January 2000
No offense hockey fans, but this is not another eulogy to Wayne Gretzky. The ’99 I am referring to is this second last year of the century, the prelude to Y2K. By all accounts, it has been a quirky year for financial markets. Before saying goodbye, I thought it worthwhile to comment on some of the year’s developments.
The stock market – a year in perspective?
At the outset of the year, we were still reeling from the effects of the Asian flu. It may only be a distant memory now, but the crisis had seriously spooked financial markets across the globe. Canada was particularly hard hit. Our benchmark index, the TSE 300 had fallen close to 28% from its last high set in April 1998. It was only in November this year, that the TSE 300 finally recaptured that high set more than a year and a half earlier.
It is now December 11 and the index has just hit a new record for a total return year to date of over 22%. So we’re finally back to making money in the Canadian stock market – or are we? The truth is the advance of the index this year has been led by just a handful of companies, while the market as a whole continues to lag.
There was a rally in the resource sector, in the first half of the year. But, the story of 1999 is really tied to the fortunes of a few technology-driven businesses – in particular, Nortel Networks Corp. and BCE Inc. These two companies now make up a whopping 23% of the total index. Their meteoric rise accounts for more than two thirds of the index’s advance this year! In fact, the returns of the TSE 300 have been so skewed by these two technology heavyweights that analysts are now questioning the index’s relevance as a measure of overall stock market performance.
The situation south of the border, has been much the same, although less pronounced. Growth in the stock market indices has been dominated by a handful of technology companies that now fetch astronomically high valuations, while the Coca-Cola’s and the Walt Disney’s languish.
Today’s National Post carries the headline, “Is Warren Buffet yesterday’s man?”. For those who do not recognize the name, Buffet – also known as the Oracle of Omaha – is recognized as this century’s most successful investor – he’s certainly the richest. His disciplined style of value investing has generated an average annual return over the past 30 years of almost 25%. But this year, his holding company Berkshire Hathaway Inc. has turned in a disappointing loss of 21% compared to the 16.7% advance of the S&P 500 index.
Buffet has always maintained that he will only invest in companies that he understands. Information technology businesses have not been among them. Does that mean he is washed up? Time will only tell. But as the Oracle himself likes to point out, there have been two other revolutions of the 20th century – automobiles and aviation – both of which have been long term busts from an investment perspective.
Despite what current events might suggest, discipline is still the key to successful investing. Once this technology craze runs its course, my hunch is we will all wonder how we ever doubted the Oracle of Omaha. In the meantime, there is still lots of value in this lop-sided market – particularly here in Canada where valuations in some sectors are at all time lows. So if some of your funds are underperforming the market now – wait! Be patient. Good value doesn’t go unnoticed forever.
That pesky Y2K bug?
No doubt, this New Year’s Eve will be an exciting one as we all hold our breath waiting to see what damage Y2K may or may not wreak on our computer-dependent lives. We’ll only know the full answer several months into the new year – the good news is even the darkest of the original doomsayers are now sounding relatively cheerful. Y2K, once a killer bee is now nothing more than a pesky mosquito.
By now you should have received letters from all the fund companies you invest with. The message is clear. All systems are Y2K compliant. I have tested my own computer set-up and it is fully immunized. You can rest assured your investment accounts are safe from the bug, but if you have any concerns at all, please call me. I will be available throughout most of the holidays and into the new year- that is if my telephone is working (just kidding!)
A new web site?
From a personal perspective, one of the year’s most exciting developments has been the launch of my own web site. I was hoping to have the French version up and running by now, but that will have to be a project for the new year. If you are on the internet, why not come and pay me a visit? I would be delighted to receive your comments: www.sarafinance.com
Best wishes to you all in the Holiday Season !
P.S. I would like to extend a special word of gratitude to Cynthia Morris, Gaston Pelletier, Jeanne Dancette and Eisha Marjara for their contributions to the web site. I can’t tell you how much I appreciate the gesture as I do all the tremendous encouragement I have received from so many of you over the course of the year. All businesses must grow and mine is no exception. Without the referrals of your friends and family, it would be really tough. Thank you!
