August 27, 2010 Bulletin

The market, based on history, usually boasts a substantive rise at this point of the business cycle. We show six reasons why this large rise should begin this year. There are many strong economies in the world right now and we have greatly emphasized investments that take advantage of this.

1) STOCKS ARE CHEAP TO BUY: The S&P 500, the most closely watched equity benchmark in the world, is currently trading at 11.5 times forward operating earnings compared to the long term average of 15.8 times. (Source: TD Securities)

 Value stocks, where we make our picks are particularly inexpensive compared to the rest of the world.

2) CONTINUED STRONG CORPORATE PROFITS: Their resilience and recovery of the majority of companies was spectacular. This is the main driver of stock returns over time.

3) RISK HAS DROPPED: Price volatility has continued to trend downwards in 2010, setting the stage for the second stage of the bull market. This is even more so for smaller companies, which we have overweight, and have been outperforming the general market recently.

An important measure of the world banking system is lending temporarily to each other. This measure (TED spread) has lessened to historical averages, demonstrating that the banking crisis is now well behind us.

4) This year is a mid-term election year in the USA. The market historically bumps up an average 3.2% in the weeks following such elections, as change is in the air. There will be an even larger improvement in fundamentals if the Republicans regain the Senate or the House of Representatives, as they will keep taxes lower.

5) An overdue cycle of acquisition activity, one company buying another, will further boost prices for undervalued shares.

6) As a whole, governments will continue to print money to support economic growth. The stock market historically responds positively to this.

Wise Capital has made a lot more money in equity markets compared to the average retail investor over the past decade. My record as a professional portfolio manager of admirable returns for other people’s money is longer than 20 years.

Every study shows that every investment manager has lost money in trying to time the market. That is a losing approach. We only play the winning strategy, which requires a long enough period of time, which is investing in a well-diversified portfolio of value stocks with brilliant prospects. We have a talented group of people that spend their energy studying every potential investment.

Sam Wiseman,
Chief Investment Officer.