Contrarian investing and the Manulife Investor Sentiment Index (good for your RRSP?)

In this time where you are thinking about investing in your RRSP as the market is sinking, you might wonder what strategy to use ... although there's no clear direction, I think there's something about contrarian investing that is appealing. Contrarian investing could simply be defined as buying when everybody is selling (panic in the market) and selling when everybody's buying (exuberance in the market). One tool to identify trends before they show up in stock prices (i.e. to help sell before everything tanks for example) might be using the Manulife Investors Sentiment Index. This is only a theory and use it at your own risk!

First of all, it is currently hard to figure out where to invest, so if you need to contribute to your RRSP, you can simply make cash contributions and wait for the good time to buy.

Here's a very rough and amateur timeline of the Investors Sentiment (IS) level compared to the value of XIU (simple low-fee index ETF to buy Canadian stocks):

• 2000, the index reaches 35 before the tech bubble crash and then goes to 11 after the crash (in December 2001) ... XIU was around 44$ in March 2002 just as the IS index was going back up close to 21.
  
• July 2007, the IS index is at a near record high (highest since 2000) of 31 and XIU is around 84
  
• September 2007, XIU is around 81 and the IS is pulling back at 20 from it's recent high of 31
• December 2007, the IS index goes back to 27 as XIU is still around 81
• Today XIU is at 74 (I couldn't find the IS index value since it's only released quarterly)

It's obviously very hard to draw conclusions from this. One conclusion I'd like to propose though is that when the Investor Sentiment Index is at an historic high ( close to the 35 of 2000 ) for some period of time, it's a clear sign that the crowds are over-excited about the market and it's an ideal time to sell. And when the IS index goes to a low (let's say close to the post tech crash of 11), then it might be a good time to buy. I'll update you on the index in March and we'll see if it might be a good time to jump in the market or if it's better to hold. Something to note as well, is that the press releases seem to lag the actual polling time which does not help tracking the current situation.

Disclaimer: this is only a personal theory and not an investment strategy. Market timing is risky and you could lose a lot of money by buying or selling any stocks based on this. If you are not already a seasoned investor, please ignore this post!

If I were only that smart!

I was looking forward to the post I made in June last year about selling stocks to pay my mortgage faster and figured I looked pretty wise when I said:

"and also being concerned about the current heights of the stock market, I decided to act"

I wish I could say for sure that I had seen the current downturn coming, but I obviously had no idea. I didn't know when it would be and how bad it would be. That said, there was a feeling of over-excitement in the market and the investor sentiment was at a very high as well. The problem is that I'm not sure what conclusion to draw other than the usual contrarian one : sell when people are buying and buy when people are selling!

Note that it's also easy to predict problems too long in advance like I reported on investor sentiment in December 2006 .

The Cost of Baby Diapers

It's pretty incredible how many diapers a baby goes through in his early months. The cost of it has transformed us in coupons "clippers" :-) . One place where I found "easy" coupons is on save.ca, a convenient online coupons site that mails you the coupons you've selected. We've also been scouting the weekly fliers, but I can't believe how much paper is wasted with the amount we receive each week. I've also found, but not tried, a site where people discuss rebates and exchange coupons!

Since you're asking, we're using the Pampers Swaddlers which really do a good job at preventing nuclear explosions spills! They do happen do be amongst the most expensive (except if you go with the organic types!).

Importing a car to Canada from the US can be easy

I have a colleague who just imported a used but recent Toyota RAV4 from the US and saved about 4000$. The whole process went pretty smoothly although he had a moment of stress at the US custom when they couldn't find his file in the computer (they finally found it in some folder!). Because the car was not manufactured in North America, he had to pay an extra 6.5% duty fee (if I remember correctly). I think the trick is that my colleague did his homework properly and made sure the car in question could be imported without any problem. He did leverage the new law that allows importing cars not equipped with anti-theft devices.

You can find a good article here that describes everything that's required to import a car to Canada from the US including some special costs that might surprise some buyers. It seems that the Canadian Border Services Agency offers free seminars on the topic.

If I had to buy a car again, I might consider doing that but I still wonder if the manufacturers will always honor the warranty ...