Weekly Trends

Ryan Lewenza, CFA, CMT, Private Client Strategist

What Ive Learned

After more than a decade working as a market analyst on Bay Street, and two
amazing years as the Chief Canadian Strategist for Raymond James Ltd. (RJL), it
is with mixed emotion that I am announcing that I am moving on, and starting a
new chapter in my career.

May 25, 2016

Equity Market YTD Returns (%)

S&P/TSX Comp
S&P/TSX Small Cap

I hope these final tips and insights will be of assistance as you navigate through
these challenging times. It has been my absolute pleasure in writing these
missives and providing advice and guidance over these last few years. You are
in good hands as clients of Raymond James Ltd. Thank you!

20.6

S&P 500

2.3

Russell 2000

0.4

MSCI World

While I will miss publishing these reports, supporting our great Financial
Advisors, and helping our clients navigate through these volatile markets, I am
very excited about my new role as co-Portfolio Manager (PM) for a leading
Canadian wealth management advisory practice.
In making this important career change from analyst to Financial Advisor and
PM, it forced me to take stock of my life and realize what is important. With that
in mind, I wanted to provide the key lessons that I have learned over my 18 year
career in the industry. They include: 1) going against the consensus; 2)
combining technical analysis with fundamentals; 3) controlling your emotions; 4)
focusing on the long-term; and 5) not being afraid to take a loss.

8.2

-0.5

MSCI Europe

-6.0

MSCI EAFE

-4.3

MSCI EM

-0.8
-15 -10 -5

Canadian Sector
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Technology
Materials
Communications
Utilities
Technical Considerations
S&P/TSX Composite
50-DMA
200-DMA
RSI (14-day)

10 15 20 25

TSX Weight Recommendation

6.4
Underweight
4.4
Market weight
19.8
Market weight
37.7
Market weight
0.9
Underweight
8.0
Overweight
2.9
Overweight
12.0
Market weight
5.5
Overweight
2.4
Underweight
Level
14,071.1
13,645.4
13,337.1
61.2

Reading
Uptrend
Uptrend
Neutral

16,000
15,500
15,000
14,500
14,000
13,500
13,000
12,500
12,000
11,500

S&P/TSX
50-DMA
200-DMA

11,000
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

Source: Bloomberg, Raymond James Ltd.

Sectors are based on Bloomberg classifications

Please read domestic and foreign disclosure/risk information beginning on page 4

Raymond James Ltd. 5300-40 King St W. | Toronto ON Canada M5H 3Y2.
2200-925 West Georgia Street | Vancouver BC Canada V6C 3L2.

Weekly Trends

May 25, 2016 | Page 2 of 4

What Ive Learned

After more than a decade working as a market analyst on Bay Street, and two amazing
years as the Chief Canadian Strategist for Raymond James Ltd. (RJL), it is with mixed
emotion that I am announcing that I am moving on, and starting a new chapter in my
career. While I will miss publishing these reports, supporting our great Financial
Advisors, and helping our clients navigate through these volatile markets, I am very
excited about my new role as co-Portfolio Manager (PM) for a leading Canadian
wealth management advisory practice. In making this important career change from
analyst to Financial Advisor and PM, it forced me to take stock of my life and realize
what is important. With that in mind, in this publication, my last official publication as
Chief Canadian Strategist for RJL, I wanted to provide the key lessons that I have
learned over my 18 year career in the industry. I hope you find these as useful as I
have over my many years of investing in the capital markets.
1.

Go Against The Consensus

I have learned, often the hard way, that when the consensus all believes the
same thing that more often than not, the opposite seems to occur. Now,
when my personal views align with the general consensus, I often stand back
and stress test my analysis and views to see where I could be wrong. Given my
contrarian nature, I try to avoid groupthink and confirmation bias, a common
psychological tendency to search for and interpret information in a manner
consistent with ones personal beliefs and views. Part of the thinking behind
this is that when everyone believes or is positioned a certain way, who is left
to buy that stock or investment? Essentially, trades can become crowded,
where many market participants have large and similar positions. Nortel
Networks in 2000 is a good example of this.

2.

Combine Technicals With Fundamentals

Readers of my work know that I am a strong believer in combining technical
analysis with fundamentals in making investment decisions. Often I find that
investors and professionals state that they only use fundamentals or
technicals in making their decisions. Why not use both, in an effort to improve
your odds of success? Ideally, you want to focus on companies with strong
fundamentals (e.g., differentiated product or service, accelerating earnings
growth, solid balance sheets) with bullish technical patterns (e.g., solid
uptrends, and trading above a rising 200-day MA). Apple Inc. is a great
example of this with the company delivering stellar earnings growth over the
years, and the stock in a consistent uptrend for much of the last decade. We
have found more consistent results by combining both forms of analysis.
Apples Strong Technicals With High EPS Growth

Nortel Networks A Tech Darling Of The 1990s

140

900

Apple Inc
200-day MA

Nortel Networks

800

120

A number of analysts
rated Nortel a Strong Buy
in Q4/00, just before its
historic collapse.

700
600

2014 14%

2015 43%

2013 -10%
2012 59%

100

2011 83%
2010 67%

80

500

2009 34%

400

60

300

40

200

20

2008 73%
2007 73%
Annual EPS growth:
2006 45%

100

0
'90

'93

'96

'99

Source: Bloomberg, Raymond James Ltd.

'02

'05

'08

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

Weekly Trends

May 25, 2016 | Page 3 of 4

3.

Control Your Emotions

This is easier said than done, especially today with the barrage of financial
market stimuli. For example, just recently we heard that billionaire investor
Carl Icahn had sold his entire stake in Apple Inc. given concerns over Chinese
growth. This was then followed by news that Warren Buffets Berkshire
Hathaway had established a US$1 bln position in the same name. What is a
person to do with all this confusing and often contradictory information? I
have found that investors often make repeatable mistakes by selling at the
bottom, or piling in to investments near the top, largely due to media hype.
While investing is emotional, since its dealing with our hard earned money
and net worth, investors should try to minimize the emotion around their
investment decisions, by either avoiding the media stimuli altogether, staying
focused on the long-term, or by using an experienced Financial Advisor.

4.

Focus On The Long-term

To help control emotions, it is crucial to remain focused on the long-term
rather than the day to day swings in the market. Its the long-term returns
that allow investors to grow their savings into a portfolio that will meet their
long-term investment goals and objectives. Below we illustrate this by
showing the 10-year annualized price returns from the S&P 500. Since the
Great Depression there were only a few years (on a rolling monthly basis)
where investors earned a negative return over a 10-year period. On average,
these rolling month returns come out to a 6.3% annualized price return, which
is more than sufficient for most investors to meet their investment goals.

5.

Dont Be Afraid To Take A Loss

Finally, while we believe strongly that investors need to take a longer term
perspective that does not mean that we just buy and hold and make no
changes along the way. In fact, I believe investors should be prepared to sell
investments that are down, and will result in a loss. Specifically, if the
fundamental rationale behind the initial purchase has changed or not
materialized, or from a technical perspective, if the stock breaks important
long-term support, then I believe investors need to re-examine the position
and consider selling it. A great example of this lesson learned was back in
2011 when I was asked by an old colleague of whether they should sell their
position in Blackberry. With the stock breaking a key support level around the
$40 level, I advised them to sell and move on. Unfortunately, they held on in
hopes that it would recover, and we know how that story ended. We will not
win them all, so investors need to recognize that sometimes a selling a losing
position can be the best course of action.
BBs Break Of Key Support Was A Trigger To Sell

S&P 500 Annualized 10-Year Price Returns

160

20%

Blackberry Ltd
140

15%

120
10%

100
5%

80

0%

60

-5%

40
S&P 500 10-Year Annualized Price Returns On
Rolling Monthly Basis
Average

-10%

Advised selling here

and taking a loss

20
0

-15%
38

43

48

53

58

63

68

73

Source: Bloomberg, Raymond James Ltd.

78

83

88

93

98

03

08

13

'05

'06

'07

'08

'09

'10

'11

'12

'13

Weekly Trends

May 25, 2016 | Page 4 of 4

So there you have it! I hope these final tips and insights will be of assistance as you
navigate through these challenging times. It has been my absolute pleasure in
writing these missives and providing advice and guidance over these last few years.
You are in good hands as clients of Raymond James Ltd. Thank you!

Important Investor Disclosures

Complete disclosures for companies covered by Raymond James can be viewed at: www.raymondjames.ca/researchdisclosures.
This newsletter is prepared by the Private Client Services team (PCS) of Raymond James Ltd. (RJL) for distribution to RJLs retail clients. It is not a
product of the Research Department of RJL.
All opinions and recommendations reflect the judgement of the author at this date and are subject to change. The authors recommendations may
be based on technical analysis and may or may not take into account information contained in fundamental research reports published by RJL or its
affiliates. Information is from sources believed to be reliable but accuracy cannot be guaranteed. It is for informational purposes only. It is not
meant to provide legal or tax advice; as each situation is different, individuals should seek advice based on their circumstances. Nor is it an offer to
sell or the solicitation of an offer to buy any securities. It is intended for distribution only in those jurisdictions where RJL is registered. RJL, its
officers, directors, agents, employees and families may from time to time hold long or short positions in the securities mentioned herein and may
engage in transactions contrary to the conclusions in this newsletter. RJL may perform investment banking or other services for, or solicit
investment banking business from, any company mentioned in this newsletter. Securities offered through Raymond James Ltd., Member-Canadian
Investor Protection Fund. Financial planning and insurance offered through Raymond James Financial Planning Ltd., not a Member-Canadian
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Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the prospectus before
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should not and cannot be viewed as an indicator of future performance. Individual results will vary and transaction costs relating to investing in
these stocks will affect overall performance.
Information regarding High, Medium, and Low risk securities is available from your Financial Advisor.
RJL is a member of Canadian Investor Protection Fund. 2016 Raymond James Ltd.