What is going to happen to the markets? Have we gone through a correction or the start of a bear market? There are many experts who will tell you they know what is going to happen next. They are very confident in their predictions and cite many examples of being right in the past. However, their track records indicate that they have also been quite wrong at times in the past. In fact, some of the forecasters that you read in the newspaper are usually wrong. “One thing that I know for sure, is that I don’t know for sure”; That is why we diversify. That is why asset allocation is so important in preventing us from getting carried away with our infallibility. Asset allocation also creates a habit of selling into strength and buying into weakness. Over the past year, we have gradually been selling into the strength of the Canadian Market, and buying into the relative weakness of the US and International Markets. Now with the setback, is it time to start adding to more equity positions? If you are not invested then the answer is definitely yes. However, in reviewing portfolios I see that most have plenty of equity exposure. We think caution is important for the next couple of months. Although I still expect 2006 will turn out to be a decent year for equity returns, I would not be surprised to see a sloppy summer. This is a great time to accumulate positions for the next rally for those who are underinvested. This is also a chance to switch from under-performing positions into positions with more potential. The ideal situation would be to have the market go to new lows for the year and look for the stocks that do not hit new lows. In other words, they show relative strength.
** I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by the Research Department of National Bank Financial **