The forest for the trees

As investors, we tend to get caught up in the fact that the stocks we buy and sell, when you strip away all the hype and/or pessimism around them, have some sort of quantifiable, underlying value to them. They're worth something in absolute terms, we reason, every time we buy a stock. If they didn't, why would we buy? They don't bring us any pleasure or improve our lives in any way, really, like a consumer product might do. They're pure financial instruments, so what's the point of buying them if we're knowingly paying too much for them? It must be quantifiable somehow, we tell ourselves.

But as much as I understand, and to a certain extent believe in, concepts like fundamentals, efficient markets and intrinsic value, the thing I'm learning as I age as an investor is that ultimately, none of of these companies are worth a penny more than what somebody else is willing to pay for them at any given time.

Among numerous other things to his credit, Ben Graham came up with the concept of Mr. Market. Mr. Market was essentially the collective wisdom of all the other investors but yourself, setting the prices for what he was willing to pay for any given security, often regardless of what the business was worth yesterday or how much money they actually make. He sometimes goes by different names, but Mr. Market has since made an appearance in a variety of different investing books.

I thought I understood the parable, but it's really hitting home of late, because my own stocks have been quite volatile for the last few months. Sometimes, I've been able to pin it on one particular event of piece of news. But often, I'll watch my stocks gain or lose several % in a single day without any idea why it's happening. I find it hard to learn from those sorts of situations.

Value investors like me love the thought that they're buying stocks "on sale." The rest of the market may not like it, but we're the kind of people who secretly cheer when a blue chip company's stock gets hammered, because it opens the door to us owning the company "for less than what it's actually worth." But really, there's nothing to say what a stock is going to be worth tomorrow, much less 30 years from now.

As much as we can try to ensure we keep an eye on things like cash flow, low P/Es, dividends and whatnot, ultimately, there isn't a thing we're going to be able to do if our cash-generating, dividend-paying, recession-proof blue chipper isn't catching Mr. Market's attention at any given time. Our options then are the same that they always are: sell to him for whatever he's willing to pay, or hold in the hopes he'll change his mind later.

Something to keep in mind at the moment, while you watch your blue chippers sink like a stone despite growing earnings, and wonder why.

So be good, for goodness sake...

There's a limit -- I discovered after 6 straight hours on the couch in my parents' house where I was visiting last Sunday -- to just how lazy one man can be.

Desperate for something that could credibly pass as "productive," I decided to do a little Christmas shopping at the mall near my childhood home, so I headed out the door on foot. About halfway there, a rather portly, older man shoveling his drive caught my attention.

"Hey," he wheezed in my general direction. "Want to make a little money?"

Shoveling driveways for $10 apiece through the neighbourhood was a business I thought I'd left behind when I was about 16, but I could see the guy was struggling, so I picked up a shovel. I told him he didn't need to pay me anything, that I was happy to help him do it for free, but he protested: "If you're not going to let me pay you, you can go on your way right now because I'm having none of that," he said, reaching for the shovel. I'd welcome anything he felt was appropriate, I told him with a shrug, and set to work on the unplowed lower half.

We worked in tandem -- I did the heavy lifting, so to speak, leaving him to clean up whatever I missed along the edges, once he'd gotten his breath back. We made small talk to pass the time; he moved onto the street a few years after my parents did. (The fact that we'd never crossed paths before made me feel somehow awkward, I don't know why.) Turns out, he has a son about my age I used to play road hockey with very occasionally.

One sweaty half-hour later, I was finished. He held out a tentative twenty-dollar bill, which I sheepishly grabbed once I saw the look of concern on his face. I thanked him for his company, and continued on my way.

It wasn't until I rounded the corner that a sudden pang of guilt hit me. Shouldn't I have been a little more insistent about not being paid? I'm sure he would have appreciated the good turn. Leafing through my wallet, I found the guilty $20, and wondered how to rectify the situation. My head was halfway through a plan to put the bill in his mailbox with an anonymous Merry Christmas note attached when I spied a better alternative. Rolling the bill up, I slipped it into the Salvation Army box to the right of the mall's entrance doors. The woman watching it smiled and thanked me for my donation. It made me feel warm inside -- which was great, considering the chilly job I'd just finished.

All in all, it was just the kind of return on investment I was looking for.

Cuando, cuando, condo?

What with the no less than 9 semi-erect condo towers I pass every day on my 25-minute walk to work, it's clear that Toronto is in the midst of a full-blown real estate love affair. Part of it is justifiable -- as more people come to this economically sound and culturally active city, there's going to be a need for high-density accomodations so we can house them all sustainably. So I'm not some anti-condo NIMBY by default. But even I've got to say that the whole phenomenon seems to be getting out of hand.

As far as I can tell, the target demographics for these condos appears to be two groups. 1) Twenty-something young professionals who have been priced out of the downtown house market and want to live in funky parts of town, or 2) affluent middle-agers who want to use their wealth to custom-make a living environment for themselves that requires absolutely no maintenance. I don't hear of many condo owners who aren't in one of those two groups.

I'm solidly in the former group, which means you'd assumed I'd be excited about the plethora of developers out there who are more than willing to give me an alleged deal on some pre-built unit. But I'm really not feeling it. Mainly, I find the concept of condo fees really distateful (I can't imagine how frustrating it would be to diligently pay off my mortgage and then still owe some idiot $500 a month, to, I don't know, shovel the sidewalk or something) but there's more to it than that.

It dawned on me recently, as I was sketching out a crude monthly budget on the back of a napkin, that somewhat amazingly, I can probably financially afford to buy a condo right now. I have enough of a down payment squirreled away that if I took the money I'm already paying in rent, plus the money I divert into my savings every month, I could more than afford to carry a mortgage in the $150K-$200K range -- more than enough for a starter one-bedroom in this town.

And yet, I have no immediate plans to do so. Some of that is probably cold feet about having to "grow up" and put my plans to run away to some adventure (there's always been a little Peter Pan in me) but it's more than that. Granted, I'm young enough that I'd have enough time to get my money back if I was patient through any sort of real estate crash, but that's a leap of faith I'm not prepared to take at this point in my life.

To be sure, I'm not predicting a cataclysmic correction in Toronto any time soon. The city has a strong economy, and is still a very cheap place to live on a global level. But the returns we've been seeing have been too high for too long. If I have to listen to one more person gloat about how easy it is to make money in real estate because their condo has doubled in value in 10 years, I'll scream. Eventually, the music's going to stop and I'm not willing to be the last man standing.

Maybe next week, I will be.

Dude, where's my infrastructure spinoff?

Pleased as I was to get a stake in a blue chip name like Brookfield Asset Management during a temporary retreat in the stock price, I'm a bit mystified by the radio silence the company has had since releasing their plans to spin off their infrastructure assets into a separate company in July.

From the release: "Brookfield Infrastructure will focus on high quality, long-life assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, by virtue of barriers to entry and other characteristics, tend to appreciate in value over time."

Sounds like my kind of holding. But the company hasn't said a peep about this plan since the original July announcement, and I'm wondering what's going on. The spin-off was meant to take the form of a special dividend of $1 per Brookfield share, and trade on the NYSE. I assumed it was somewhat imminent, but here we are, five months later, and still nothing.

I'm sure the plans haven't materially changed, but I'm still puzzled by the lack of information. I've been poking around on the company's filings on SEDAR but I can't seem to find even a vague mention of a date anywhere. It's curious.

The claws come out

Apparently you can add the United Way and the Canadian Institue of Actuaries to the clamour of voices calling for a complete overhaul of Canada's Employment Insurance program.

And while you're at it, there's a new adjective at your disposal to describe the rules: draconian.

I must admit I'm a bit mystified as to why this is all happening now, but I guess somebody's getting some serious mileage out of their lobbying dollars.

The truly troubling thing in all this, to me, is that that $54 billion surplus isn't sitting in some bank account somewhere -- it's actually rolled over into government spending with the promise to pay it back if it's ever needed. Does that sound like a deal you'd like to sign up for? An entity taking $54 billion more of your money than it needs in exchange for a service, with the nebulous promise that it'll be reimbursed to you should the need ever arise? I don't think so. Why not -- oh, I don't know -- put a stop on more contributions until that surplus has been eaten into a little?

I can't wait to see who else steps up to kick EI in the teeth while it's staggering on the mat. My guess? The Canadian Taxpayers Federation. But I'd also bet the Libertarian Party of Canada is lacing up a steel-toed boot as we speak.

Dollar daze

Since hitting a high of $1.10 on November 7th, the loonie has come down to earth in a big way and is currently trading around 98 cents U.S. There was quite the hubbub for a few weeks as Canadian investors and consumers tried to digest how their suddenly potent currency was affecting their financial lives.

On the consumer side, we read stories about lineups at borders fat with people discount shopping on the other side, and angry shoppers demanding that prices be lowered here. On the investment front, people like my dad who did "the right thing" and diversified a few years ago by buying up U.S. stocks were seeing red as all of them were in negative territory after several years. Even if they were up in nominal terms, they were well down in absolute terms after the effect of the 50% higher loonie was factored in.

People like me, who bought into what they deem to be solid U.S. firms at the loonie's peak purchasing power point, seem to be in position to do well, as those stocks have been given an automatic boost from their intrinsic value.

Long term, I have no idea what's going to happen with currency fluctuations. If I had to bet on it, I'd say that the loonie will spend more time looking up at the U.S. dollar than it will looking down on it in the coming years -- our natural resource wealth notwithstanding. So I wouldn't doubt that I'll be looking fondly back on my purchases of Berkshire Hathaway and ACAS, seemingly at the exact right time.

But I would say that just as the loonie's meteoric rise to parity and beyond was swift and largely built on people getting too excited about Canada's impressive fundamentals, so does the rush to kick it back down to size seem to be happening too suddenly and too universally now. Sometimes we just never learn, but a loonie in the 90 cent to $1 dollar range U.S. while this commodities boom plays out certainly seems plausible to me.

Surveying the damage -- November net worth

Not exactly a banner month for the ol' portfolio.

Net worth went down by nearly 2% for the month, and that's after the $1000 of new cash I put into it during the month. There were fluctuations throughout, but the real mover and shaker was Biovail.

I didn't write a post on the company's latest woes because frankly, I'm tired of writing about them, but suffice to say it's hard to bounce back when your largest single holding loses more than 10% of its value in a month.

I've been really close to dumping the entire thing, cutting my losses and putting what's left into something steadier, but I still think the market's overreacting to it. They've got cash, and they've got new drugs slowly coming along the pipeline. I just need to be patient. That dividend will tide me over. Time will tell if my instincts are right on this one, but for now there's no denying it's an ugly blotch on my portfolio.

Still, there's no accounting for luck sometimes. The stock market's been open for less than an hour today, for example, and Google Finance informs me I'm already up $500. Much like Kyle Wellwood, this too, shall pass.

The BMO Yo-Yo

I wasn't expecting good tidings when my RSS reader stomach-punched me with the headline "BMO earnings drop 35%" earlier this week, but such is the craziness of the stock market at the moment that it was actually received as good news.

The stock is up more than 10% since they posted their results.

The theory, I gather, is that everyone is relieved that BMO has laid their cards on the table so they can see how bad the damage is, and the results weren't as bad as anticipated (they actually beat analyst expectations) if you don't count the one-time writedowns.

So now it's onward and upward, and everyone just keeps piling back into bank stocks despite the fact that their underlying business is in the exact same condition it was this time last week, when people were running for the exits. Apparently that's what you call an efficient market.

Me? I'm standing pat. I don't have any more RRSP room for the year, and I'm in the red from my initial purchase price of $71 for BMO in April. If it's at that level or lower in March when I'll have cash and fresh contribution room, I'll throw some more in. If not, no big deal -- I'm in it for the long haul.

I can't claim to be as zen-like as Mr. Cheap is when his margin-bought dividend payers are in the red, but I'll survive.

EI update

Last week, news that a think tank deemed Employment Insurance biased against women, and now, Toronto Mayor David Miller has a bone to pick with the program.

The rules are overly harsh against Toronto, the mayor says.

36 per cent of unemployed Montrealers qualify for EI, whereas only 22 per cent of unemployed Torontonians do, the mayor claims. Since those people are generally pushed on to welfare -- a program the city pays a part of -- it's not hard to see why Miller's complaining here. It goes with his long-standing beef that Canadian cities are paying more than their fair share of society's infrastructure.

An interesting story, but I wish the mayor -- or perhaps, more accurately, the story in the paper -- listed a few more specifics about how and why, exactly, the rules are unfair to Toronto, according to him. That more unemployed people in Calgary (there's an oxymoron) get EI than do in Toronto is largely irrelevant. I want to know the reasons for it, if there are any.

Maybe I'll see what else I can find on Miller's views on the Internets.

money mistakes

I suspect that when Canadian Capitalist asked readers to submit stories of their money mistakes in honour of his wonderful blog's third birthday he was expecting nice, neat little narratives about people changing their habits, learning lessons and vowing never to do them again.

I've got a few of those I could share, but for me, my major money mistake is an ongoing one -- albeit one that I'm diligently working on.

In a nutshell, my mistake is accepting less than I've paid for. In a myriad of circumstances. Whether it's my current pissing match with Canada's largest bank, not getting around to returning defective merchandise because I'm too lazy to get around to it (but vowing to "never go there again" -- as if that's going to do me an iota of good) or even something as seemingly innocuous as accepting substandard service because I think it might be awkward to have the audacity to actually ask for what I've paid for.

Not that I want to turn into a fire-breathing penny-pincher overnight, but the lunacy of obsessing over reducing fees in my investment portfolio on the one hand while throwing good money out the door on, say, being charged twice for orange juice while ringing me through at the cash register, has struck me of late.

I realize I'm coming off as a bit of a cheapskate here, which is unfortunate because I'm actually willing and eager to pay top dollar for the things that are genuinely important to me. But the never-ending leeching of money to things that don't fall under that category are just death by a thousand cuts.

I have a friend who's an absolute peach to those to know her, but she has a well-deserved (and hilarious) reputation for absolutely, positively refusing to give an inch when it comes to business dealings that don't live up to her expectations. She's always the first to pick up the tab for a round of drinks at the bar, but don't you even dare think of sending her a chest of drawers with an almost-indecipherable scratch on the back, tell her the rental car reservation has been lost, or try to tack on a previously-unknown service charge for something. I can't count the number of times she's regaled me with stories of apologetic CEOs leaving messages on her answering machine. The e-mails are almost as good.

It's sort of a lifelong process, but I think continuing my efforts at change in this regard would do a lot of good for my finances without making me insufferable to those around me. If nothing else, I'll probably have better stories. :)

Is EI sexist?

I already have a feeling I'm stepping into a hornet's nest on this one...

Came across some interesting reading today -- especially pertinent considering Krystal's recent job loss and subsequent need to apply for employment insurance to tide her over until she's back on those field-hockey-playing feet of hers.


A report by the Canadian Centre for Policy Alternatives claims that EI, as it's currently structured in Canada, is biased against women. The report says that while 40% of unemployed men qualified for EI in 2004, only 32% of women were. The reason for this, the report concludes, is that unfair rules concerning how many hours your have to log to qualify are stacked against women. In the words of the report's authors: "it doesn't take into account the fact that women have to be out of the workforce for periods to look after their children and that may make it harder for them to qualify for benefits." (italics mine)

Is it me, or is that a curious position to take?

I won't dispute that women, the way our society is currently set up, do a disproportionately large amount of house and family-related work. And I imagine that certainly would put a damper on their career opportunities, or indeed any other aspect of their lives. But isn't it shooting yourself in the foot to set out on a feminist cause that something is biased against women, and then say "women have to be out of the workforce to take care of children" as one of your arguments at the same time? Is that not making a pretty large deductive leap that that's what all women want? Or worse, are worth?

To me, the real meat of this issue is the face that EI, as it's currently set up, is taking in far more money than it will ever pay out in premiums because of too-restrictive requirements to qualify. That's for everyone, whether you quit your job to have children as a man or a woman, or whether you're a seasonal worker somewhere. The cards are simply stacked in the casino's favour, here. I expect that sort of activity from a private insurance company, but not from a government entity allegedly doing this as a service to citizens. EI rakes in a $2-billion surplus a year, and currently is sitting on more than $51-billion since it was revamped in the 1990s. More than $51-billion or your money!

You can argue all you want that the EI system is unfair, but I'm having a hard time seeing the sexism. There's nothing that says women have to be the ones who stay home, or work reduced hours, to take care of kids, just as there's nothing that says men can't do the same. Under these rules, if a man left his job to raise children, wouldn't the system be just as unfair to him?

I get that there's a systemic inefficiency here. I'm just not seeing the sexism. The argument that we need to revamp EI so that women can go back to making babies seems like a ridiculous one to me on many different levels.

Food for thought, anyway. I'd love to hear feedback from women in the comments.

This just in -- banks like money

Regular readers will recall my post last month about how I finagled my way to a free chequing account at RBC. Through their multiproduct fee rebate, anyone who holds an RBC chequing account and at least two other qualifying RBC accounts has their regular bank fees on the chequing account waived.

I thought I qualified because I have an RBC Visa card and my self-directed online brokerage is RBC Direct Investing, but alas, the latter didn't qualify under the program since it was a different division of RBC. Undeterred, I sat though a 20 minute phone call with RBC, and after eventually getting transfered to the right person and pleading my case, I was assured I qualified for the rebate.

Or so I thought. It's been more than a month since that call and I recently got my monthly statement where (surprise surprise) I'm still being charged monthly fees. I've called RBC numerous times trying to get it sorted out, but the response is always the same -- "anyone who said she'd bend the rules for you to apply shouldn't have said that, because I don't qualify for this promotion. Please buy one of our crappy GICs instead."

Bad move. I haven't quite pulled the chute on RBC yet (the logistics of transfering my Visa Card with tens of thousands of RBC points, not to mention registered and unregistered investment accounts to another broker make me queasy) but I have gone out and signed up for a President's Choice No-Fee Chequing account. I already park my savings in a PC high-interest savings account, so signing up was a snap. 10 minutes at the kiosk across from my office, and I was done. Free cheques, no monthly fees. Beauty.

At the moment, it's sort of an insurance policy. I want to be 100% sure RBC isn't going to play ball before I play the "close my account" card with them, but even if they accede there's no harm done. The PC account has no fees, so I'll probably just transfer some money into it and collect points when I buy groceries, since I go to Loblaws for groceries to begin with.

I suppose there' s a slim chance this is all a misunderstanding and the RBC's recent fee was simply the last month before they'll be waived from now on, but since I don't have the name or phone number of the person at RBC who said she'd credit my account, I have no way of tracking that person down to make sure that's the case. As I said, in all my dealings since then, I've been given the distinct impression that I'm SOL.

I still shudder at the thought of having to transfer all sorts of accounts and bill payments away from RBC, but the satisfaction I'd get in the end may be worth it. There's simply no reason to pay bank fees in this day and age and there's simply no reason to put up with crappy service when others are only too happy to do business with you.

I'll keep you all posted on how this plays out. And RBC, you're on notice.

A modest proposal

A resounding BRAVO to the people behind this little beauty of an organization.

Dedicated to maximizing the utility of the "exciting, fast-growing demographic" known as the working poor, the Predatory Lending Association is truly fighting the good fight. I urge you all to sign up for their newsletter and contact your local politicians, to make sure North America's treasured payday loan businesses aren't lost forever. There are only 22,000 of them across the United States left, and they loaned out a mere $40-billion last year.

We're running out of time, here, people. If you're not part of the solution, you're part of the problem.

Be sure to check out the site's informative FAQ section:

Myth: The government should regulate predatory payday lenders.
Reality: Although it is true that our government regulates some free market activities such as prostitution and drug abuse, payday lending is fundamentally different because it is a financial service.

Rome is burning

You know, I can't emphasize enough how much I hope that the hoopleheads camping out on the street for a week for the privilege of owning one of the 1 Bloor St. condos in 2011 get what's coming to them. Whatever that may be down the line.

Although I must admit, I admire realtors' resourcefulness in hiring college students to sleep in the street in their stead. Who else has time on their hands and a keen desire for money? Gotta love the market system.

Change can be good

I changed jobs a few months ago, and a somewhat-unexpected cost of that change is that my hours have been turned completely around. I used to have a fairly conventional 9-to-5 (ish) gig, but I now find myself not going into the office until the early afternoon and subsequently not getting home until 9 or sometime 10 o'clock.

On the surface, it doesn't really bother me. I sort of take the position that one day I'll have to grow up and get a "normal" job that forces me to deal with gridlock traffic or crowded subways and a blaring alarm at 7 a.m. -- why not enjoy my ability to sleep in until 10 and stay out as late as I want for as long as I can? But it's safe to say this sort of arrangement poses a problem when dealing with family members who have a more conventional schedule. In my case, "family" consists of my girlfriend (whom I've lived with for a few years) who has a regular 9-to-5 gig.

My getting home near 10 o'clock is particularly troublesome, however, with regards to planning and having meals. She gets home at 6, and quite logically, starts to think about dinner after a long day. But she's a peach, so she generally gets cracking on the cooking in the interim, while I hurry home as soon as I can. Best case scenario? We're sitting down together for 9.

How do abnormal meal hours relate to personal finance? I'm glad you asked. Before this recent change of ours, one thing we used to do quite a bit was go out for dinner. Not out or laziness or inability to cook for ourselves (we're actually quite good in the kitchen, if I do say so myself) but because we enjoyed the experience of dining out.

I'd say we averaged one dinner costing about $100 (for both of us, wine included) every few weeks. I can already hear the latte factor diaspora throwing up a little in their mouths, furiously calculating what that money would have done after 20 years in a no-load index fund, but what can I say -- it was an extravagance I was willing to allow myself because we both enjoyed it and I managed to save my couple of hundred a month into a rainy day fund anyway.

But now? We haven't been out for dinner once since my new job started. It hasn't really been a conscious effort, but when you're getting home from work at like, 9:30, and one of you has to be up at 7, it's not really an option. We eat dinner at home out of necessity, and that tends to be a lot cheaper.

My free time, ergo, tends to be before work in the mornings and early afternoon -- not exactly prime socializing time. So it's not even just my food budget that's been slashed -- it's entertainment too. Going out to have a few beers after work, watch the hockey game, eat chicken wings and convince oneself that the waitress thinks you're hilarious used to be a major outlet of my disposal income. But I don't really do that anymore either, since I don't seem to be living on the same schedule as anybody else I know.

It all adds up, is what I'm trying to say, so I find myself with a lot more cash around than I used to. Finding ways to spend it during the hours of 9 a.m. and noon proves difficult. I also get a modest shift differential stipend for working during evening hours. My new job pays less, on paper, than my old one did. But for the reasons outlined above, I actually find myself with more cash in my pocket at the end of the month than I used to.

Just one more way money issues can often work themselves out in ways you didn't imagine.

The anti-picker

I know, I know, obsessing over the stock market's short-term fluctuations isn't investing, it's speculating, but geez -- it's tough to feel any confidence about one's decisions in the stock market at the moment.

Take my latest move (editor's joke: please!) of putting the remainder of my RRSP contribution for 2007 into Nasdaq-listed asset manager American Capital Strategies earlier this week. I liked the company's history of steady-but-significant capital gains, but I fell hard for that juicy dividend yield, so I jumped in on Monday.

What's happened since? You mean besides having the equivalent of an entire year's worth of distributions knocked off the company's market cap, you mean? Not much.

Truth be told, I don't think it's all that dire. I still don't see how and why the subprime boogeyman is applicable here, although the company did run across some nasty news about a bankrupt subsidiary to get the slide started. But ultimately, I'm really just venting here. I have nothing drastic planned, whether it's liquidating the position or increasing it. Staying in it for the long haul is just how I roll, as the kids say.

I shouldn't actually feel too bad about myself -- after all, everything's down. The other thing I was considering for the funds was plowing it into BMO, but it too hit a new 52-week low today.

We're all in this together. The sun'll come out tomorrow, and all that...

You should hear her views on mortgage-backed securities

I must admit I got a bit of a chuckle from the story this week that supermodel Gisele Bundchen, the highest-paid model in the world, is apparently bearish on the U.S. dollar's prospects, as she's insisting on being paid in euros from now on.

Warren Buffett doesn't see any end to the greenback's misery any time soon, nor do a whole host of more intelligent economists than I. But as far as I can tell, this is the first time a supermodel has extolled the virtues of international currency diversification.

And you're right -- I have no good reason for posting this picture. But it should increase the number of clicks I get.

Feel free to insert any joke you can think of relating to "appreciating assets" right about here.

Trading note

As discussed previously, I finally made my second RRSP purchase of the year. I'm now the proud, only marginally anxious, owner of $3000 worth of American Capital Strategies, a Nasdaq-listed diversified investment manager. I liked the the company's track record of steady performance in good and bad markets, so I'm confident of modest capital gains. Plus the firm boasts an impressive dividend yield of nearly 10% -- so I'll get paid while I wait.

I'm sure U.S. equities have a ways to fall yet as this subprime / real estate mess plays out, but I like ACAS's odds of standing up better than most (what was it Benjamin Graham wrote about a margin of safety?) and over the long term, the U.S. is going to remain a powerhouse of the global economy. Running away and hiding simply isn't an option.

The fact that my loonies go further than they ever have before is the icing on the cake.

Banks 2.0

When most people think of Web 2.0 applications like Facebook, YouTube and Myspace, they don't really equate them with big business and high finance. But that doesn't mean the banks aren't dipping their toes in the water. The banks are moving into Facebook, with both RBC and TD sponsoring their own personal finance-related groups to try to court new, young customers. I sort of find the idea of stodgy old banks starting a toehold on facebook kind of funny, but it's serious business for their perspective. If You can't get Mohammed to come to the mountain, bring the mountain to Mohammed, I guess. TD's group boasts more than 10,000 members, so maybe it's working.

Me? I have my doubts. When I hear the word "YouTube," I think of an inexhaustible catalog of videos of dudes getting hit in the crotch. Not exactly the kind of "sound investment" I like to put my money into, but what do I know? Market darling Google thought enough of the potential to slap down $1-billion to own YouTube outright, and who am I to disagree. Then, last week, Microsoft bought a tiny ownership stake in Facebook, in the process valuing the company at more than $15-billion. I have my doubts that Facebook will be able to maintain its popularily with users once the endless parade of unsolicited "friend requests" from commercial entities start flooding inboxes, but I've been wrong before.

From an investing standpoint, I wouldn't touch these companies with a 10-foot pole, but once the baby boomers have been squeezed for every penny they're worth, the industry needs to move on to the next generation of financial illiterates.

The fact that they're all hanging out on facebook at the moment might be as good a reason as any to stake your ownership claim, or failing that, make sure your product is being pitched with reckless abandon on it in the interim.

It's happening before my very eyes. All in know is this -- some people are going to make a lot of money in this trend, and some will lose a ton. Whether it's shareholders or facebook users that are left holding the bag remains to be seen.

Net worth update

You just never know. After a few months of mediocre progress, my net worth jumped an impressive 4% last month, and I barely noticed.

Just goes to show what an automatic savings program and a little luck in the stock markets can do for you.

I'm now at more than $36,500, a little bit off my ambitious end-of-year goal of $40,000 by the end of 2007. I didn't think I had a hope of making it, but two more months like this past one and I just might. if I don't, I was swinging for the fences anyway.

I'll be making my second (and final) RRSP purchase of the year in the next few days. I had planned on diversifying more into U.S. equities, but given the worsening subprime crisis down there, coupled by the undeserved hammering Canadian banks have taken of late, as of this moment I'm leaning toward doubling down on BMO when the cash clears into my account. I'm sure my mind will change in 20 minutes though.

I'll keep you posted.

I'm in a rut

I'm in a bit of a professional rut. Thanks to the temporary nature of employment in the dead-tree medium, I changed jobs two months ago and I must admit, I haven't quite settled in yet. Part of it stems from the fact that I never wanted my last job to end. I enjoyed the work and my colleagues, so was left with a bit of a bad taste in my mouth for how it all ended -- with me not being given a full-time position after being assured for more than a year that it would all work out.

So, much like the romantic who's reluctant to open up his heart again, I've been remaining purposefully guarded at my new job, for fear of becoming attached to a positive situation because I'm convinced it's going to be snatched away from me at some point. I hesitate to say I've been "mailing it in" because I've been applying myself, but that sort of emotional detachment from work can't be good for long-term career advancement.

I've also found myself missing writing quite a bit. When I launched this blog, I didn't really see it as an opportunity to write, since I had a job where my everyday duties consisted of writing. But lately, my subsequent jobs have tended toward the editing side, and I'm increasingly finding this little corner of the Interwebs to be my only writing outlet. And no offense to the blogosphere, but that's just not going to cut it. I went into the media because it was the closest thing I could think of to having someone pay me to read newspapers all day, and it was one of the few gigs that involved writing in a meaningful way. I still freelance enough to keep the juices flowing, but I'm starting to miss doing it everyday. I worry I've sold myself short for the relative stability of something more buttoned down.

I guess this is all a convoluted way of saying I'm looking (passively, at this point) for a change. Maybe all I need is more responsibility at my current gig. Maybe finding new ways to keep myself engaged outside my 9-to-5 is called for. Maybe something more drastic -- I hear Australia's lovely, and I bet I'd be quite content working at this old rag.

Couple that with talk of scary adult stuff like mortgages and marriage, and part of me wants to screw it all, turn my condo downpayment into a travel fund and go on an adventure somewhere. But I'm sure it'll pass.

It usually does.

Going against the flow

Considering their impressive track record as profit-making, dividend-paying machines, it's rare to hear people bearish on Canadian bank stocks (especially during the multi-year run they've been on of late) but there's an interesting contrarian view in the Toronto Star this week.

Consider that shares in all five major Canadian banks are worth less today than they were at the start of the year -- some by double-digits. When was the last time we were able to say that?

An eye-opening excerpt from the selected article:

David Tiley, who works with a team of value seekers at Mackenzie Cundill Investment Management in Vancouver, said this week “we don’t own Canadian banks, and have not for a couple of years.” “It’s related first and foremost to valuation,” said Tiley. “Earnings are closer to a peak than a trough, so you are taking a risk.

I always like analysis that throws "conventional wisdom" out the window. Food for thought.

(DISCLOSURE: I own shares of BMO)

Presented without comment

Some fascinating details yesterday in Statistics Canada's always-insightful The Daily.

A study on home ownership among young Canadians reveal interesting data on housing landscape for first-time buyers across the country. I'd quibble with classing everyone in the age range of 25-39 as a "young adult" but in general, the study paints an undeniable picture -- fewer and fewer people starting out in their independent lives own their own homes.

Nationally, 6 out of every 10 young people not living at home owned their place of residence, but the numbers showed a clear bias from rural to urban environments. 71% of rural young people owned their homes, while in the city of Toronto, the number was barely over half, at 53%.

Perhaps unsurprisingly, the chasm got greater the lower down the socioeconomic spectrum. 40% of rural young adults making less than $30,000 a year managed to own their own homes, whereas only 16% of urban dwellers making that much managed the same feat (and all I can say is, I'd like to meet them...)

The study similarly found that the probability of home ownership was even less for children of immigrants.

I thought this might be representative of some sort of shifting cultural attitude -- perhaps that home ownership is not as important to today's young people as it was to their parents -- but the study also found that three-quarters of respondents said home ownership was "very important" to them.

And surprises in there for anyone?

Back to school

Mr. Cheap tagged me in Wooly Woman's meme about what courses I'd love to take if they were offered.

I'm always game for a good memeing, so here goes. But first, a few caveats. In his selections, Mr. Cheap listed three courses he'd like to teach, as opposed to take as a student. Good on him, I say, so I'd likewise elect to be the teacher of one of my selections. Secondly, one of these courses actually exists, so it's not like I'm dealing in theoreticals here.

Choice No. 1: Introduction to personal finance for high school students.
The fact that my generation, as a collective, knows and cares diddly squat for things like investing and financial planning is a constant bee in my bonnet. As such, I'd like to get it into the heads of the next generation that this sort of thing doesn't have to be boring. Money isn't important or interesting in and of itself, but having enough of it opens doors for you to do things that do matter to you. That's sort of -- as the kids say -- "how I roll."

The way I'd imagine this playing out is maybe 1 hour a week at my old high school, doing Q&A with students about the basics of finance -- everything from interest rates to what exactly a "stock" is. There will be no stupid questions. The earlier someone learns about RRSPs and why credit cards are not your best friend, the better. Maybe other high schools teach this stuff, but I know mine didn't. That needs to change.

I suppose in the end, my desire to start this class is just a part of a larger charitable plan I have to set up a scholarship for high school students that demonstrate a desire to be more engaged in planning their finances -- and not just because they're greedy bastards...:) But that plan involves setting up a trust filled with dividend stocks, where the dividend cheques would act as the payout to help cover university tuition every year, and let's face it, I'm a long way off from that. Teaching a class would be a step toward that ultimate goal.

Choice No. 2: The Canadian Securities Course
This is the one I came very close to actually taking one year, but I changed my mind when my then-employer balked at the idea of helping me to pay for it. I'd still love to take this grueling financial course one day, both for my own personal benefit, but also because it would make me a much better journalist, I think. We'll see.

Choice No. 3: How to sell yourself
I'm in a creative field, and I'm something of a walking cliche in that I have a natural distaste for the concept of having to "sell" my skills to either employers or media consumers. But the older I get, the more I realize I have to. No one is going to come along and give me a book deal, a raise, or a column one day unless I'm out there convincing them every day why I'm worth it, and why my skills are worth their time and investment. That needs to change. I go to "networking" events frequently and usually find them horribly insincere. But I'm starting to learn that the best person to look out for my interests is myself. If I'm not out there banging my own drum, I know nobody else will. I don't want to turn into some reprehensible egomaniac overnight or anything, but being a little proactive in the marketing miliey would do me a world of good.

I won't tag anyone directly, but if you're reading this and you have a pfblog, consider yourself tagged.

Paying it forward

A big fat karma dividend cheque should go to Canadian Dream for the good turn he did me last week.

In a comment on my post on switching over to PC Financial, CD wondered why I was still paying bank fees with RBC since the bank has a fee rebate program for people with multiple accounts within the same bank, such as he and I do.

A 20-minute call to RBC later, I'm now the proud owner of a free chequing account. I have a chequing account, a Visa card, an unregistered investment account with RBC Direct Investing and a registered one there too. Strictly speaking, the latter two don't qualify me for the rebate since apparently they're from a "different division" within RBC.

But I ended up qualifying for the rebate after I explained two things: No. 1, I actually have four accounts with the Royal Bank of Canada -- one more than the required three. And No. 2, not counting online investment accounts is asinine, since they all put money into RBC's pocket at one point, even if it is a different division than the commercial banking one that's launched he promotion

The best part? The woman I was bumped up to who ended up helping me actually listened to reason. I explained my views about why I deserve the credit, and she agreed. I didn't even have to play the "this is ridiculous, I'm closing my account" card.

So the $48 a year I'm saving on bank fees makes me feel a lot better about the extra cash I spend by investing with RBC.

The lesson? As always, free money = good.

Thanks again, CD

Cliches become cliches for a reason

It seems Moneyrelations tagged me, a while back, in Moolanomy's My One Money Advice (MOMA) Meme challenge (although really, for simplicity's sale, you may as well call it the "what's your favourite financial cliche?)

Since I'm uninspired to write about anything else today, let's give'r a go.

Of all the platitudes that get tossed around ("buy low, sell high" ; "penny-wise, pound foolish" and the like) I'd have to say the one that I really keep close to my heart is "pay yourself first."

People who wait until the end of the month, until every other demand has been paid first before slipping the remainder into the piggy bank are, in my experience, likely to save far less money than people that reverse the order.

My automatic savings program grabs 25% of my paycheque every week about 2 hours after it comes into my chequing account. So right away, when I'm budgeting how I'm going to pay for everything else this month, that money doesn't enter into it. If belts need to be tightened and something needs to be temporarily suspended, money I tuck away for my future isn't the first thing to get the axe. Maybe there'll be one less beer after the game that week, but that sum I ferret away is sacrosanct.

What can I say, the system works for me. Try it for yourself.

Can debt be a safety net?

Normally, I dismiss the countless unsolicited financial products I get in the mail every month out of hand, but I'm tempted to bite on a particularly persistent one. In the deluge of pitches I receive from my bank, Royal Bank, every month, one of the recurring items is an offer of an unsecured line of credit. They're offering $10,000 at a rate close to prime, if I recall correctly.

I currently have a high-interest savings account that doubles as an emergency fund and condo downpayment fund. If something like a job loss were to happen now, that's what I'd be dipping into to tide me over. But when I eventually come around to buying a place of my own, I'll probably be inclined to empty the entire thing (so as to maximize my downpayment) and knowing myself, I know I'll be tempted to pour every spare cent I have into paying off the mortgage after that -- at least for the first year or so, until I've convinced myself I'm not actually about to get fired on a daily basis.

The long and the short of it is, when I liquidate the fund to buy real estate, I'll find myself in the position of not having an emergency fund, at least in the short term, to pay for those unexpected emergencies. (I'm told having three months' expenses is a good guideline.)

What I'm thinking of doing at the moment is to sign up for this unsecured line of credit as a sort of insurance policy. It doesn't cost anything on a monthly basis unless I take money out of it (which I wouldn't do as long as I had that $10K in savings I currently have) at which point I'd pay interest on the withdrawals. That way, should the need ever arise, I'd dip into the line of credit, as opposed to the emergency cash that's I'd already have wisely invested into minimizing my mortgage.

I suppose this is all moot until I actually need it, but I'm tempted to sign up for it now. I'm sure the rates offered by banks on unsecured loans start to change once you've borrowed six figures to buy a house, so my reasoning was to sign up now while I'm an excellent credit candidate.

Any thoughts on this? You don't have to remind me of all people that, as a general rule, debt = bad, but is it not better for my long-term financial wellness to not have 5K or more sitting around in a savings account when that money could be put toward paying down a future mortgage? I suppose there might be some negatives in terms of credit rating to consider, but the thought of having several grand sitting in a bank account while I have a six-figure debt to pay off doesn't sit right with me -- and I haven't even taken the plunge yet. It just seems a waste to hoard cash for a rainy day that might never come.

Is this not a situation where debt is actually the smart financial decision?

Flying south

As the Canadian dollar maintains its value above the U.S. dollar, I've turned my thoughts toward how I can use this to my advantage in my investment portfolio.

The easiest, most direct way is to buy U.S.-listed securities. The way I manage my investments, I make two large lump-sum purchases per year in my RRSP, and it's time for my second purchase of the year. (BMO being the first, if you were wondering.) I should have the money moved around by the end of the month. The question is, what am I going to buy with it.

In general, I'm a big fan of indexing to achieve the sort of long-term value I'm looking for, but I'm not averse to placing my bets on individual stocks here and there if I think they're particularly undervalued -- especially when they have a nice fat dividend for me while I wait for the rebound.

As such, I'm basically looking at three options at the moment. Each have their individual plusses and minuses:

Option A -- Buy another Berkshire Hathaway B share. (BRK.B)
I bought my initial Baby Berk share about 18 months ago, and it's fair to say it's outdone all of my expectations thus far. People told me at the time that Berkshire was too big. That Buffett's typical way of investing wouldn't work anymore because the company had too much money, and was hamstrung by having to make billion-dollar purchases that would yield less diamonds in the rough. Berkshire was a great company to buy -- in the 1980s -- I was told. 18 months later, my stake has increased by nearly 30% (in U.S. dollar terms, anyway) and the stock has reeled off a few impressive quarters in a row. Safe to say, I'm not selling my baby berk any time soon. But that's not to say I'm leaning toward buying another. Much as I hate to admit it, Warren Buffett's going to die one day, and when he does, people will panic and I'm convinced the stock will take a significant haircut. But they'll still have the same rock-solid assets, and new management isn't going to change course. All that will really happen is that people who jumped in on the dip will be rewarded down the line when the market realizes Berkshire's the same awesome company it always was. If and when that happens, that's when I'll probably buy more. Besides, buying more shares in that company right now would look a lot like chasing a winner -- usually a big no-no. And the more diverisification, the better. Why increase my stake in one company when there are plenty of equally-appealing different ones out there to hedge my bets?

Option B -- Vanguard's Total Stock Market ETF. (VTI)
Vanguard deserves credit for being the absolute gold standard of low-fee investing. They have a wide selection of products more targeted to specific sectors and styles, but this huge ETF is their broad U.S. market-indexing offering. It's the easy, idiot-proof option here, giving me exposure to the entire U.S. stock market. The downside? Very little, really. There's not much of a dividend and it gives exposure to some companies that won't do very well in the next little while (all this rate cutting and the subprime mess just looks like a house of cards to me) but really, VTI is the safe, secure bet. I just find it hard to get excited about it. Not when there's options like this one lying around...

Option C -- American Capital Strategies. (ACAS)
There are times when I simply adore MoneySense magazine. The time that their recent issue directed my attention to this little beauty's existence was one of those times. ACAS is an asset manager with more than $16-billion under management. Their core business appears to be selling debt and financing instruments to fund private equity buyouts and the like. All in all, sounds like a profoundly boring company -- which I like in my investments. So what has me so excited? Some of the numbers. ACAS has a tantalizing dividend yield of nearly 10%. That's pretty hard to find, unless you're dealing with a stock that's been hammered or had some disastrous short-term event befall it (There are visions of Biovail dancing in my head as I write this....) But ACAS doesn't seem to qualify on those fronts. All they do is lend money out to businesses and private equity groups, and bring it back in at an advantageous interest rate. They don't have any significant subprime exposure, which is the 600-pound gorilla threatening all financial firms in the U.S. at the moment, and they have a consistent history of growing earnings steadily in up and down markets. I like that. The company has a simply ridiculous P/E of under 5. P/E is not a number I normally pay particular attention to, but my general rule of thumb is the lower, the better. Canadian banks have P/Es in the low teens, for example, so 5 classifies as quite good. So basically, I'm looking at a company that, even if the stock flatlines, will pay me back 10% of my investment for every year I own it, and the market is only asking me to pay 5 times its annual earnings for the privilege. If there's a catch, I ain't seeing it.

Thoughts, questions, criticisms and haikus welcome as always in the comments. It should be obvious which option I'm leaning toward, but unlike George W. Bush, I'm always looking for dissenting opinions on my boneheaded moves.

Decision time

Just a quick note to Ontario readers to remind them to get out and vote today.

It's often said that in investing, you're better off to ignore emotions and trust your head.

But I'm urging you today to get out there and vote with your heart. Vote for the party who most represents the kind of place you want to live in. Canadian Capitalist took some unwarranted heat recently for taking a political side in this election, so I'm not going to do that -- not that it should influence your own views even if I did. I don't care who you vote for, as long as you do it. And while you're in that booth (or preferably before!) consider how you want democracy to play out in this province, and vote accordingly in the MMP referendum.

I know people are pretty politically cynical these days, but despite ample evidence to the contrary, it does matter. And it's a privilege, not a right.

Vote.

More bank notes

Since my experience with PC Financial's high-interest savings account has been largely positive, I've been mulling over switching to their no-fee daily bank account for my everyday chequing account.

I currently have a chequing account with RBC, a Visa card there too, and I keep my investments in an RBC Directinvesting account. That didn't really happen by design, but over the years I've grown to appreciate the convenience of having all my accounts in one place and being able to transfer money easily. I'm certainly not with RBC because they're the cheapest. I pay $4 per month to maintain my chequing account there, and $0 for the Visa because I pay my bill on time in full every month. In the past few years I've moved from about 20-30 debit transactions per month to less than 5 as I've been very diligent about putting absolutely everything I can on Visa for the points.

I usually say savings trump other factors , but part of me appreciates that I benefit from their size and heft when it comes to things like customer service when something goes wrong or having to find a bank machine somewhere nearby. If I were to count the advantages of keeping my everyday cash with RBC, I'd have to say they are the proximity to bank machines, ability to make same-day transactions (for paying off Visa or moving money into my investment account when an opportunity presents itself. Taking money out of my PC Financial savings, for example, would currently take at least two business days while I transfer it online to RBC and then find a bank machine to get it out.)

To me, $4 a month ($48 a year) seems a reasonable price for that. But let's do a little more detailed cost-benefit analysis here.

The obvious advantage of the no-fee chequing account at PC Financial? As the name implies, it's the 'no fee' part. That's a $48 annual savings right off the bat. But there's more. PC Financial offers 250 PC points every month for keeping $1000 in the account. Assuming I moved $1000 float from savings into the account to get that reward, I'd accrue 3000 PC points per year -- assuming I didn't use the account at all for things like buying groceries, which would boost my points. How much is 3000 PC points worth? As far as I can tell, about $3 worth of groceries. So my total savings in this scenario are now $48 worth of annual fees saved, plus $3 in benefits. I'm going to assume that things like customer service and prevalence of CIBC bank machines (who run PC's finance division) are a wash, so they don't enter into it.

Is $51 enough to make the switch? Honestly, I don't think so, but there are a few more factors to consider. Like the interest I lose from moving that $1000 out of my 4.25% savings and into effectively, an account that pays me 0% interest. That's $42.50 a year on the other side of the ledger. The benefits are getting smaller.

From where I sit, the only way this makes sense financially is if I play for keeps -- don't use the PC account merely as a "points-generating" mechanism, but actually use if for everyday use. I'd really start racking up some grocery points then. But I really like my RBC Visa card and would want to keep it. My plan to get free rewards from it is working perfectly. If that were the case, and I was going to use a PC account for things like my paycheque and debit transactions, but keep my RBC Visa and investment accounts open, I'd be well-served to keep the RBC chequing account open in some manner as an intermediary to them. Maybe converting it into a pay-as-you-go account would be best, where I'd pay $0 in principle, but a nominal fee (I think it's 50 cents) every time I made a transaction like paying my Visa bill or moving money into savings.

Forgive the jumbled structure of my thoughts on this one, but it's an insight into how my brain works. I'd love any insights from people who've done what I'm thinking of doing.

Essentially, my concerns boil down to this: Can you actually function without in some way being a customer of the big banks, and only use the fringe discount products? Or is that getting too cute by half?

I'd hate to go to the hassle of switching all those accounts over only to figure out the savings I accrued were nowhere near the cost in hassle I paid to get them.

Bank Notes

In a move that clearly demonstrates they're on the cutting edge of the 19th Century, Royal Bank manned up this week and announced they were lowering their online investing commissions to a more reasonable $9.95 for users with $100,000 in their account or who make more than 30 trades in a quarter.

That's some nice window dressing, but I see this as largely a symbolic act. Cutting prices for customers who A) already have the most assets and B) are more likely to recompense your losses by using the service far more frequently is not what I'd call forward-thinking customer service. The discount for active traders is particularly irksome to me because it really looks like RBC is trying to rope people into being day-traders by offering them 'savings'. But I digress. RBC and the other big banks can get away with doing stuff like this because Canada's banking system is an oligopoly, and people like me will more often than not keep our business with them -- especially when I hear about the headaches people have have with the actual discount players like Questrade, Etrade and Credential Direct. As a Big Bank shareholder, bring on the screw-job, I say.

On the opposite end of the spectrum, PC Financial, where I keep my emergency fund/condo downpayment, has very quietly raised their rate on their savings account. It's now at 4.25% for people with more than $1,000 in the account, like me. By my count, this keeps them a full 0.5% ahead of the granddaddy of them all, ING Direct.

What can I say, besides, "I'm glad I made the switch." I'm tempted to open up a no-fee chequing account there and keeping $1,000 in it just to rack up some free grocery points, but I haven't crunched the numbers to see if the money I'd lose in interest would be replaced by the amount of free groceries that would buy me.

How funds companies will sell you a lemon and tell you its lemonade

I'd heard of the concept of survivorship bias before, but I've been living the dream for myself this week.

When mutual funds companies boast about their cumulative returns over the years, its often a little bit misleading, critics say, because the money-losing funds they churned out over the years get killed off or blended into new products, so their gaudy failure rates don't get factored into the numbers. In a nutshell, that's what's known as survivorship bias.

To give an extreme example, if you buy a mutual fund that loses 90% of its value in the first year, that's going to be one ugly black mark on that company's performance ratio for years to come. They'd need several years worth of double-digit returns in subsequent years just to get back to break-even.

But, if they take that fund and roll it into a new product after that ugly first year, then all of a sudden they can pretend the one horrific year never happened, and instead trumpet the steady gains they've made for you on the new product. The black mark disappears, replaced by a shiny, new money-making product for you. Ignoring the fact, of course, that at the end of the day, you haven't actually made any money. It's just been sliced and diced around between several products, distracting you from the key issue.

That's exactly what happened to my lone mutual fund this week. That ugly -86% return since inception? Never happened, apparently. But boy, doesn't that 5% return on my shiny new fund sound impressive? Look at all that black ink! And look, the fund's chart actually points up!

Warrants mentioning.

New job

I'll spare you all the customary self-flagellation for being a bad little blogger of late. I've recently had an unexpected job change, and as you can imagine there's a lot of change that goes along with that.

I've got a bunch of ideals percolating around, so stick around.

I promise a more fruitful October around here.

Great minds think alike

It's rare that I find myself agreeing with Canada's major banks on very much, but I was certainly nodding my head more than usual as I read the story in this morning's Globe on what the heads of Canada's major banks think about the current market turmoil.

In a nutshell? Yes, the August swoon isn't pleasant for anyone, but it is probably necessary to shake out some of the bad bets people were making. When money is easy, there isn't adequate pricing of risk. Markets can't go up forever, and the current bull run will emerge stronger because of it.

But we're not out of the woods yet. "People haven't gone to confession yet," TD Bank head Ed Clark was quoted as saying. "Your gut is telling you there's a lot of stuff to come out in the marketplace." In other words, we haven't seen the worst yet because a lot of these credit problems haven't seen the light of day in quarterly reports yet. That's going to happen over the next 3-6 months.

Add it all up and I come to the conclusion that the market's going sideways for awhile. Fundamentals will inch it up, but every time some new company fesses up to bad debts, it'll sink down again. So I'm in no immediate rush to get money into the market any time soon, but I'm still very positive on the mid- to long-term outlook. I have not a shadow of doubt that the Canadian banks will by and large remain the profit-making machines they always have been, so if they keep stagnating for much longer, I might be tempted to scramble together some more money to put into them.

Pay yourself first -- or you won't

You've heard before about how one of the easiest things to do to change your finances for the better is set up an automatic savings program. It doesn't matter if it's as little as 10%, the point is by automatically deducting money from your paycheque as soon as it comes in, you won't have time to spend it, and you learn to live on the balance.

I've had an ASP going for about as long as I've had this blog, and it's developed into a nice tidy sum by now. But a few weeks ago, I cancelled it since I was going to be having larger-than-usual expenses (what with moving and going on vacation and all)

Just as it's amazing how fast your savings will grow by virtue of an ASP, so have I learned how quickly they will flatline when you don't. My expensive time is coming to an end so I'll be setting up another one, but it's really surprising to see how my savings pile has done nothing over the last little while -- even while I have some excess cash lying around in my checking account.

It's a cliche, but it works. Pay yourself first.

Even Ron Popeil knows you're better

off when you set it and forget it...

I was the second gunman on the grassy knoll, too

OK, my man-crush on Warren Buffett may have gotten me in trouble this time.

Mr. Buffett, please allow me to apologize for my actions. You're always telling people to try to convince you why you should buy their companies, and I have this really great business pitch for why you should buy my blog.

The guard spooked me and I panicked. Sorry. My most sincere apologies for scaring your wife, too.

(Note to anyone lacking a sense of humour: I'm kidding.)

Housing Reaganomics

There are many different ways of gauging economic health. The stock market. Job numbers.


One of the more interesting ones (to the star-struck voyeur in me, anyway) is to keep tabs on what the wealthy are up to. I'm not sure they're as clairvoyant as, say, the consumer price index is when it comes to how much cash we all tend to have in our pockets at the end of the day, but there's a gaggle of signs around that suggesting that the well-off are spending like there's no tomorrow -- worldwide credit crunch be damned.


Celebrities don't appear to be feeling the pinch. Whether its private jets or gaudy, $50,000 handbags, celebrities are still splashing money around like its going out of style. Sales of racing horses are skyrocketing, both in volume and individual prices. If oil-rich Saudi chiefs are throwing down so feverishly on their money-losing hobby, the good times will surely trickle down to the rest of us, the theory goes. And lately, prices for the ponies have been heading up in a hurry.


Closer to home, the super-rich are seemingly just as confident. REMAX put out a report this week saying that sales of luxury homes are booming. Canada's real estate market has hot and cold pockets across the country, but sales of luxury homes (the definition of what constitututes luxury changes from region to region) have already shattered last year's numbers, and its only September.


So good news all around, then. Your boss's retirement is definitely within reach. Try to remember that when you check how your stock portfolio's done over the last little while.

vacation

If the dearth of posts hasn't tipped you off, I'm on vacation. No posts for you!

Expect more investing-related hilarity when I get back, in the last week of August

Too little, too late

ING Direct has been taken a beating of late. And whether it's been in these parts, elsewhere in the blogosphere or even in the mainstream media, they appear to be slowly responding.

According to an e-mail ING sent me recently, they're upping the interest rate on their high-interest savings account to 3.75% from the 3.5% its been stuck at for quite a while, staring September 1st.

My take? A resounding "meh."

This is quite simply too little, too late. They've narrowed the gap between the other players like Achieva, Altamira and PC Financial which have better posted rates and are just as easy to deal with, and ING have given themselves a bit more breathing rom on the big five banks who were starting to gain on them.

But they're still laggards. That Norse pitchman likes to paint the company as some sort of saving innovator, but I'll be keeping my money at PC Financial until ING wakes up and quits with the smoke and mirrors.

Want my money? Then gimme the best rate.

It really is that simple

The little REIT that could

Disclosure: I own Artis REIT

Turbulent markets are as good a time as any to look back on the choices you made in your past, and see how they've held up.

Around this time last year, eager to capitalize on Alberta's red-hot economy and eager to get my first exposure to the REIT space, I took a position in Westfield REIT (now called Artis REIT). The REIT focuses on office, commerical and industrial space in Western Canada, primarily in Alberta.

In the past year, it's been a great little performer for me, up nearly 23% from when I bought it. I know -- one-year returns aren't what long-term investing is all about, but still, considering I've been plowing the distributions back into the REIT as part of their DRIP, it feels good to look back on a call that appears to have panned out for me.

In February, I wrote this post talking about how I was planning on moving over to the REIT ETF (XRE on the TSX) for the long term, just to be a little more diversified. I noted that the ETF had actually outperformed Artis to that point.

Things change. I haven't been payign much attention to the REIT space of late. I sort of assumed it was holding up , if nto steadily increasing, just like Artis has been. But it hasn't. Look at these two stock charts. On the left is the 1-year for XRE. On the right, Artis.

The more-diversified ETF has been on a slide since the spring, while Artis seems to be holding steady.

What am I thinking? Well, I still like Artis in the short term (the "Alberta + real estate = good" story continues) so I have no plans to sell, but XRE seems to be taking an unfair beating. If I wanted to move into the ETF long-term (as I plan to) this correction seems to have given me an entry point. But what with increasing my stake in Biovail last week, I'm a little short of cash at the moment.

We'll see how this plays out. As usual, do your own homework. But I'm curious for what any of the other REIT investors out there are thinking right now.

Trading notes

Bought some stocks this week for the first time in a while. To me they're both value plays, but time will tell, I suppose, if they'll be good turnarounds or if I've fallen into a couple of value traps.

Friday's sell-off gave me an excellent opportunity to take a stake in a long-term holding I've been waiting for an entry point for a while now: Brookfield Asset Management. (BAM.A on the TSX) I love -- love-- the management of this company, and the fact that their strategy is to make money from managing other assets (hence the name.) I also like the new focus on infrastructure assets, which I think are going to be great cash generators in the coming years. The stock took a 7% haircut on Friday due to fears about subprime exposure. So I jumped in. But the stock is already back up above where it was before the market got rattled. I'm predicting this will be a long-term holding.

The other move was to double up my stake in Biovail. I outlined my reasons why I was tempted in this post last week. In short, everyone's scared by the pipeline of drugs drying up, but I think that's only temporary. The FDA mess will get sorted, and the new drug plans unveiled this morning were an unexpected surprise. In the mean time, I'm more than happy to sit on that fat yield of more than 8%. The sell-off in the stock this morning after underwhelming financial results gave me the opportunity to buy in. I don't think Biovail's going to be a base of my portfolio for years to come ( I know all too well how volatile it tends to be) but I dunno -- the market has shaved off more than a quarter of the market cap in about a month, and that seems like an over-reaction to me. With all that cash on hand, that dividend seems safe for a long while.

That's it for now.

As always, do your own homework before making any investment decisions.

That's it for now.

What drug are Biovail investors on?

(Disclosure: I own Biovail shares)

You know what company completely blows my mind? Biovail.

We've had a long, tortured relationship, Biovail and I. I took my initial position in the company in 2003. At the time, it was a nebulous growth play for me, and my thinking was along the lines of "boomers are getting old and old people need a lot of drugs, so drug companies are a good long-term investment. I should buy Canada's largest drug company."

I bought just after Biovail's stock had tanked from about $70 down to about $30 after some fishy accounting and a famous truck crash. As it turns out, I was trying to catch a falling knife and the stock still had a ways to fall. After bottoming out around $16, it's hovered in the high 20s for the last little while before this recent stock panic has it back at $20.

I've come close to selling numerous times, but Biovail has morphed itself from a growth play into a legitimate income-generating security that value investors tend to love. With an annual dividend of $1.74, Biovail is currently yielding close to 9%. That's insane to me. We're talking income-trust territory here, people.

Biovail's been in freefall since the middle of July when the FDA rejected one of their applications, but to me the fundamentals of the stock don't justify the beating it's taking. I can only assume it's due to fears that the company will now slash their dividend, but as the company suggested in a press release recently, I don't see that happening: their outlooks weren't counting on revenue from that drug any time soon, and the company is sitting on more than $450-million in cash and no long-term debt as it stands now. What's the worry?

My back of the napkin calculations based on the company's most recent quarter show that the company is sitting on about $5.30 in cash or cash equivalents for every share. By way of comparison, every share pays out $1.74 per year in dividends.

Am I missing something here? To me, this is a company that's yielding close to 9% at the moment, sitting on enough cash to cover its dividend for the next two years and then some. And we haven't even considered any additional revenue to be made from the company's underlying drug business. Even if the stock flatlines, that's a decent return. Never mind any capital gains to be had.

What can I say -- I'm tempted. I'm in the process of moving some money aronud at the moment, and when it's all ready in my investment account, I'm seriously considering upping my Biovail stake. I'll have to do some more research, but haven't seen anything thus far that woudldjustify the hammering the stock has taken for the last two weeks. If there's a contrarian view, I'd love to hear it in the comments.

As always, do your own research before buying anything.

The bear [market] necessities

Need a little context for the stock market carnage we've been living through for the last little while?

The money I set aside every month from every paycheque hasn't even come close to offsetting the losses I've undergone in my portfolio. It's gotten so bad that my net worth actually dropped this month for the first time since I started keeping track of it. My non-registered account has taken such a beating that it's on the cusp of going below the threshold value where I don't have to pay any administrative fees. I might have to put some cash into it just to keep it over...

When Finance Minister Jim Flaherty dropped his nuclear bomb on trusts back in October, conventional wisdom had it that income-hungry investors would flock to dividend equities, but would have a hard time getting the yields they were used to. That appears to be changing as there are now plenty of TSX companies yielding more than 5% after the recent sell-off (RUS and ROC to name but two off the top of my head.) Most astonishingly of all? Biovail is now yielding more than 8%. (Full disclosure -- I own Biovail)

So what does it all mean? From where I sit it's looking like bad companies are getting knocked back to where they belong, and good companies are on sale. The one sector I currently don't have any exposure to and am champing at the bit to get into is emerging markets, but I'm still not prepared to jump in at these prices. Definitely on the watch list, though. Two stocks I am contemplating getting into are increasing my stake in BMO, and taking a position in Brookfield. I really like what they're doing in infrastructure and the company's management overall.

What about you? What's in your shopping cart at the moment? You're not being a bad little investor and heading for the hills, are you? Are you afraid of a little old bear?

Strange but true -- bankers can help you

Had an interesting conversation with a finance-minded friend of mine this past weekend.

Like most Canadians, I have a natural distaste for Canadian banks. Don't get me wrong -- as an owner, I love them for the profit-making machines they are. But as a consumer and citizen, it doesn't take very many TV ads trying to trick yuppies into buying a house they can't afford, or conning Boomers by showing how happy the grandkids would be if they'd only take the plunge and finally get that palatial Muskoka cottage to bring my blood to a slow simmer.

Combine my natural aversion to them with the fact that online banking is so prevalent these days, and the result is what it is -- I don't think I've actually stepped up to a teller at a bank branch in a couple of years.

That might be costing me money, my friend informed me over a pint last weekend. "Go down and meet with a banker," he suggested, because they can actually do some good things for you. He said his decision to meet with a banker a few years ago was one of the best decisions he's ever made. Once he opened up about all his debts, all his assets, and discussed what his financial goals were -- everything from home ownership to estate planning, the banker formulated some semblance of a long-term plan, and actually helped it along somewhat by cutting out expenses and maximizing returns in places along the way.

He's now in the market for a house, and he says he's getting mortgage offers well below the posted rates and has fees waived for all sorts of services.

The idea, I think, is that if you grant someone access to every level of yoru financial life, they can occasionally surprise you by coming up with plans and options to make it all happen.

Given how bankers make their money (hint: rhymes with bees) I'm somewhat skeptical of his claims, but I must admit I'm intrigued. I'm curious -- for all we hear that bankers are just in it for the money, does anybody out there have any truly good stories to tell about how bankers have really helped them?

Pay yourself first -- no, really

Buy low, sell high. Diversify your assets. Invest globally.

Of all the investing maxims, the one that's always made a lot of sense to me was "pay yourself first" and this month has been an excellent example of why it works.

What with moving, paying for a vacation and the prevalence of those all-too-appealing pints on a patio with friends this time of year, my expenses have been out of whack of late.

In general, I suppose that's OK to do from time to time. I mean, what's the point of having a rainy-day fund, if you won't open it up when it starts to drizzle? But it's not a habit you want to get into.

As it stands, about a quarter of my paycheque gets automatically diverted into my emergency savings fund on payday. It does what its supposed to do in that its automatic -- I literally forget I'm doing it. I was reminded of why that's important today when I was wondering how exactly I was going to manage to pay all my bills AND put some aside this month. I was trying to find the money to put into savings when it occurred to me that it's already been done for me.

Granted, I still don't have very much breathing space in the ol' budget this month. But when you put money aside for yourself before you even consider how to divvy up the rest, it's amazing how fast those contributions can add up.

A little knowledge is a dangerous thing

It happens to all of us, I suspect.

Anyone who demonstrates even a passing interest in investing and finance is no doubt inundated by queries and requests from those around them who have no such inclination but are nonetheless looking for easy answers to difficult questions.

If it's not "should I lock in my mortgage now, or are rates going to be lower later?" it's "tell me what stock is going to go up so I can buy it" (my personal favourite...)

The people close to me have no idea I have an investing blog -- they just know I take a weird amount of interest in the business section, and have an annoying habit of yelling at them when they use a white-label ATM to take $20 out on a Saturday night. But I definitely get my fair share of questions like that.

I really want to help out my friends and family in any way I can, but the thing is, I really can't win in these situations. I'd never tell anyone to buy any given stock -- the most I'd ever do is tell them what stocks I've recently bought, and explain my reasons for doing so. But that doesn't stop them from asking. Fortunately for me, I ususally can't even get past "Well, what stock you should buy and how much you should buy of it depends on a lot of things, including your risk tolerance, your investment timeline, and blah blah blah..." before they regret ever asking the question.

I'd like nothing more than to give them the answer that will solve their problems, but I don't even have those answers for myself, so I find it really hard to give them to others. I mean, I've bought stocks that did what I thought they'd do and went up. But I've also bought some losers. I'd love to tell my sister exactly what to do when she calls to say "I'm meeting with my banker tomorrow and I need to know if I should lock in my mortgage or stick with the variable rate" but that really is a no-win proposition for me. Best case scenario, I gain nothing, while the downside is my advice costs her tens of thousands of dollars.

I'm kind of torn on the issue. I hate being put on the spot, but at the same time, I'm glad they ask and are thinking about these issues, because one of the biggest challenges my generation faces is its complete apathy toward things like service charges and interest rates because they think they don't really affect their lives.

I'm loath to tell them what to do, but I also don't want to discourage them from thinking and finding the answer for themselves. I just haven't quite figured out the right answer to give that conveys that sentiment.

I suppose it's no different from a lot of professions -- I'm sure lawyers and doctors get hit up for free advice all the time. But it seems to me that when these questions come up, you really are damned if you do, damned if you don't.

Tech support

Forgive the non sequitur, but technical help from any HTML idiot savants I happen to have as readers out there is greatly appreciated on this one.

According to Statcounter my site's hits have fallen off a cliff this week (0 registered on Tuesday, and 1 on Wednesday, and 0 on Thursday) but I know that's not the case because I've had posts and even comments on those days.

In short, I think the same number of people are coming here daily as they always have (usually in a range of between 20-50 unique hits per weekday) but my statcounter isn't registering them for some reason -- thus defeating the purpose of having a statcounter.

I'm on the new blogger template, as I have been for awhile, but something definitely appears to have gone awry this week. Any theories? Do I need to reinstall counter code or re-ping something?

Any bloggers who blog on blogger (how meta!) out there, I'd appreciate some theories.

You're going to need a bigger boat

Alternate title: why it's hard to diversify

Despite the Oracle of Omaha's sermons on the dangers of overdiversifying, I must admit I believe in the principle of hedging your bets. Sure, if you're as smart as Buffett, you can set your lot in with your top 10-or-so stock holdings, secure in the knowledge that they're likely to outperform.

But since the rest of us can't really expect to "beat the market" on a consistent basis, spreading your money around between assets that rise and fall out of sync with one another to try to ensure that you end up on top overall in the end is a sound policy. This works great if you have substantial assets, but a lot of DIY investors -- especially when they're starting out -- don't have enough capital to easily diversify, and fees quickly eat in to returns.

If you were an investor starting out who wanted to be able to sleep at night but retire wealthy, I'd probably recommend the Couch Potato strategy. It goes by many names, but in a nutshell, it entails buying a basket of low-fee index funds in different sectors (a classic choice for a Canadian might be 25% in a Canadian stock ETF, 25% US, 25% international and 25% bonds) to spread the risk around. Then, once or maybe twice a year, you sell off gains in the winners and pad up the losers with the proceeds. The idea is to maintain that 25/25/25/25 ratio, only the total value of the portfolio (as opposed to the ratio) goes up year after year.

The problem? In Canada, in my experience, doing that can rack up a lot of trading fees.

Let's say you started out with $8000 to invest. (For the record, I think this is actually a lot more than most people have starting out, but I'm trying not to skew the numbers too far in my favour here) You put $2000 into an ETF in each of the above sectors. At the end of the year, let's assume that the Canadian portion has risen to $2300, the US portion dropped to $1950, the international portion rose to $2100 and the bonds rose to $2050. Your portfolio is now valued at $8400. Well done! So 25% of that would be $2100. This is your new goal for each sector's value at the start of the next year.

Under the classic couch potato rules, you should then sell off your gains in your big winners ($200 from Canada) and pad up your laggards (USA and to a lesser extent, bonds) So you buy $150 more worth of the US ETF, $50 more worth of the bonds ETF, and leave the international portion the same.

The problem? With some Canadian "discount" brokers, you may pay as much as $30 per trade. In this scenario, you pay $30 to sell off part of Canada, $30 to pad up USA and another $30 to pad up bonds. Total cost = $90. Which represents 22.5% of the gains you made that year. You won't get very far giving away 22% of your gains every year to trading fees. And these don't even include other things, like the fee a broker may charge you to manage the account if its an RRSP (as high as $75 in some cases)

I realize I've skewed the numbers a little bit to prove a point (the simple truth is that in today's day and age, nobody should be paying $30 per trade anymore because you just don't have to) but the point is still valid: it's hard to do the right thing and diversify when you're working with small amounts of investment capital to start with. Many people recommend using low-fee index funds like TD's e-funds for just that reason, and I must admit, it's an option I wished I'd considered for myself starting out.

I realize it's slow and plodding, but if you forgo the e-funds route, maybe a wise thing to do starting out is either keep it all in a high-interest savings account until you reach a certain plateau ($10,000 maybe, that you can spread between only three sectors) or, riskier still, put it all into one relatively secure holding (a balanced mutual fund, or a Canadian bank stock, maybe) until you reach the point where you can diversify yourself without holding yourself back.

I know it's risky to put all your eggs in one basket for a time, but it certainly seems better than the alternative outlined above. Most investors starting out have time, if nothing else, on their sides, so it might not be the end of the world if they take a huge hit. Just get back on the horse, and stick with the long-term plan.