August 2015

The Monthly


With this commentary, we plan to communicate with you every month about our thoughts on the markets, some snap-shots of metrics, a section on behavioural investing and finally an update on some of the people at MacNicol & Associates Asset Management (MAAM). I hope you enjoy this information, and it allows you to better understand what we see going on in the market place.

“Grey skies are just clouds passing over”

– Frank Gifford (1930-2015) 


The Numbers:




Market Commentary: “Sell in May and Go Away”

As the summer volatility of International stock markets continue, we are constantly reminded of the age-old adage ‘Sell in May and Go Away.” For those unfamiliar, this is a statement which references the idea that, historically, stocks outperform over the months of October to May, relative to the period between May and October. The real question, however, is if this trend is actually true, and if so, if it can be translated into an actionable strategy which can be used to allow investors to outperform the market.

Somewhat surprisingly, using historical data, the trend actually appears to have some merit. For example, from 1956 – 2011, investors who bought the TSX between November and April and switched to bonds between May and October have enjoyed a 13.5% annual return. The annualized return for buying and holding solely the index or bonds would have been 9.2% and 7.7%, respectively. These figures do not include the effects of trading costs or dividends. The chart below shows the discrepancy of monthly returns from 1988-2011, complete with the frequency percentage of positive returns for that month.


Now, this may seem like pseudoscience, but there are actually some real reasons and hypotheses as to why this has occurred. For one, there are many more actionable data points from October to May; for example, annual economic data, annual earnings results and reports. These events have the ability to move markets significantly in either direction, and thusly are likely to have a higher potential impact on the overall market. There are also tax-related events during this period such as RRSP contribution season, which facilitates the flow of funds into markets. During May to October, there are much fewer integral data points on which to trade off, which translates to less volatility, or less potential upside, but also less potential downside.

Despite the interesting data, it is unlikely that ‘Sell in May’ can be turned into an actionable strategy. For example, last year’s return from May – September for the TSX was 5.0%, while the full-year return for the index was 7.7%. Most of the year’s gain happened during the summer. Additionally, even during a year where the effect is visible, capitalizing on it requires three correctly timed decisions: the decision to buy, the decision to sell, and the decision to re-enter. In our view, this is a dangerous aspect of the strategy which opens up the investor to unneeded additional risk and trading costs. We believe that, if the story, valuation, financials and management are all still favourable, you should still own the stock; selling simply because of the time of year is simply not a logical reason to sell.

Behavioural Investing: Confirmation Bias 

For the behavioural section of the Monthly, we would like to once again speak to a subject that we have briefly touched on before: Confirmation Bias. To illustrate the core concept, allow me to call your attention to a quick puzzle which we sent around our office recently:  


You are given the numbers 1,2,4,8, and 16, and told to input figures which you believe satisfy the trend.


You input, 5, 10, 20, and 40, and are alerted to the fact that those numbers also satisfy the trend.


Next, you try 50, 100, and 200, and also receive indication that these numbers are correct.


From here, you can either continue inputting different numbers to test your hypothesis, or guess the trend. What did you guess? A large portion of people would have stopped at this point and simply exclaimed that the rule for the problem is simply multiplying the previous figure by two, but might not be the correct answer. The correct rule is simply increasing numbers, with no further stipulations. If you got the wrong answer, don’t get down on yourself, because you didn’t have the interface in front of you in order to test further numbers; but if you read through the example and were certain that the rule was multiplying the previous figure by two, you are guilty of confirmation bias.


Confirmation bias speaks to our inherent desire to seek out only information which confirms our own internal opinions. This helps us feel confident and further assures us that we are correct. Although this is a simple concept on the surface, the puzzle is meant to provide an example of how easy it is to fall into this trap. It also displays the importance of testing information which is contrary to your initial belief. In order to have a strong opinion on something, you must thoroughly disagree with the counter-argument.


In order to combat this, we attempt to surround ourselves with all pertinent market information, regardless of how it conflicts with our own view. Doing so, we believe, allows us to create a stronger conviction and a more well-rounded opinion.



It is hard to believe that in September we will be celebrating our 14th anniversary.  I guess time really does fly when you are having fun!  The following outlines team member’s time with MacNicol & Associates Asset Management:

Norm Di Pasquale, Technical Support                                                                      10 years

Naima Egal, Portfolio Administrator                                                                         8 ½ years

Jay Bryant, Portfolio Manager and Business Development Manager          7 years

Scott Baker, Portfolio Manager – Alternative Asset Platform                        5 years with MAAM and known for 25 years

Mark Dormer, Controller                                                                                               6 years and his firm since inception

Ross Healy, Portfolio Manager – Valuation                                                           2 ½ years with MAAM and known for 25 years

James Winckler, Research Associate                                                                          2 ½ years

Erin O’Connor, Portfolio Administrator                                                                   1 year in October

David Smith, Manager – Business Development                                                   1 year in November

We would also like to take a moment to congratulate our Research Associate, James Winckler, on completing his Level 2 examination.  After completing his Level 3 next June, he will be eligible to apply for his full CFA charter in January of 2016.  James is proud of the hard work and dedication which was required to pass this exam, and is looking forward to completing Level 3 and earning his charter.

Finally, I thought I’d give you an update on what our three kids are up to.  David Jr. graduated from the Ivey Business School at the University of Western Ontario over a year ago.  He has been with CI Funds ever since in their training program.  David also passed the CFA Level 2 exam after countless hours of hard work.  Sarah also recently graduated from the Ivey Business School and travelled with several friends around Asia for over two months.  By all accounts Sarah and her friends saw parts of the World we can only dream about and after getting her fill she is back home looking for full-time employment in the Financial Services sector.  Our youngest child, Ben, received excellent news in the spring that he has been accepted to the Ivey Business School.  As you can tell we feel very strongly about this school and the training it provides.  Ben will hopefully be adding an HBA designation along with his Urban Development degree.  He qualified for the Cowin Scholarship and is off to Bond University on the Gold Coast in Australia near Brisbane for an exchange term next spring.


I hope you and your family have been enjoying the beautiful weather we have had this summer.


All of the best.




David A. MacNicol, 

B.Eng.Sci., CIM, FCSI


Portfolio Manager

MacNicol & Associates Asset Management Inc.

August 2015