Rejigged links

Just a quick note to point out I'm reorganizing my links. I'm giving preferential positioning to Canadian-based financial blogs now, as I find it's helpful to have a Canadian perspective on a lot of these issues. I'm pretty sure we all share largely similar readerships, anyway.

To non-Canadian bloggers, don't fret. Your links may have temporarily been lost in the ether, but don't take it personally -- I'll have them all back up shortly under their own category. I still read you all every day, I promise! I'm even adding some recently discovered foreign gems to my revamped blogroll.

Some topics really are universal, but when it comes to RRSP advice, you're not much help.

You're still my number one resource if I ever need to choose an HMO or set up a 401K, though... :)

Poison pills can taste good

Just when I think I have a handle on all the holdings in my portfolio, Artis REIT, which I've held since last summer, put out a curious press release yesterday. And frankly, I'm not sure how to react.

Artis Real Estate Investment Trust (TSX: AX.UN) (“Artis REIT”) announced today that it has adopted a unitholders’ rights plan...The Rights Plan was not adopted by Artis REIT in response to any specific proposal to acquire control of Artis REIT and the board of trustees is not aware of any such proposal…Should a non-permitted acquisition occur, each right would entitled the holder of Units to purchase additional Units at a fifty (50%) percent discount to the market price at the time.

To my eyes, this basically amounts to management playing defense against a takeover by building in a poison pill that would water down any hostile bidders' stake. Which begs the obvious question: why is management worried about a takeover?

Indeed, from a shareholder's point of view, takeovers are generally good. You either sell your units to the bidder for a premium price, or the deal is rejected as management promises to come up with something better.

I've been very pleased with the holding since I've bought it, and I must admit this news has sort of thrown me for a loop. On the one hand, it's sagged a little of late along with all REITs due to concerns over rising rates. But analysts still love it.

I'm not really sure how to react. Your thoughts? Does the fact that management has come out with a defence plan for an unsolicited takeover bid I didn't even know was in the offing seem like a good thing or a bad thing in your book?

It's times like this my lack of finance knowledge can be a bad thing.

Pot Pourri

1) Boy, does Financial Jungle's analysis of BMO's long-term benefits -- even if the stock flatlines -- make me feel good. (I own BMO shares). Four Pillars and Mr. Cheap have also chimed in on the subject, as well as initiated positions. We're all in this together, boys -- along with about 99% of Canadian investors who, chances are, hold BMO though a Canadian equity mutual fund. :)

2) The Sun's Financial Diary's views on why ING Direct is lagging behind their high-interest savings competitors has a lot in common with my own views on the subject, which I wrote about last month. I'm grateful to ING for getting the orange savings ball rolling, but at the end of the day, when it comes to banking, the only thing I'm loyal to is better rates.

3) As intrigued (pleased?) as I am by the prospect of a made in Canada solution to the BCE takeover, I'm still surprised by Telus' latest move to buy its telephone rival. Truth be told, based on their track record, I can't think of a single reason why the CRTC would allow this to go through, beyond the "if we don't, the big bad Americans will" angle. And hey, speaking of domestic leaders, I can't help but think SteadyHand's Tom Bradley is on to something. To summarize for anyone who can't get past that subscriber wall, with so many bidding wars for so many Canadian companies, you have to think more than a few will prove to be a waste. If that happens, Canadians may be in the position of buying back their beloved lost assets at drastically reduced prices a few years from now. How is that bad for Canada?

4) Much as I hate to put words in anybody else's mouth, it certainly sounds to me like Rob Carrick is adding his voice to the chorus of voices that are whispering the "bear" word of late. Whether the red-hot TSX has room to grow further is neither here nor there. But the fact remains, the TSX is now three-quarters based on energy, financials and materials. To anyone who thinks they're playing it safe by just buying the index, one ETF does not a diversified portfolio make.

5) With all the talk about hedge funds, many people are anxious to get in on the easy action. Tom Bradley offers a simple solution: buy a house. After all, you get all the upside, while the people who actually put up the money (the bank) just get their money back. Sounds like a hedge fund to me. And the appeal of starting your own hedge fund appears to be spreading. The Globe's Report on Business team is doing it.

Hooray! It's a bear market!

Well, OK. Maybe not.

After an impressive four-year run, the TSX appears to be in some sort of sideways holding pattern of late, where every three-digit gain in a trading session is often followed by a three-digit loss. I realize it's a fairly small sample size (and doesn't the stock market always swoon in the summer?) but I really can't shake the feeling I have that we've had it too good for too long, and the times are about to get a little bit tougher. If it happens (and please understand I'm not necessarily saying it will -- I'm just some putz with an investing blog) it will a watershed moment for me in my investing life. Thanks to my young age (27) I've only really gotten serious about investing for the past 3-4 years, since I've been out of school and have finally had a bit of money to play with. The only investing reality I've known is this one, where gold, financials, trusts, REITs, energy and now, commodities have taken turns driving the TSX to record highs.

To be frank, all I've ever known is this bull. And don't get me wrong -- I love the bull. I hope the bull lives a long and happy life before keeling over in about 90 years, surrounded by his loved ones. I'm just naturally cautious enough to know that the bull won't last forever. Mr. Bear is going to show up at some point. It may as well be now.

As investors, we're generally supposed to love bull markets and loathe bears, but for the last few days, I've been kicking around a few reasons I can think of for why I wouldn't mind a bear market.

1 - It's a learning opportunity. It's all well and good to say you have a "plan" and boast about your 48-page excel spreadsheet with your ideal asset allocation strategy. But it's amazing what a 25% drop in the markets will do to make you change course and question your plan. Maybe you're not diversified enough. Maybe you've crafted the ideal portfolio for weathering out the storm. Maybe you’ve' guessed right. Hell, maybe you really are better off putting it all into gold. I don't know. But a downward market seems like an excellent litmus test to me. I'm still something of a naïve investor, so a new environment to work in -- where money isn't free and gains are only found by doing your homework -- would a good thing going forward. I think it's the kind of thing I'll appreciate in 40 years. After all, I'd rather lose it all to my own stupidity in my 20s then do it when I'm 50 and have a mortgage to pay and kids to feed. Anything that makes me a better, more disciplined, savvy investor down the line is a good thing. Even if it costs me a bit on paper now.

2 - More ammo in the active vs. passive debate. Regular readers know my distaste for high-fee mutual funds, and a financial industry that I think preys on ignorance and laziness. Generally, active-management advocates like their strategy because not only does it allegedly maximize gains in a bull market, but a shrewd managers can supposedly steer around the icebergs when the market as a whole heads south. I'm skeptical that's the case, and that all but a select few people can ever hope to outsmart Mr. Market. Maybe it's true, but I doubt it. I've known too many turkey mutual funds to buy in. In short, if people haven't been convinced that it's a waste of time to pay somebody to "beat the market" (remember the oft-quoted "80% of all mutual funds" statistic) then maybe paying somebody to lose money for them will convince them to see the light for once and for all. Hey, if I'm wrong, so be it. Maybe the Canadian mutual fund industry is worth what it gets paid. I think changing the rules and eliminating the easy money is an excellent way to find out just who's right.

3 - It's hard to be a downer in an up market. A personal story. My girlfriend's company has an incredibly generous employee-stock purchase plan which encouraged her to sign up for. I think she was skeptical at first, but as soon as she saw the discount she gets, and the direction the stock has headed since (straight up) she's now a believer. The problem? Her company's stock has done so well that I think she should sell off some and use the gains for something else. No matter the news -- good, bad, whatever, the stock chugs higher and higher. It's uncanny. But she won't listen. To her, "More company stock = more good". I try to preach the mantra of diversification, but when the only investment she's ever known has done nothing by go up for her, it's hard to convince her of the virtues of a low-cost, diversified ETF. I hate to say it, but maybe a 20% portfolio haircut will show her the light. Unless, of course, it turns her off investing altogether. That's not what I'm trying to accomplish.

4 - Slow the train down, and let me get on. This one's a bit of a stretch, but generally, when the stock market does poorly, the Bank of Canada likes to slash interest rates to make borrowing easier to stimulate the economy back up again. After a prolonged period of crazy-low rates, the Bank appears to be leaning toward rate hikes to slow the economy down. That's bad news for mortgage-owners, or people like me looking to jump into real estate. A bear market would mean I would feel better about keeping my money in secure GIC's and high-interest savings, and also mean I'd have a larger downpayment to jump into a cooler real estate market in a few years' time.

Anything I've missed? I realize it's hard to celebrate the bad times, but can you think of any advantages of a stock market that's headed into a prolonged downward direction?

Benefits are priceless

I'm curious for your take on this: Are you surprised that 61% of Canadians say they'd rather have health benefits for the year than $20,000 cash?

I'm certainly not. I think results speak to a very strong current of conservatism that people have when it comes to their financial lives. It's the same thing that makes GICs, savings bonds, catastrophe insurance and "balanced" mutual funds appealing. And I don't necessarily think it's a bad thing. I mean, I know that it's unlikely I'd ever incur medical costs more than $20,000 in a year, so it seems rational to take the cash. Yet I don't even think I would, if presented with the choice, and I'm allegedly in the "prime of my life" in my twenties.

I guess there's no accounting for the security of knowing it's there. It lets people sleep at night. As the survey suggests, 95% of the respondents knew they were unlikely to spend more than $20,000 in a year on health, but they'd take the benefits over cash anyway.

My own employment situation is something of a weird hybrid in that I'm a contract worker (no vacation, etc.) but I have the option to opt-in to the company's benefits plan, which I have done.

I realize the source of this survey (drug company Sanofi-Aventis) obviously skews the objectivity of the results ("A health care company saying health care is important? No way!) but nonetheless, I think these are interesting results.

The last taboo

A thought's been kicking around in my head for a few weeks since I read an interesting article on how financial compatibility is becoming increasingly important in modern relationships.

It can be hard to think that issues such as personal finance could creep into matters of the heart, but the older (wiser?) I get, the more I realize that they do.

Myself, I'm a saver. I have been since I was a little kid. Chances are, if you gave me $5 when I was 10, I'd have run to the corner store to buy two freezies for $1, and put the other $9 in my piggy bank, waiting for something really cool to come along. Now that I'm in my twenties, that urge to save hasn't left me. Watching my high-interest savings account creep upwards with every automatic deposit brings me no end of pleasure, thinking of the power it will provide me with a few year down the line. But hey -- that's me.

In the article, the writer puts forth the contention that it just makes sense to consider financial compatibility when choosing a long-term -- or possibly even short-term -- partner. Not that it's something you'd want to bring up on, say, a first date or anything, but really, the nagging thoughts you have when you notice that she burns through cash like it's going out of style (or you think he's a tightwad because of his refusal to use white-label ATMs, for that matter) are just as important as any of the other big questions we feel free to ask each other later on. If it bothers you now, I'm pretty sure it'll bother you even more when you're paying off that Visa bill yourself in ten years' time.

Views on religion can push or break couples apart. As can differing sex drives. Likewise views on having children. Or which city they want to ultimately settle in. Ditto how often they want to drink and go out with friends. If all those things are deal-breakers, I don’t really see why it's cold or callous to suggest that somebody who either has a completely different view on money -- or worse, doesn't think about it -- might not be your ideal mate. But for some, it still seems impolite to talk about. Money really is the last taboo.

My own situation is fairly good in that regard. I seem to have exposed the diligent little saver that was trapped inside my sig other's body, and it only took a few rants about the miracle of compound interest to do it :) I definitely know singles and couples who don't have it nearly as good as I do.

It's a cliché, but it's true: If one's a saver, and one's a spender, there's likely trouble ahead.

Which is what I'll be sure to tell my buds the next time any of them ask me "what's the deal" with my cute, cash-burning single female friends.

Paying for vacations

Later this summer, I'll be going to Shanghai for a sort of working holiday. I'm looking forward to the trip immensely, both as a chance to recharge my batteries, but also catch a glimpse of the breathtaking economic growth in China first hand.

The reason this is personal-finance related is I have to figure out a way to pay for the damn thing. I'm still technically a contract worker, so I'll be taking unpaid time off to go. That makes it doubly expensive because not only am I losing out on income via lost hours, I'll be dipping into savings to finance the trip. It's one thing to be swimming for yourself. Or even treading water. But it's quite another to be free-diving below the surface (As an aside, this is definitely why my brief periods of unemployment have tended to make the financial problems they create exponentially larger. One of the advantages of having a job is that not only are you earning money, but you're also not hanging around at home, spending cash on food and entertainment to fill the time every day.)

I'm hoping to write a few stories while I'm there just to make it worth my while, but this will no doubt make a dent in my financial plan. My goal for the year is to have a net worth of $40K by Christmas. With my new place and this trip, that seems like a bit of a stretch at this point, but we'll see just how disciplined I can be.

It's time to put my thinking cap on to drum up a little income above and beyond my 9-to-5er.

Steady as she goes

Some thoughts on the current TSX market pullback.

Much as it's jarring to see my Canadian holdings down significantly across the board over the last two days (once again, thank God for diversification) for some reason I can't stop thinking today about an awesome Raconteurs song, the lyrics of which seem to be an apt reminder of why it's important not to panic when things like this happen:

[This particular allegory makes more sense if you replace "girl" with "dividend-producing equity" :) ]

Find yourself a girl, and settle down
Live a simple life in a quiet town
Steady as she goes (steady as she goes)
Steady as she goes (steady as she goes)
So steady as she goes

A propos of nothing, there's a fantastic discussion going on at Canadian Capitalist today on the relative merits of reinvesting dividends through a DRIP or putting the funds to work elsewhere.

Not sure there's a wrong answer to this particular "what to do?" question, but I digress.

ETFs 2.0

I was a little later than usual in getting my hands on the latest issue of MoneySense magazine this month, and I'm not sure what to think about an article on ETFs I read in it. (I can't find it available online yet, but it's on page 10 of the May 2007 issue, written by Duncan Hood.)

BetaPro Management -- a division of Jovian Capital Corp. -- has come out with two ETFs that essentially allow investors to bet on what direction the TSX is headed in. The Horizons BetaPro S&P/TSX 60 Bear Plus fund (HXD) is designed to provide bear market returns by betting that the market is headed down. The company also has a similar product designed to supercharge returns in a general bull market.

Essentially, this makes it easier for retail investors to short-sell the stock market.

Think the blue-chip-laden TSX 60 is headed down? Buy the HXD ETF. Every 1% loss in the index translates into a 2% gain in this ETF's value. But beware -- if you guess wrong and the index goes up, the value of the ETF will decrease, again, by twice as much. Theoretically, you could see your investment go all the way down to zero. And don't forget, the MER is above 1% -- a number that strikes me as being suspiciously high for an ETF.

My initial reaction was shock. I mean, this seems like a fairly speculative vehicle. But the more I think about it, I can perhaps acknowledge a limited role for this product in a conservative portfolio -- albeit a very small role.

Say you set aside a small percentage of your portfolio -- something under 10%, and put it into a product like this. With the TSX having been on such a good run for so long, we all know a pullback is coming at some point. So perhaps some exposure to this potential for gains in a down market could provide some sort of protection.

But sensible investors would limit this product to a small percentage of their overall portfolio. Anything more than that is just asking for trouble.

I'm not particularly inclined to jump in myself at this point, but I do think it's interesting for what it says about the evolution of the ETF: A vehicle that was originally designed to provide market-indexing at rock-bottom prices now includes variations of itself that actually do neither.

Pot pourri

1) Finished moving this week. Predictably, it was a hassle. And predictably, it was expensive. Still -- I like my new place and I'm settling in well. You don't know how much you've missed outdoor space until you get it back again.

2) Got my tax return this week, too. Ordinarily, I'd roll it over into RRSP's again, but this year, with moving-related expenses to pay for, that's not likely to happen.

3) NetworthIQ informs me my net worth is over $33,000 this month. With six months to go in 2007, coupled with my higher cost of living in the new apartment, it might be tough to hit my unofficial goal of $40,000 by the end of the year.