Canadian Equity Funds

The October Strategy Helps You Take Control of Your Investments

Best Year +35% Worst Year -10%

13% Average Over the Past 7 Years

Hi:

I'm Dale Rathgeber and I'll explain how subscribers to my investment newsletter, The October Strategy, have earned above average equity mutual fund returns by following two simple practices.

First, every year, I advise my subscribers to sell their equity equity funds in late August or early September, and then stay in cash or park their money in a safe money market fund for the months of September and October.

Why? Because the stock market is quite predictable in one way: in 8 out of 10 years, on average, the stock market (and equity mutual funds) goes down in September and/or October. The crash of 2008 was just one example of this well-known phenomenon, which is caused by too many skittish investors selling and driving down equity prices. The phenomenon started because most of the big crashes in history have happened in October, and because bad economic news through the summer tends to fly undetected "under the radar" until investors and their brokers can connect after summer vacation. So, we sell our equity mutual funds at the end of August and then buy back in again at the end of October.

But, avoiding the downturns is only half of the system. The second component is a strategy for generating above-average Canadian equity fund returns by investing only in "good" equity funds. Last year's mutual fund heroes are likely to be next year's dogs. That happens for the simple reason that the economy changes continually, in cycles, putting certain countries and industries (and the funds that invest in them) in and out of favour.

So, I needed an alternative investing strategy. And, the best alternative I found is called momentum investing. That means buying equity funds that have done very well recently, holding them for a short time, and then selling them (while they're still going up, in the best case scenario).

Putting the two elements together, getting out of the markets in September and October, and using a momentum investing approach, I developed what I call a probability enhancement system for Canadian equity fund investors, and called it the October Strategy.

And, to make a long story short, it worked very well...

13% per year

Since 2001, when I began publishing my picks in a newsletter (also called the October Strategy), the equity funds selected by this system have achieved an average yearly return of 13%, versus 2% for the median (average) Canadian fund:

• 2002: 10%
  
  
• 2003: 35%
  
  
• 2004: 5%
  
  
• 2005: 25%
  
  
• 2006: 24%
  
  
• 2007: 0.5% (in 2007, the median (average) Canadian mutual fund lost money at minus-2%)


• 2008: -10% vs a life changing -28% for the median (average) Canadian mutual fund

Our subscribers say:

"I have been with the October Strategy for two years, and couldn't be happier with my investment returns." Terry Ostash, Aviation Safety Inspector, Abbotsford, BC

How & Why Does the October Strategy Work?

The October Strategy combines four pro-active and probability-enhancing investment strategies:

1. investors can now pay no commissions or transaction fees, and take advantage of the revolution in Canadian mutual fund investing, which allows you to invest in virtually every good mutual fund in Canada on a no-load/no-fee basis. This, through a deep discount broker, like TD Waterhouse, Bank of Montreal Investorline, CIBC Investor's Edge, Scotia McLeod Direct, Q-Trade, E-Trade, or Credential Direct (the October Strategy only makes economic sense if you use a deep discount broker, and pay no commissions).
   
2. consistently get out of equity funds, and into a safe money-market fund every September and October, to avoid the typical autumn downturn which happens in 8 out of every 10 years.
   
3. after October, stay fully invested in equity funds because over the long-term, equities perform better than balanced or bond funds.
   
4. rebalance your equity portfolio about every 100 days, with 15 or fewer minutes effort. This 100 day period both:
   
   
   • avoids short-term redemption penalties; and
     
   • allows investors to take full advantage of those equity funds with recent out-performance momentum.

Why does the autumn abstinence component of our Strategy work? Because the stock market is quite predictable in one way: in 8 out of 10 years, on average, the stock market (and equity mutual funds) goes down in September and/or October. The crash of 2008 was just one example of this well-known phenomenon, which is caused by too many skittish investors selling and driving down equity prices. The phenomenon started because most of the big crashes in history have happened in October, and because bad economic news through the summer tends to fly undetected "under the radar" until investors and their brokers can connect after summer vacation. So, we sell our equity mutual funds at the end of August and then buy back in again at the end of October.

But, avoiding the downturns is only half of the system. The second component is a strategy for generating above-average Canadian equity fund returns by investing only in "good" equity funds. Last year's mutual fund heroes are likely to be next year's dogs. That happens for the simple reason that the economy changes continually, in cycles, putting certain countries and industries (and the funds that invest in them) in and out of favour.

The October Strategy's proprietary fund selection system "cherry-picks" such hot funds from any and all of the various fund management styles and fund companies that are out-performing at any given stage in the economic cycle; ie: value, growth, index, country or industry-specific, sector, specialty, small cap, etc. We also get to choose funds from about 50 of the best companies, like AIC, Trimark, CIBC, TD, Altamira, AIM, Spectrum, Mackenzie, Dynamic, Templeton, A.G.F., etc.

Our optimization system is not perfect. It will not always choose all of the hottest funds from all of the hottest sectors, all of the time. It will, however, choose many of them, most of the time; or at least those formerly hot funds which should at least stay warm for the next ensuing 101 days. When we don't hit home runs we should still hit doubles and triples.

However, please read and consider the section titled Handling Risk: Have Ultra-Safe Investments Too. The October Strategy is an equities-based system and most investors, especially retirees, will want some ultra-safe fixed-income investments, such as bonds and GICs, as well as equities. This is called diversification and is a smart insurance policy in case our superior rates of return do not repeat to the same extent as they have in the past. Equity returns have historically been about +10% per year, and our returns have been even better, but past returns are not guarantees. Therefore, it is smart to have some non-equity investments, and to ensure that not all of your nest eggs are in one basket.

How our system works:

1. Our annual cycle starts in late October, when we sell our money market fund (more on that in a moment) and buy equity funds. The funds to buy will be listed in the newsletter you receive in mid-October. The percentage of your equity portfolio  that each fund should comprise is also specified.
   
2. In February and May we rebalance by selling some or all of the funds we bought in the previous rebalancing, and buy new funds; again the fund names (and recommended weightings) will be provided in the newsletters that arrive in early February and early May.
   
3. In late August or early September you'll receive the final newsletter of our annual cycle. It's the same message every year: sell all your equity funds and reinvest the resulting cash in money market funds until late October.
   
4. In late October we start the process again, selling our money market funds and investing in the equity funds recommended in the newsletter.

You can subscribe just prior to any of the four dates set out above.

Summing up, you will call your deep discount broker (or use your broker's online brokerage) four times a year; this will take about 15 minutes per call, so the total time spent managing your portfolio, for the year, will total about one hour.

The newsletter provides specific buy and sell recommendations, so you will not have to stay awake nights trying to decide which funds to sell or which funds to buy. Of course, the recommendations are exactly that -- recommendations, which you are free to accept or reject as you choose.

If you don't yet have a deep discount broker, you can get one, quickly and easily; visit our Frequently Asked Questions page to find out how your new broker can make all the arrangements for you.

Our subscribers say:

"Dale Rathgeber is on to something really good. I have subscribed to the October Strategy for almost six years and I am very pleased with the results. I can recommend it to anyone without hesitation. I am pleased to see my investments growing from November to August, then to sit on the sidelines during the scary months." Paul Barrie, Courier/Driver, Airdrie, AB

Why is the October Strategy Better?

Since 2001, the first year of publication, the October Strategy's funds have averaged plus 13% versus 2%, for the median Canadian fund. Our best year was + 35%; our worst was -10%. 

What do these rates mean?

The reason we invest, of course, is to build up our savings for retirement income or some other purpose. And, the faster we accumuate, the greater our total return will be. 

So, when our return averages 13% a year, it means our original investment doubles in just over five and half years (using the Rule of 72 and assuming we shelter our savings with an RRSP).

On the other hand, if we earn the Canadian mutual fund median (average) (over the past five years) of 2% per year, it takes 36 years for our original investment to double (using the same assumptions).

Overall, this means we have been accumulating wealth at more than six times the rate of the Canadian mutual fund median (average) over the past seven years.

Still, the October Strategy is not a get-rich-quick scheme. It should continue to enable investors to become rich slowly, but surely. But quicker than investing on the basis of the “free” advice fund seller/advisors who preach "buy and hold (ignore)". This leaves their clients in Dog funds for too long.

But, again, our system is one that invests in equities. Most investors, especially retirees, should be diversified between equities and ultra-safe, fixed income investments See the Handling Risk: Have Ultra-Safe Investments Too section.

Our strategy will continue to beat those annual paperback books that try to predict next year's top funds, because those books are out-of-date by the time they reach the bookshelves (they are written in the summer and published during RRSP season).

We should also out-perform the balanced funds and investment programs sold by the banks and fund families which try to pick and choose a handful of funds from various managers, gurus, and/or investments styles. These “easy decision” programs are designed for couch potatoes who buy and ignore their funds for too long. They are a clear prescription for mediocrity.

One of the main advantages of our optimization strategy is that we can, and do, choose from any of the various equity fund management styles that happen to be working well at any point in the economic cycle; ie: value, growth, index, country or industry, sector, specialty, small capitalization, etc. We can also pick those funds from the best managers, at the best fund companies, at any point in time.

In addition The October Strategy overcomes the never-ending debate between the merits of passive (index) funds, versus actively managed funds. Sometimes we favour one style when it is out-performing; sometimes the other.

Lately, a number of internet blogs have been touting the supposed merits of investing only in index funds or Exchange Traded Funds, ETFs,  (which give an investor a rate of return similar to that of all other investors) because the majority of investors fail to beat the mediocre performance offered by index funds. These statistics are correct, but our seven year average shows that it is possible to consistently beat their mediocre performance of about 2% per year.

Our Strategy also eliminates the need to try to stay on top of what the “next big thing” forecast will be, because it does not try to predict future developments, but identifies and takes advantage of already-emerging trends. The “next big thing” forecasts in the media are almost always conflicting and contradictory. As a result, the average investor hears too much noise, chatter, and static. True wisdom is hard to come by. And even when one guru gets it right, their predictions usually take longer to “pan-out” than our system of recognizing and taking advantage of emerging trends.

In fact, too much of the media information available these days is really thinly disguised infomercial hype. Our system is more reliable. It tends more toward the scientific end of the investment continuum between art and science. This, because our fund selection criteria considers such factors as recent performance; long-term performance; stable management; risk-to-reward ratios, and low management expense ratios (MERs). It also ensures prudent diversification between countries, industries and geographic areas by choosing five to ten different funds from different geographical regions and industrial sectors.

Another advantage of our disciplined system is that it takes human emotion out of the equation. This is the downfall of both individual “gut feel” investors, and the famous gurus – they tend to stubbornly hang on to their mistaken predictions for too long, hoping that they will eventually be vindicated. Some of our selections may turn out to be “dog-funds”, too, but they get sold within 100 days.

The October Strategy is a pro-active mutual fund re-balancing program which is prudently aggressive, but should allow investors to sleep easily at night. The strategy is not appropriate for people who are poorly organized, because October Strategists need to be able to collect their e-mailed Newsletter and then phone their discount broker within 10 or 15 days of receipt, 4 times per year; in early September, late October, early February, and mid-May. Again, the October Strategy and equity funds in general should only comprise part of your assets - see the section titled Handling Risk: Have Ultra-Safe Investments Too for counsel on how to be properly diversified with your investments. 

 Our subscribers say:

"My wife and I have used the October Strategy for just under five years and our investments have almost doubled in that time. The system works and is easy to follow. My stress level is also very low." Fred (Stewy) Stuart, Business Owner, Calgary

How to Subscribe to the Newsletter

Sign up now for a nearly-free trial subscription, or scroll down to see our unique fee and guarantees for full-time subscribers.

Trial Subscription:

You can receive a 2-issue trial subscription for only $1.05. (The Securities' Act Rules on Advisory Publications stipulate that all subscriptions must be pre-paid, and therefore we charge $1.00 plus GST).  

You will get exactly the same investing recommendations that our regular subscribers will get, including the names of the funds, and in what proportions.

To start your trial subscription, click here to make a payment using your Visa, Mastercard, or other credit card (securely, via PayPal):

Or, send your cheque (check) or money order to:
  The October Strategy
  PO Box 3667  
  225 1st Ave. N.W.
  Airdrie AB  T4B 2B8

Please include your e-mail address on your cheque because we publish by email. And  tell us who your present broker is. We won't contact them; we just want to ensure that you have a deep discount broker that won't charge transaction fees.

Remember, to avoid transaction fees for your fund purchases you need to use one of the true no-load deep discount brokerages like TD-Waterhouse, BMO Investorline, CIBC Investor's Edge, Scotia McLeod Direct, Q-Trade, E-Trade, or Credential Direct. See the Frequently Asked Questiions section for guidance on how to open a deep discount brokerage account. They will do all the paperwork and there is no need for you to confront your present broker if you need to switch.

After receiving your payment (whether by PayPal or by regular mail), we'll confirm with an email message to let you know you'll be on the list to receive the next newsletter.

We also recommend that you move your assets into the October Strategy slowly, over a 2 to 3 year period, especially if you are new to equity investing. Again, see the section titled Handling Risk: Have Ultra-Safe Investments Too.

Deadlines:

In using our system, there is a 10 to 15-day window in which to follow the recommendations for buying and selling.

To be sure you get the newsletter in time, we recommend your payment reach us by one of the following dates:

• January 31
• April 30
• October 15

We also send out a newsletter in August, but it has the same message every year: Sell all funds and put the proceeds into a money market fund until you receive our new recommendations in October.

The $1.00 Fee, Unless Our Newsletter Out-Performs, Guarantee

Our newsletter subscription fee structure is unique.  Subscribers are charged on a calendar year basis, with a variable fee, which is set every January based upon how well our model portfolio performed in the immediately preceding year. Our minimum yearly fee is $1.00 (to meet the Securities Act's rules) and our yearly maximum is $400.00 (plus G.S.T. in all cases). In years where our model portfolio beats the median (average) mutual fund in Canada by one percent, our fee for the next upcoming year will be $100.00. When we beat the median (average) by two percentage points, the fee for the next calendar year is $200.00. If we over-achieve by 3%, the fee would be $300.00, to a yearly maximum of $400.00. Fees for partial years are prorated, and two spouses are considered as one subscriber. Subscribers can cancel at any time without hassle, by simply not paying their invoice for the upcoming year.

Dale Rathgeber's personal guarantee is that he will invest half of his portfolio (and the portfolios of his wife and family) in exactly the same way as recommended in the October Strategy, and the other half in fixed income securities.

We also guarantee that we will remain independent of any mutual fund company, or brokerage firm. That includes the seven deep discount brokers which we presently recommend for the October Strategy. If and when other discount brokers completely eliminate transaction fees, and allow for a money-market September/October fallout, without penalty, we will recommend them as well.

Lastly, if we come across a better system, we will try to adopt it, for the benefit of our subscribers and to maximize our own personal portfolios. Or if we can't do as well, we will recommend that our subscribers switch. We have no interest in having our friends and families in a second-rate system, only to endure their wrath during get-togethers and Christmas dinners. We also invite any economists or financial advisors who have ideas on how to improve on the October Strategy to share those ideas with us.

Privacy & Security

The October Strategy is purely an advisory service, we make recommendations only. We never ask for personal or investment information.

We do not handle your money - we send you a newsletter with recommendations. You continue to buy and sell mutual funds as you did before (assuming you use a no-fee brokerage service). Only the broker or financial professionals you select will be privy to your account information, and be able act on your behalf.

You are free to follow or not follow the recommendations in our newsletters (but for best results we recommend you do, of course).

To start your trial subscription, click here to make a payment using your Visa, Mastercard, or other credit card (securely, via PayPal):

Want more information?

Head to the More Information page, where you can read sample newsletters from the past (these are the ones with the actual buy and sell recommendations). You can also read our Backgrounders, which give you more insight into how the October Strategy works.

Our subscribers say:

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