November 4, 2008


Dear Reader,

In October, the market again experienced very high volatility. There was nowhere to hide, as all markets around the world were affected. We believe that some stability will gradually return to the markets as the uncertainty over the US election is already behind us.

Our next InvestWELL Report will be released on December 6, 2008 .
(following the Labor Report which is generally recognized as a "market mover").

Derek Polcyn,
President

In This Issue:
Investment Idea
Quiz
Our Results
Market Highlights
Behavioral Finance Indicators
Answer to the Quiz

Investment Idea

Question:
What is the meaning of "no load" in mutual funds?

Answer:
A mutual fund in which shares are sold without a commission or sales charge. The reason for this is that the shares are distributed directly by the investment company, instead of going through an intermediary. The research has shown that no-load funds outperform load funds since they cost less to hold.

Quiz

What is the main reason why load funds continue to exist?

A) Brokers promote them to earn commission
B) They are good at reducing risks
C) They tend to outperform the market
D) They are not well understood by the public

Answer to the Quiz at the bottom of the newsletter

Our Results (Cumulative %)

Investment Strategy

InvestWELL Picks has declined along with the general market.  Yet, it maintains its impressive outperformance due to a large percentage of cash holdings (as defined by S&P 500 index.)

Chart 1.

Market Highlights

• During the last month, the US equity market had trouble finding directions while the volatility has continued (Chart 2 & 3). We believe the market will become more stable as the issue of the US election has been settled.
  
  

Charts 2 & 3. S&P 500: 3 Years and Last Month


Charts courtesy of StockCharts.com

• During the last month, the Canadian market lacked direction as much as its US counterpart (Charts 4 & 5). In addition, the Canadian market has been negatively affected by the drop in oil prices.

Charts 4 & 5. TSX Canada: 3 Years and Last Month


Charts courtesy of StockCharts.com

• Last month, the US economy lost 240K jobs while the unemployment rate jumped to 6.5%. The US employment has been hit particularly hard during the last 3 months.
  
  
• The employment in Canada had changed little in October, as an increase in full-time work was mostly offset by losses in part time. Canada's employment growth remains quite impressive given the hard times experienced by its southern neighbor.
  
  
• China has formally announced a long-anticipated stimulus package worth $586-billion US - a move that will likely be seen as a positive development by the international markets, in addition to serving as a sign that emerging markets are willing to actively fight the global financial crisis. China said it would spend the money before the end of 2010 on infrastructure and social programs, and at the same time it would loosen monetary policy.
  
  
• The auto industry posted its worst monthly U.S. sales tally in 25 years, with General Motors (GM) leading a barrage of sobering reports from carmakers. GM's 45% drop in October sales plumbed the depths of Wall Street's grim projections, while Chrysler posted a 35% decline. Furthermore, Ford (F) handed in a 30% drop, touting the launch of its new F-Series pickup as a silver lining.
  
  
• Icelandic authorities said they have taken control of Kaupthing Bank, the country's biggest lender, as a financial crisis there continues to deepen. The move by the North Atlantic country's Financial Supervisory Authority follows the decision to take control of both Landsbanki Islands and Glitnir Bank, which means Iceland's three biggest lenders are now under direct government control.
  
  
• On Thursday, mortgage lender Halifax reported after its monthly survey that British house prices continued to fall in September, with the average price down 1.3% from August and 12.4% below the level seen a year ago. Britain, like the U.S., Ireland, and Spain, is dealing with the aftermath of a housing boom that had propelled home prices sharply higher before peaking in early 2007.
  
  
• Everybody makes mistakes, even Alan Greenspan. Greenspan appears to believe his big mistake was that he believed in the corrective power of self-interest in the marketplace. That belief was the keystone to his free-market ideology. Self-interest was supposed to ensure that banks and other companies didn't do anything that put their shareholders and their equity at risk.
  
  

Opportunities and Risks

Behavioral Finance Indicators (see explanation)

Charts 6 - 8: Advancing/Declining Line, VIX and Equity Put/Call Ratio








Charts courtesy of StockCharts.com and DecisionPoint.com

Answer to the Quiz

A is correct.
The saying goes "mutual funds are sold, not bought". Sadly, many brokers push the load funds as they earn more money in commissions. In this case, the interest of the client does not come first.

Thank you for reading InvestWELL Report.

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