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Investment Theories, Concepts and Ideas


"I'm more concerned about the return of my money than with the return on my money".

The American humorist Will Rogers (1879 - 1935) had a special way of making a point.

The point of this part of Mathisen Financial, Inc.'s presentation to you is to provide you with investment theories, concepts and ideas that will make your investments grow faster than "the average".
Please use the theories, concepts and ideas here to make your investment choices and decisions.
And, please, feel free to call, fax or e-mail me at any time with your questions, suggestions, or ideas.
But, don't forget that we at Mathisen Financial, Inc. are as concerned about the return of your money as we are about the return on your money.

 

 

 

Commentary on MUTUAL FUNDS
by
Gordon Pape

Gordon Pape, the well known Canadian author, broadcaster, and financial consultant, made the following comments on MUTUAL FUNDS on CBC Radio on March 16, 1994:

"One of the main benefits of equity mutual funds is that they spread assets over a well-diversified stock portfolio. But they can also be risky."

Two ways to look at Equity Fund Risk:

1) GEOGRAPHIC:

The Simple Rule is: The broader the base of the fund, the less the risk.

The most broadly-based type of fund is the international stock fund. Fund Managers can buy and sell around the world, going where the action is, and avoiding areas of potential trouble.

Next up the risk scale are area funds: e.i.: Pacific Rim.

More risky: single country funds, such as Japan. These funds are higher risk because, if the stock market in that country falls, the value of the mutual fund will decline as well.

Still Riskier: Emerging market funds which invest in third world countries such as Mexico, Thailand, Turkey, etc. They offer good profit potential, but their markets are often volatile, so the risk is high.

Top of the Geographical Risk Scale: Regional funds such as funds which invest only in Alberta. If the economy of the region is hit - say, by a fall in the price of oil in Alberta's case - the fund is going to suffer.


2)TYPE OF FUND:

Dividend Income Funds rank lowest on the risk scale. They invest mainly in preferred shares and high quality common stocks. The main goals are a combination of safety and dividends. That makes Dividend Income Funds especially good for conservative investors who want to make use of the Dividend Tax Credit.

Next up the scale: Blue Chip or Large Cap Funds. These funds Invest in shares of large corporations. If the stock market falls, they'll obviously get hit, but often not to the same extent as higher risk funds, such as those funds that invest in small to medium sized companies.

Small Cap Funds invest in small and medium sized companies. These funds are higher on the risk scale. Small Cap Funds are very common in the U.S. When they're in favor, as they are now, these funds can do very well. Several of them gained 40 % last year. But in bad years, they can lose almost as much.

Sector Funds are highest on the risk scale. These invest in one area of the economy: Resource Funds are most common in Canada. Some of these funds were up more than 70 % last year, but you may have to endure years of low returns, or even losses, to get one spectacular year of returns".

LOCATION AND SIZE OF THE WORLD'S EOUITY MARKETS:

CANADA 2.00%                                              

The U. S., Japan & Hong Kong 75.00%             

The Rest of the World, including Europe 23.00%

REMEMBER: Gordon Pape's Simple Rule: The broader the base of the Fund, the less the risk.

If you are invested in the 2% of the World's Equity Markets called Canada, where are you on Gordon Pape's Risk Scale, and what is the Growth Potential of your investments (NOTE: on a global scale, if you are invested in Canadian Mutual Funds, haven't you invested in a Regional, Small Cap FUND?)

Wouldn't it be preferable to invest in 75% of the World's Equity Markets, with 75% of your investment being guaranteed? By doing that, you would enjoy Gordon Pape's lowest level on the risk scale, and enhance your investment return in the process.

Your investment in 75% of the World's Equity Markets can be 100% RRSP eligible, and does not encroach on the 18% foreign content rule.

For additional information, and a no-cost, no-obligation consultation, contact Hans Mathisen .
Phone (306) 242-7042.
Fax: (306) 242-4314.
P.S.: You'll be glad that you did. After all, it's your hard-earned money that's involved.

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Don't Try Market Timing !

If you believe you can outsmart the stock market, this graph proves otherwise:

Successful Market Timing?
S&P Index (December 31, 1982 to December 31, 1998)

s&p500.GIF (16401 bytes)

Source: Newcastle Capital Management

Over the past 16 years, your average annual return on your investment could have been 14.51% if you were invested in the Standard & Poor's 500 Index for the entire period.

This period consisted of about 4,000 business days on the Exchange.

MISS the 10 best days during that time, and your return falls to 11.18%.

MISS the best 40 days ( only 1% of the 4,000 trading days), and your average annual return goes down to 5.63%.

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WORLD CAPITALIZATION

Canada comprises only 1.8% of the World's total capital markets.

world_cap.GIF (52854 bytes)
Source: Newcastle Capital Management Corp. 31-Dec-98

Two of Gordon Papes rules are:

        1. The broader the Base of the Fund, the Less the Risk; and,
        2. Sector Funds are Highest on the Risk Scale

Conclusion:

        Based on the fact that Canada comprises only 1.8% of the world's total capital markets, together with Gordon Pape's rules, investing in Canada means investing in a High Risk Sector Fund.

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Mathisen Financial, Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
Bus. (306) 242-7042 Fax. (306) 242-4314
Email: hans@mathisen.ca