Monday, August 17, 2009

Casino Bus Riders

The Blue Chip Bus

I was driving to work today with Sheldon Liberman, portfolio manager for the investment firm CastleMoore Inc. We were on the highway being passed by a bus heading for Casino Niagara. Chinese letters and two-foot poker chips were painted on the side of the bus. We were quipping about the phenomenon of gambling in our culture and wondering about the minds and hearts of the enthusiastic passengers on that bus. And this was all happening before nine a.m!

Based on the fact that there were so many blue poker chips painted on the bus, I joked that the passengers were probably all financial planners and mutual funds salesmen.

Shel shot back with the following conundrum: has the expression “blue chip” lost its meaning? Blue chip used to refer to higher quality safer investments. But in 2008 the biggest insurance company in the world [AIG], the biggest bank [Citibank], the biggest stock broker [Merrill Lynch] and the biggest mortgage company [“Fanny Mae”] all needed to be bailed out. And in 2009 General Motors, formerly the world’s biggest auto company went into bankruptcy. It seems that blue chip stocks have become the area of highest risk in the stock market.

Maybe my guess that the casino bus was full of financial planners was closer to the mark than I first thought. Mutual funds salesmen are trained to sell the products of the biggest mutual funds in the industry. Somehow they have been trained to believe that huge mutual funds companies are safer than the smaller companies. Somehow big blue chip is touted as being better for their clients than small, efficient, entrepreneurial. Maybe that’s the problem with Canadian investors’ RRSPs: we are too heavily exposed to the blue chip sectors of the stock market and the mutual funds industry. Canada’s financial planners just keep betting on the favourites and losing.

In my book, Beyond the Bull, I observe that stock market rules change from time to time. And if we plan to accumulate a lot of capital for our retirement, we’d better take these rule changes into account. Right now it is clear that Sheldon is right: the meaning of the phrase blue chip has changed. Somehow “blue chip” has come to mean “dysfunctional” and “high risk.” Yet somehow the financial planning/ mutual funds community has not yet picked up on it.

Ken Norquay, CMT
Chief Market Strategist,
CastleMoore Inc

The Amazon links for Beyond the Bull are:


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