Winners and Losers

Who were the winners and losers of the recent decline in the TSX

It was a gut-wrenching experience to watch 60 per cent of his net worth disappear in six months.

He did not know if it was better to cut his losses then, or try to ride out the storm.

But Dan Andrews had one word to describe his recent experience in the market: “nasty.”

It was eight years ago that Andrews realized he had to start being more aggressive with his finances. “People throw there money into a RRSP at a bank and will only ever achieve the privilege of being heavily taxed. I realized I was becoming one of these people and decided that needed to change,” Andrews said.

President of mechanical engineering company DCA, Andrews foresaw the decline in the market over a year ago.

“It was a no-brainer that the TSX was going to decline,” Andrews said. “However not even the most bearish predictions thought it would fall this much. How fast the decline happened was also a real stunner.”

Recent times have been tough for Andrews but he said that the key right now is not to panic. “It may take a couple years but I will be back where I started.”

Like Andrews, University of Windsor law student Steven Toman also felt the brunt of the market decline. Toman’s tuition savings were tied up in a couple stocks that declined rapidly in the summer months.

“I got slaughtered in July, just when I was hoping to sell and use the money for school,” said Toman with a sarcastic chuckle.

Unlike other investors who were able to hold onto their investments and ride out the storm, Toman needed to sell to pay his tuition.

“I lost about half of my investment, but the stocks ended up declining even
more after I had sold,” Toman said.

But not everyone suffered in the declining market. Some even made money. Lots of money.

Joshua Davis, an investor who first got into the market last year with $2,000, proved there is always a bull market somewhere.

“I gained $30,000 purchasing put options and using some good strategy,” Davis said.

Another Toronto-based investor, Chad Dale, managed to increase his portfolio value by 50 per cent over the last year.

“My strategy was to short several different sectors, and a couple specific stocks,” Dale said.
Dale was able to short sectors such as the financials with the foresight that their stock prices were overvalued and would eventually decline.

“Historically stocks on the TSX have traded around 14 times earnings, but before the decline this had ballooned to 21 or 22 times earnings, so the market decline was to be expected,” Dale said.

Similarly, Brian McNamara, an investor on the TSX increased his position by 23 per cent this year. McNamara was able to separate the decline in the TSX with a decline in his wallet by foreseeing what he called obvious signs that the market was headed for trouble.

“By June, the market had risen 20 per cent from its lows in January,‚Äù McNamara said.

“That kind of momentum is not sustainable. Secondly, it was the start of summer, which is a time when traders generally sell off their positions and take a vacation.”

All these investors agreed that although the market has been in decline for the last few months, it seems to have hit a bottom, and now would be a good time to start cautiously investing.

“There are bargains galore on the TSX right now,” said Andrews excitedly. “Panic has lowered the price of all shares, but try to invest in companies that will not be severely affected by a recession.”

Dale said now is a good time to try to invest as the market is likely to go up. “I managed to gain another 15 per cent in the last two weeks by riding the TSX rally around the Thanksgiving weekend.”

Davis, who is seeking investor money, thinks his approach is the lowest risk and highest yielding method of jumping into the market.

“My financial company utilizes low risk high liquidity products, and we are giving seven per cent per year secured returns on investments of $100,000 or more,” Davis said.

While, not everyone can hand over $100,000 to an investment firm, many can start with a small initial investment such as Davis’s original $2,000 investment.

Clearly, investing is a risk, and the market can sometimes be downright “nasty”. All investors have been winners and losers at some point. New investors need to understand it is important to do your homework on your investments, and only invest money you can afford to loose.

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Posted: Oct 26 2008 8:43 am
Filed under: Features