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|Click here for Investing, Economics Mostly Index.|
|Novice Investors||What to Read|
|Dividend Ninja||The Loonie Bin|
|My Own Advisor||Dividend Monk|
|The Dividend Guy||The Passive Income Earner|
|Dividend Paying Companies||Dividends and Special Dividends|
|Dividend Paying Stocks and TFSA||Is Dividend Investing Dead?|
|Stocks that Raise their Dividends||Dividend Growth Stocks|
|Dividend Payment Cycles||Dividend Yields on Original Investments|
|Graham Number||Insider Trading|
|Debt Ratios||Dividend Payout Ratios|
|Price/Earnings Ratios||Yield and P/E In Different Directions|
|Saving for Retirement||When I Stopped Working in 1999|
|Where is Retirement Going?||Investing and Withdrawals|
|Living Off of Dividends|
|Easy Method to Buy Good Stocks||If You Are Just Starting Out|
|What Sort Of Portfolio Do You Want||Setting Up a Portfolio|
|Reasonable Stock Price||Buying Companies, Not Stocks|
|Stock Market Returns Long Term||Novice Investors Interview|
|Booms/Bust; Innovations/Risk Takers||The Good, The Bad and The Ugly|
|Bulls, Bears and Chickens (or Pigs)||Our Current Bear Market and Other Bear Markets|
|So, What If The Volitity Is Not Over||Investor or Speculator|
|A little Web advice||Accounting and My Spreadsheets|
|Sell in May||Investing In What You Do Not Know|
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. For a list of the stocks for which I have put up spreadsheets on my web site click here.
Monday, November 2, 2009
First, get a Utility stock. There are a number of good ones like Fortis (TSX-FTS), TransCanada Corp (TSX-TRP), TransAlta Corp (TSX-TA), Enbridge (TSX-ENB) or Emera Inc (TSX-EMA). The next thing to buy is a Bank or Financial Company. Examples of good conservative stocks would be Bank of Nova Scotia (TSX-BNS), Royal Bank (TSX-RY), TD Bank (TSX-TD), Power Financial (TSX-PWF), Power Corp (TSX-POW), or IGM Financial (TSX-IGM). The third stock to get, if you were very conservation would be another Utility stock as named above.
If you are less conservative, you might want to make the third stock a Consumer or Industrial Stock. Consumer stock you might consider would be Alimentation Couche Tard (TSX-ATD.B), Canadian Tire Corp (TSX-CTC.A), Saputo (TSX-SAP), Shoppers Drug Mart (TSX-SC), Richelieu Hardware Ltd (TSX-RCH) or Reitmans Ltd (TSX-RET.A). Industrial Stocks you might consider would be Canadian National Railway (TSX-CNR), Canadian Pacific Railway (TSX-CP), SNC-Lavalin (TSX-SNC) or Toromont Industries(TSX-TIH).
For the third stock you purchase, you might want to consider a riskier Utility stock in the communications area. Examples of such stock would be BCE (TSX-BCE), Telus Corp (TSX-T) or Rogers Communications (TSX-RCI.B). I do not follow Rogers Communications, but a lot of people have been suggesting this as a good dividend stock lately. Anther good utility stock to buy might be Pembina Pipelines (TSX-PIF.UN).
I do not think that you should move beyond 3 stocks until you have around $10,000 in each or a portfolio of $30,000 to $40,000. Once you have some investment in 3 stocks, you basically repeat the above purchase order. That is getting another Utility stock, another Financial stock and then, if you have gone into Consumer or Industrial stocks, getting one of them.
Once you have a decent size portfolio, you might want to consider getting a Real Estate Stock such as RioCan REIT (TSX-REI.UN). This is especially good if you do not own any real estate.
The last sort of stock you might want is a resources stock. The thing with most of the other I have talked about is that you can put them away in a portfolio and not worry too much about them. For resource stock, you have to keep an eye on them. They are much more risky and much more volatile than other stock.
When buying stocks, you want to get a quote first and compare this to values on my spreadsheets. If you do not have this with your trading account, or because they have good information you can use Globe Investor. To pick the stock, look at the quoted Price/Earnings Ratio and compare it to the 5 year median P/E for the high price and 5 year median low price on my spreadsheet. You want a P/E is that is between these two values, and the closer the the 5 year median low P/E the better.
The next thing to look at is the Graham Price. You want to stock whose price is close to the Graham Price. The Graham Price can be a trickier thing to compare. Look at the stock’s price compared to the Graham Price for the last 5 and 10 years. Some stocks never get at the Graham price level. If this is the case, you do not want a difference that is worse than the 10 year average.
Next look at the stock’s dividend yield and compare this to the 5 year median yield. Here you want a yield that is higher than the 5 year median yield. You also want to look at the 10 year median Price/Book Value Ratios and compare it the current P/B Ratio. A good stock price is when the current P/B Ratio is lower than the median P/B ratio.
At different points in time, some stock have a better purchase price that other stock. This can depend on what sort of market we are in and where we are in the Business Cycle. Also, the fall is the best time to do your stock purchases. What you want to do is to pick the stock with the best relative price at the time you are doing your purchase.
Wednesday, May 6, 2009
If you decide to buy stocks in a stock market, one of the important questions to ask yourself is what do you want to be? An investor or a speculator? If you want to be an investor, you are more focused on what your stock is earning you. You want stocks that at the least raise their dividend by the amount of inflation. A lot of good dividend paying stocks raise their dividend much more than the amount of inflation. These are the best sort of stocks to own.
We are currently in a bear market. Whether this is a secular bear market or a cyclical bear markets, I do not know. We could be pulling out of a cyclical bear market, or we could not be. There are lots of people that think we are in a secular bear market. They basically think that it started in 2000 and still has a number of years to run. This is like what happened in the 1970’s (1966-1982). If this is true, it might last until 2012-2014.
What has happened to my stock when we have had bear markets in the past? Whenever the market has fallen in the past, my yields have just gone up. Plus, the stocks I have bought have mostly increased their dividends over time. Since our current stock market troubles have started, I have had a couple of stocks decrease or cut their dividends, but most have done what they have done before. That is, increase their dividends. This means that I have continued to earn higher and higher dividends.
There are always cyclical bull markets within a secular bear market, so there will be times to sell. There will also be great times to buy. I am an investor, so I will continue to buy good dividend paying stocks and collect my dividends. I mostly focus on my dividends, and value my stocks and my progress with increases in dividends. I started investing in the 1970’s and there were companies then that paid dividends and increased their dividends on a regular basis.
So, what I am sayings is that I still think that the “buy and hold” method will still work. I just think that it all depends on what sort of stocks you “buy and hold”.
Monday, March 2, 2009
What I want to discuss today, is the long term implications of investing in the market. I was reading a book review of a new book called The Cure for Money Madness by Spencer Sherman. He talks about the predictability of US S&P 500. For every 10 year period, from 1926 to the end of 2008, this index had positive returns except for 2 years. For the 10 year period from 1929 to 1938, the return of -8.6% and the 10 years from 1930 to 1939 the return was -1%.
The 10 years decline in the stock market occurred during the most brutal years of the Great Depression. This was a time when the world's economy sank to its lowest point in recorded history. The heavy losses of the stock market crash give birth to the legendary image of investors jumping out of windows high above Wall Street. The losses in that market were very intense.
But another way of looking at this is that 97.3% of the time, the S&P 500 had positive returns for every 10 year period. Also, the S&P 500 had a higher return that one-month Treasury Bills 89% of the time. One-month Treasury Bills are about the safest investment. The S&P 500 also had returns higher than inflation 91% of the time.
What I want to turn to now is the TSX index. I have statistics for this index going back to 1957, the start of the index. See my spreadsheet at tsx.htm. If you look at the TSX index, the number of 5 year periods where the average yearly return on the index was negative is 2. These are the periods from 1970 to 1974 where it was -2.13 and from 1973 to 1977 where it was – 1.64. This means that for all the 49 5 year periods, the average yearly return was negative twice or 4% of the time. This also means that for these 5 year time periods, it was positive 96% of the time. There was no time period in the other periods where the average yearly return for the index was negative.
For the TSX, I also looked at how much of the time the return for the various periods TSX return was less than an average of 6% per year. For the 5 year periods, the 5 year average return was less than 6% for 16 periods or 33% of the time. Looking at the 10 year periods, the 10 year average return was less than 6% for 10 periods or 23% of the time. Looking at 15 year periods, the 15 year average return was less than 6% for 2 periods or 5% of the time. Looking at 20 year periods, the 20 year average return was less than 6% for 3 periods or 9% of the time. There were no other periods when the TSX return average per year less than 6%.
I also looked at the TSX index like Spencer Sherman for periods where the index return over the period was negative. For the 5 year periods, I found 3 times when the index declined over the 5 year period. The total 5 year return from 1969 to 1974 was -17.2%. The total 5 year return from 1972 to 1977 was -13.6%. The total 5 year return from 1997 to 2002 was -1.3%. There was only one 10 year period loss and that was from 1964 to 1974 and the loss was -1.1%.
The other thing we should consider is that dividends make up 30% of the TSX's total return on average. That means that the TSX total return is really 30% higher than shown by the index. So, if you invest in dividend paying stock, you can make very decent return over the long term. We need to keep this in mind when the stock market plunges as it has been doing of late.
Friday, February 20, 2009
What I want to talk about this afternoon is the saying, Bulls make money, Bears make money, but Chickens get slaughtered. There is a variation on this of Bulls make money, Bears make money, but Pigs get slaughtered.
The Bulls are an optimistic sort. They believe that stocks markets will go up. This does not mean you have to be a high-risk individual. You can invest in high quality stock and still be a bull. If you buy quality stocks, you will have little to fear from bear markets. For bulls, bear markets can offer great stocks at great prices. In Bear markets, all stocks tend to fall, whether they deserve to or not. Bear markets can then offer wonderful, once in a life time opportunities. The only reason you want to sell in a Bear market is if a stock you are holding turns out to be a real dog. You also might want to sell a stock, if another stocks looks like it is a better one for the future. You may sell low, but you can buy low, so this would be a wash, sort of. You should also remember that it is very easy to picks winners in a bull market. It is much harder to pick winners for the long term or in difficult markets.
Bears are pessimistic. Some people seem to be perpetual bears, always believing that bad thinks are around the corner. However, some are just realistic. We do have down markets and you can make money in down markets. People can make money in a bear market by what is called “short selling”. This is borrowing a stock to sell, that you will buy back later. If the stock falls in price, you will earn money. Say you borrow a stock and sell it at $10 a share. Later, if you buy it back at $5.00 you will make a $5.00 profit on each share. Another strategy is to wait until you feel the bear market is over and try to buy stocks at its end. However, it is difficult for anyone to tell when a bear market will end.
Pigs tend to be greedy. They are looking for the big kill. Once markets go up, they tend to think that this will happen for ever. You need to be reasonable in your expectations, and you need to know your history. No market will go continually up. Not only are pigs greedy, but they also tend to get emotional and impatient. They buy on hot tips, rather than personal research, or creating a plan with a financial planner. They forget that you should never, ever, invest in anything you do not understand. They should be more cautious and if a stock has a huge run up, it might be wise to take some money off the table. Pigs are the biggest losers in the market.
Chickens tend to buy too high and sell too low. This is because they tend to buy at market highs and sell at market lows. They tend to sell everything into bear markets and run for cover. Chickens often wait far too long into a bear market and sell far too late. This is why the saying has that “chickens get slaughtered”. If you have high quality stocks, do not sell into a falling market. I believe that you should never buy anything that disturbs your sleep. You can buy some guaranteed mutual fund products, and other guaranteed products, but the guarantees come at a price and are only sold by insurance companies. You may never make much money if you are void the market and never take any risk. There is nothing in life that is risk free.
What I am is a long term bull. When I buy stocks, what I am buying is a future income stream. However, there is no guarantee that my purchases will result in a future income steam. But if you take no risks, you will not earn much. I do my homework and research stocks I want to buy. I sometimes make mistakes, and hopefully I learn from them. I do not try to buy at the bottom and sell at the time. What I try to do is find good quality stocks at a good price. If I have a stock that runs far to high, I often sell some of it (that is take money off the table).
There is an article about this subject at Investopedia. There is also a Wikipedia for investors that is at www.wikinvest.com/ . There is also a book on this subject called "Bulls Make Money Bears Make Money Pigs Get Slaughtered" by Anthony Gallea. It is available at Amazon, see advert on this page.
Monday, January 12, 2009
As the P/E (Price/Earning Ratio) has gone down, the yields on stocks have gone up. This is typical of market crashes. Companies are very reluctant to reduce dividends, and those on such lists as the Dividend Aristocrats and Dividend Achievers will even raise theirs to stay on these lists.
Also, the Earnings per Share (EPS) is not an indicator for determining if a stock can fund their dividends in a downturn. What you need to look at is cash flow and liquidity. The cash flow to look at is that from operations. Liquidity is the difference between Current Assets and Current Liability. If a company has positive cash flow, greater than the dividend and the liquidity is fine (that is current assets are greater than current liabilities), then your dividend is probably safe.
Generally speaking, dividend yield runs on the TSX at about 2%, but this would have climbed quite a bit higher recently. Dividends are usually maintained in down markets because if a stock cuts its dividend, the stock price will fall like a stone.
Take Saputo (TSX-SAP), a favorite stock of mine. The in 2008 the average yield was 1.7%, but the current yield is 2.8%. Last year, the average P/E was 20%, it is currently at 13%. This also stock raised their dividend 16% in September 2008. Another favorite stock of mine is Pembina Pipelines, which last year had an average yield of 7.8%, but now has a yield of 10.8%. The P/E last year was around 16.5% and is now 11%. This stock also raised their monthly distribution in September by 13%. These stocks are still doing just fine.
Now, let’s look at the banks that did not raise their dividends. Bank of Montreal (TSX-BMO) used to have yields of around 3.5% and P/E around 13%. Now the yield is 8.3% and the P/E is around 8%. Royal Bank used to have yields around 3.25% and P/E around 14%. Now the yield is 5.4% and the P/E is 10.5%. Both these banks had lower EPS in their latest financial years ending October 2008.
So, if you are dependent on dividend income to live on, this is not such a horrible time as may appear. Yes, I have capital loses, on paper at least. However, so far, I have not done badly. The same thing happened in the last bear market of 2000/2001. Although I had, capital loses on paper, my dividends increased. The thing that happened was that my dividends did not increase as quickly as they had prior to the bear market.
Monday, November 26, 2008
In 1999, when I got laid off work, I knew that I had reached my investment goal, but at first, I did not think I could stop working. My salary was higher than I thought it would be and I thought I would need more income from my portfolio to retire. Also, my son was about to go to college.
I had always used spreadsheets to try to establish where I am financially, so here again; I tried to gage where I was. I used my previous tax package of 1998 to try to figure out what my taxes would be if I had no job and lived off my investments. I was very pleasantly shocked. If you do not work, you do not pay UI or CPP and if your income is mostly dividends rather than salary, taxes are a lot less.
Half of my investments were in trading accounts and half were in RRSP accounts. I realized that I should be taking money out of my RRSP accounts so as not to run down my trading accounts and keep some sort of balance between the two types. However, even doing this I found that, while there was a big gap between my gross income, before and after if I stopped working; it was a different story concerning my net income. There was no gap in my net income. In fact, I could spend a bit more.
This was the reason I felt I could stop working and therefore, I stopped looking for work. Now some 9 years later, and after two bear markets, I have more money than when I stopped working and I have lived off my investments quite nicely for these years. Hopefully the next 9 will be just as good.
Monday, November 10, 2008
Capitalist system works by boom and bust. It can be a very bumpy ride, but we all can win in the long term. The business cycle is not dead. I am not saying that there should be no regulation to temper the business cycle. However, you have to be careful as too much regulation can stop the economic expansion phrase of the cycle. You will not get rid of the economic contractions, but you can damage economic expansions.
Innovators and risk takers push the capitalist system. They push the economic expansions. We mostly benefit from this, but not always. This is one time when we are not benefiting much. In fact, this is why we have some of the current problems. However, if you slap down innovators and risk takers, or worse put them in jail, you discourage people from innovation and risk taking. If you do this, we can all lose. Here again, you can put a stop to economic expansions, but you will still get the economic contractions.
From what I can see, what you want to do is moderate the expansions. The higher and the steeper the stock market climbs, the lower and steeper will be its fall. So, putting in some regulations to keep the booms in check and some regulations to keep the innovations and risk taking in check, would certainly be in order. There seems to be lots we can do to kill economic expansion. Problem is, I have never heard of any economic contractions being stopped.
Business people (like CEO, CFO etc) are just people who are doing the best they can in the situations that they find themselves. I am not saying that there are no crooks; I am just saying that the majority of business people try to do the best they can. Humanity spend most of it’s time as a hunter-gather. Maybe under all our sophistication and our very complex society, we are just hunter-gathers at heart, just trying to cope with the world we have made.
November 4, 2008
Before building a portfolio, you have to decide what sort you and want you want it to do.
I have one that has income that increases above the rate of inflation (between 3 and 4%) and allows me to have some fun. I live off my portfolio, so I want my income to increase, but I do not need it to increase greater than inflation, which, historically runs at 3%. I have it increase slightly more than inflation as a safety measure. I also get to have some interesting investments in tech and dividend paying small and medium size stocks.
My portfolio has a sold backbone of large, increasing dividend paying stocks. I have a Canadian Trading account, a US Trading account, a RRSP trading account and a Locked-In RRSP Trading Account. Because of tax considerations, my Canadian Trading account holds solid increasing dividend paying stocks. The dividends in this account have increasing, on average, at over 10% a year. In this account, you will find such stocks that appear on the Dividend Achievers list at www.indxis.com/DividendAchievers.html and the Dividend Aristocrats list at www.tmxmoney.com/en/individual.html (see indices).
The main exception that is that I keep no resource stocks in this account. I do not feel that any resource stock is a permanent hold. Some of the stocks in my Canadian Trading account, I have had since the 1970’s. I do buy and sell stocks in this account, as this cannot be avoided, but I keep this activity down as much as possible. The last thing to mention is that, although I do not have resource stocks per say in my Canadian Trading account, I do have pipelines. I have to admit that this could cause me future problems as, some day, we will get off oil and gas and generate energy in more environmentally friendly ways. However, when this will happen, who knows.
My US account is in US currency and I do not have much here, as I do not do much in international investing. I recently moved some cash from this account as our Canadian dollar hit a low and it was a good time to take cash from this account.
Both my RRSP and my Locked-In RRSP accounts have some good solid increasing dividend paying stocks. Also, these accounts are where I place my resource stocks, tech stocks and small and medium size dividend paying stocks.
I have some income trust stocks in all my accounts. There is a trade off in high yield and low increasing dividends. If you have income trusts, or any other high yield stocks, you must decide what sort of trade off you want between yield and increasing dividends.
So, anyone with an investment portfolio should decide what sort they want and what they want it to do, and then you must invest accordingly. Do you want high increasing dividend income and are willing to settle for low yield? The above stock Dividend Achievers stocks might be the way to go. Do you want a higher income and are willing to settle for lower income increases? Then a mix of Income Trust stocks with increasing dividend paying stocks might be for you. Are you willing to have lower income increases and lower income so you can do some investing in non-dividend paying stocks? Then you may want your portfolio to have a backbone of solid dividend paying stocks, so you can indulge in other types of stocks.
You might want to combine any of the above with bonds for some greater income security. However, one thing is sure, if you invest money to earn money, you are taking a risk. That is why you get income on your money. Nothing in investing is an absolute sure thing. So, make sure you go with the level of risk you can handle.
October 20, 2008
Is our current bear market like other markets? There are many commentaries on this subject. You will hear people refer to other bear markets or similar problems occurring in the past somewhere. You probably also hear this bear market being referred to as a “Black Swan”. No, this bear market is not the same as some other bear market, but that does not mean there are no commonalities.
Mark Twain once said, “History doesn't repeat itself, but it does rhyme”. He is exactly right. The same thing came be said of bear markets, you will never get two exactly the same, but that does not mean they cannot “rhyme”. Do not try to deal with the current bear market as if it was like another one. This will not work. It is like Generals in a war, who are only prepared to fight the last war, not the current one.
So, educate yourself about bear markets to figure our how to handle this one, but remember, it is not exactly like any pass bear market. I have been through a number of these things since I started investing in the 70’s. I have also read about bear markets. Also, what is a bear market depends on point of view. You could have the point of view that the US and Canadian market are one long bull market, as they continuously go up. You can see it them as a series of bear and bull markets. When you read about bear and bull markets you will see that depending on who is talking, different timings are given.
What really kills stocks markets is if a country is invaded or if a country goes bankrupt. If you think that a Western country cannot go bankrupt, you did not hear about the problems New Zealand had in the 1970’s. However, I do not think that any Western country, especially Canada, is going to have such problems anytime soon.
When people are referring to this bear market as a “Black Swan”, they are referring to a theory or a concept that a phenomenon could occur even if no one has ever observed it before. See Wikipedia entry at http://en.wikipedia.org/wiki/Black_swan_theory for more information on this concept or theory.
October 9, 2008
The ugly is the current financial problems. The bad is that we will get hit by them. We are going to have a recession. The good is we will do better than most and much better than the US this time. The other good is that 4 of my stocks raised their dividend payments in September. These stocks were Manulife Financial, Pembina Pipelines, Russel Metals, and Saputo.
You really have to be well positioned going into a volatile market, such as we have. By and large, I have solid dividend paying stock and I stick with them. How am I doing? If you look at total market value, I am way down. If you look at dividend income, I am up. Two of my bank stocks, Royal Bank and Bank of Montreal, have not yet increased their dividends this year. I have not seen anything to suggest they intend to do this. They have had annual increases for quite some time. The other two banks I follow, the TD Bank (which I have) and the Bank of Nova Scotia (which I do not have) have raised their dividend this year.
If your portfolio is well set-up, as mine is; you will survive this market quite nicely. I do not expect this to be easy or worry free, but I will, in the end do quite well. No one knows how long it will take for the market to recover. If you have sold stock into this market, or cannot hold off selling, then there is nothing anyone can do to help you. It is only the ones who are not forced to sell or who do not sell, in this sort of market that survives well.
I mostly live off my investments, so I never have invested money I need currently. I always have money, together with expected dividends, to last 3 to 5 years. I have also try for the 4%, 8% solution. I try to make an 8% average annual return on my investments and I try only to spend an average of 4% of my portfolio each year. The implication of this is that I have an extra 4% to spend every year.
September 15, 2008 and September 17, 2008
Last Wednesday, I talked about a stock I had invested in that was a dividend paying stock that did not make it on such lists as Dividend Achievers. I got this stock from Mike Higgs’ list of dividend paying growth stocks. It is a different approach than the Dividend Achievers list. (Note: I am sorry, but Mike Higgs' no longer maintains his website, so I cannot reference this. Update of November 2, 2009.)
What is the relative advantage of this stock? A great dividend stock gives an average long term return of 10%. By long term, I mean 10 years at a minimum. Emera gives a long term dividend return of 4%. The other portion of the return would be capital gain. Capital gain or loss increases or decreases the value of your portfolio. In this case, you would expect an average capital gain of 6% on this stock. However, capital gain is very volatile whereby some years you would earn a lot more capital gain and some years a lot less capital gain. Some capital gain would involve a negative capital gain (or a capital loss).
For the Dividend Achievers, their dividend returns is usually about 2%. So for these stocks you would get 2% dividend return and 8% capital gain. Here again the capital gain would be volatile. So what is better? How do you feel about these scenarios?
What I am suggesting is that investing using Dividend Achievers’ list is not the only way to go. It is a good idea, but it is not the only good idea in investing in Dividend Paying stocks. Maybe a mix of these stocks might be a better approach. You might be well advised to look at Mike’s list.
When using Mike Higgs list, review the ones that have above average historical dividend yields. Check into what stock analysts’ say about the stock. There could be a lot of reasons why a stock dividend’s yield is high by historical levels. If the stock is in financial trouble, forget about it. However, the stock could just be a good buy. Remember, that you only really lose on a stock if it goes bankrupt or into a long term decline. Otherwise, buying a stock when it is at a low point can make you great long term gains.
For you to make good money on a stock, you must not overpay for it. It doesn’t matte what sort of list you get your stocks from, you should not overpay. One way of deciding if you are overpaying is to compare the company’s dividend yield to its long term dividend yield. This is not the only method, but it is a good one. This is what Mike’s list is all about.
Before purchasing a stock, you need to get some sort of stock analyst report. Just looking at the stock calls of Buy, Hold or Sell does not tell you all you need to know. You need also to know why these calls are being made and you can find this out only by looking at someone analysis of the stock. I get reports from my broker. If you cannot do this, if may be wise to pay for a report.
You can purchase research reports from MPL Communications Ltd at www.adviceforinvestors.com/. Since stocks cost a lot of money, it might be wise to see an analysis a stock you want to buy before you do your purchase.
Always get independent advice on investing from at least 2 sources.
Wednesday, September 3, 2008
You need to not only buy good stocks, but also you need to buy good stocks at good, or at least a reasonable price. Stocks can be underpriced and they can be overpriced. Stocks being fairly priced only will happen in theory. The purchase price of a stock makes a big difference to how much you make on a stock, even when buying the long term.
What I am going to talk about is a good method for deciding on when to buy a stock. You will use a list of good stocks and then check each stock against what stock analyst say about it before buying any stock. It is not, however, foolproof.
What you want to do is go to the Mergent Dividend Achiever’s list of the best Canadian dividend paying companies. Their list is at www.indxis.com/DividendAchievers.html/. To determine what stock analyst feel about each stock, checks the stocks at the Globe & Mail Investor’s site at www.theglobeandmail.com/globe-investor/. Enter each stock code in the “search” box, indicating it is a stock. Follow each code with a T. For Example, for AGF Management Ltd, use “AGF.B-T”. Another place to find out what stock analyst think, is to go to Daily Buy and Sell Adviser’s list at www.dailybuyselladviser.com/special_reports/index.html and click to download the Morning Call report.
You will notice that the stock analysts will vary on their recommendations. Some will say Buy, and others Hold or Sell. They all have a 5 point system, and they will make a call based on what the majority of the stock analysts think.
The Globe & Mail rates stocks as Strong Buy (1), Buy (2), Hold (3), Underperform (4) and Sell (5). Morning Call rates stocks as Buy (1), Buy/Hold (2), Hold (3), Hold/Sell (4) and Sell (5). For table on Ratings, see Analysts’ Recommendations and What They Mean
Say, according to Morning Call, there are 9 analysts and 5 say a stock is a buy, 3 say a buy/hold and 1 say hold. You should consider this a buy. If you take the Morning Call ratings, you would give the buys 1 point for each analyst (or 5 points) and buy/hold 2 points for each analyst (or 6 points) and the hold 3 points for each analyst (or 3 points) for a total of 19 points. Divide by 9 to get 1.5, which is a buy.
Tuesday, September 2, 2008
If you do not have much money, start with something like the TD Canadian Index fund or the TD Canadian Index-e Fund. They both have a MER under 1%. The Index-e must be bought online. The minimum payment is $100.00. The minimum payment amount is important if you are dealing with small sums. When you open a trading account, make sure that you know the rules. My son has a Bank of Montreal Investor Line trading account and minimum purchase for any mutual fund is $1,000. This can make a big difference.
Say you have saved a few thousand dollars for a stock purchase. When you make the stock purchase, you have a few hundred dollars left over. For me, I can just throw the money into a MMF or Index fund as I have a TD Waterhouse Trading Account. For my son, he can leave the extra in his trading account, earning no interest or move it to his chequing account earning some interest. The problem with moving it to his chequing account is that he is likely to spend it. If it were left in his trading account, in a mutual fund, it would be left alone.
If you can afford to make a purchase, you can purchase the iShares CDN Dividend Index Fund (TSX-XDV) or the Claymore CDN Dividend & Income Achievers ETF (TSX-CDZ). The iShares fund is 30 of the largest Canadian dividend paying companies, (see http://ca.ishares.com). The Claymore Dividend & Income Achievers fund reflects the Mergent’s Dividend Achievers list, (see www.claymoreinvestments.ca/about.aspx). The Mergent’s list is a list of the best Canadian dividend paying companies that have a history of increasing their dividends. This list is at Dividend Achievers list at www.indxis.com/DividendAchievers.html.
The value of going with either of these funds is that the purchase price is low, just over $20 a shares. Since you have to buy 100 shares, you can save just over $2,000 to make your first purchase. Most good stocks nowadays are in the $30, $40 and $50 range.