September 28, 2015

Stock market indexes declined on Monday. The S&P 500 was down 2.6% and Toronto was down 2.8%.

This year to date, the S&P 500 index is down 8.6% and Toronto is down 11.1%. That is certainly a poor year, but really, it’s not disastrous. If all the annual returns on the market were lined up this one would be in the lower half of the group to be sure, but I am pretty sure it would not be in the bottom 10% of years.

Somewhere along the line Warren Buffett noted that corporate profits do not necessarily grow each time the earth circles the sun. And certainly stock market indexes do not grow each and every time the earth circles the sun. They do most years but they don’t increase anything close to every year. So, there is nothing unusual about the stock index performance in 2015 to date.

The most notable declining stock in Canada today was Valeant Pharmaceuticals, down 16.5% to Canadian $221.81 and U.S. $166.50. I take a certain amount of satisfaction in that given that I added to this site rated Sell at U.S $253.91 and Canadian $331 on July 30 this year. I did notice today that our report incorrectly states the currency used was Canadian but given the price in the report it was U.S. dollars which the company reports in, which it does because it is in reality an American firm in substance. See our comment that day as it was added. For those with patience and the ability to stomach “volatility” (which, let’s face it, really means “losses”) there are certainly bargains to be had. And anyone who can’t stomach losses, even those which are likely to be temporary, should not be invested in individual stocks or perhaps really in anything but cash and cash equivalents.

Costco will report earnings on Tuesday. I expect all to be fine with Costco except for two things. Revenues will be hurt by lower gasoline prices. But not profits so that is unimportant. Revenues and profits will suffer a bit due to Canadian store results being translated back at a the current weak currency level and the same applies to most other international operations though I believe Canada is biggest one that has had a large and unfavorable currency move. This is basically a one-time blip in the earnings growth rate since currencies do not keep trending down (really, they don’t.)

I am currently reading the financial materials for Fortis Inc. and will add that company to this site within the next week.