from 1990 to 1999

Oct 1990

In 1990 mortgage rates went up to 13% many people were losing their homes and walking away from them. In protest, we even had someone drop off a dead Cow in front of the Royal Bank.

The interest rates went up because of inflation, and the only way to contain inflation is to raise the interest rates.

And that is what John Crow, the governor of the Bank of Canada, had stated, said following

” To slow the economy and control inflation, we have to raise interest rates.” That is why we went straight to Money Market Funds and made 16.5% for the year. As we knew that stocks and bonds would lose ground, we wanted to play it safe and continue to earn a return.

We feel he was successful, and to get out of the current recession, we had to do the opposite of what caused the recession so interest rates would trend lower.

As interest rates decrease, bond yields and capital appreciation increase, making bonds an attractive investment. You can see how this was done in the Money Movement Strategy under Strategy # 1.

 It was time to move to the Prudential Income Fund, a Bond fund.

In my monthly article in the Bruce County Market Place Magazine, I stated that this fund should perform well over the next 12 to 18 months. I started If the interest rates drop 1%, the current value of the Bond fund will increase by 8%. If it dropped 2%, the value would increase the bond fund by 16%. 

Therefore, a current bond with an interest of 11.5% would yield 19.5% in the rate dropped was 1% and 27.5% if it dropped to 2%.

Actual returns for the Prudential Income Funds by Feb 1992, 16 months later, was 21.9%, so we have proof that the Money Movement Strategy worked.

In Jan 1992, the Bruce County Market Place Magazine editor Charles Witt decided to write an article on me, and here is what he said. Dan says, “what a Mutual fund did in the past is not important. It’s what it will do in the future for you, now and going forward, that is more important. Too many agents rely only on the past results and fail when markets change direction, and you’re stuck with last year’s winner,” which becomes this year’s loser.

Right now, he is hot on resource stocks as four of his six indicators are pointing to the fact the bear market is over, and the stock market will rise. As the economy picks up, the economy will need resources to replenish depleted stock on the shelves.

In 1993 it was the year of Natural resource funds, and many were over 100%, and ours at Prudential ended up with a 125% return.

 That was my first experience with a slingshot, and I was not aware of how much we would make, but I knew what fund we needed to be in and took advantage of that.

Suddenly, people started to read my articles, and my journey began.

The next issue was Quebec, in 1994, they announced they would have a referendum on separating from Canada. I started to connect the dots, which was not a strategy but something I was paying attention to.

First, they had to win the Provincial election, but they could not separate without the Federal Government allowing them to do so.

So, we stayed in the natural Resources until they came up with a new group of Federal politicians called “the block.”  That scared me, and after making 125% in one year, I could see another 1987-type crash coming. Since most of the clients’ money was in RRSP, which had to have 80% in Canadian Content, I was stuck or was I?

I knew I had to protect clients’ money, and I knew interest rates would go up to protect the Canadian dollar from plunging as the foreign investment would stall, as no one would know the value of our dollar if a portion of the country was leaving. No foreign investment means it would be harder for us to pay our international debt payments. So interest rates will head higher for sure.

That again was “connecting the dots,” which was still new to me as a strategy.

So, where could I invest the client’s money? In a money market fund? No, the rates would have been about 4-5%, and after making 125 % the year before, this was too low.

What I came up with next made all the top people take note and call me a genius. I saw that the 5-year GIC type of investment called Deposit Annuities in the Insurance world was paying 8.5%. Typically if you invested in a 5-year GIC at a bank, they would lock up your money for five years, and you could never touch it.

However, I knew that if it was with an insurance company, you could access your funds anytime, especially if the interest dropped below what you were being paid.

So we had to play it safe in case Quebec said “NO” to the referendum. 

Instead of parking our client’s money at 5 %  in a money market fund, I parked the money at 8.5% in a Deposit Annuity. With that move, I became the top agent at Prudential and was awarded the “Executive Vice president of investment title at Prudential for 1994.  The market lost over 20% in 1994 in Canada, and we didn’t lose a cent.

We played it safe and made 8.5% instead of 5%. That 3% difference compounded into thousands of dollars for my clients over the last 25 years.

As the Referendum was still far away in November 1995, I was getting itchy to make the next move as I saw the U.S markets soar and ours were losing ground.  Prudential Insurance saw that the Baby boomers were starting to invest in the stock market and decided to get feedback from their top investment advisors. So I came down to Toronto, and they wanted our feedback on attracting more sales from the baby boomers who were now awoken to the stock market.

I told them we needed funds that were not Canadian-based, like an international or an American Fund, so that our clients did not have to depend on just Canadian funds for their growth and constantly lost ground every time Quebec wanted out. They argued that the majority of money coming in was Registered money, so there was not a good enough reason to create non-Canadian funds. They stated how we would attract non-registered funds. I could not contain myself and blurted out, ” have you seen the field of dreams.” if you build it, they will come.  So with that, they created two new funds. One was a U.S EQUITY Fund, the other a GLOBAL EQUITY Fund.

I also knew that with Prudential having 1,000. Agents with a new product to sell, and many had already accumulated large books of business that they could now transfer some of these funds into these two funds, which would then artificially push them up.

So we could move all our non-registered investments and 20% of our RRSPs only, which went 50% in each of these funds. As you can see, this again is connecting the dots. I was unaware that this would become my best strategy, number 4.

These are the results  Prudential American Equity fund   = 53.7%

Prudential Global Equity fund         =  31.o%

All our clients had most of their money in RRSPs, and after making those two rates of return for my clients, I wanted all their money to earn the same results, so again, I was already looking for an indication that we could jump back into the market with these funds.

Now you need to know I played RUGBY  for the Kincardine Barbarians, which meant I spent a lot of time talking about investing with 30 Alpha males in the locker rooms. I also did the same with 16 Hockey players every year. So you could imagine if I made a prediction and it did not come true, I would have been the object of many jokes.

I said this in November 1995 in the Bruce County Market Place Magazine. We could see a strong rally if Quebec says NO in the referendum. We could see a 25% return in 3 4 months. When I started this, I was now knowledgeable about slingshots and knew what would happen next.

So we moved all our clients into two funds, The prudential Natural Resource Funds and the Prudential Precious Metal funds, again 50/50.

I was in the right funds, but instead of making 25% in three months, this is what happened.

The Prudential Natural Resources Fund  =  42.60%    in three months.

The Prudential Precious Metal Fund        =  58.30%    in three months.

After that big rally, I expected the market to have a correction, so for 1996, I told my Clients to be defensive, so we moved to Dividend funds, Income funds and Balanced funds.

What came next was London Life purchased the Canadian Division of Prudential Insurance of America. With the change comes opportunities, and I was looking for any product they had that could help my clients, and I found one, “Segregated funds ” You can read up on these funds under Investment products at my website. I saw that Segregated funds had  NO FOREIGN CONTENT RULES for their RRSPs. Which meant I would never have to worry again about Quebec separating and that we could go 100% into our American Funds.

Here is the result 56.30%. 

So you have the results from Oct 1990 to Jan 1999 and the average return during this period was 24%. 

So the Money Movement strategy worked, and this was the beginning of my research into creating many more strategies, which you can read about under strategies.

Again I want to remind readers that I no longer sell Insurance or investment products; I only advise as a consultant, which I am allowed to do as I spent 35 years in the Financial service industry.