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The Look and Feel of Canadian Venture Market Bottoms (From 1981 to 2014)

The Look and Feel of Canadian Venture Market Bottoms From 1981 to 2014

The Look and Feel of Canadian Venture Market Bottoms From 1981 to 2014

Special thanks to Dajin Resources for sponsoring. Also, information on market bottoms compiled by Ron Loewen.

In December 2014, the deteriorating market for metals and a suddenly floundering oil price pulled the resource-heavy TSX Venture Index to an all-time low.

Big board indices such as the S&P 500 are still reaching new highs each week, yet this is the second longest bear market since 1932 for gold stocks according to Barron’s Gold Mining Index (BGMI).

While it is difficult to discern if today’s market is truly the absolute bottom, the similarities in media headlines, the tone of discussion, and overall sentiment are reminiscent of bear markets past. That is why, in this infographic, we look at some of the major headlines at market bottoms over the past 35 years including those from the most recent downturn.

When it comes to companies such as those that make up the TSX Venture, it can be incredibly hard to judge fundamentals as there are no earnings or steady revenue growth for most companies. As a result, these markets are driven by greed and fear even more so than other sectors.

It’s important to be a contrarian and to go against the herd mentality. This doesn’t mean going against the grain no matter what, but it means thinking and acting with conviction based on fundamental market truths – regardless of what other people say.

We know that markets, especially those tied to natural resources, tend to be highly cyclical. With the large capital investments and timelines required to advance projects, massive supply challenges must be corrected in subsequent cycles. This can lead to either a rush to buy or sell, and therefore bull and bear markets.

We also know that investor sentiment is largely a psychological phenomenon that can be tied highly with emotions rather than fundamentals. The media can be a big part in echoing or reinforcing this sentiment.

Take a look at the headlines in bear markets bottoms over the last 35 years – do you think we’ve reached a similar place yet in this cycle?

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  • WaskesiuT

    It would be interesting to know exactly how the TSXV Index is calculated. There are many (maybe 400+) viable companies with stock prices that could form a credible basis for index calculation. There are also a significant (600+) number of zombie companies with negative working capital that do not belong on the TSXV according to its own ‘Continuous Listing Requirements’. If those companies were removed, what would it do to the Index?

    • Very good questions. Many investors especially on the retail side likely take the TSX Venture index for granted, without knowing precisely how it is calculated. Definitely something we could cover in the future. I also find it interesting that companies not meeting the actual listing requirements are still lurking there. I wonder what would have to happen, or what set of circumstances would have to arise, for them to actually all be de-listed.

  • Kirill Klip

    Great presentation!

    Rick Rules: Capitulation In Gold And Resource Markets.

    Rick Rules gives us the very good description of the Capitulation in the Gold and Resource markets.

    http://kirillklip.blogspot.co.uk/2014/11/rick-rules-capitulation-in-gold-and.html#

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