Wednesday, January 31, 2007

A butterfly flaps its wings in Bangkok, and my junior mining shares go up 11%

Always nice to see the efficient market theory put into action. Even when people get carried away for the wrong reasons, the market has a way of correcting itself.

Crystallex shareholders fell for a fairly obvious Internet prank yesterday, the Globe and Mail reports.

The company's stock has been volatile for the last year or so, due largely to the fact that the capricious regime of Hugo Chavez often sabre-rattled about not allowing them to proceed with the potentially lucrative Las Cristinas gold mine in Venezuela. Crystallex investors have been on a roller-coaster ride as a result.

Yesterday, an anonymous prankster posted a bogus news story (complete with Caracas placeline) that the company had been granted a key permit to proceed by the government.

The result? The stock surged as much as 10% in the early afternoon, before returning back to earth once the story was proved false. Savvy investors should have been tipped off by a key line near the end of the story: It said Venezuelan President Hugo Chavez was “leaning toward filling the mine with water and soaking his fat ass in it.”

They say in today's day and age, beating the stock market is incredibly difficult because the market reacts instantly to news based on the collective wisdom of individual investors. I'm not sure what a story like this says about the collective wisdom of the average investor. But I do know it's a good lesson in how vulnerable the stock market is to how fast information travels through capital markets.

Tuesday, January 30, 2007

Under 25? Stop reading this site and go have some fun

"If I promise to stop blindly putting my money into whatever mutual fund my adviser recommends, will you promise me that you'll do something frivolous for yourself this year?" my sister asked me the other night.

She was about to get a substantial raise at work, and asked me to drive with her to a family function so she could pick my brain for financial advice on the way. When I'd finished my tirade about why she owes it to herself to at least read the portfolio updates she's regularly sent, she told me that if I was willing to help her she'd try. The conversation then turned to my own obsession with finding permanent employment in the media, and her making me promise to buy myself something nice or go on a trip every once in a while instead of religiously diverting my paycheque into my ING high-interest savings account.

As much as I'm proud of myself for diligently tracking ny net worth online, contributing to my RRSPs every year, accumulating a more diversified dividend-heavy stock portfolio and ferreting away money for a downpayment on a home in the next few years, I must admit -- even I think I get carried away sometimes. I'm currently saving somewhere in the neighbourhood of about 35% of my monthly income every month.

I'm 26, and that means I'm precisely the audience that Rob Carrick was writing to in his excellent column in Report on Business this morning.

The gist? if you're under 25, it's OK to spend a little cash and enjoy your life while you can. The financial services indsutry will get their claws into you at some point, so there's no point in hurrying the process until you have to.

To me, that's just more of what makes Rob probably the best financial columnist in the country.

To Rob Carrick and my sister, I say: it's a deal. I'm planning a few road-trip vacations in the next little while.

To the personal finance bloggosphere, I say: don't worry -- I'm sure I won't go nuts.

Thursday, January 25, 2007

Another case for indexing

Another voice joining the chorus in favour of indexed portfolios, as opposed to constantly trying to beat the market.

This time, the voice belongs to Henry Blodget -- former Merrill Lynch analyst who made a name for himself as a tech guru during the boom, but was chopped down as a pariah in the bloodbath that followed.

In his recent article on Slate, Blodget urges investors to stop trying to pick individual stocks that will beat the market, because the vast, vast majority of people will fail.

The reasons he offers are nothing new -- it's very hard for a layman to outsmart the collective wisdom of Mr. Market, and even if (s)he does, once trading costs are factored in any small gains are wiped out.

Yet, we all try, don't we? Blodget's piece offers a reason:

The problem for investors is that even though stock-picking usually hurts returns, it's extremely interesting and fun.

Ain't that the truth.

Just some food for thought if you're wondering where to stash that cash you've squirreled away this RRSP season. If you're smarter than the average bear, best of luck to you. But the vast majority of us are better off indexing.

Monday, January 22, 2007

Is a higher credit limit worth it?

Last week's news about credit card security breaches at Winners and CIBC made for some interesting discussion over brunch with friends of mine on Sunday morning.

Since giving me my first student credit card with a $500 monthly limit about 7 years ago, I noticed as Visa dutifully and repeatedly kept upping my credit limit, without my asking, for no other reason than I had the audacity to pay my bill on time. It's gotten so out of hand that my credit limit on the card currently stands at $12,000 -- a figure that's amazing enough in its own right but all the more so considering it represents about 25% of my annual income.

I never really thought much about it (beyond some small part of me vainly thinking it was some sort of status symbol) but recent events have me worried it might be more trouble than its worth.

I've recently been trying to spend as much as possible on my credit card, for two main reasons. I'm trying to maximize my reward points (with the security of knowing I won't get into any serious debt since I pay the balance every month) and I'm also hoping to create enough of a credit history that I can get a mortgage at as good a rate as posiible in a few years. I don’t really know how nebulous things like credit scores are calculated -- the indsutry appears to thrive on secrecy -- but I generally assumed that the more debt I accumulated, and the faster I paid it off, the better I'd look to lenders.

Whatever advantages there are to having a better credit score, I'm guessing they're more than negated by having illegal charges show up on your credit card bill. The TJX and CIBC stories have me thinking, if it's this easy to get access to sensitive information like my bank account numbers, it won't be too long until I start seeing things I didn't pay for show up in my Visa account. And $10,000 worth of unused credit space every month can certainly make room for some serious purchases. I'm relatively confident that I wouldn't be paying out of pocket for any of these purchases myself, since Visa seems to accept the liability for fraudulent activity, but there's always the chance. And it's enough to have me worried.

I'm tempted to get RBC to bring my credit limit down to a more manageable level, something in the neighbourhood of $2000 a month. My question to the blogosphere is whether or not that might have any detrimental effect on my credit score.

Monday, January 15, 2007

Unbelievable stat of the day

Food for thought comes, this Monday morning, in the form of an interesting Jim Stanford column in the Globe and Mail.

This being RRSP season, Canada's major financial institutions are ramping up their campaigns to make us all feel like we're going to die penniless and alone unless we collectively buy XYZ hot new sector-based mutual fund. But Stanford urges us to see through the hype and take any expendable cash we have this time of year and put it into an investment we can truly enjoy for years to come -- the family homestead.

We've all seen the Stats Canada surveys showing how many billions of dollars in unused RRSP contribution room Canadians allow to languish every year ($400-billion since 1991, at last count) and we've all seen the breathless press releases from CMHC, telling us how healthy the housing market is, with a seemingly endless supply of willing new buyers in almost every region.

The numbers back those observations up, and that's no coincidence, Stanford writes. As a whole, we're consistently eschewing the stock market in favour of buying, or upgrading, our own homes. Stanford offers what was, to me, and amazing statistic:

More Canadians own their own home than hold even a dollar's worth of RRSPs.

In and of itself, that's an amazing factoid. But what's really telling about this, to me, is how skewed the numbers are when you drill down a little. The average RRSP is worth $30,000, Statcan says. But since so many people don't have one, in reality, there's a lot of people on either extreme. So if you have an RRSP, chances are it's either fairly small, or impressively large. Put another way, out of ten people, chances are one person has an RRSP worth $300,000 while the other nine have none. Presumably these are the same 62% of Canadians who own their own home. I hope so, for their sake.

Stanford embraces the new trend, essentially saying the best thing people can do for their own financial health is to own their own home and work for well-funded public and workplace pensions. I'm not sure if I agree with that sentiment -- but certainly an interesting perspective on the issue.

Thursday, January 11, 2007

Tag -- I'm it

Canadian Capitalist has run me down and slapped me on the shoulder in the latest round of pfblogger tagging, so I'm supposed to come up with five things my loyal readers (Hi Mom!) don't know about me. A bit tricky since my day job as a journalist makes me want to maintain a shred of anonymity round here, but here goes.

1 -- This isn't my first, or only, blog. I contribute to, or am a frequent commenter on, numerous other blogs, most of which are either media- or hockey-related. If you travel in those circles and think you recognize my writing voice, then congratulations: you've sussed me out. Your prize is a set of steak knives.

2 -- I own every single episode of Buffy the Vampire Slayer on DVD. Whether that's somehow related to my habit of trying to find underappreciated diamonds in the rough while investing, I'll leave up to you. But feel free to drop me an e-mail if you can't sleep and feel like reading an 8,000-word polemic on the genius of Joss Whedon. Or Warren Buffett for that matter. (Editor's note: I'm only half kidding.)

3 -- I have a completely irrational fear of deep water. I'm not worried about drowning, since I'm a strong swimmer, but my subconscious is convinced that something is going to prevent me from swimming to safety. I think it has something to do with seeing JAWS when I was 6.

4 -- On a business trip in Quebec years ago, my father found himself dragged into a hockey-card store by one of his colleagues. His colleague had heard that this particular store was liquidating its assets, and he wanted to grab as many Wayne Gretzky, Patrick Roy, Steve Yzerman and Mario Lemieux rookie cards as he could get his hands on at fire-sale prices. My dad, ever the sage, waited in the car. For hockey and financial reasons, I still haven't forgiven him for that. Or for plowing my entire RRSP contributions one year into something called "an e-business mutual fund" approximately 14 seconds before the tech-sector meltdown.

5 -- I think nothing of haggling over the price at almost any store I'd walk into, but I'm psychologically incapable of asking any employer for a raise. This mystifies me.

I would add a 6 -- When it comes to investing, I don't know what I'm doing, but even a cursory reading of this site should make that painfully obvious.

Toronto Real Estate Junkie, Cap from Stop Buying Crap and Uncle Bill, I see you hiding behind those trees. Get out here. You're all it, slowpokes. No tagbacks.

Monday, January 08, 2007

I'm tapping out, CWM.UN

First trading note in a while around here, as I finally pulled the trigger on a move I've been mulling for a while now.

So long, CanWest MediaWorks Income Fund (CWM.UN on the TSX) -- don't let the door hit you in that @$$ on the way out.

Essentially, I have zero faith in the fund's sustainability -- much less its potential to eke out capital gains. The newspaper industry is notoriously bad in Canada, and while I'm confident it will survive in some form over the long term (I'm looking at a few other stocks to keep an exposure, actually) I just don't think CanWest is the stock to ride the wave on.

The payout ratio has never been below 90% since the fund's inception in late 2005, and it's even gone above 100% occasionally.

In short, my gut tells a suspension of distributions is coming. So I'm out, and grabbing whatever I can on the way.

Now let's see. Initial investment? 200 units at the IPO price of $10 = $2000 book value. 14 months' worth of distributions = $231.30. Gains from selling out at $7.57 per unit = $1485. Bringing my total loss to $284 (14%) in a little over a year.


Lesson learned, I hope.

Stay tuned to see what I plan on replacing that position with.