RDS.B and IGM, so amazing!


I have combined two of the last few blogs to make a point. The point being that Elliot Wave is not another branch of witchcraft; instead it is what we all have done most of our life, that is copying others which is why certain patterns develop and do so in a fairly predictable sequence. We are particularly prone to be contaminated by the mood swings of those surrounding us and consequently that manifests itself in collective highs and lows.

     If you have ever wondered why it is that floor traders operating in such intense environments as the future pits (those that still exist) think nothing of walking from the coconut oil section to the long bond section, than you can stop wondering. They know nothing of either of these commodities and essentially could not care less. What they do care about is the order flow as that is all they need to get a sense of the market.

    As mentioned we have both Royal Dutch a.k.a Shell and IGM, an investment dealer and mutual fund manager, in the chart above. They have absolutely nothing in common. One is huge, the other relatively small. One is in oil and transportation, the other in financial services. One has enormous infrastructural and capital investments, the other hardly anything at all. One is Dutch/English and operates around the world the other Canadian, primarily in Ontario. One deals primarily in US dollars (but also Sterling) and the other in Canadian dollars.  Given all that, it is just fascinating to see that the charts that cover the time period from 1997 to today, almost twenty years, are for all intents and purposes identical. The reason is that the world is now global and getting more global with Facebook, Twitter, the internet etc.etc. with the predictable result that we all stop thinking critically and tend to be in a similar mood.

     The charts above are embellished with green, blue, red or purple and grey lines. The green ones run vertically and denote a certain point in time. The blue and red ones are vectors, they have the same direction and magnitude on both parts of the chart. All that helps to show how identical the charts in fact are.

     The moral of the story is that you should not knock EW, and if in the past you were a stock picker, stop and try to become a pattern picker, there are only 13 of them.  Merry X-mas, or is that Holidays?

IGM Financial (Investors Group and McKenzie Financial) update

These guys are about 20X larger than AGF and are more profitable. Nevertheless we expect the direction to be the same. Here are the then, Feb.17, 2015 and now charts as usual;

IGM feb 17 2015IGM dec 22 2015

Eight months ago the stock was at about $44 and just the other day it was at $34 so it is dropping at the rate of about a dollar a month. We expected, and now expect, that the stock will drop to the lowest level of the 4th wave of previous degree which is about $15. It does not have to go that far but the 61.8% retracement at about $21 is a pretty good bet. If it keeps up the pace we could be there by the end of 2016.

Mutual funds and investment dealers are facing difficult times. Charging 3% p.a. is easy if you make 6,7 or 8 plus percent. It gets harder when you are in a 3% , or lower, environment. There are a whole host of regulatory changes, issues with transparency (which is still hard to find), legal position with respect to being a fiduciary or not, and so on. The times that you could charge 10% as a fee (Horizon Fund) or take 3 to 5 full points on a zero-coupon bond are gone and will not come back. It will be a difficult battle if markets cooperate, but an impossible battle if they do not.

Here is another performance comparison, including AGF.B (in black this time).

mutual funds re tsx dec 2015

IGM Financial Inc.

IGM feb 17 2015

This blog has, for some odd reason, never looked at IGM. It is a mutual fund selling operation consisting of Investor Group, Mackenzie and some planning counselling outfit. It is your very basic and elementary “investment dealer” that embraces the keep-it-simple approach wholeheartedly. It is your mom and pop , knock on doors , type of operation that has done surprisingly well over time. This, paradoxically, may be the case because of the low level of sophistication of the investing public in general and their clients in particular. Their fees are not simple and quite high.

      Analysts rate this stock unanimously as a “buy”. Needless to say, I do not. The EW pattern is perfectly clear with an extended 5th wave into the top, followed by a first wave downAngel, and then the ubiquitous B back up right into the double top level. From there the C has started but has a lot further to go. The 4th wave of previous degree is always a good potential focus point for determining a potential target. Nothing says that it has to stop there.

     If you happen to be in this business you may just want to make hay while the sun shines. This chart starts in 1987 which is roughly where the first mutual funds were introduced. I do not know if it was the first but the Horizon fund was definitely right up there. It was sold with a DSC of 9% and, I believe, a 7 or 8 year period  to be free of a claw-back. A broker with assets under management (AUM) of just one million could generate ( in those days) an income of $100,000 just churning the book. So in this chart you essentially see the entire history of the Canadian mutual fund industry. A lot has already changed but much more will have to be changed to get to world standards.