The TSX is closed today for Victoria Day.

Anyone who has been reading this for a while knows that I have not been advocating investing in stocks. Bonds have fairly consistently outperformed stocks over the past three months. Stocks are certainly cheap right now. A news headline pointed out that the stock market has fallen to a seven month low. This might be an excellent time for a long-term investor to buy stocks at low prices. The market is undervalued (oversold), even more than in recent weeks. But for anyone who can’t stand to see their investment fall below their purchase price, there is no indication that it’s the time to buy. Bonds continue to have greater momentum than stocks.

Over the past week, only gold provided a positive return (bonds were essentially flat). However, real estate (XRE) has enough momentum that I will continue to own it for this week. As an added bonus, it pays a small dividend and provides some hedge against inflation. My “asset rotation” strategy continues to outperform the stock market. There was a chance that the backtest might not be reliable, but the real-time performance is remarkable. Since July 2011 (about 10 months), my strategy is up 21% while the TSX60 (XIU) is down 17%. The performance will be less impressive (especially net of costs) during a time of lower volatility and positive market performance. But even just missing the negative periods translates into huge long-term outperformance.

Market Outlook May 21, 2012

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