropped another 4.0%. It would appear to me that ordinary investors are losing money. This type of negative volatility has swept across most sectors.

• Hot Sector: Agriculture including Agrium (AGU), Potash (POT) & Viterra (VT). Note however that while Viterra increased 6.83% over the week, it suffered a 4.76% loss on Friday. What was hot last week gives no indication as to future performance in these volatile markets.
• Solid Stock Performers: Throughout the past 3 weeks, Suncor (SU) and Talisman (TLM) have held up well versus the rest of the energy sector. In the banking sector both National Bank (NA) and TD have survived reasonably unscathed. Be careful and lighten up equity holdings selling into strength.

Warren.