Thursday, February 17, 2011

RRSP update and foolish common sentiment.

I saw an article in the Toronto Star today about RRSP's and how some guy Tim of Markham wasn't about to invest in his RRSP this year because he's afraid the market is too volatile..  He really should read my blog.

Tim is sadly the last fish on the food chain.  He's availed himself to believe exactly what the mainstream media says.  Since all they report about is the doom and gloom on every market downtick and completely neglect the past few weeks that have been HUGE gains day after day after day.  If you're the last one to the race, you've already lost.  Sorry Tim.  Wake up and smell the constant growth and consistent increasing income offered to you buy even the smallest positions of the big banks.  Remember how much you pay in fees for your chequing account every month?  How much interest do you give your credit card company every month?  And if you're not as impoverished as myself, remember how much extra you have to pay for your house in the form of mortgage interest...  Several years of your life are all working just to pay the interest on your house.

To be honest I'm glad there are many people like Tim out there.  When he decides it's time to get into the market, it's probably high time for you to get out!  All the gains have been had and things will be looking to retreat for a while.

Additionally, if you are in a tax bracket where you owe a substantial amount of money to the government then you're an idiot for not contributing.  By contributing to your RRSP you pay less tax to the government.  Any dollar you pay in tax is a 100% loss and never to be seen again.  You surely see examples of government waste on a daily basis that tick you off.  Guess what!  Your tax dollars paid for it!  So the more you can contribute to YOUR RRSP, the less of your money goes to pay for this government waste. 

Yes you will have to pay tax on the money later when you retire and need to live off of it, but that's the advantage of any RRSP investment plan.  You pay less tax when you contribute, the gains are not taxed while inside the plan (so things can grow faster) and you can remove money from the plan at a bare minimum rate so the amount of tax withheld is a minimum.  (Based on the fact that you will need less monthly income to fund your life in retirement because your housing costs will be lower since you've paid off your house by then, or downsized and moved into smaller digs, or all of your children have grown up and are fending for themselves).  So you can withdraw money only at the rate which you need it.  (And if you've followed my instructions to date most of your income will be coming from your TFSA plan anyway, so you'll barely scrape the bottom of the lowest tax bracket!)

So Tim, I have only one question for you: you like giving your money to the government?  If you're so afaraid of the market volitility you can always buy government bonds, GICs or heck, even savings accounts that are RRSP., ING Direct and Presidents Choice Financial are all offering RRSP savings accounts in the 1.5%-2% area.  So you know you'll still have your money when you think it's safe to invest.

Just remember folks: when Tim thinks it's safe, that means it's time to sell all you have!  NOW NOW NOW is the time to invest.  Plus, for the younger people who read this blog you have 40+ years.  It's perfectly OK for your holdings to dip 15-35%.  Just look back to the financial crash 2 years ago.  The big canadian banks fell in value to half of what they previously were.  If you had held, you would still be up today.  It would have been uncomfortable looking at a 50% paper loss, but hold fast and keep collecting those dividends. 

If you had invested $10,000 in 2007 in any of the big banks, it would have fallen to around $5000 during the 2008/09 crash.  But today, that would be worth $12,000.  (Ish... depending on which bank you bought)  NOT including the dividends you would have collected.

Also, if you had set your stop and stayed out your $10,000 would have sold when it was down to $9000.  And if you had the wherewithal to say out and wait for things to settle your remaining $9000 could have been turned into $20,000 had you caught the market bottom... even if you were 3 months late to the party too!  (Full disclosure:  I chose to HOLD most of my positions.  I only stopped out on a few things.  It's hard to react well to day after day of craptackular market performance...  I saw some opportunities but I was too chicken to embrace them.  I did catch a couple good ones in the first quarter of 2009, but by then it was VERY clear to me that things were back on the up and up.)

In conclusion: don't be Tim.  EMBRACE volitility.  EMBRACE your friends/relatives/collegues/enemies market FEARS and buy when they sell.  Stick with me and 40 years from now you'll be living large.

Next time: how to embrace volitility

Disclaimer: My commentary is a collection of my own thoughts and opinions.  I'm sharing with you why I do what I do.  If you choose to follow my advice do so at your own risk.  I have made money, but I have also lost money.  Be careful, be prudent and don't risk everything you have and everything you can borrow.  If you lose it all you have only yourself to blame.  I can't be held liable since you're the one doing your own trading!

Tuesday, February 15, 2011

market madness

The stock market is a skittish, paranoid, insanely crazy beast.  And no doubt you've all heard the media blathering on about the doom and gloom of the market.  Mainstream media however rarely reports on when things are good or chugging along status quo.  Sensationalism in the media is key these days so if it's bad they report it...  If it's good, they don't give a crap.

However, this is good for YOU!  Yes, you.  Why?  Simple.

The more the market panics (which it does with nearly systematic frequency) this is your opportunity to buy.  I can hear you shaking your head, "RED means STOP!"  True, it does if you're driving a car, and true but it's also a signal to buy.

Sure, the market might continue to go down more (and you shouldn't put all your chips on the table at any one time anyway) but every time you see red, this is opportunity.  GOLDEN opportunity.

You have to remember who you're up against...  day traders are skittish.  They want to get in and out in a matter of minutes (or even seconds) so they are the first to bail when things go south.  Next along the food chain would be hedge funds and then next the big institutional holders.  Eventually this pops up in the media and then joe-6-pack decides to check his holdings, discovers they have gone down considerably and then makes the call to sell everything to preserve what little he has left.

Are you making money of misery?  Perhaps, but everybody who sells any kind of investment product or sells any kind of investment advice (and me who's giving it away for free) all have disclaimers, warnings and liability covering statements: past performance is in no way indicative of future performance.  So if Joe's Manure Inc. has been going skyward for the last 3 years doesn't mean anything.  If all Joe's cows get mad-cow disease and get destroyed by the government, Joe is up the creek until he can get new cows.

But, if you can wait, Joe's business will be full of crap in no time and you'll be back on track to gains.  There would of course be a crash in his stock price while he gets his new stock ready for action, and then a slow recovery.  So if you wait it out you'll still be in the game.  If you panic and sell at the bottom, you're up the creek without a paddle!  (And yes, the thought of coming up with a pun regarding the contradictory aspect of "up the creek without a paddle" vs Joe's main industry... har de-har har.)

The same can be seen time and time again in the stock market history.  Provided of course you're not buying fly-by-night operations.  (This is essentially almost the entirety of the junior mining/exploration sector)  If you stick to a core holding of the big Canadian banks then you won't have missed a beat.

If you examine the American banks during the financial disaster, they stopped paying out dividends, the stock prices collapsed and many of them exploded completely.  Meanwhile, the Canadian banks were unable to continue raising dividends...  They kept them the same!  They were still making money hand over fist so they naturally distributed the profits to share holders.  The share prices did fall however with the world market.  Why?  The market is insane.  However this represented a HUGE buying opportunity.  I did manage to buy some shares of TSE:BNS for about $27 each.  I sold them a few months later for $43.  Yes yes, I should have held on to them and I'll buy some more of BNS again.  But I had some bills to pay.

Disclaimer: I'm offering free advice.  Bear that in mind before you wager your entire life's slavings.  (Yes, slavings)  If you lose it all, don't come to me and say I didn't warn you.  I try to make that painfully clear EVERY post of this blog.  You may lose money in the market.  I'm offering up what I'm doing with MY money.  If you choose to take my advice then do so at your own risk.

termonoligy catchup glossary

For those of you who are not adept in the mystical/magical art of searching for terms/expressions/recipes that do you not know then let me shed some light on a few of the ones I've used in my past few posts.

stock/stocks/units - the small slices or pieces of a company that are traded either publicly or privately.

position(s) - (get your mind out of the gutter!)  A holding or ownership of some units of a company.  eg:  I have a small position (of 100 shares) of "Joe's manure Inc."

Stock Exchange/Market - The "farmers market" for all of the things that get traded on the stock markets.  Which generally includes: stocks, bonds, warrants, debentures, mutual funds, ETFs, options, futures, forex and of course commodities.  (I'll explain some of these later... eventually)

Mutual fund - A mostly horrible contraption built by banks and financial companies that hold portfolios of stocks.  The idea being you have diversity all wrapped up into one product.  So when one stock in the fund tanks the whole ship doesn't sink.  (Think Titanic!)  These funds are not openly traded on the stock exchanges (They trade after the market closes every day) and have lots of rules regarding how they can work.  They are often "actively manged" which means they have lots of expensive staff working hard and long hours which costs the fund.  (They take their slice of YOUR pie even if they lose your money)  Don't get me wrong, some mutual funds are great.  But they are hard to find.  (Sprott Asset management has a couple nice funds that actually do very well.  Full disclosure:  I own some Sprott010 - Small cap equity)  Also, they have fees out the ying-yang!  They often charge you money to buy them, they charge you when you sell them, and they charge you for the management!  Talk about a great product... for the bank/financial company that is!  (That's why I highly recommend buying shares of the banks and financial companies that sell these products rather than the products themselves!  Then you win even if the funds go up or down!)  The one good thing about these funds?  There is no brokerage commission to buy or sell.  (But there might be a fee from the mutual fund company, so read the prospectus!)

ETF - Exchange Traded Fund.  These are far less horrible contraptions...  Generally speaking of course.  They too are very often a portfolio of stocks but the rules are very different than the previously mentioned Mutual funds.  They trade actively on the stock exchanges and you can buy and sell your positions very quickly if you change your mind or the market tumbles.  They do have management fees but are often very very much lower than the mutual fund "brothers".  You aren't charged any fees (as the fund companies like to call them : loads) to buy or sell (except for your brokerage commission to make a transaction) and the management expense fees but they are rolled into the price and to be honest, you really won't notice them unless you're buying a bond ETF and hold on to it for 40 years...  Even still, you probably won't notice.

Profit - duh... new money.  Either found in the couch, on the street, a tax refund, or the successful sell of some stock for more money than you paid for it.  eg: you bought 100 shares of Joe's Manure inc. for $5.  Thanks to a stellar "crop" from the cows the past few months, Joe's reported better profits.  The traders on the market liked this news and started buying more shares.  The result (due to supply and demand) the stock climbed in value to $7.  You promptly sold your position for a profit of $200.

Loss - You're a dope and lost money.  (Full disclosure: I'm a dope too!  But not all is lost since capital losses in your TAXABLE accounts are 100% deductible against any of your gains.  However if you're trading inside a registered plan (like I told you to) then yes, losses are indeed lost forever.

Liquidity - How fast can you buy or sell your shares/units?  It all depends on how many other people are trying to buy and sell.  The more shares that trade on any given day means the more liquid the stock is.  IE. you can liquidate your holdings quickly if you want out.  Many of the real estate trusts I recommend are NOT very liquid.  So there can be huge swings in price in the very short term because nobody is buying or selling so the price has to go WAY up or down to catch a buyer or seller's interest.  Don't sweat it, there is a easy way to not get bitten by this.  Which I'll explain in a later posing.

Monday, February 14, 2011

An angry rant: don't fall for the mutual fund company propaganda!

I was talking to some friends at work the past few days and continue to hear about how much mistrust and mystery they have about the financial world.

EG:  My friend was proudly talking about her progress with some of the funds she had, and they had appreiciated 15% in the past year.  While some of you might think this is well and good, (and a 15% profit is good) it's a HUGE miss from even the most conservative portion of my holdings.  (excluding the bits I day trade)

Why is a 15% profit bad you ask?  Easy, in the past year the TSX has gone up 25%  (feb 2010 to feb 2011) and the big 5 Canadian banks have gone up 25-35%.  This means her holdings fell BEHIND everything else 10-20%.  This is effectively the same as losing money in the market because your few dollars will now buy less.

The more I think about it, the more I want to bulk up my holdings in the following:
TSE:BNS - Scotiabank
TSE:RY - Royal Bank of Canada
TSE:TD - Toronto Dominian (I don't own this one yet)

Also there are these neat things called index funds.  They have holdings that effectively follow/track/mimic the performance of the indexes they follow.  And index funds are a great thing to have.  The ETF versions are better since they generally have lower management fees and you can bail on them quickly if necessary.

I like the Horizion Beta Pro product that uses Leverage (and a few other tricks) to track the index but at a 2:1 rate.  So if the market goes up 1% you gain 2%.  If it goes DOWN 1% you lose 2%.  Generally speaking though, markets do go up over time if you're in it for the long haul.  (If you examine any 15-20 year brick and look as far back as the stock markets go, you'll find few 20 year periods where you would lose money if you holdings tracked the index)  This one is can be found @ TSE:HXU  You can flip it quickly or hold it for a while.

Just remember: Buy on FEAR, sell on GREED.

If the market falls and the media starts blathering on about how much it's fallen today, then this is your chance to BUY BUY BUY!  But when you see things go up for several days/weeks in a row, it's time to consider selling or reducing your position to take a little profit!

Disclaimer: Don't sue me.  I'm broke.  Follow my advise at your own discretion.  I can't be held responsible for your shoddy research.  My opinions are mine and for me alone so if you lose everything, you fully agree by having read any part of my blog that you won't sue me.  If you're lawyer thinks otherwise, this means you immediately agree to pay me $1,000,000 and pay for any legal expenses I might incur.

Wednesday, February 9, 2011

diversity... for real this time.

While betting all your money on the longshot horse looks good in hindsight (provided the longshot actually won) it's better to look with a broader focus when it comes to investing your hard earned dollars/euros/food-stamps.  Rather than trying to play the odds my approach is also not without risk, but it stands a much better chance of picking the winner.

So where is this crystal/magic 8 ball that I get my ideas from?  Actually it's easier than that.  If you want to bet on the ponies fine... but try something considerably less exciting than the $100 long-shot.  (because 400:1 odds says 399 losses and 1 win... maybe.  The only guarantee: if you don't bet, you keep your $100, but you have a 100% chance of winning nothing.)  Yes, the more I try to analogize this, the more circular and obtuse my logic gets.  Perhaps the horse track is a bad example because not much of that industry is a sure thing.  Looking after the horses however is good business.  Stables, training, grooming, feeding and waste removal.  As for investing ideas in this area don't ask me...  This was really just a bloated analogy.

Summary: if you bet everything you have on "one horse" you're a fool.  Mind you you might be thinking I'm hypocritical because since your starting small you might only be starting with one position.  But if you started with a Canadian big bank, then you're not betting on "one horse" so to speak.  But you're betting on approximately 1/5th of ALL of the business in Canada.  So that doesn't even seem like a bet any more does it?

Also, it helps in the beginning if you buy things that pay dividends and distributions.  Why?  Since you might not have much income for investing, the investments give you some which you can re-invest into something else, or withdraw and spend frivolously on a 24h bender or that big TV you always wanted.

Note: This is perhaps somewhat a contrarian view as 99% of "professional investment advisers" will say you should buy mutual funds and go for capitol gains when you first start investing as a young man/woman/thing.  There are 2 reasons they advise this: fully managed accounts generally do not charge commissions on mutual fund purchases so you can buy them in small amounts.  (Like your $25 a week)  AND mutual fund companies pay your adviser through what's called a "trailing return."  I like to think of this more of a bribe since they are stealing your money to get your adviser to recommend their product.  But since you already read my rant about mutual funds I'm hoping you generally stay away from most of them.  (Some are good... some are fantastic!  It's just hard to know what actually does do well because historical performance is no guarantee the fund will do well next week.)

Next time: why I like what I like

Disclaimer: if I'm your only source of investment advice then please stop now.  Go back home and put your pennies back in your sock drawer.  My advise may lose you money (in the short term if you panic).  The goal of course isn't to lose money and you have to stick with it.  My recommendations are a 40+ year commitment.  Which is hell I know since you still are dealing with discovering what is a "need" and what is a "want" and you're still dealing with a healthy dose of youthful stupidity.  Please I beg you, plan for tomorrow!  The world isn't going to end any time soon and I don't want you out begging on the street.

Liability: by reading this you MUST accept liability for your own actions.  I can not be held responsible for any actions YOU did.  Do your own research beyond my weekly dose of brow-beatings.  If you lose everything, please check the nearest mirror to establish blame.  If you made some big gains, then great!  Come visit and buy me a drink.  (This is not a requirement... I'm giving you an excuse to party if you need that type of thing)

Friday, February 4, 2011

how many eggs in how many baskets? What's next?

I'm sure you have already heard the old adage, "Don't keep all your eggs in one basket!"  And I know you said to yourself, "WTF!  I don't even like eggs!  What am I?  I substance farmer?  Dammit, where are my eggs Benedict?!?!"

If this is indeed the case, I shall attempt to share some wisdom with you since you're still an investing noob and don't know your posterior from a hill of beans when it comes to investing.  You perhaps even at this point are still leery of me, my ideas, and this whole "investing" thing since with financial meltdown in the past few years and the media choosing only to broadcast doom and gloom, plus with your substance income up to this point, you're saying I want my money NOW!

Well my friend, you're a douche.

Get your damn head out of your arse and start investing in your future...  And not just in "get rich quick scheme 2011 Inc."  Because they aren't in it for you, nor will you ever get rich from them.  (Protip: You can make money if you bet against them since they clearly aren't in it for the long haul.  How?  SHORT sell it and enter a "zero-bid" to close out your position after they go down the tubes.)

But since I haven't explained how short sells work yet, let's rewind (yes, that's becoming a very dated term now) and get some diversity in your portfolio.

If you started with my advice, you're now the proud owner of some shares of one of the Canadian big banks.  Since I told you to buy them (last week) they have gone up in value around 2-4% depending on which big bank you bought.  (minus your commission of course)

So what now?  I wouldn't sell it just yet.  Your position just closed a few days ago!  Big Canadian banks will thrive now, next week, next month and for as long as Canada exists.  Canada still has some draconian leftovers from eras gone by when large scale protectionism was the norm.  We're only recently challenging some of this old stuff thanks to the folks at Wind Mobile.  Canadians don't want real choice!  We want to be robbed!  (Well... at least the ones who own the stocks do!  And now you own a little slice of that so take yer profit and shaddup!)

So lets say your slow and steady savings of $25 a week has now hit $500.  You do have enough money to start buying other interesting things.  (And things that I like)  You could add to your position with your bank and that wouldn't be stupid, but it wouldn't be terribly advantageous.  $500 will only get you 6-9 shares of any of the big banks.   It's time to buy something smaller.

How much smaller?  How about something in the $4 per share range?  That will let you buy 100 of something.

I like AAR.un.  Its called Pure Industrial Real Estate Trust.  And if you haven't yet gleaned from the name, it's a real estate trust and they only manage/own industrial properties.

Why do I like it?  It pays over a 7% yield and Canada is a big industrial player.  Market forces since the crash back in 2008 have kept the price down, yet they continue to pay consistent monthly yields.

The industrial sector in Canada should be making some decent recovery/improvements/gains/increases in the next few years provided the global recovery keeps soldiering along.  (Slow and steady is far far better than an instant return to previous levels.  I'm happy it's taking so long.  It means things are realistic and sustainable!)

If you buy 100 units, you get a whopping $2.50 per month for distributions.  But put $425 in your savings account and see how much you get after a month.  ($0.75 if you're lucky)

I bought some, I've been holding it for quite some time now.  I've continued to add to it, little by little.  It's gone up nicely in value all the while paying me 7%+ yield. 
It has gone up and down a bit but hold your horses and hold on to it.  They pay you to wait.

Full disclosure:  I currently have a LONG Position in AAR.un. 

Next time: will I ever stop digressing and missing the point of my posts?  Hopefully yes and I'll explain why it's good to diversify for real!

Disclaimer: My recommendations are for me and me alone.  If you follow them and lose everything, you need to look no further that the nearest mirror to establish the guilty party.  I can not and will not accept any liability for MY decisions, since they are based on my efforts and my research.  It's my money to win or lose.