Thursday 24 January 2013

What to do???


Canadian MoneySaver, Peter Hodson, canadian money saver, investing, stocks
Peter Hodson
One of the hardest things for individual investors to do is to know when to sell a stock. Many times, you might sell simply because a stock has gone up and you've made some money. More often than not, though, this is not a great reason to sell. You will never—ever—have a 10-bagger if you sell a stock after a two-bagger.

Most investors understand this in concept, but many practical reasons get in the way. First, for the average investor owning, say, a portfolio of bank, energy and utility stocks, it is next to impossible these days to even get a double on a stock. If you are buying larger, blue chip, dividend paying companies, you need to settle for a lower return, and might be very happy with a 10% gain. Or, many investors simply find they need the money, and just can't let a winner ride because life expenses get in the way. For retail and professional investors alike, it is always easier to sell a stock that is up.  Third, there is a whole army of market participants that WANT you to sell your stocks. Your broker may have a new investment idea that they want you to switch into. An analyst may downgrade a company, causing you to worry about its prospects. Short sellers may make you nervous about what you might not know about a company. Stock message boards might make you panic even more.

So, if you are an individual sitting on a 30%+ gain on a "normal" type of company (i.e. not a high-growth small cap or a resource exploration play) then what to do?

Here are some things to consider:

  • Compare your company's returns with the market's returns. In the post 2008 recovery, for example, even stable blue chips doubled. If you had an absolute return target in mind, you might have sold at that target and missed out on much bigger gains in the full market recovery. Always consider your gains in the context of what else is happening.


  • Watch the weighting of the company in your portfolio. Often, the best reason to sell is for diversification purposes. If you have more than 20% of your assets in any one company, then you are really taking a "bet" on that company, because your portfolio’s results will be tightly tied to its performance. That is not investing, it’s gambling. Selling for diversification purposes also helps you take the emotion out of your decision.


  • Watch the yield on your investments. If you can find higher dividends elsewhere, you might improve your income by switching into something else. Keep in mind, though, that you will likely pay 23% capital gains taxes, so if you are switching just for yield your new investment needs to yield that much more than your old investment, or you won't be any better off, after taxes.


  • Watch for dramatic changes at the companies you own. Rapid management turnover, increased debt loads, a change in business direction (like buying a brand new business unrelated to the current business) or adding tons of debt may also be reasons to sell. Basically, you want your companies to be slow and steady growers—boring yes, but boring is often the best when it comes to your investments.



If those are a few reasons for selling, what, then, might be reasons NOT to sell? I would suggest the following might not be good reasons to sell:

  • (a) Analyst downgrades. These happen too often, and, unfortunately, don't have a highly accurate track record;

  • (b) Missed quarterly earnings: In my view, if you have a five to ten year investment horizon and you sell because a company missed its 90-day earnings, you may need to examine whether you are, in fact, a trader rather than an investor.

  • (c) Insider selling: While I never like it when company executives sell their own stock, it does happen, so the executives can pay taxes, buy houses and so on. Rarely does it mean individual investors in the stock should sell also. One caveat here, though. If a senior executive sells ALL of their stock, it is generally a pretty good warning sign that something is not right at the company.

  • (d) Because it is up. Just because a stock is up doesn’t mean you should sell. Find out why it is up—accelerating earnings maybe, or better cost control. While it is true you will never grow broke taking a profit, you will pay taxes and may miss out on a true long-term winner. 

Peter Hodson, CFA
Editor
Canadian MoneySaver 

Wednesday 23 January 2013

The February 2013 edition!

The February edition going to print today! A great line-up of articles from Norman Rothery, Avrom Digance, David Ensor, David Stanley, Ed Arbuckle, Margot Bai, Derek Foster, Ken Kivenko, Jean McDonell, H Arnold Sherman, Eileen Reppenhagen, Ryan Modesto, Brenda McDonald, Rino Racanelli.
 

Sunday 20 January 2013

Question of the Week!



QUESTION OF THE WEEK
by RM Group of Richardson GMP



QUESTION OF THE WEEK


Surveys suggest the global economy is beginning 2013 with greater momentum than just a few months ago, but the big question is can it last?The U.S. avoided the worst of the fiscal cliff, at least for now with an eleventh hour compromise and more battles expected in the months ahead. The Fed remains committed to keep interest rates low until the employment situation improves significantly but it is uncertain how they will act once the unemployment rate reaches their specific target. Financial stresses in the Eurozone have eased with Spanish and Italian ten-year government bond yields at one and two-year lows, but there are a series of calendared events which could quickly disrupt the recent calm and reverse the recent trend in yields. Also, China’s economic recovery has gathered steam with stronger December data on trade and consumption, but can and will the trend continue?
Despite accelerating slightly of late, global growth remains quite subdued by historical standards and the global composite PMI for December is still lower than it was in the first quarter of last year. Even in the U.S., where the recovery is comparatively robust, GDP was growing at only about 2% in late 2012 and this pace will not move the unemployment needle lower. Economies in the Eurozone remained extremely weak at the end of 2012. Peripheral Eurozone bond yields are likely to move higher as Spain has made little progress in cutting its budget deficit and in Italy, elections in late February are likely to result in a coalition government which will find it difficult to implement the required structural reforms.
The upturn in activity in China has, like in the past, been largely driven by increased public sector infrastructure spending. Given there are limits to how much the politburo is likely to continue ramping up infrastructure investment, Chinese growth is likely to only match the 7½ % or so recorded in 2012.
Overall, we remain optimistic about the prospects for the global economy. But we are entering fourth quarter earnings season with stocks trading at 5 year highs. How much has been already priced into the equity markets is up for debate. The surge in the first few days of the year and the strong run in the last half of 2012 have pushed values higher and the litany of uncertainties or rolling crises have not gone away. We would not be surprised if one of them flares up and exerts pressure on the fragile pace of economic growth and a pullback in the equity and commodity markets.



Source: Richardson GMP Limited
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited. 

Take Control of Your Financial Future!



Interested in meeting Peter Hodson and other 
Canadian MoneySaver writers?  



We will be at the Vancouver World MoneyShow, April 18-19th, 2013, at the Pan Am Center.  Peter Hodson will be opening the show with his keynote speech.  Also, during the show, we are presenting a one and a half hour workshop.  Cost = free.  More information on how to sign up will be posted at www.canadianmoneysaver.ca in about a month or so.  But you can email us at moneyinfo@canadianmoneysaver.ca to reserve your spot.


While we are in British Columbia, we thought that we would also hold a Canadian MoneySaver seminar:  We look forward to meeting our west coast membership!!!!

"Take control of your financial future."
Canadian MoneySaver seminar



Where:  University of British Columbia
When:  April 20th, 2013.  8:30am until 2:30pm
Cost: $30
How can you sign up or learn more?  Call 519-772-7632 to register.
Who:
Avrom Digance


Avrom Digance, The Dividend Ninja.

"Sell Your Mutual Funds, Buy Index Funds and Dividend Stocks, and Start Making Money Now!”





Becky Wong




Becky Wong
"The power of leveraging: is it for everybody? is it risky?  who should use the strategy?"










Donald Dony



Donald Dony, 
The Technical Speculator
Stay tuned for topic info!











Tim McElvaine



Tim McElvaine, 
"Value Investing without Pepto Bismol"










Brian Tang


Brian Tang,
"Fundamental analysis of small cap stocks and exempt market opportunities."










Eileen Reppenhagen


Eileen Reppenhagen,  
Stay tuned for topic info!









Monday 14 January 2013

A Balanced Budget


My number one financial goal this year is to clean up my balance sheet.  A balanced budget and less debt means less stress and more (financial) freedom.  Worthy lifestyle goals indeed. To get and stay in the black, I devised a three pronged plan involving bringing my consumer debt down (all the way down to nothingness); developing a proper budget that doesn’t rely on credit cards for irregular and unexpected expenses; and creating an emergency cash reserve.  

Carrying consumer debt is not only expensive, but it can also damage a person’s joie de vivre with completely unnecessary stress and strain.  If I’m ever going to achieve my long term financial goals (which include luxuries like designer shoes, extended travel and working part time), then I definitely have to eliminate this bloodsucking debt.  A few interesting facts will help keep me on track. 
                
          (1) Buying something at 50% off is such a good deal that paying by credit card suddenly seems reasonable.  However, a card with a 20% annual interest rate means that a $50 purchase actually costs $104 (50*1.204) , if carried on the card for four years with no payments- suddenly its not such a good deal.  Unfortunately, I’m quite sure that I have done this a few times.  Purchases added on to card with a high balance already, while only making minimum payments plus $10 or $20, are charged the full rate until paid off.  

          (2) It doesn’t take long for smallish purchases to add up (I know from bitter experience).  And once they do, it is painful to pay off, and dips into my monthly budget tying me to it.  I far prefer the freedom of no monthly payments, except possibly for my car and mortgage or rent. 

          (3) The joy of the purchase fades almost immediately.  That sweater I had to have may even sit in my closet barely worn. 

Creating a budget that takes into consideration unexpected and irregular expenses seemed daunting at first, until I realized that I have lots of credit card history to draw from.  In the past, that’s how I paid for such unexpected expenses as getting my hair done, buying new work clothes (a necessity), buying new work out clothes (for health, also a necessity), birthday presents, car repairs and travel costs for out of town trips (hotel and meals, but not gas, that would be crazy).  Looking at my past credit card statements it became clear that I need to set aside more of my monthly income for these known, but irregular expenses.  The best way to do that is to pay off my consumer debt so that I don’t have monthly debt payments to make!  Another, less palatable option came to mind as well - spending less.  I will try to avoid that if at all possible.  I can make day trips instead of overnight trips, saving a considerable sum there.  I don’t need new clothes for some time now as I already have a closetful.  I’m also good for shoes, coats and workout clothes, darn it.  I recently extended my car warranty, so my car repair expenses are covered for a few years as well.  I will still pay for birthday presents by credit card when I buy them online to be delivered directly, that’s a convenience and money-saving step.  However, in order to avoid the dreaded build up of principal, I will be sure to pay for those purchases on top of my regular monthly payments.

The first two debt reduction strategies make a lot of sense, but why bother with an emergency reserve when interest rates are so low?  Wouldn’t contributing to my RSP or pension plan make more sense?  Only in a world where I will never need to use an emergency fund does that strategy make sense.  Otherwise, I would find myself increasing my monthly expenses (by using credit to pay for things like rent and food - ouch) at a time when I’m already strapped for cash.  How much do I need?  Most Financial Planners recommend a minimum of three months worth of expenses, more if your source of income is seasonal or unsteady.  Now that I have dollar amount to aim for, I need a plan to save for it.  Adding a monthly bill to my budget, to be paid to my savings account, is the answer.  

Goal planning experts tell me that I should reward myself once I have accomplished a difficult step while on the road to reaching a greater goal.    I think I’ll reward myself with a little shopping.  Ok, I’ll settle for a sangria.  But once I get there - I’m setting my monthly cash aside for my more self-indulgent spending goals (yes Christian Louboutin!).

By Julia Lawr, 
Canadian MoneySaver contributing editor

Thursday 10 January 2013

It's 2013!!!


It’s 2013 – a brand new year – and you, my friend are overweight. You are hitting the gym, you are pounding the treadmill and the elliptical contraption because you have 15 ugly pounds of fat on your frame that you did not have in November. With some hard, hard slogging – and maybe a closer eye on your food and wine intake – you will shortly be back to fighting weight!

Well, that looks after your physical being. Now, what about your own financial well being where your respectably-sized portfolio consists of 20 stocks, some in growth stocks, some in income-related equities? You may think you are diversified but what would you think if someone were to tell you that not only are you weigh-scale overweight, but maybe also way out of whack in terms of your portfolio weighting as well?

What do we mean? Well, since you have 20 stocks in your $400,000 portfolio, but you are terribly imbalanced – and therefore greatly at risk – if you don’t keep an eye on the individual valuations of those holdings. In an ideal, or near-ideal world, each of those 20 holdings might be valued at $20,000 – give or take a bit here and there – but not in your case because you are looking for a home run, a grand slam.

Instead, you’ve got 18 stocks – again, comprising both growth and income – each valued at something like $15,000, totaling in the order of $270K. And with the remaining $130K, guess what you’ve done? Yes, you have plopped $65K into each of two small-cap growth speculative stocks with a supposedly promising outlook, but with debt, no real revenue or earnings history. You have $130,000 of a $400,000 retirement portfolio sitting on two “story” stocks – and there isn’t a single, solitary person on God’s green earth who might have a single, solitary clue how it all might pan out.

In other words, you may be too greedy, not an investor at all, or at least an overly optimistic one. You are not truly an investor, and you are not investing smartly; instead, as the late Dusty Springfield once sang, you are doing nothing more than wishing and hoping, hoping and praying, all on behalf of some kind of avarice-based dream.

And why, oh why, might we say that? Because, simply, those two $65K “story” stocks can come crashing to Earth in a heartbeat. A single horrible quarter, a single large lost contract, a single major management misstep can cut stock values in half, or even worse. They can turn your dreams of riches quickly into nightmares.

Oh, sure, you might get lucky and things might pan out beautifully. But when you are 50 years old – with limited working and investing years remaining – you simply don’t have enough time to make up for significant investment error.

So, here’s what we think: If a 20-stock portfolio makes sense to you – and it does to us as well – think in terms of the “six-per-cent solution”, a strategy under which you would allow no single holding to exceed six per cent of your portfolio’s overall valuation. If one of your holdings goes on a nice northward run (and good on you if it does), then it may well be time to consider trimming your position and holding some proceeds in cash – or add to your other holdings – while you decide what to do next.

Let’s get right to the point: Back in the day, everyone you met had a horrible Nortel story to tell because they hung onto Nortel far, far too long without even considering a portfolio re-balance. These days, similarly, everyone seems to have a nasty Research in Motion tale because they, too, thought RIM's stock price was heading straight to the sky. The “six-per-cent solution” certainly would not have eliminated investment losses in those stocks, but would have made those losses much, much easier to bear. 

Tuesday 8 January 2013

Where did you put your money last year?

QUESTION OF THE WEEK
by RM Group of Richardson GMP 

http://bit.ly/13g2LOc

2012 ended on Monday of this week, where was the best place for Canadians to put their money last year?
 


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QUESTION OF THE WEEK

2012 ended on Monday of this week, where was the best place for Canadians to put their money last year?


In order to answer this question we need to look at index returns in different countries and adjust those returns for the difference in foreign exchange rates as Canadians would have to convert any foreign returns back into Canadian dollars. So we’ve compiled a list of major exchanges around the world and provided you with their Canadian dollar returns in 2012. We have included some countries that are not considered important in the world of equities, but were certainly topical last year such as Greece, Portugal, Ireland and Spain. So what did 2012 Canadian Dollar Global Equity Returnswe find out? Greece’s Athens Stock Exchange provided the highest return, but let’s be serious here, the return may have been the highest, but so was the risk. With respect to a country where you’d likely have a more realistic risk tolerance, it would appear that Germany’s DAX offered the greatest return advancing 27.9%. The worst return amongst the group was the Brazilian Bovespa Index which fell 6.0%, although Spain’s IBEX was not too far behind. Canada’s TSX Index was positive in 2012, but ranked near the bottom amongst the other exchanges and underperformed the S&P 500 for a second year in a row. What some investors might find interesting is that most of the Eurozone countries that are in financial difficulty managed to post positive returns in the equity markets, but again, the risk profile of investments in those countries is much higher than investing in Canada. It was also interesting to note that the Shanghai exchange in China did manage to post a positive return, but it was very small when compared to Hong Kong and a struggling Japanese Nikkei. Next week we will take a look at commodity returns.



Source: Richardson GMP Limited
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited. 

Tuesday 1 January 2013

Happy New Year!





The New Year often causes individuals and investors alike to take stock of their lives and   portfolios.   


We are not keen on New Year’s Resolutions, preferring a year- round approach to improving your portfolio and your life. But if you are the Resolution type, then we have some for you. Here goes:

(1) Maximize your tax-deferred accounts. In addition to your RRSP, don’t neglect your contributions to your tax-free savings account. The government has just increased the annual contribution limit for the TFSA, to $5,500 annually. Use it!

(2) Take a look at your investments. If you have a stock that is way down from where you bought it, and you are ‘hoping’ it will recover, then sell it. Investing is different than hoping. If you have a stock that you are not willing to buy more of— right now—then it is time to get rid of it. Even if you think it will at least stop declining this year, the lost opportunity elsewhere can be costly.

(3) Take a look at your mutual fund statements. If you own a mutual fund that has more than 100 different securities in it, then—guess what—you own an index fund, or at least one that will perform in line with the index. Too many positions dilutes active management, so you might as well sell that fund and buy an ETF instead. The difference in fees over the long term will be a huge boost to your investment returns.

(4) Stop trading your investments so much. Buy good companies, and keep them. Don’t try and ‘trade around’ positions. The costs of trading and the bid-ask spread as well as taxes (if applicable) just aren’t worth it. Besides, if you own a good company, why would you ever sell it?

We think it will be an OK year for investors. Maybe not great, but there will be still be lots of opportunities to make money. There are lots of bad headlines, of course, but that is nothing new. Dividends continue to rise, and the economy is slowly getting back together. 

Enjoy the Year!
Peter Hodson, editor