All posts by Pat McKeough

What is Market Timing Theory?

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Market timing theory attempts to interpret and detect buy and sell signals in trading patterns and history

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Market timing theory is an investment strategy based on the belief that investors can identify optimal times to enter or exit financial markets by predicting future market movements using technical analysis, economic indicators, or other forecasting methods.

The practice of market timing consists of coming up with and acting on a series of guesses (or estimates, or probability assessments) to use in your buying and selling decisions. The aim is the same in 2026 as it was in 1997 when the strategy gained prominence: to buy near a low and sell near a high. Market timing theory attempts to interpret and detect buy and sell signals in trading patterns and history. Some of the decisions you make with the help of market timing will bring you profits, and others will cost you money.

Many investors start out with an exaggerated idea of the value and importance of market timing. Most eventually become disillusioned with it, after they figure out that it’s costing them money.

Market timing can pay off sporadically, of course. Although the results are largely random, successes and failures are apt to come in spurts. The worst thing that can happen to you near the start of an investing career is that you make a series of successful timing decisions. This may lead you to believe that you have a natural talent for market timing, or that you’ve stumbled on a timing process that’s a guaranteed money-maker. Either of these conclusions can spur you to back your future timing decisions with growing amounts of money.

Good timing-based decisions often produce modest profits. They tend to be smaller than the losses you get from bad timing decisions. Needless to say, one of your future decisions is bound to turn out bad. If you’ve invested enough money in it, you could wind up losing much more than your accumulated winnings from prior timing-based decisions.

What are the key principles of market timing?

The key principles of market timing theory include:

  1. Market Predictability: The foundational belief that financial markets follow discernible patterns that can be identified and exploited through various analytical methods.
  2. Risk Management: The goal of reducing exposure during market downturns by moving to cash or defensive assets, potentially preserving capital that would otherwise be lost.
  3. Enhanced Returns: The aim to outperform buy-and-hold strategies by capturing market upswings while avoiding significant downswings.
  4. Signal Identification: Using technical indicators (like moving averages, MACD, RSI), fundamental data (economic indicators, interest rates), or sentiment measures to generate buy/sell signals.
  5. Pattern Recognition: Identifying recurring market behaviors such as support/resistance levels, trend formations, or historical cycles that might predict future price movements. Continue Reading…

What are ETFs? A guide to investing in exchange traded funds

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Continue reading to find out answers to these questions: What are ETFs? Are ETFs good investments? Should I make ETFs part of my diversified portfolio?

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Have you ever wondered, “what are ETFs?” and how can they impact my investment returns?

Exchange traded funds (ETFs) are set up to mirror the performance of a stock-market index or sub-index. They hold a more-or-less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index.

Exchange traded funds trade on stock exchanges, just like stocks. Investors can buy them on margin or sell them short. These funds have gained popularity among investors, mainly because many ETFs offer very low management fees.

What are ETFs: Reasons why investors like ETFs

The MERs (Management Expense Ratios) are generally much lower on ETFs than on conventional mutual funds. That’s because most ETFs take a much simpler approach to investing. Instead of actively managing clients’ investments, ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.

ETFs practice this “passive” fund management, in contrast to the “active” management that conventional mutual funds provide at much higher costs. Traditional ETFs stick with this passive management: they follow the lead of the sponsor of the index (for example, Standard & Poors). Sponsors of stock indexes do from time to time change the stocks that make up the index, but generally only when the market weighting of stocks change. They don’t attempt to pick and choose which stocks they think have the best prospects.

This traditional, passive style also keeps turnover very low, and that in turn keeps trading costs for your ETF investment down.

What are ETFs: When to buy

Some investors decide when to buy an ETF with the help of technical analysis.

Technical analysis is a useful tool, but only if you recognize it as one of many tools. Before making any recommendations or transactions in client accounts, we always look at a chart. However, we don’t look at the chart for a prediction on what’s going to happen. We look to see if the pattern on the chart seems to support the view we’ve formed of the stock, based on its finances and other fundamental factors.

We find it encouraging if the two seem congruent, and they usually do. But sometimes one contradicts the other, and that’s when we know we have to dig deeper, and perhaps wait until the situation clarifies itself. Continue Reading…

Consider all your Retirement Investment Management Options for a Financially Sound Future

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Here’s a look at some of your best retirement investment management options and choices. These include pensions, RRSPs, RRIFs and more.

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Your retirement investment management plan should build in contingencies for long-term medical needs and supplemental health insurance. As well, you should factor in caring for loved ones who are unable to take care of themselves.

When you work out a plan for your retirement, make sure that you aren’t basing your future income on overly-optimistic calculations that will end up leaving you short. Retirement income can come from many different sources, such as personal savings, Canada Pension Plan, Old Age Security, company pensions, RRSPs, RRIFs, and other types of investment accounts.

Learn how your retirement investment management works in a Canada Pension Plan (CPP)

The Canada Pension Plan, or CPP, is the name for the Canadian national social insurance program. The program pays out based on contributions, and it provides income protection for individuals or their survivors in the instance of retirement, disability or death. Since 1999, the CPP has been legally permitted to invest in the stock market.

Nearly all individuals working in Canada contribute to the CPP, unless they live in Quebec, where the Quebec Pension Plan (QPP) exists and provides comparable benefits.

Applicants can apply to receive full CPP benefits at age 65. The CPP can be received as early as age 60 at a reduced rate. It can also be received as late as age 70, at an increased rate.

Here’s a look at some of the pensions or benefits provided by the Canada Pension Plan:

  • Retirement pension
  • Post-retirement pension
  • Death benefit
  • Child rearing provision
  • Credit splitting for divorced or separated couples
  • Survivor benefits
  • Pension sharing
  • Disability benefits

Use a Registered Retirement Savings Plan (RRSP) as a starting place when you look into retirement investment management

An RRSP is a great way for investors to cut their tax bills and make more money from their retirement investing.

RRSPs were introduced by the federal government in 1957 to encourage Canadians to save for retirement. Before RRSPs, only individuals who belonged to employer-sponsored registered pension plans could deduct pension contributions from their taxable income.

RRSPs are a form of tax-deferred savings plan. They are a little like other investment accounts, except for their tax treatment. RRSP contributions are tax deductible, and the investments grow tax-free.

You might think of investment gains in an RRSP as a double profit. Instead of paying up to, say, 50% of your profit to the government in taxes and keeping 50% to work for you, you keep 100% of your profit working for you, until you take it out.

Convert an RRSP to a RRIF to create one of the best investments for retirement

A Registered Retirement Income Fund (RRIF) is another good long-term investing strategy for retirement.

Converting your RRSP to a RRIF is clearly one of the best of three alternatives at age 71. That’s because RRIFs offer more flexibility and tax savings than annuities or a lump-sum withdrawal (which in most cases is a poor retirement investing option, since you’ll be taxed on the entire amount in that year as ordinary income). Continue Reading…

How to stay calm and Invest confidently amid Stock Market Fluctuations

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Letting unnecessary stock market worries take hold of your investment decisions can lead to much bigger problems than just finding stocks to buy

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Our early ancestors had to be on guard against threats in their environment. They were under constant threat. At night, if you woke to every sound from the bushes, you lost some sleep, but you cut your risk of being eaten by a lion or killed by an enemy. Today we face much less risk from animal predators and human marauders. But many people still carry this hair-trigger fear response. We spend more time than we should worrying about things that will never happen. This includes stock market worries.

That’s especially true of investors, who generally think more about the future than other people. It’s true all the more of subscribers to our newsletters and members of my Inner Circle service.

Understand stock market worries and risk so you can put everything in perspective

That’s because many of you are the kind of people who seek out investment information from a variety of written sources, where it’s much more extensive and detailed than what you get from a glance at the headlines, the evening news or cable TV. However, some of that information is biased, overblown or incorrect.

This doesn’t mean you should ignore potential threats. You just need to put them in perspective.

Learn what experienced investors do about common stock market worries

There is never a shortage of ways to ease your stock market worries. “You never go broke taking a profit,” is a favourite of brokers I’ve met over the years. They used them to spur their clients to do more trades, to boost their own commission income.

Our view now is that stocks are still a good place for your money, if you can afford to stay invested for several years. If you expect you will need to take money out of your portfolio, you should think about selling sooner than you need to.

Look beyond immediate stock market movements to help reduce your anxiety and stock market worries

Stock market trends are the general direction in which the stock market is heading. These market trends are dictated by a number of factors: what sector investors favour at the moment, economic and world news, interest rates and other trends from industries such as technology or resources, and so on. These trends could be positive or negative, and they could lead to a huge boom for a stock market. They could also lead to a big downturn.

It pays to keep in mind that the stock market anticipates changes, and no stock trend lasts forever. Stocks can go on lengthy downturns due to business and economic problems. However, the market typically starts to go back up long before the problems get solved.

We think that in general, long-term investors should be cautious optimists. Don’t let media sound bites and self-serving short-term predictions dictate your decisions when you’re investing in stocks.

Anxiety recedes with investment quality, diversification and portfolio balance

You’ll find that many of your worries concern things that are unlikely to happen; that are already largely discounted in current stock prices; and that probably won’t matter as much as you feared they would. Continue Reading…

How to Decide which Canadian Bank Stocks are Best for You

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Canadian bank stocks are true blue chip stocks and have long been a top choice for growth and income. Today’s economic uncertainty doesn’t change that

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We’ve long recommended that all Canadian investors own two or more of the Big Five Canadian bank stocks — Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s mainly because of the importance of these institutions, and their blue chip stocks, to Canada’s economy. That hasn’t changed despite lingering economic uncertainty about high inflation. Investing in bank stocks remains a popular strategy for many Canadians.

Canadian bank stocks – unlike Canadian penny stocks – remain key lower-risk investments. As well, the Big Five Canadian bank stocks all have long histories of annual dividend increases. That makes the Big Five the best bank stocks that the country has to offer. It also makes them top blue chip stocks for income investors.

Picking the best bank stock between two of Canada’s big banks is a lot harder choice than choosing between a bank stock and a Canadian penny stock. Still, if you’ve decided to start by investing in bank stocks with just one Canadian bank, one key question remains: which Canadian bank is the best bank stock for you? How can you tell which bank will give you the best long-term performance? There are a few performance clues you can look out for.

Performance clues to look for

When deciding on the best bank stock to buy, you want to start with the same criteria you would use for any investment in blue chip stocks (as well as with a Canadian penny stock):

We believe Canadian bank stocks are still well-positioned to weather downturns in the Canadian economy, despite their significant increases in loan-loss provisions over the last couple years because of COVID, the inflation that followed, and its impact on the economy. All five stocks trade at attractive multiples to earnings and are well positioned for any economic fallout from continuing high interest rates. Investing in bank stocks remains a popular strategy for many Canadians.

Canadian bank stocks have always been some of the best bank stocks globally. They’re also among the best income-producing securities: true blue chip stocks. Below are 3 tips for using dividends as barometer for picking Canadian bank stocks when investing in bank stocks.

1.) Dividends are a sign of investment quality. It’s why so few Canadian penny stocks offer them. While some good banks reinvest a major part of their profits instead of paying dividends, failing banks hardly ever pay dividends. So if you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst banks.

2.) Dividends can grow. Stock prices rise and fall, so capital losses often follow capital gains, at least temporarily. Interest on a bond or GIC holds steady, at best. But the best banks like to ratchet their dividends upward: hold them steady in a bad year, raise them in a good one. That also gives you a hedge against inflation.

For a true measure of stability when hunting for the best bank stocks, focus on banks that have maintained or raised their dividends during economic and stock market downturns. These banks leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth. Canadian banks stocks are well known for their financial stability in the face of economic downturns.

3.) Look for Canadian bank stocks with consistent dividends. One of the best ways of picking a quality stock is to look for banks that have been paying dividends for at least 5 to 10 years. Dividends are cash outlays that an unsuccessful bank could never produce. A history of dividend payments is one trait that all the best dividend stocks have.

Don’t limit your investing to bank stocks

Simply put, a well-constructed stock portfolio will make your life easier and maximize your gains.

Early in their investing careers, many investors have only a vague idea of the value of a planned portfolio when investing in the stock market. Continue Reading…