D.I.Y. RRSP Guide

Balancing P & E Growth Rates.

Measuring %/year Growth.

Measuring Intrinsic Value.

A Post-COVID Secular Bull.

Stored:??? ACO/X.TO AD/UN.TO ADM ALA.TO AMGN APR/UN.TO ATD/A.TO AVGO AW/UN.TO BCE.TO BG BLX.TO BRK/B CCL.TO CCO.TO CDZ.TO CIGI.TO CMCSA CNR.TO COST CSU.TO CTC/A.TO CVX CWB.TO DFN.TO DIV.TO DOO.TO EIF.TO EMA.TO ENB.TO ET.TO FTS.TO FTT.TO GC=F GEI.TO GIL.TO GSY.TO HAC.TO IBM INTC INTU JCI JNJ KO MFC.TO MFI.TO MG.TO MMM MRG/UN.TO MRU.TO MX.TO NA.TO NNRG.NE NTR.TO NVDA NWC.TO ONEX.TO OTEX.TO PFE PG POW.TO PPL.TO QBR/B.TO QQQ QYLD RCI/B.TO RIT.TO RTX RUS.TO RYH SAP.TO SLF.TO SU.TO T.TO TIH.TO TLT TMO TRP.TO TXF.TO VZ WBA WCN.TO WILD.TO WN.TO XEF.TO XFN.TO XIU.TO XST.TO XUT.TO ZEB.TO ZEO.TO ZLB.TO ZPR.TO ZSP.TO ZWB.TO ZWH.TO

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Symbol:    => Shorter Term)

Ten ETFs To Buy and Hold

Cdn Financials <=Yahoo chart	Cdn Grocers <= <=Yahoo chart
Cdn Real Estate <=Yahoo chart	Cdn Utilty Cos <=Yahoo chart
Rotator (GIC-like) <=Yahoo chart	Cdn Low Beta <=Yahoo chart
US Hi-div Cov. Call <=Yahoo chart	US Tech Covered Call <=Yahoo chart
A Conglomerate <=Yahoo chart	Energy Exposure<=XIU.TO chart index

Dividend vs. Growth Stocks:
This Guide is for investors who want to select The "list of ten" should return almost 10%/yr which you will find means they almost double every seven years. proven steady returns for retirement. Others may want to try Marketers of trading programs say that about last year, but don't say they are behind now. "beating the market". However, "get rich fast" The reason is that you will be trading against robots, which are very successful at defeating ordinary people. fails more often than it succeeds.

Resist the This is a human weakness, exploited by advertising - the word "trade" is in brokerage names. Urge to Keep Trading Stocks!
On the There is a second human weakness, exploited by banks - fear of loss. other hand, safe bank Savings accounts are basically for money collection, not investing. Banks re-invest it at higher rates. "savings" accounts don't There is a third human weakness, letting $$$ sit so the banks can profit from it. keep up with Usually 2%/yr, but COVID has sent it higher and we don't know how long. inflation, and can still let you retire into poverty. Our list of ten ETFs is intended to find the Between the weakness for letting things sit and the weakness for trading against other people and robots. high ground between both possibilities.

Earnings, Market and Dividend
Rate of The three yellow R.O.R.s appear in our calculator in lines one, four and six. return in %/yr arrives in two ways; The real growth is in the ability to generate earnings, not so much in Market Price. growth ( The %/yr growth rates should be roughly the same if a stock is "mature". yellow R.O.R.s) and in a cash dividend ( If there is no dividend yet, a stock is too risky for starting out.

...). Row one of our calculator will merge these two types of The total %/yr R.O.R. is tricky. It is %/yr paid out plus %/yr improvement in earnings per share (EPS). return if we use Stockscores.com charts.

The primary yield is the ratio of Earnings to Market Price, but RRSP investors tend to let management worry about that. If a company or ETF basket has settled into a routine with earnings, dividends and price growth, a dividend that is comparable to bond interest and However, the Telecoms and REITs can get away with growing on borrowed money. less than earnings, that investment qualifies as "conservative" while avoiding erosion due to inflation. Our calculator can check that using only the Compound Interest Equation.

The list of ten ETFs has been selected on that basis (summer of 2021).

Drawing and Measuring %/yr Trends:

A StockCharts.com chart appears to the right; set up with the red A sluggish mathematical filter whose value is about where the Green line was 180 days ago. EMA200 line. (Do not use The problem with SMA is that its %/yr measurement is affected by 200 - day - old events. SMA.) Press "Annotate" to draw lines etc.

A straight red line on a logarithmic chart traces out the Continuous Interest This trick lets you think of stocks simply as competing with bonds.

(Better returns, more jumping around.)

equation that banks use for "daily interest".

It touches We will focus on average slope, which changes due to remaining Elliott Waves.

Thus we bridge over two of them.

the EMA twice which, using Calculus, gives a slope that becomes %/yr rate of return of an equivalent "bond".

Three lines have been drawn parallel to it with the same slope (R.O.R.) The blue lines have been pulled up and down to mark out a There is a second volatility, used for Covered Call.

This one is the difference between highest and lowest samples.

statistical range the price moves in and the green line has been pulled to the This line represents the "equivalent bond" of the Continuous Interest Equation.

BOOBY TRAP: don't dream of harnessing volatility!

middle of the range to identify when to Note the "Loss 0.2yr" below.

That is saying that the market is 1/5 year's growth above the Green Line.

enter the market.

Note the measurements below the chart, which you can make by moving the cursor to the locations indicated. They have been transferred to the website's calculator to the right.

Conclusion: the equivalent "bond" has a pretty good return; growing at 7%/yr and fluctuating about 3.7% above and below the green line. It would be a couple of months before the green line rises to the present market price.

Reason for Starting With HAC:
The HAC.TO ETF does not pay a dividend. The Stockcharts.com website mixes dividend yield and price growth together, which is good because that shows the true R.O.R. to an investor. To the right is a Preferred Share ETF, rendered first by the Yahoo site and then by the StockCharts site.

The downward slope of the Yahoo chart is about -2%/yr and the StockCharts one slopes upward at about 2%/yr. The dividend yield is about 4%/yr, which the investor does not get because the value of his/her holding is depreciating, as shown by the Yahoo chart to the left. Everything makes sense; providing we understand what the charts include.

The other side of the coin is that summing returns for the investor blocks what this calculator specializes in; separating them out to detect market inefficiency. Drawing the above lines and plugging values into boxes yields a mixture.

Reason #1 for starting with HAC: chart slope measurements cannot mix growth with dividends because there are none.

Reason #2 is that the measured volatility of under 8% is very low, while for the Banks ETF the range is 19% (and can be 9% above the Green Line). Thus HAC.TO is a good "parking place" for cash when higher-yielding things like the Bank ETF are priced above their Green Lines.

Measuring P/E and Yield:
Are We Getting Value for What We Are Paying?
(Aside: the List of Ten ETFs is sorted for safety with return.)

To the right are Rows 2 through 7 in the calculator, with the user inputs removed. TD Bank is a An average EPS growth rate for components of an ETF approximates that for the whole ETF.

component of many ETFs, and these measurements let us judge whether it is Note: for ETFs, earnings data are often missing.

Look for Dividend growth rate to agree with Yahoo charts.

delivering value to its owners.

Note the symbol and the green Market Price trend line at the top. The calculator refers all percentages to this mid-line, not purchase price. Below that, the program draws two more lines through four user date/$$$ pairs to get two The yellow 9.6%/yr and 6.8%/yr values.

more slopes. (Earnings may be hard Here's a trick: get average EPS for an ETF. Adjust EPS at a different date until R.O.R. matches that of price.

The resulting P/E and yield become meaningful.

to locate.)

The yellow R(ate) Of R(eturn) fields show only the growth part of return to the owners; the equivalent of slope of Yahoo Charts (). The other part is a direct payment ofof $ per year as cash. That cash comes out of earnings, which is found to be (Those numbers come from the three trend lines, and differ from usual quotes.)% of $ per year. (The inverse of P/E shown.)

Measuring the slope of a Stockcharts.com That is a bit lower than the total of 4.04% plus 9.63%/yr shown. chart gives , the total of /yr plus the %/yr market price growth. It shows that Management has decided to increase the Payout to 2/3 of earnings from about 1/2 previously.

That is something to examine for unsustainable situations. Note that earnings only grow at , which is quite close to the measured growth rate from the Yahoo chart. HOWEVER, there is something even worse to watch for - Multiple Expansion. That occurs when the Price and Earnings growth rates ( and ) do not match:

ETFs For The Short Term
(When Over-Sold; calculator above)

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• https: Cdn Oil & Gas ETF Recovering R.O.R.<35%/yr
  • Really Bad Volatility (expand)
  • Good for a few years.
  
  
• https: Power Corp (Conglomerate) R.O.R. 12%/yr
  • Has gone sideways: (expand)
  • Strong Dividend.
  • Recent consolidation

These measurements are not up to date, so their measurements need to be re-done when new cash beomes available to invest.  

ZEB.TO: A Pure-Bank ETF

(Dividend Growth and Yield Example)
We will open up two links in new tabs: a Yahoo chart and a calculator, which can give growth rates (left hand side here) for dividends and market price.

The ends of the green line measured

Date 2021 Aug 18 $33.33

Date 2011 Aug 13 $17.59 (10 yr.)
Market Growth Rate = 6.4%/yr from the calculator.

• Oddly, the StockCharts plot below rises faster in 5 years, giving 9.9%/yr. Something funny is going on.

2021 dividends = $1.20
Market price was $37 (above the green line), giving Yield 1.2/37 = 3.3%/yr.

• Aha - that is it. The StockCharts plot includes dividends, increasing the apparent slope of the plot. Total of the Yahoo Chart slope plus yield of 3.3%/yr is a good match; 9.7%/yr.

2016 dividends = $0.81 (5 years)
Entering that as P and $1.2 as A in the calculator, r = 7.9%/yr.

• This should match the Yahoo Chart slope, and it is not bad but higher. The predicted total return is around 11%/yr. Maybe management is increasing dividends too fast???

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Combined Return:
(Using Stockcharts.com)
To the right are the colored trend lines for ZEB.TO. The dividend plus chart growth rate is normally determined by making the red line just trouch the EMA200 in two places. However, COVID has spoiled that so we aligned the top Blue line with the peaks.

Blue lines mark the volatility (statistical range of 20%) and the Green Line shows the middle of the trend. Market Price is above the Green line right now, indicating that it is a poor time to enter (loss of 0.9yrs growth).

The gray patches below the chart are measurements that were made and entered in the calculator. Volatility is (Top-Bott)/Green line at any date and tends to be around three years worth of growth.

In general, using the StockCharts this way gives a very good measure of overall R.O.R. including yield. Then one should subtract quoted dividend yield and compare that to the growth rate (not yield) of dividends and the growth rate of earnings. The three growth rates should approximately match.

Bottom Line for Summer 2021:
Alternatives down the road: Bond Funds and Gold.

Defensive shares like grocers, utilities and REITs are always good.

The Market is the About 2016 it recovered from the Financial Crisis and started rising.

Typically that lasts another ten years.

Place to Be, but Watch COVID has disrupted supply of goods, sending prices up.

So far the bond market shows only mild concern about that.

Inflation.
To understand this, one should have explored the "magic of compounding" link and the link to using red-green-blue trend lines. If so, it is time to think about Get to understand them now but do NOT give in to alarmist media coverage.

We have about ten years before they go unstable again.

"Bull and Bear" markets.

Our basic strategy is to get into the market and stay there, but the chart of the DOW to the right shows flat Secular Bear periods, when the market " That means no returns unless there is a good dividend and there seem to be two nasty events each time. goes sideways". Between 1960 and 1980 This term means basically the market stagnated because people stopped investing in stocks, thinking that they could get better returns from bonds. Stagflation suppressed It takes capital (money invested in stocks) to build a company and its earnings. Everything stopped growing. growth, and to a lesser extent so has the post-COVID Prices are rising because goods are not being transported freely. "supply chain disruption". Simultaneously, government stimulus is There is a danger that investors will keep their capital in cash, awaiting higher bond yields. disturbing Market Sentiment.

We are one-third through a new rising Secular Bull period, and continuing low Stagflation (1970s) is a hazard. Howver, so far its causes are not lined up. interest rates have dominated the market so far. Two collapses are behind us; the Dot Com Bubble of 2001, and the Financial Two such events are usually needed to sober people up.

That reduces the P/E ratio to start another Bull Market. crisis of 2008. Secular Bulls and Bears typically last That usually synchronizes to four Presidential elections.

The Y2K Bear lasted from 2000 to 2016.

sixteen years each, so we have about one decade to Buy and Hold, before The "list of ten ETFs" is already defensive.

It conntains grocers and HAC.TO, focuses on Canada and pays strong dividends.

rotating into defensive stocks and even gold around 2030. ETFs can more than double in that time.

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OOPS! A third panic-event, COVID-19, temporarily jarred the Ten ETFs out of their Click on "charts" after each one.

You will find that they are back in the trends, and sometimes above them.

trend-lines. The 50% jump in the 30-year chart for the price A "fear investment" that you can diversify into when P/E corrects.

Your stocks will drop when Buyer's money moves there during secular bears.

of gold (top right) is saying that Market Sentiment and inflation again gripped those with a This all - too - common trait leads to great losses if you sell.

Gold is ground - zero, and rises when this kind of investor takes over.

worry-wort bent, after crippling fear from the The previous peak between gray bars.

The numbers at the bottom go back to 2015, 2010, 2005 etc. Financial Crisis Had died down. (Click to expand).

During the recent 2020 gray bar, COVID-19 has sent Governments borrowed to keep families afloat, after a period of free-spending under the Trump administration. debt up. The S&P500 (lower inflation-corrected chart) has been pushed up by the Note that gold started to rise due to Trump-era spending stoking inflation fears. Then COVID sent it even higher.

extra liquidity. It is not However, the recent down-turn in Gold indicates that Market Sentiment is relaxing.

100% clear how this will resolve itself when it is embedded in a Secular There is a discussion of this in the following link.

Bull market. (See choosing entry point.)

All this has driven up the CPI inflation rate away above the 2%/yr target, and Trump policies have sent Note that our ten ETFs focus on Canada, where P/E has stayed lower and %/yr growth is as good or better. NYSE P/E too high for early in a Secular Bull. Thus our list includes defensive things (And Cdn stocks in general, with Utilities, RIETS and Low Volatility ETFs.) like HAC.TO until CPI comes back down and the S&P500 also makes a Even after correcting, do not be surprised if total R.O.R. of Cdn ETFs remains higher than US ones! correction.

P/E Roller Coaster: More " Roaring Twenties"?
Understanding how to use the List of Ten defensively.
(Be in the market now: P/E is rising. Rotate a bit in 2032.)

A Secular Bull Market is a period like the Roaring 1920s, where people just buy whatever is in fashion. Price rises faster than The slope in %/yr of price, should not run away from the value of the company, but it does.

Net Asset (Book) Value rises. Price to Earnings ratio P/E High P/E ratio eventually triggers a price collapse.

This calculator's R.O.R. indicators provide advance warning.

climbs too fast during Secular Bulls, and needs to be reduced.

A Secular Bear Market followed; the Crash of 29 reduced P/E fast and will be described in the next section. The result was the Dirty 30s, the second period to the right.

16 Year Alternations (Phases of a "long wave" phenomenon.)

Note the second trace; gold is a safe haven During Secular Bear periods fear of price drops causes price drops.

Gold, bonds and dividends become a refuge.

when P/E is high and When the ratio corrects, refuge - buying drives gold up.

The orange middle trace goes the opposite direction.

drops again when people believe that P/E has corrected. A post-war Secular Bull market followed the Dirty Thirties and the ratio shown rose with the DOW. People buy gold Fear of inflation and fear of market correction.

Then greed enters and people buy gold to get rich.

when fearful, which was yet to happen.

Another Bear Market (center) followed; the stagflation period, when gold prices and the dollar inflated and forced Central Banks to let economic activity and the stock market to both stagnate. Relief and the 90s boom came eventually.

During the third Bear Market, starting at Y2K to the right, gold rose (driving down the trace above) until the DOW had climbed above its previous two peaks. Then sentiment changed, gold price dived, and the present Secular Bull got underway around 2016.

Typically a Secular Bear includes two Black Swans, shattering the gentler volatility that charts exhibit during Secular Bulls. Three sideways trends appear above while P/E was corrected to fit prevailing interest rate policy of Central Banks.

The Voting and Weighing Machines: "The father of value investing, Benjamin Graham, explained this concept by saying that in the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company. The message is clear: What matters in the long run is a company's actual underlying business performance and not the investing public's fickle opinion about its prospects in the short run."

Multiple Expansion and The Trump Bump:
The P/E "multiple" tends to wander near 20 (in USA; Canada 15).
It expands during Secular Bulls and contracts during Secular Bears.

To the right the most recent 30 years are broken into '90s Secular Bull market, the Y2K crash (Dot Com and Housing Bubbles) and now the beginning of a new Secular Bull, interrupted by COVID.

Note that the blue Price line periodically rises above the orange Earnings line, indicating expansions.

The 1990s ended with over-buying driving P/E up to about 30, and the two crises in the middle panel caused the P and E lines to cross wildly. The third panel shows the effect of the Trump Administration cutting corporate taxes on profits. The indicators right now are suggesting that markets are not expecting runaway inflation, even if commentators use it to attract the attention of readers.

Earnings Yield & Interest Rates The inverse of P/E is %/yr, and Graham's weighing machine adjusts it to about double competing return from bonds.

To the right we can see the effect of interest rates on everything in the 1970s (mid-chart). Capital Bond interest returned more than investing in equipment to produce future goods and services. investment shrank, with bank rate This sent bond interest even higher, so money came out of the stock market. around 5% and Earnings Yield around 10%/yr. The inverse of 10% is P/E of only Ten. The whole economy Goods and services produced in out-dated ways get pricey.

The Market did not provide capital to keep things updated. stagnated and purchasing power of the dollar dropped (top chart stays flat, bottom inflation-adjusted one drops).

This finally gave way to the 1990s Secular Bull, which ended with another Multiple Expansion. Time to react and drive P/E back down?

The answer is that Market Sentiment did not swing to bonds nearly as strongly and force the Central Banks' hand. Capital investment continued while P/E was being reduced by earnings recovery. Stock prices The "Trump Bump" was driven by low taxes driving up Earnings in the P/E multiple. started rising. With bank rate under 2%, Earnings Yield also dropped to around 5%/yr. The inverse of 5% is P/E of Twenty.

That low rate also implies low dividend yield, since dividends ultimately come out of earnings. If we examine the Canadian ETFs above, their dividend yields are much higher and their price growth rates are very comparable However Canadian stocks are not well diversified - over-weight in financial and resource stocks. to US stocks.

Summary: P/E (and the market) drops when inflation threatens.

supplies the Continouous Interest formula A = Pe^rt. Later it will appear on charts as straight lines, but for now let's think of it as just another calculator. Plugging in You will pick this off graphs as a slope measurment.

r(ate), t estimated years until retirement. (ime) and P For example your RRSP room on tax returns. (rincipal) below puts stocks and bonds on the same footing for when you retire:

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DOUBLING-TIME EXERCISE: E.g. ten k invested in an ETF called HAC.TO and just held returning 7%/yr would grow to 20k in ten years.

Try rates like %/yr with retirement in years after setting aside $k now. Result A = $20751k.

The top box ETF is for overall Interest or dividend per year, plus any growth. Express it as % of amount invested. return of an investment. Try an Measured by this program as the %/yr slope of a StockCharts chart. "interest rate" of Bonds have zero growth rate, yielding only interest. Stocks' growth acts like interest, returning more than purchase price. 10%/yr; available right now from banks. Try an aggressive rate of 20%/yr; available for now from an ETF holding Amazon, Google etc. Here is the pattern you will find: Divide the %/yr growth rate into 70 and you get doubling time.

Caveat: the above numbers do not take into account the effect of inflation:
.
Expected Central banks try for 2%/yr in consumer prices by adjusting interest rates.

inflation: %/yr. Purchasing Power: $20751k.

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A Deeper Dive: actually uses the approximate formula A = P(1 + r/n)^nt that is often used instead of the continous (exponential) formula above. The symbols mean

Top Box; (This box will more often be set to "rate".)

That translates into extracting %yr Rate of growth of charts, dividends or earnings.

Answer A (selected first box; displayed at bottom) is given by

your original P=$10k (second box) invested at

interest rate of r=7.3%/yr(third box)

compounded n times per year ( "Continuous" means time between calculations goes to zero.

Effectively, that eliminates the variable n completely.

fourth box)

and sitting there for t=10 years (fifth box):

Notice that setting n=a zillion (continuous) eliminates it and changes the formula to A = Pe^rt=$20751k. This formula is used by banks to calculate interest.

To do that it has to be changed to r=Ln(A/P)/t.

Notice that it is not yield.

That happens to be the formula for the e^rt swoops upward on a normal plot.

A "log plot" makes it into a straight line by compressing the upper part of the Y-axis. "log plots" that market websites show us.

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This same calculator can be reversed, to extract the Growth Rate from pairs of dollar values, growing or shrinking over a time in years. That is the mode in which we use the equation to manage Dividend and Earnings Growth rates, and throughout the website's calculator. It can also be extracted from scattered data.

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Why it works: This equation's growth rate r applies to every $$$ that is in an account at a particular instant (by averaging the whole account or ETF basket). That includes all accumulated previous growth (or decay in the case of inflation). That is also A dollar of "retained earnings" finances machinery etc.

If not needed for growth, it becomes a dividend.

true of a business if its earnings track its total investment and/or if its share of the market is expanding or the company is E.G. Philip Morris' stock price grows at 6.7%/yr while the tobacco market shrinks. buying back shares.

Now comes a trick. Human perception also works this way; we focus on percentage change rather than QUESTION: can you feel the tops of your socks right now?

value of things. Brokers look at charts to make recommendations whether to invest new money in stocks or bonds, and their thinking works on percentage change too. That makes their decisions follow this Continuous Interest Equation, and we can predict their behavior with simple straight lines!

Average Inflation From DOW History:
(Subtract from R.O.R. for purchasing power of investments.)
The chart on the Left hand side shows 100 years of (unsteady) growth expressed in terms of the US dollar. The one on the right hand side shows the effect of some nasty inflation problems.

Inflation averages about 3%/yr, and Central Banks try to maintain a steady 2%/yr inflation rate. In the middle is a Stagflation period in the 1970s when they lost control and inflation rose strongly. Purchasing power of the dollar dropped while the DOW stayed relatively flat.

The Basics - Rate of Return From Charts
Row 1: ends and length of logarithmic line touching EMA twice; gives chart R.O.R.

  Open new tab with a logarithmic chart. Activate annotation tool.

Draw straight line tangent to EMA200 in two places.

Market Measure LHS and RHS prices and enter them here.

Dollars or cents must match those for earnings & dividends.

Prices: Enter width of chart to get R.O.R.

The units must be years, and the box can calculate.

#yrs: Show Result
StockScores.Com Rate of Return has two parts; cash paid to you and growth of the ETF.

includes The dividend is cash paid. Growth can be seen as an upward slope.

dividends. Yahoo Charts The Yahoo chart slopes down. Stockscores chart to the left slopes up because dividend is mixed in.

exclude them

Here is the HAC.TO Chosen because it pays no dividend. The upward slope is your total return.

chart again, with a red dotted line drawn in after you hit annotate:

The cursor has been moved to Put it on the little yellow dot.

the left and we There is a little gray bar at the bottom, ending in 17.13.

measure $17.13 for the price five years ago. After entering that, we moved the cursor to the The chart is five years wide. Enter that in the third box.

Press Submit to convert the three measurements to a slope in %/yr.

right and measured $24.69. The calculator returns about 7%/yr as This ETF is a parking spot for cash because its management parks its capital in bonds once the 7%/yr gain has been secured.

expected.

The red dotted line has been moved to JUST TOUCH the red EMA200 line in two places (eliminating Until the next line - here we bridge over two wiggles to pick the slope out of it

volatility). Any straight line on the chart behaves like a bond yielding interest and the dotted line follows the price growth of the ETF, ignoring noise.

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Why it works: The charts we use are logarithmic. That converts an up-swooping price to a straight line. (The Y-axis values are closer together near the top). The slope of the line then translates into %/yr in the calculator.

Secondly, the price fluctuates in what are called Elliott Waves. The EMA200 suppresses these waves if they are shorter than a year, and bridging over two of the remaining wobbles will pick off the slope over a period of about four years.

The EMA responds well to slope measurements, but the the SMA200 that brokers commonly use tangles itself up attempting to measure %/yr. Avoid it.

The Basics: Measuring Chart Volatility

Row 2: Top and bottom of range at a single date:
Right: drop-down calendar, Left: symbol.

Measure/enter blue lines at any date as shown in Measuring Chart Volatility.

Range: This visual method gives the statisitical range vs. %/yr growth.

Extrapolates volatility and Green Line to present time.

Up/Dn: Show Result

The math is obscure, but the resulting procedure is something we can easily DO. Open an independent tab with a chart and we will measure its Elliott waves.

The same formula for Rate Of Return can give the amount of Up - And - Down variation within one year; just measure In other words define volatility as a statistical range rather than as standard deviation.

top-to-bottom at any The two measurements also give the green mid-line.

The date allows this to give an entry criterion.

date:

• Step One: draw in a red dotted reference line just The idea is to measure rise and run of a ramp.
  
  The EMA wiggles due to volatility, so we bridge from peak to peak.
  
  touching the red EMA200 twice.
  
  
• Step Two: draw in another (blue) line parallel to it.
  
  
• Step Three: Pull that line up so it just touches the top of the jumping and pull another one down to just touch the bottoms during a normal year. (Ignore COVID for now.)
  
  
• Step Four: Reading the cursor position in the gray area at the bottom of the plot, measure the top and the bottom lines at ANY time on the plot. We found:
  
  
  • The top line measures $39.47 in that gray area and the bottom line is $33.59 at the right hand side (now).
    • The actual dollar volatililty is 39.47$ minus 33.59$.
    • Percent calculated is dollar volatility / green line ($36.46).
  • Include the date when entering these numbers above:
    
    Row 3:

At the end of Row 2, the program calculates the mid-point, along the green line, and projects it to $36.46 for the current date (trend). The volatility is shown in Row 3, first as a percentage relative to the green line and then as the number of years it takes the green line to climb from bottom to top of the trend.

This gives us something to go on when deciding whether to buy it. The most one can gain by waiting is half of the volatility, or 0.9 yr.

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Why it works: Elliott Waves are a result of decisions by investors and their brokers. Decisions are guided visually, so we draw in the two blue lines visually too, defining a "statistical range" rather than something like Beta.

Percentages are referred to something and the program assigns the Geometric Mean of top and bottom at the date of measurement to be 100%; the green line. Thus it is only weakly related to purchase price unless you buy at the green mid-line.

The Basics - Choosing an Entry Point
Row 3: Type in market price and make the decision:

($Top-$Bott) relative to Green line.

More than double typical losses vs. cost.

Width: INF%   Example; R.O.R. 5%/yr and Volatility 20% top to bottom.

Green line is 2yr of return below top and above bott.

NANyrs Return     This is a potential entry price.

On-line brokerages show red or green as at right.

Entry: Show Result

Above the middle of volatility, store new $$$ in bonds or HAC.
Buy and Hold after corrections. (Do not trade after that.)
Here is the chart for Low Beta again, with

• a red dotted line drawn in after you hit annotate, and two blue lines drawn parallel to it, just touching the tips of the volatility.
  
  
• Line 2 below has been filled out with 33.59 and 39.47 at September 9.
  
  
• Then a green dotted line shows the mid-way point and we can purchase a stock at or below it ($36.5) to avoid paying too much. The measurement above indicates that the green line will take almost a year to catch up with where the market was when this screen shot was trapped.

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Here is how to enter data for the Low Beta ETF and test for predicted entry advantage for buying below the green trend line:


If the entry price was higher then the green line this will be shown:

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Why it works: Our trick of monitoring of dividends and making sure they grow at the same rate as price ensures that we avoid speculative "growth" stocks.

After price wanders up too much many brokers will stop recommending it because of low Dividend . That means that the average price (green line) is partially controlled by dividends. Ditto for earnings growth , because other brokers will focus on the ratio and stop recommending it when earnings are low, also holding the green line down. If the inverse of P/E is lower than the dividend yield that will also raise red flags because will be more than 100% of earnings.

Thus if a stock has really good P/E and dividend characteristics but is above the green line, we can park our $$$ (maybe in HAC.TO) for a while and wait. (See below.)

When it doesn't work The rise of price is actually driven by expectation of future earnings. That means there are many brokers who recommend based upon the "story" of a company rather than past performance. If R.O.R. measured on the chart is very high, we should let investors with deeper pockets have the gain and take the risk.

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Things take a while to get corrected when the price R.O.R. out-runs Earnings:

To the left, P/E rises until the stock goes out of favor. Then it will drop as shown or go flat and in due time an attractive P/E will develop and cause another run-up. (See below.)

Low-volatility Flat Spots The market moves in waves and our way of using the the EMA200 limits them
to a 4-year time horizon and includes them in Volatility measurements.
Enter wisely, but do not trade.
Buy At the EMA Trick: The image to the right shows four approximate straight-line segments, with arrows pointing to the The segments are numberd #1,2 #3,4 etc.

There are four segments, five corners.

"corners" showing up after a run-up in the Price Chart starts The end is usually triggered by Price unrunning Earnings. Beware.

or ends.

The slopes of the straight line segments alternate between about zero and about 12% so their This would be the slope of a line touching corners #2 and #4.

overall slope should It will be like SAP.TO above; price shoots up and then dawdles to correct P/E.

average around 6%. Note too that the volatility is In other words price wanders 6% above and below the EMA200.

double that in the blue box, and measurements of volatility for ZLB.TO give Low volatility stocks tend to bounce three times the annual %/yr growth.

Measured visually between blue lines as shown above.

triple the annual growth . Thus it pays to wait until there is a pull-back of some kind.

The EMA200 (Exponential Moving Average) is delayed by 187 days, and in the process strongly filters out volatility. Thus it The slope of the trend is that of a line that just touches two bumps.

locates a trend, and if the price is rising, it will lie below the current price (green line) most of the time. ASIDE: most "chartists" and brokers use the SMA200- avoid doing that too because the EMA gives better R.O.R. measurements.

CAVEAT: The EMA trick only works for low volatility Examples: ZLB.TO, HAC.TO, ZWH.TO, XUT.TO and XST.TO.

situations and for good equilibrium between The yellow patches on the calculator.

growth rates of stock price, earnings and CAUTION: The yellow patch, not the Yield.

dividend growth. The reason is that the EMA time horizon is about four years. Secular Bear markets have about a 16 year time horizon, and furthermore they exhibit savage volatility:

Secular Bears: High-volatility Elliott Wave Flat Spots
(These Also Result From Price Outrunning Earnings.)
Above is the S&P500 index since 1944, with 16 year rectangles for the Secular Bears and ovals for Bulls. This can be viewed as an Elliott "long wave", and the Secular Bears are Unlike the chart above, there will be a LOT of volatility.

The EMA200 won't follow it.

flat spots . Let us turn our attention to the right hand two periods; a Secular Bear with two The Internet Bubble of Y2K and the Financial Crisis of 2009.

market crashes , followed by the first half of a Secular Bull, interrupted by the Government bailouts have led to inflation and rates are rising.

That suggests some defensiveness even in a Secular Bull.

COVID crisis.

Quenching Events: Failed Elliott Waves To the right is an expanded view of the right-hand third of the S&P500 chart above. The flat spot contains two drops from about A drop to one half of the peak; far worse than during Secular Bulls.

Generally caused by collapse of unrealistic P/E ratios.

$148 to $70 ; Two such convulsions, marked by pink ovals, are typical during Secular Bears. To the right is a third one, caused by COVID, which occurred within the current Secular Bull. It Also, it only dropped to about 3/4 of the peak, due to continued good P/E ratios.

Secular Bulls are generally like that.

quickly re-joined the uptrend.

Events These are often called Black Swans, meaning they are unexpected.

However, Secular Bears are predictable and high P/E is a warning.

like that can quench Elliott Waves in
stock prices if they have run up too far.
Below that chart is one for the Canadian financial sector. All three events appear in it, but it continues to rise during the Secular Bear. That is a Also, during Secular Bull periods one should diversify across many sectors.

general principle ; when a Secular Bear market is due, one should get out of sectors that are overheated and into sectors that have Also, sectors like Utilities and Groceries exhibit only normal volatilty.

been ignored.

For example the Dot Com Bubble during the 1990s pulled money away from the banks etc. "Hot" internet ventures exhibited P/E ratios that were either very high or negative. When the bubble burst, people turned to the strong dividends of banks and insurance companies. Their Dividends have also outrun price; 8.2 vs, 6.5%/yr recently.

earnings had grown faster than their stock price and P/E had Be alert to this indication of a bubble at ANY time.

Investors tend to travel in herds - they follow others and then panic.

become low. Thus the price of Canadian banks tracked earnings growth, ignoring the Secular Bear.

There had also been a bubble in energy companies (chart below financials), and it also Delayed by about five years.

collapsed. Then energy share prices dropped for more than a decade. The COVID crisis (third oval) introduced a very steep drop, and recently it has broken out of the This crisis quenched the downward part of an Elliott Wave.

It was ready to happen anyway, but was triggered early.

downtrend. because earning power of oil companies had recovered.

The Trend is Your Friend.
Quenching events cause a new sector to Brokers call this sector rotation.

We should also "rotate", sell high P/E ETFS and buy ignored ones.

become lucrative. At the beginning of the latest The first quenching event also causes rotation into gold.

Gold producers become lucrative every 32 years.

Secular Bear the low P/E ratios of Canadian banks and insurance companies attracted brokers' attention. However, there was more to it; the The growth rate measurements on the calculator.

yellow patches were out of equilibrium; earnings and dividends had been out-running price.

In the 2009 Crisis the Financials took a beating, but their ETF soon benefited in two ways: the banks bought up "fire sale" US assets and their P/E ratios became more realistic due to generalized panic. There was another phenomenon; strong government intervention to stimulate the economy and avoid stagnation in the general panic. The buzzword was "quantitative easing" and after 2019 it was "CERB" in Canada. In both cases government injections found their way into the banks' And dividends, to the chagrin of Fiscal conservatives.

balance sheets.

Bottom Line: Be Ready to Fear will drive investors to rotate into gold producers.

Rotate Into E.G.: Gold, ZLB.TO, HAC.TO, ZWH.TO, XUT.TO & XST.TO.

Low P/E, steady P & E growth.

Growing dividend, strong yield.

Defensive Stocks about About 16 yr after the Secular Bear.

Watch for bubbles and "parabolics".

P/E will out-run inverse of interest rates.

2030 .
"Barbarous Relic": To the right is the chart for gold, with another rectangle to show the Secular Bear. During that time gold rose, which is typical for a 16 year Secular Bear. What is NOT typical, though, is the "Quantitatitive Easing" that was invented after 2008. (Middle pink oval, indicating a crisis.)

Typically gold would have continued to drop to the bottom of the formation over 16 years. However, gold is actual money that cannot be quantitatively eased and acts as a refuge in uncertain times. Therefore there is a second maximum because of inflation-fear. The COVID crisis (right hand pink oval) added dramatically to the amount of injected liquidity while simultaneously disrupting the supply of goods.

"Too many dollars chasing too few goods", as of June 2022, has forced Central Banks to shrink the money supply by boosting interest rates. That threatens to pull down Fixed Income valuations and Real Estate prices. Note that The two lines were measured after Quantitative Easing and then after CERB.

Both slopes agree with historical inflation rates.

the slope of non-inflating gold in inflating US dollars matches historical inflation rates. That is a trade-off, not something Possible implication; growth rates will suffer but without the nasty collapses of a Secular Bear.

dramatic.

Bottom Line: Presently, due to inflation, rotate out of REITS borrow too much.

Bonds drop in value if rates rise.

Compare Annual Reports for debt level.

rate-sensitive things.

Obtaining Slope of Other Metrics:
Rows 4 to 7; type in dates and yearly payouts:

Obtain pairs of dividends and enter them here.

There is a spreadsheet template for Least Squares Fit.

 Dividends:      Management assesses whether to pay dividends, giving a clue about the company.

Ideally they should exhibit the same %/yr slope as price.

: The straight line converts investment into a "bond".

However, the R.O.R. is not guaranteed.

See volatility.

ROR: 0 %/yr.

  It may be Okay to just type in two typical values.

Otherwise, a spreadsheet can fit many points to a line.

2^nd Data Pt:   Two dividends and dates define a straight (log) line.

The logarithmic slope gives yield.

: The straight line converts investment into a "bond".

However, the R.O.R. is not guaranteed.

See volatility.

Show Result

These pairs of rows serve the same purpose as the top row; they define two points on a straight line and the number of years between them. However, the time is entered as two calendar dates. The result is the slope of the line, expressed as %/yr growth rate of dividends. (The pair of rows for earnings work the same way.)

1. To keep it simple, the four user inputs can run the Continouous Interest Equation through only two points.
2. Advanced users can use "|" characters to separate annual values and do a Least Squares Fit through many samples.

These are more than inputs; they Using standard calculator notation.

For more than one year, see the link below.

calculate too. If dividend data is posted on web sites quarterly, with a clutter of dates, spaces etc., you can copy a year's worth and paste it into their upper right They will expand to allow editing.

boxes. If you highlight the clutter and replace it with "+" characters, The minus sign works only between numbers.

To make a number negative, subtract it from zero.

standard calculator notation will convert that into a simple sum of four quarters. If you want to average two years, appending ")/2" with an opening bracket will do that.

Reducing Many Points to a Pair:
One can enter X and Y points for dividends, earnings, book value etc. in a spreadsheet, prepare a Ln(Y) column, and then run a straight (logarithmic) line among the points using the SLOPE() function. Multiplying by 100% will then yield an average R.O.R. for whatever metric you obtain.

The sample spreadsheet provided will recalculate two data pairs to enter in the boxes above. (They are on a line that is fitted through scattered data.) Be aware, though, that if X is expressed as dates, you need to divide by 365Days/Yr.

Entering Many Points in Upper Dividend/EPS Boxes:
The algorithm in the spreadsheet has also been applied below to Select incomes for years you expect to be similar to future ones.

navigate a path through Try various scenarios to get an idea of what the future might hold.

erratic earnings of someone working in Here supply and demand take nasty jumps and there may be no pension plans.

resource industries. These entries may also be used instead of a spreadsheet to reduce Enter web data for several quarters in the work area.

Over-write the clutter with plus signs etc. to calculate a year's worth to insert between "|" characters.

dividends or earnings to The first and second date boxes select the values to include.

a trend (separated by "|" characters) to enter in the upper Dividend/EPS box of the main calculator.

Click for running a line through more than two points.

They will be separated by "|" characters.

Full LSF=> A 4-function calculator for compacting pairs of Web data.

(Click image to left for a whole trend.) Work Area for Select two sets of dividends or earnings that average out well. They should be separated in time. Pairs of Dividend & HINT: Negative numbers crash this Equation. Lump together quarters to avoid that.



EPS Data:
fetch Div1 Div 2 EPS 1 EPS 2 Mkt


[result: ]   Put it back.