Maybach Financial -- Boiler Room?

In my never-ending quest for information on companies I might want to invest in, I happened across an independent broker research firm called Maybach Financial the other week. I signed up as a member to get access to some of their analyst reports on companies I already own and am thinking of buying, reasoning taht the more information I have, the better off I am, regardless of the source.

The fact that membership didn't cost anything was a huge red flag flag to begin with, but I figured there was no harm in trying. After about 20 minutes of surfing through their bare bones site (no search engine? what's that about?) I gave up and pretty well put the company out of my mind.

Until yesterday. My phone rang in the middle of the afternoon, and on the other end of the line was 'Dennis' from Maybach Financial, calling to see if I'd received all the information I wanted from the Maybach site. At this point, I'm assuming this is some sort of customer satisfaction survey -- until the conversation took a turn for the extremely suspicious.

It soon became clear what was going on. After some chit chat on the companies I had signed up for information on, Dennis launched into a sales pitch for a company called American Exploration Corp., a pink-sheet listed junior resources company. I don't tend to dabble in penny stocks -- particularly not resource companies with more exploration rights than actual mining operations -- so it seemed like an odd pitch to an investor who tends to go for multinational financial and infrastructure firms. But Dennis was not to be dissuaded.

"We're really high on the company," Dennis explained. "The stock's currently trading in a range between 8 and 9 cents, but we could easily see it in the 40-cent range very soon."

Thanks for the tip, Dennis, but no thanks. 

But ol' Dennis doesn't give up without a fight.

"The thing is," (he's basically whispering at this point, just for effect,) "the company has some news coming out soon so now is definitely the time to act on this. We've been talking to their head geologist and they definitely have some huge finds that they're about to release. I'm giving you this information because I think it's the kind of investment an investor such as yourself is interested in."

The large red warning flags in my head have, by this point, been upgraded to a giant, 12-storey neon sign flashing "PUMP AND DUMP SCHEME" with the entire sign resting atop a 60-foot blimp, made out of fire. With lasers.

After politely excusing myself from the conversation, I resolve to do a little digging around on both Maybach and American Exploration, since, you know, unsolicited investment advice from anonymous sources doesn't seem to me to be the sort of thing that legitimate companies do for a living, but what do I know: I'm just some shmuck with a website.

There may well be some honest explanation for all this, but based on my initial research in Maybach, I'm having a hard time seeing what it is. I'd welcome an explanation from the company (or anyone else out there) as to what the hell that was. Has anyone out there had any dealings with this? Or something similar?

In the meantime, I'm reminded of a clicheed lesson -- when it comes to free investment advice, you often get what you pay for.

Safe to say, I don't recommend anyone signs up for any product whatsoever from Maybach. I think a call to the company's consumer relations line -- if not the SEC -- is warranted.

New job

I normally like the nomadic nature of my dying industry, in that in provides me with a built-in opportunity to try new things and develop my skills, but I can't deny that there isn't a fair amount of nervousness to be had as one contract runs out and I don't know where and when the next one begins.

After a diligent month of letter-bombing the city with my resume and mining every contact I have that isn't nailed down, it seems I've once again managed to land on my feet, and secure another year of gainful employment. I'm particularly excited about the fact that for the first time, I'm getting away from the dead-tree medium and moving exclusively into the world of online journalism. (There's a distant, distant chance this might turn into an opportunity to blog about finance/investing and get paid for it, but that's very nebulous at this point...)

Besides the duties (which I'm quite excited about) my new job has the added bonus of coming with a not insignificant raise from what I've been earning so far -- to the tune of about 17%, before taxes. As my cousin Jacques might say, "ne pas too shabby."

I'm a big believer in the principle that good financial habits can build into big things over time, and as such, I've been able to build a decent little nest egg over the last few years, without really sacrificing too much of the fun that life has to offer. Currently, as soon as my paycheque comes in, about 25% of my gross salary goes directly into my PC Financial high interest savings account, which functions as a sort of catch-all account until I divert it into other things (RRSPs, Visa bills, big purchases, or whatever.)

It's a system that's worked quite well for me so far, so the obvious answer to the question of what to do with these new funds might be to increase the amount I divert into that account. But I have a different idea.

I think I'm going to keep my PC account as a legitimate long-term savings and investing fund, and open another high-interest savings account (or possibly just dust the cobwebs off of my fallow ING Direct account -- I haven't checked if their rates have gotten any more competitive) to be my designated "fun" account.

I think putting that psychological barrier between the accounts will be a good thing. The new account will be the one I dip into for the vacations, gifts and *cough* plasma televisions I'm thinking about getting over the next 12 months.

At any rate, big things and good news in GIV-land. 

For the time being :)

Kicking the tires -- Sherritt International (S:TSX)

What with the cash piling up in my savings account, it's about time for me to make another RRSP contribution, so I've been doing some digging, looking for a suitable stock to buy into. I'm liking what I see about resource company Sherritt International, (ticker symbol S on the TSX). I see a lot to like about the company, and some things that raise my eyebrows a little, so I thought I'd post a few thoughts here for my clever readership to see and try and get some feedback on my thought process. My apologies if you're numbers-averse.

WHAT I LIKE

• It's a resource story. Sherritt's business basically divides into four units, listed here in order of size, in terms of percentage of sales -- Metals, Oil/Gas, Electricity, and Coal. Outside of a few token trusts and dividend-paying energy companies buried in my dividend ETF (CDZ on the TSX) I don't really have much of a resource presence in my portfolio -- rare for a Canadian investor. I've been underweight for a while, looking for an entry point into the space in general. I know it's impossible to time the market, but what with oil having retreated significantly from its July high of $147, I figure now' s as good a chance as any to jump in. Most commodities have seen a similar decline in value over the last several months, and nickel (66% of which goes into the production of stainless steel) is a major part of Sherritt's business. In the spirit of buying high and selling low, I figure my odds are pretty good at the moment. Whether it's the right firm inside the sector remains to be seen.
  

• It's international, and diversified across several industries. With a number of operations across the country, the Toronto-based company obviously has a strong Canadian presence. But things like power plants in Cuba, offshore oil patches in Spain, gas operations in Pakistan and nickel mines in Madagascar give me a little more international exposure as Canada's economy shows signs of slipping into recession.
  

• A whole bunch of the company's fundamentals look really, really good right now. Consider a few of them. Over the past five years, Sherritt has boosted its profit by an average of 36% per year. Consensus estimates expect further earnings growth in the next two fiscal years. In June, Sherritt was the only company in Canada to earn an A grade both as a value stock and a growth stock by MoneySense magazine. The company pays a dividend (albeit a small one) and it's growing. The company's book value (basically, the floor price that the company would be worth if they sold off all their assets individually) is somewhere between $12-$13, analysts say (sorry I can't link to the reports). Considering Sherritt currently trades at under $9 a share, a price/book value of about 0.75 makes me positively giddy. Of the seven analysts who cover the stock, all rate it a "buy" with target prices ranging from $15.50 to $21 -- not that I put too much faith in analysts who basically get paid to convince clients to buy stocks.
  

WHAT I DON'T LIKE

• The Cuba 'thing'. Sherritt does more business in Cuba than many firms, and I can't decide if that's a good thing or a bad thing. I like that they have the courage to go against the flow, but I have to question the wisdom of a company that basically flips the bird at the U.S., the world's largest economy, and does business in Cuba. Sherritt's had a huge presence on the island for years, and it shows no sign of pulling out any time soon. I suspect Washington's trade embargo can't go on forever, and god knows what will happen when Raul Castro dies and/or steps down. Sherritt could be better-positioned than anyone to hit the ground running on the influx of money that would result. Or not, and maybe Washington will carry a grudge. Even before Cuba opens up, who's to say they wouldn't go back to their more totalitarian tendencies and start seizing assets, Chavez-style. I have no idea, and uncertainty like that is not generally something I like in the companies I own

• The stock has been a ski-hill downward for the last month. Normally, I don't care about things like that unless it's a stock I want to sell, but the scope is quite drastic. Since reporting a 39% dip in profit (largely due to tanking nickel prices) at the end of July, Sherritt stock has gone on to lose more than 50% of its value. A collapse like that hardly seems appropriate just because of a profit blip. What am I missing? I like buying things cheap, but am I trying to catch a falling knife?
  

• Insider trading, going in the wrong direction. This one leaves a real bad taste in my mouth. According to filings, independent company director Daniel Owen owned more than 2,000,000 Sherritt shares in March, worth some $18-million. But Owen dumped more than half of his stake throughout August. And that was after the bad earnings release. Does he know something I don't? Probably...

Anyway, that's the basic picture as I see it today. Nothing imminent, but it's certainly a stock I can't seem to get out of my head. Ironically, I'd be more sold on buying the stock if Mr. Market hadn't just given it a 50% haircut. It's often hard to go against the herd.

labours of love

In honour of everyone's favourite excuse to pass out while swatting mosquitoes with an empty bottle of Moosehead Tragically Hip CD, a cornucopia of labour-themed links for you all this Labour Day.

• An interesting feature in FP on how unions are slowly but surely losing some of their influence in Canada.

• But reports of the death of labour might be greatly exaggerated. Outgoing CAW president Buzz Hargrove disagrees, for one.

• As most of the world's economy wobble close to recession, signs are trickling out of China that that country's roaring economy is even starting to slow down. The latest numbers predict single-digit growth in China's GDP this year. One of the culprits? Increasing costs for transportation, energy, raw materials and -- you guessed it -- labour. Should be interesting to see how China responds as their inherent manpower advantage is slowly eroded away over the coming years.

• Ontario college students are breathing a sigh of relief as it appears a potential strike by support workers starting this semester appears to be off, for now, as the union and the colleges have struck a tentative deal.

That's it. Unlike most of the 30% of Canadians at work today, I get paid triple time to be on the Internet today. But you? You have no excuse. Put down the iPhone, have another beer and think about fixing the lawnmower, already.

Subprime synergism

The always well-done Sunday New York Times business section offered me two great reads this week. That they're actually related to each other is even better.

First, actor and author Ben Stein offers a little perspective on the unfolding subprime mortgage crisis.

The 10-cent version? Yes, a lot of people were too eager and too greedy in conjuring qualified mortgagees out of thin air. But that's not the whole story -- "subprime mortgage" doesn't deserve to be a dirty word, since the financial vehicles allowed a large number of people to do what is, at its essence, a very good thing: buy and keep their own homes. Subprime mortgages represent about 10-15% of all U.S. mortgages, and so far, about 10-15% of subprime mortgages have gone into default. The unraveling is going to be painful, but let's not pretend that every single U.S. homeowner has suddenly stopped paying off his mortgage, Stein writes.

Not that there aren't pockets of truly astounding real estate implosions across the U.S.A. as this excellent feature on real estate in Merced, Calif. by David Streitfield shows. A suburb of San Francisco, Merced's an excellent microcosm for the worst aspect of the U.S. housing boom, and serves as a cautionary tale of what might be to come. Prices are down about 50% from their 2005 peak. This bleak quote is probably the piece's money shot:

With as many as 2.5 million homes in the United States entering foreclosure this year and, at best, sales of only 5 million existing houses, the foreclosure price is becoming the rule in many areas. In Los Angeles County, whose 10 million people make it the most populous county in the United States, a third of the sales are foreclosures.

How is this all going to play out? I have no idea. But like anything else, I think the reality will be somewhere in between the outcomes predicted by the sky-is-falling doomsayers and the "everything is fine...keep shopping" optimists.

Extreme makeover: Foreclosure edition

Not much I can really add to the story that a house built in 2005 for a down-on-their-luck family on the TV show Extreme Makeover: Home Edition has gone into foreclosure.

The four-storey mini-mansion, built for the Harper family with the help of 1,800 volunteers and residents from Lake City, Georgia, will be auctioned off to the highest bidder on August 5th. The house was used as collateral for a $450,000 loan that went into default.

Sad, really. Obviously in retrospect, it's not always the greatest idea to shower people in dire financial straights with windfalls like this because they don't always know how to handle it, but this whole story also says some particularly sad things about the worsening state of the U.S. economy in general.

Thoughts on the wireless spectrum auction

Much as I'd love to believe Industry Minister Jim Prentice's claims that the recent auction of new wireless spectrum is going to revolutionize the industry in Canada by giving consumers more choice for less money, I don't.

Whether you're one of those early adopters willing to pay Rogers' exorbitant rates to get your hands on the iPhone, or just a Luddite shelling out a $7.95 "system access fee" on your no-option phone for no good reason every month, it should be painfully clear that Canadians pay more than almost anyone else in the world to use cellphones.




The CBC's handy iPhone index calculates that Canadians will pay a minimum of $2,572 over three years to use the new iPhone, under Rogers' cheapest plan. That's well over the global average, and almost three times as much as the basic plan's costs in Switzerland, for example.

I think it's great that new entrants like Quebecor, Shaw, and Yak have bought tiny slices and will presumably soon be rolling out service plans in the near future. I have especially high hopes for Yak because they run a GSM network (currently Rogers is the only one, which explains the iPhone exclusivity) and they've been a genuinely cheap alternative in conventional long distance and Internet service.

But the cynic in me finds it hard to believe that Yak, for example, is going to be particularly motivated to undercut the Big Three's prices after they've just dug themselves a $423-million hole just to get in the game in the first place. The whole thing looks like an oligopoly to me.

I'm trying to be optimistic, but we'll see how this plays out.

As for what Ottawa should do with the $4.5-billion windfall, I normally hate the knee-jerk partisan bitching that usually comes out of the opposition no matter who's in charge, but I find myself nodding in agreement with Liberal critic Scott Brison's suggestion that some of the money should be used to bring high-speed Internet to remote northern and rural communities.

BCE -- too good to be true?

I did something very unlike me this morning -- I bought a stock that I have absolutely no intention of owning for more than a little while, for no other reason than its price is too low and bound to be higher in the very near future. Crazy, I know. But there's a catch...

The stock? BCE, one of Canada's best-known, and oldest companies. Not exactly your typical candidate for a speculative flyer.

I've been sitting on the sidelines, watching the BCE drama unfold as the buyers who pledged to take the company private and the bankers who promised to loan to them bickered with bondholders and stockholders eager to make sure they get their pound of flesh.

For a while, it was looking like the whole thing was about to blow up as bankers who greenlit the sale when times were good, had second thoughts at the price they had promised to pay once times went bad and world stock markets were tumbling. The original deal was that BCE would be taken private at $42.75 a share. But due to the uncertainty and the sabre-rattling of bondholders who were leery at the amount of debt that was being taken on, the stock lagged as low as $33 not that long ago.

A few weeks ago, Canada's top court essentially approved the deal, at the original price of $42.75, and all sides appear to be appeased. Which is why I've been curious about why the stock continues to stagnate below that $42.75 level. It closed at $39.64 on Friday, roughly 8% below what Teachers & Co. have promised to buy it for.

"That's more than $3 below the agreed-upon - and now confirmed - takeover price of $42.75. That's easy money for investors who are willing to wait until December to cash out," The Globe's David Berman wrote in his marketblog on Friday.

That description sounds like me, so I picked up 100 shares of BCE this morning. Thanks to a broad-based market rout, BCE slipped even further today, and I paid $39.40 per share. That's 8.5% below what the stock's going to sell for in the fall, so I'm having a hard time seeing the downside. Sure, there's still a microscopically small chance this could all far apart, but when things have been elevated to the level where the Supreme Court of Canada is stepping in, I think that's a pretty solid foundation to build an assumption on.

I won't get any dividends as they've been suspended to help finance the deal, but in this market, 8.5% for owning a stock for 4-5 months is a gain I can live with.

Darts and laurels

When you work in the media (and by association, hang out with journalists) while also being one of those weird people who actually enjoys talking about financial topics, it makes two things more likely to happen. No. 1, the odds that your drunken ramblings might ever see the light of mainstream publication are infinitely increased. And No. 2, how they're received is likely to be all over the map...

I'm "in the news" (so to speak) a couple of times at the moment, and I figured I'd be remiss if I didn't point my loyal readers (Hi mom!) toward the fruit of my overactive brain.

My good friend Andrea is under the mistaken impression that I somehow know what I'm talking about when it comes to financial topics, so she's enlisted me to answer a few basic questions about opaque financial topics on her new financial blog, Unspending. This week, we're talking about net worth: what is it, and why does it matter. This may or may not become a recurring feature, since believe it or not, there's few things I enjoy more than chatting about things like personal finance. So if Andy's pleased with the results, expect more topics to be discussed in a rough Q&A format over there. So far, the early reviews of my thoughts appear to be positive.

But clearly, that's not a universal view. Another friend, who works at the Toronto Star, has been writing an 8-part series about the process of jumping into the real estate market for the first time. I'm something of a contrarian when it comes to real estate, as my B.S.-detector tends to go into overdrive when I'm at a cocktail party and overhear someone bragging about how "you can't lose money in real estate." At any rate, Robyn and I have been having an ongoing debate about Toronto real estate for a few weeks now, the distilled version of which, it turns out, is the focus of her series' final installment: Home, Sweet Home.

As impossible as it is to poke holes in such air-tight financial advice (from a financial advisor, no less) as "never pay off your mortgage," the point I was trying to make isn't so much that real estate is a bad investment, but more that it's quite often a good idea to at least question the conventional wisdom of the massive financial move you're making -- not to mention that 40-year mortgages might not be your best friend.

No matter. Though I'm clearly the villain of the piece, it's all in good fun. And I doubt it'll be the last time anyone takes mock umbrage with something I say.

Welcome to the jungle

A very warm pfblog welcome is in order for my good friend Andy's brand-spanking new personal finance blog, unspending. Andy's a twentysomething who's decided to face up to her financial life before it gets out of her control.

She's a self-described financial newbie, but expect well-written posts on budgeting and saving while she finds the right balance in her financial life. She's starting with the basic ABCs of finance (like we all do) but I've no doubt she'll be cranking out 3,000-word odes on ABCP, P/E ratios, EBITDA, the BRICs and ETFs before long. :)

Unspending's barely more than a weekend old, and she's already taken the fantastic first step of realizing that paying bank fees is death by a thousand cuts.

Read her. Welcome her. Add her to your blogroll.

Five secrets

Inspired by Blatantly ripping off Canadian Capitalist's list of his five favourite financial secrets, I thought I'd bang out my Top 5 for you all, in no particular order.

1 -- Live below your means
I know it can be hard to pay off all your bills every month, let alone put aside a little extra for a rainy day. But I'm constantly amazed by the gains that can be had from living just a little bit below your means. Whether it's $5 a day, or $20 a week or whatever, the benefits of seeing that little buffer zone in one's chequing account and not immediately blowing it are immeasurable. I'm lucky enough right now that my situation allows me to put aside something in the neighbourhood of a quarter of my paycheque into a savings account. I know that won't always be the case as things like mortgages and kids come along, but for now, I'm socking it away while the socking's good. I don't advocate denying yourself the things you truly enjoy in life. But you'll be amazed how culling the meaningless expenses from your life can add up to big financial gains without hitting your standard of living. Try spending 10% less this month than you did last month and see how fast it adds up.

2 -- Don't pay needless fees
This one is a biggie for me. I'm quite happy to spend money on the things that are truly important to me, and I don't even make myself feel guilty for doing so when I do. But if there's one thing that I derive absolutely no pleasure from whatsoever it's the dozens of bank fees/convenience charges/system access fees/ticket surcharges that nickel and dime us all to death every month. I had a conversation with a friend recently about bank fees, the gist of which was -- in today's day and age there is no reason to pay bank fees. None. Whether it's PC Financial, ING Direct or another fringe player, get to know them, and don't take your current bank's B.S. a day longer than necessary. Use them. Love them. Another friend somehow managed to spend an amazing $47 in on month on bank fees one month a few years ago, I surmised when we looked at one of his bank statements. That's astounding! $47! Remember that the next time you're convincing yourself, drunk in a bar, that the $2 service charge to use the white label ATM in the lobby is somehow 'worth it.'

3 -- Make it automatic
As per item #1, the easiest way to make sure you'll have a little left over at the end of the month, is to make it automatic. Don't put whatever you have left over at the end of the month into savings, because we both know there won't be any left over. At least, there certainly wasn't when I tried to do it that way. Move the money you put into savings up in your priority list by setting up an automatic withdrawal. I get paid every Thursday morning, at midnight. At 12:01 a.m., my savings account gets a deposit out of that, forcing me to live off the rest. Obviously, I dip into it from time to time as circumstances require it. But just by putting in in there at step 1 (as opposed to step 17) I make it much more likely to stay there.

4 -- Don't always follow the herd
Sometimes, the herd is going in the right direction. But not always. There's a word for the act of going against the grain in investing circles -- it's known as being a contrarian. Most of the world's greatest investors built their wealth by doing precisely what everyone else isn't doing. Sometimes, that means closing your eyes and buying when everyone else is selling. Even outside any investment decisions, stop and reflect on why, exactly, you're doing the things you do, or buying the things you buy. Use your head: "Why am I doing this? What benefit am I getting out of this? Could I be better off doing something else?"

5 -- Keep your goals in mind
A little more nebulous, but still just as helpful, I've found. It isn't always the easy thing to deny yourself some treat, or stick to a plan. One thing I've found works quite well is to visualize what exactly you're working for. You're a lot more likely to stick to your savings plan when you can imagine the car you're saving for, or the dream home you want, than just blindly saving every cent, without ever having a concept of a reward for it. Any time I'm tempted to go off the rails, I think of the things that really matter to me, and how inconsequential everyday sacrifices (like bringing coffee from home, for example) gets me closer to them.

Those are my 5. What are yours?

Rubbernecking the Biovail car crash

Despite the fact that I've washed my hands of my stake in the company, I must admit I'm watching the drama going on at Biovail keenly.

I laid out my reasons for selling my Biovail stake pretty well, I think, but who doesn't love a good power struggle? Especially when someone like Eugene Melnyk is involved, a man who seems to leave a trail of carnage in his wake.

I have no idea which management team is better-suited to turn around the fortunes of what was once Canada's largest drug company.

But it's riveting stuff to watch. The fact that I don't have a horse in the race any more makes it even more enjoyable.

Bank earnings recap

Another earnings season for Canadian banks has come and gone, and the credit crisis picture doesn't appear to be getting any clearer.

Results were a bit of a mixed bag. Scotia, Royal, BMO, TD and National Bank all saw their profits dip a little, while CIBC squatted down and unloaded yet another $1-billion loss for the quarter. The bank that I own, BMO, didn't exactly knock my socks off, but based on analyst and shareholder reaction, the news was not quite as bad as it could have been (or indeed has been in recent quarters) so I took their numbers as muted good news.

All in all, though, we're not out of the woods yet. When a bank like Royal, which has so far managed to keep its hands pretty clean in the subprime mess, starts announcing hundreds of millions of dollars worth of writedowns, it's clear this isn't over.

Banks are as good a proxy for the economy as a whole as anything, so today's news that the Canadian economy actually contracted during the first quarter shouldn't be much of a surprise.

I have no idea how all of these credit problems are going to play out, but it's clear they haven't worked their way through the system yet.

Blogroll update

Slowly getting around to updating my blogroll on the right hand side of the page.

I must admit, I was embarrassed to discover that I hadn't already linked to these blogs, as I've been reading them all for a while. Still, it's never too late to throw someone a little link love.

Nancy Zimmerman's blog can be found here. Nancy's a Vancouver-based money coach (NOT a financial planner, she'd hasten to add) who wants to engage Canadians to take care of their financial health. Sounds like an admirable goal to me. The fact that she works for Citizens Bank of Canada is another feather in her cap, as far as I'm concerned.

Wooly woman's blog is more debt-related (as opposed to investing, I mean) and even though I've managed to sidestep a lot of major debt pitfalls so far in my young life, I still find blogs like hers inspiring and informative.

Strictly speaking, JanePlain is a Canadian, which is why she gets primo placement in my coveted blogroll. :) But she's actually an ex-pat living on the West Coast, in silicon valley I believe, in a high-tech, high-paying industry, in an expensive city. Those are several things I have no frame of reference for, which goes part of the way toward explaining why I find her blog so interesting. Hers is such a different perspective from my own, yet we seem to think alike. Hers is one of the newest personal finance blogs I've stumbled upon, but I like what I see so far. And speaking of California, I'd like to share the funniest description I've ever heard of silicon valley. My sister, upon returning from a trip to San Jose/Cupertino, was asked how it felt to live in a part of the world with such a high percentage of single, successful bachelors. Her synopsis? "The odds are good, but the goods are odd."

I'm sure she probably ripped that off from somewhere, but it always made me laugh.

At any rate, welcome to the newbies and blog veterans alike. I've heard rumours that a good friend of mine who recently discovered my blog is thinking about starting a pf blog of her own (hint, hint) to help get her financial house in order. I hope she does. There's a space waiting on my blogroll whenever she does.

Tipping the scales

Gratuities. They're popular fodder in a lot of financial blogs, with opinions raining in on all sides with personal takes on the fundamental question -- who gets it, and how much.

Me? With apologies to Malcolm Gladwell (and Mike from Four Pillars who similarly absconded with the pun for his lede) I reached my own particular tipping point this weekend.

After a very nice steak dinner with some friends on Saturday night, I excused myself to use the men's room. Which was where I encountered my own particular tipping-related white whale: the bathroom attendant. After using the urinal, I moseyed over to the sinks, searching for the soap. The smiling elderly gentleman in the corner who was holding it insisted upon squirting it into my hands, before flicking the tap on for me. 30 awkward seconds later, I was looking around for some paper towel, when he sauntered up from the opposite side and threw one over my hands with a smile. Noticing the tip jar, and feeling guilty, I threw in a loonie and excused myself as fast as possible. Where I come from, $1 for holding soap hostage and spouting inane weather-related banter is pretty good non-work if you can get it. But I'm just relieved he wasn't around for the follow-up jiggle.

Having received both notably good and notably bad service in my life for a variety of tasks, I'm generally a pretty decent tipper. Barring some sort of calamity, waitresses, cabbies and barbers can be pretty much assured of a little something extra in the neighbourhood of 10-20%, after taxes, from me, for going above and beyond. But I draw the line at jobs being made up for unnecessary middle men in the service assembly line. Is this really a service somebody needed? Was anyone actually out there thinking "Boy, that was a great meal. The only thing that would have made my evening better was if some old dude was there to blow my hands dry after I peed, because I'm a deeply insecure big shot."

I don't even begrudge him his entrepreneurial spirit, but the restaurant? It seems like an asinine way to run a business. It's particularly mystifying in that there's no way this is a profit centre for the establishment. At best, it costs them nothing as the attendant is paid entirely via gratuities. But I certainly don't see how it's making any money for the restaurant or bar. Couldn't one make the argument that that's money that might have otherwise ended up in the bar's cash register had it not been taken by the bathroom attendant? What other business dreams up ways for its customers to give away money to other people while inside their location?

If the intention was to make patron's start budgeting their bathroom breaks, and deciding to go home early after calculating the ROI to be had from urination, mission accomplished. But in general, I think I'll frequent those Luddite places with do-it-yourself soap dispensers from now on. I love the retro.

Anyway, just had to share. If you liked this post, send me some money. It's rude not to.

Artis hikes distribution

Discolure: I own AX.UN

I guessed, when Artis announced yesterday they'd roughly doubled their annual revenue and profit that there might be another shoe to drop in the near future, and today, it did.

Artis upped their distribution today by 3 per cent, to 9 cents or $1.08 per year. In the last year, Artis has managed to lower their FFO ratio to a very impressive 65% (FFO stands for Funds From Operations, a key metric for REITS that basically indicates how much of their total cash flow gets paid out in distributions every month. The lower the ratio, the better, as it generally implies the distribution is safe, and in fact could probably stand to increase.)

I'd written recently about how I was thinking about selling my profitable stake in Artis, so this news is certainly welcome while I mull it over some more. Ultimately, I need to decide if those funds might be better spent somewhere else, but in the interim, it's nice to own a company that seems dedicated to growing dependably and profitably.

The contrarian view on dividends

Fun as it can be to read mainstream media stories about why your particular investing style is the one true faith, destined to bring you riches and a happy retirement, for me, one of the best things about the personal finance blogosphere is when you stumble upon something that calls into question some fact you've always taken for granted, and forces you to either rethink your strategy, or confirm you're on the right course.

Take me, for instance. In general, I like dividends. I'm becoming more of an indexer the more I play this investing game, but I'm still partial to companies that generate healthy amounts of dependable cash, and have a tendency to spin off some of that to me in the form of dividends.

That bias means I frequently miss out on gains from fast-growing, sexy stocks like Google, Lululemon, and RIM in favour of old economy stalwarts like Royal Bank, Canadian Pacific and BCE. I generally don't start kicking the tires on a company until it's reached a mature level where it doesn't need a ton of cash to reinvest into expanding the business, and can instead divert a fair chunk of profits towards investors in the form of dividends. I like companies that pay me to own them, essentially, and this always struck me a as a fairly conservative way to invest.

Andy Kessler disagrees. Far from being safe and staid, Kessler thinks I'm an idiot for buying companies stupid enough to admit they can't think of anything better to do with their money. In a piece that first ran in the Wall Street Journal and is now expanded on his blog, far from saying companies that pay dividends offer investors a margin of safety, Kessler lambastes them for essentially acknowledging they have little room to grow. As he puts it: "If they won’t invest in themselves, why should I?"

I actually interviewed Kessler once for a feature I was writing on investing in nanotechnology (sadly, it's since been lost on the cutting-room floor) and he's a colourful character. So I'm not surprised to hear him espousing such a contrarian view on something as seemingly benevolent as a dividend cheque. Indeed, it's not the first off-the-wall thing he's ever said: he might be the only man in America who doesn't think Warren Buffett's the kindly old Cherry-Coke-swilling genius we all assume him to be. According to Kessler, Warren Buffett hates your guts. (Of all the things he accuses Buffett of, I'm guessing he'd begrudgingly like the fact that at least Berkshire Hathaway doesn't pay a dividend...)

All in all, I don't think I'll be changing my style too much. I still like the fact that dividends have some sort of downside protection. It's all well and good to ride Google as it increases 600% from its IPO. But what goes up must ultimately come down. And I'd feel a lot better thinking about all the quarterly dividend cheques I've cashed in over the last decade when it dawns on me that my Biovail shares are worth half as much as they were 5 years ago.

Unions sue for EI overhaul

Some interesting news on the bete noire of this particular blog (and a few others) today: Ottawa's egregious $54-billion Employment Insurance surplus.

Click here to read my previous thoughts on EI, but the latest chapter is that a number of powerful labour unions are taking Ottawa all the way to the Supreme Court to complain that the government is knowingly taking too much in EI premiums, and using the funds to pay for other government programs.

From the CBC's story:

"The surplus has been used to pay down debt, It's been used to give tax cuts to large corporations and oil companies, it's been used for all sorts of other purposes but not for unemployment insurance," said Byers. "That's money that comes from workers and employers for unemployment insurance. It's not an extra tax, it's not to be spent on other things."

I doubt this will lead to any sort of substantive change, but it's nice to see this issue maintaining traction in the media.

Don't get me wrong -- by and large, I like what Paul Martin did to overhaul the system in the 1990s. And in principle, it's a program I'm glad we have, to give people peace of mind for when life throws them that 10-ton bag of lemons every once in a while. So it's exactly the type of program I don't mind paying for, per se.

But based on the number of people I know who work, pay into the system, and then have their payouts denied or ridiculously delayed, it's clear something has gone amiss. It's not supposed to be another level of taxation imposed upon anyone with the audacity to hold a job. But with a $54-billion surplus that grows larger every day, that's exactly what it's becoming.

I sincerely doubt this lawsuit is going to result in Canadians getting some sort of lump-sum refund cheque, but anything that makes the system closer to what it's theoretically designed to be is OK by me. I'll keep you posted on future developments.

Every little bit helps

I've gotta say, it's rare that one of the Big Banks comes up with a promotion that doesn't immediately make me raise my suspicious eyebrows, but I'm pretty impressed with Scotiabank's recent savings-incentive program, Bank the Rest.

Essentially, the program takes extra cash every time an enrolee makes a debit transaction from their chequing account and puts the difference into a high-interest savings account where it accrues a lot more interest that it would otherwise have done. The program can be set to round up to the nearest $1 or $5. If you spend $6.23 on lunch, for example, Scotia would take an extra 77 cents, round the transaction up to $7, and deposit the difference into a savings account for you. Best of all, it's free of charge. The net result? A banking customer who wouldn't otherwise have the discipline to save some rainy day funds gets an automatic savings account that build in tiny increments over time. In exchange, Scotiabank no doubt gets a few new members for its Money Master High Interest Savings account.

Obviously, this isn't the sort of program that a regular saver would find much use for. But I'm inclined to applaud Scotiabank's attempt to turn a few compulsive spenders into accidental savers.

If you find it difficult to find the will to put away a little excess cash every month, I'd encourage you to consider this program (especially if you're already a Scotiabank customer.) I promise, you won't notice the extra 90-odd cents every time you make a debit transaction. And you'll be amazed how quickly it can add up.

Boom and bust

OK. So you've no doubt heard the news that Canada's housing boom is slowing. "Canada's Housing Boom Officially Over," if memory serves, was the early headline on the Globe's story about resales tumbling 22% in Toronto during the first quarter (although I note they've since toned down the doomsaying a tad.)

As I've said before, as a non-owner looking to buy at some point in the relatively near future, I'm not holding my breath for an outright crash. Toronto is a vibrant city with a fairly strong, diverse economy and a growing population. All the elements for a natural increase in house prices are there. But that's not to say I don't look at charts like this and wonder where it's all headed.

Still, I'm not nearly as pessimistic as this U.S.-blogger is. As much as the schadenfreude drips off the page, I have a hard time arguing he doesn't make a few rational points.

Ultimately, I don't expect any pain here to be anywhere near as bad as it's been in pockets of the U.S. I raised my eyebrows at the advent of 30+ and 40+ year mortgages in Canada, but the fact is, they still remain a tiny part of the overall picture in Canada.

But as long as there are people like my real-estate obsessed colleague telling me how she's already "made" $11,000 on the condo she bought in March (because the identical unit one floor up just sold for that much more) I know there's still a ready supply of people looking to join the game, confident that the music isn't about to stop.

Depending on a greater fool than I to come along in a few years time and take it off my hands isn't the strategy for me. I'm going to wait and see how this plays out.

The Final Countdown

As a (relatively) young cub in the journalism world, one of my secret pleasures is reading the final offerings of columnists before they retire or move on to other things. From where I sit, the opportunity to have a weekly soapbox, wherein you're entitled to write about all the things that are stuck in your craw and have readers respond to your thoughts, is such an awesome way to make a living that I find myself constantly seeking out the fruits of various columnists' final efforts.

I figure people who do that for a living accrue so much knowledge over their column's life that witnessing its final incarnation -- where the writer gets to choose how that column will end -- is a truly special experience.

Sometimes, they're generic and feel rushed. Sometimes, the columnist chooses to honour what the column was about was to make the final one in the exact same voice as the first one, giving readers a final taste of what made it special for so many years. Sometimes, I stumble upon a truly special one that, although clicheed, reminds me of just how lucky I am to be able to get paid to write for a living.

And sometimes, a writer opts to distill a lifetime of knowledge on their particular beat into two or three nuggets of advice he hopes his readership will take to heart, which is exactly what Wall Street Journal writer Jonathan Clements went for last week.

Pay yourself first. Live below your means. Always save for a rainy day. We hear these simple axioms of personal finance so often, that they begin to lose their meaning, and we think we can get rich quick by predicting which junior mining play is going to find the next great molybdenum deposit, or which obscure, money-losing Internet firm is about to be bought out my Google.

But when a man who covered everything from the mexican peso crisis to the rise of mortgage-backed securities basically tells you ignoring the noise and focusing on simple investing for the long term is the secret to a happy life, I find myself nodding in agreement.

I'm not one to encourage greed, but this column really hit home for me. Money can't buy you happiness, but it does buy you the option of pursuing things that do make you content in the long run. I think the people who realize that the quickest are the ones who end up feeling truly fulfilled.

Thinking aloud: Loblaw's

It's almost sad to watch what's happened at venerable Canadian grocery chain Loblaw's over the last several years.

The grocery business is a notoriously low-margin business, where stores generally rely on high volumes of sales to make up for the microscopic profits they make on each individual item. For decades, the firm expanded the old fashioned way -- earning customers organically by offering better quality or lower prices, and strategically buying up smaller rivals when their low valuations made it worthwhile.

For several decades, the formula worked. Consumers were happy to lap down their Memories of Kobe marinade by the gallon. Stockholders were happy with double-digit returns, year after year, as earnings and market share increased. And the wealthy Weston family that controls the company went from super-rich to ultra-rich.

Then, in early 2006, all that changed when an 800-pound retailing gorilla appeared on the horizon and informed the world it was going to start selling groceries. The Canadian market was about to get a lot more competitive, so hegemon Loblaws decided that the most prudent course of action was to throw out the formula that had worked for the better part of a century, and try to out-Walmart Walmart. Loblaw's decided it needed to get bigger, and start selling in sectors it had no retail experience in. Huge stores! Furniture! Clothing! Mortgages! It was totally going to be great. As long as they could squeeze suppliers for an extra 1.3 cents on every jar of baby food, it didn't matter that customers didn't want to buy metric tonnes of bok choy. And look at this trendy patio furniture! "Stop focusing on the fact that milk sells out by 1 p.m. on a Saturday now -- look what a lean, modern operation we are, you backwards-thinking Philistines," the company seemed to be saying to its customer base.

The madness didn't end there. Throwing the old chestnut that "the customer is always right" on it's ear, in late 2007 the company launched a splashy ad campaign built around their folksy, populist superdork CEO, Galen Weston Jr. People are willing to put up with being told they're poisoning the planet by using plastic bags, or that purchasing their favourite burger paddy is actually going to kill them when it's Dave Thomas of Wendy's doing the talking. But they're a lot less open to being badgered by the heir to a $7-billion fortune who looks like he's 12, yet somehow still comes off as smarmy.

A few years on, it's painfully clear that a huge mistake has been made. Loyal customers complain loudly, and frequently, to anyone who'll listen. The stock's been an absolute ski-hill downwards for more than a year, as $12-billion of market cap has been wiped out in the process. Some insist we've hit bottom, and it's time to buy in for the turnaround. Others say there's more pain to come, and the tone of some analyst reports is borderline funereal.

The whole thing's just a mess, and it really is painful to watch a once-great Canadian retailer shoot itself in the foot time and time again. As an investor, I have a hard time getting excited by a battered, mismanaged retailing giant that pays a microscopic dividend. At this point, I wouldn't touch Loblaw with a 10-foot pole, but that's not to say I'm not keeping an eye on them down the road. They're almost at the point where the real estate they own alone is worth more than the stock's current price. And I still think the company's problems are fixable -- they just need to get back to basics, and stop trying to fight too many battles at once.

The day Loblaw's realizes it's a high-end grocery store and little else is the day I'd consider buying in.

Until then, I'm happy to wait it out, park my cash in one of their high-interest savings accounts, and track down the stockperson to find out why, exactly, they're always out of non-brown bananas.

Thinking aloud: AX.UN

(Disclosure: I've owned Artis REIT for more than two years)

Being a long-term value investor, I try not to worry too much about short-term fluctuations, but that doesn't mean I'm not keenly interested in the reasons behind them. If a stock loses, say, 10% of its value, I want to know why. Did earnings fall off a cliff or did they lose a key customer? Or did it simply get knocked back by a broad market sell-off, but still has a decent long-term outlook? If it's the former, I'll probably avoid it, as it may have further to fall. But if it's the latter, I might kick the tires and take a stake if it's suddenly on sale.

The point is, I'm more than willing to live with my stocks being in the red (temporarily) as long as their long-term prognosis looks good, and as long as I can understand, sort of, why the market values it one way or the other. I like my companies to be predictable -- even when they have bad news, is what I'm trying to say.

It's why, despite the fact that's its actually made me money, one stock that's always been a noggin-scratcher for me is Artis Real Estate Investment Trust (AX.UN on the TSX.)

Artis has always been something of an anomaly, because it's done inexplicable things in both directions for as long as I've owned it. Typically, REITs are steady, dependable sources of income, that shouldn't be counted on much for capital gains. I bought Artis in 2006 when I was looking for exposure to two things in my portfolio: real estate, and the booming economy of Western Canada. I figured Artis (then known as Westfield REIT) was a good proxy for both.

In the first 12 months that I owned it, Artis' unit price increased by nearly 30 percent, and that doesn't even include distributions. Nice, but not exactly typical REIT behaviour, especially since the company was shelling out a disturbingly high percentage of its cash flow in distributions. In the year or so since then, it's been picked clean of most of those gains, before recently starting a mini-march upwards again. All this, despite the fact that its holdings and focus (retail and industrial properties in booming Western Canada) have remained largely the same. As I said, it's been quite the head-scratcher.

I'm oversimplifying a little, but conventional wisdom has it that falling interest rates are good for REITs. So you would imagine REITS have been doing quite well since the end of last year -- but you'd be wrong. They've started inching up a little of late, but the sector sank like a stone from about September until early 2008.

As I said, it's not the what that concerns me -- it's the why, and frankly, with Artis and Canadian REITs in general right now, I have no idea. The REIT's FFO recently increased (meaning they have more cash on hand available to pay distributions) which is nominally a good thing, but the marker hasn't really rewarded them too much for that yet.

I like to make informed investment decisions, but to be frank, while Artis was riding high, I didn't understand what was going on, and now that it's doing less well, I still don't get the rationale. That seems like a bad sign to me, so I'm thinking of selling my stake. I'm not in any urgent rush or anything. But since I'm slowly migrating my portfolio over into a passive ETF-based one, at some point soon I'm probably going to sell AX.UN and put the proceeds into a broad-market ETF, or possibly even the REIT ETF, if I want to maintain a real estate presence.

Who am I to ignore Warren Buffett's advice -- holding an asset I apparently don't understand (even one that's managed to make me money) it doesn't leave me with a very good feeling, and might be a pretty good signal to sell.

Nothing imminent, but it's safe to say Artis is officially on notice.

Housing is crashing -- unless it's not

Interesting news in the ol' newspaper this morning, albeit it's info I'm taking with a grain of salt.

Toronto real estate is off to its worst start to the year in years, with the number of housing resales dipping 22% in the first three months of the year, Tony Wong reports in The Star.

Some are blaming the dip on the city's much-publicized new "land transfer tax" (meaning there are less buyers now because there was a rush in December to get in under the wire) while others, somewhat less convincingly, are blaming the weather. I have my doubts that people are so simple as to be influenced in as major a decision as buying a home by something as nebulous as the weather, but as a friend who recently took the plunge into real estate told me, "the best piece of advice I can give you if you want to save money when you buy a house is to do it in January, and look for a house that's been on the market for a while."

That's quite the number -- 22% -- but I'm not getting carried away quite yet for a couple of reasons. No. 1, real estate was at some pretty lofty heights to begin with, so pulling back a little isn't particularly indicative of anything to me. And No. 2, shrinking volume might suggest overall activity is down, but to me, the more significant number is what's happening in prices. If prices slow their increase (never mind actually come down) that's a much more significant development, because it would signify, in broad terms, that people are actually at the point of taking losses -- not just acting a little hesitant about the process of moving in general.

So far, that doesn't appear to be happening, as this pdf shows. Overall prices are up about 4% GTA-wide, although there are some regional dips. That million-dollar house in the Annex I've been dreaming about got 6% cheaper, down to a mere $759,000, for example...

Getting closer!

As much as I'd love doomsayers like Garth Turner to be right this time, I'm not holding my breath. Still, as someone on the outside moving in, this is certainly a trend worth keeping an eye on.

Still alive

Apologies for the radio silence. Just a friendly note to say this isn't one of the countless blogs destined to become abandoned and overrun with weeds -- my personal and professional lives are just a little up in the air at the moment. It's all being sorted, and all will be well.

Thanks for the kind (albeit concerned) words. I will be fine, and back to regular posting soon.

In the meantime, strap yourself in and enjoy the most volatile stock market we've had in years.

If adding the $600 you made in financials today to the $700 you lost in commodities last week isn't enough fun for you, please enjoy the latest hilarious Biovail-related lawsuit. Now that I'm no longer an owner, it's a lot easier to shake my head and smile.

Earnings reports may come and go, but lawsuits related to egregious accounting malfeasance are forever, it seems. Nice to have something you can count on.

Marred by taxes

Talking about personal finance is all-too-often a sombre, serious pursuit. Which is why I'm relieved that the conventional media in which I work is slowly waking up to the potential of the web as a medium for telling stories in a different way.

Case in point? Marred by taxes.

Garry Marr, real estate reporter at the Financial Post (and former colleague of mine) has begun a weekly series of videos on FP's website in which he rants and raves about the myriad ways that Canadians are overtaxed. What really works about the series is that it's not an act -- Garry's just a curmudgeonly guy who does this all day long at his cubicle anyway. Somebody just had the brilliant idea of videotaping it.

Maybe it's because of the headaches I'm currently going through dealing with various utility companies while I extricate myself from my apartment, but I really loved Garry's thinking aloud about why, exactly, his gas, hydro and water bills seem to be intentionally obtuse and misleading.

A customer charge? Delivery charge? Gas supply charge? Debt retirement charge? Since when does making sure there's a free market for electricity in Ontario cost me $18.82 every month? What ever happened to the concept of billing me for the amount of electricity or gas that I use.

I tried to embed the video below, but in case it doesn't work, click here to be redirected.

Budget reaction -- Hooray for TFSA!

I really can't emphasize enough how pleased I am by the prospect of the tax-free savings accounts the Tories unveiled in the budget today.

The star's James Daw has an excellent recap here, and Canadian Capitalist offers his usual insightful analysis here. ROB's Rob Carrick chimes in here. I suspect the Canadian personal finance blogosphere will be all atwitter with TFSA-related posts in the very near future, but for those to lazy to click, here's the 10-cent version of what's happened. Starting in 2009, Canadians over the age of 18 will be able to deposit up to $5000 a year into these accounts, and will never have to pay any tax on interest or capital gains on assets within the account. There's no limitations on taking money out of the account, and in fact investors will be able to reuse contribution room after making withdrawals. As some astute readers on CC's thread have already pointed out, the TFSA will function a bit like a Canadian version of a Roth IRA -- albeit an even more flexible one.

There are a lot of things to like about this. I'm particularly impressed by the fact that there doesn't appear to be many restrictions on what the funds have to be used for -- as opposed to RESPs and RRSPs which can only be cashed in under certain conditions, and are subject to taxes and penalties for breaking those rules. Even if the upside doesn't end up coming in as advertised, at the very least this proposal is bereft of downside. Whether it's to save for a downpayment on a house, an emergency fund, or a conventional taxable investment account for stocks and ETFs, I can't see any reason why Canadians wouldn't use these new TFSAs as a potent wealth-building tool. I can assure you, time is running out for my taxable investment account once these little beauties see the light of day, although I do wonder what sort of tax implications there would be for transferring stocks out of a taxable account into TFSA. Would the CRA consider me to have sold them and repurchased them as they do when you transfer stocks into an RRSP? I suspect so, but time will tell.

The only "bad" thing (such as it is) is that unlike RRSP contributions which are tax deductible and thus give me a nice fat cheque every April, TFSA contributions aren't. So the government isn't paying me to save for my future, as they do with RRSPs. But on every other level, these accounts help make it more and more worthwhile for Canadians to start saving more -- unless I've missed something, 100% of every dollar you earn from an investment in one of these accounts goes into your pocket at the end of the day, a claim that can be made of very few things. You have to like that.

Fear trumps greed

Conventional wisdom has it that in our capitalist system, the best way to induce any particular event into happening is to provide an economic incentive for it's occurrence. In layman's terms, this means that no matter what we want to achieve or obtain (A nicer house? Improved customer service?) the most efficient way of making that happen is to offer cold, hard cash after the fact as a reward.

In macroeconomic terms, governments do things like this all the time -- dangle tax cuts for a particular industry that they're trying to stimulate investment in. And companies do the same, by, say, putting certain items on sale so we're more inclined to buy them. Even in our own quotidian lives, we use positive reinforcement to induce ourselves into certain actions -- we reward ourselves for sticking to a diet, or allow ourselves a treat after accomplishing some sort of savings target, to name but two examples.

It's not necessarily an irrational view to take. But the more I think about it, the more I'm convinced that taking the opposite tack might work just as well: instead of rewarding success, punishing failure can be a lot more effective.

Take my cousin. He's come up with a novel way of raising money for a charity he supports. He's planning on running the London Marathon in April, and rather take than the conventional strategy of soliciting for donations, he's put his money where his mouth is and basically betting with his friends on what his finishing time will be. He's never run a marathon, and he's shooting for a time of 3 hours, 30 minutes -- quite a good time, I'm told. He's trying to cull together a donation 1000 pounds (about $1970 Canadian) for a cancer hospice. If he hits his target time, his list of donors will have to come up with the 1000 quid. But if he goes over his target time, he'll donate the 1000 pounds out of his own pocket.

I think this is a novel approach, and one I'm happy to support as part of my own ongoing charity plans. The added bonus that will probably come out of this is that if he doesn't hit his ambitious target, he'll put up 1000 pounds of his own money, and his friends will pitch in an additional 1000 to support a good cause, so everybody ends up happy. So finish that cheeseburger and have that second beer, I say. :)

But to me, the really interesting thing about all of this is that rather than take the conventional view of setting a goal and rewarding himself for achieving it, my apparently overly-rationally-minded cousin is more motivated by actually losing money through failure than by the prospect of being rewarded for success.

I think deep down, a lot of us are like this even if we fail to realize it. Why else do we, as investors for example, have a tendency to sell our winners too quickly after we've pocketed a nice gain, but we'll painfully watch as our losers slide further and further into the red because we're unwilling to accept defeat? And why is it that the investing stories we obsess over for years aren't the times we pocketed a 60% gain in three months on some flash-in-the-pan tech start up, but rather, the thousands we lost because we tried to catch a falling knife named Nortel?

Because we hate failure a lot more than we like success.

Tragedy averted

More reminders pour in with every passing day to reinforce my conviction that PC Financial > Canada's Big Banks.

After switching to PC Financial from Royal for my everyday chequing account a few months ago, I was pleased to discover there's a CIBC bank machine in the lobby of my office. Since CIBC essentially runs PC's banking division, this ATM has essentially become the place where I do 90% of my banking.

On my way out of work on Friday, I hit up the ATM for some cash (the boys and I enjoy a few non-alcoholic beers from time to time....) I asked for $60 from the machine, thinking that would be enough to fuel my weekend. This seems like a good time to note that whenever presented with the option, I decline the option of getting a receipt from the ATM, as I don't use them to track my finances, they end up in the garbage a few hours later, so as such, they just seem like a waste of paper.

So after asking for $60 and declining a receipt of the transaction, the hamster in the wheel inside the machine starts making some very abnormal sounds. A few seconds pass, before the machine spits out my card and says "Your transaction has been processed -- don't forget to take your cash." One problem: it didn't spit out any cash.

I'm wracking my brain trying to decide how to proceed here. Essentially, this bank machine has just taken $60 out of my chequing account, not given me the cash, but debited my account for that amount. Since I don't know PC Financial's phone number offhand (and really, this seems like and error on CIBC's part anyway) I call the CIBC phone number printed on the ATM. After 10 minutes on hold, a very unhelpful man informs me, essentially, that I'm short out of luck. He confirms that the transaction went through and he sees no evidence that cash wasn't actually presented, so my beef is with PC Financial, not CIBC, I'm told. It seems I would be best served by calling them. Thanks for nothing.

At this point, I'm a good 20 minutes late and in a bit of a sour mood, so I decide to head to the bar opera house to meet my friends and resolve to put my tab on VISA and deal with this in the morning.

Next day, I log on bright and early to see that the good folks at PC have already taken the bull by the horns and reversed the transaction -- reinserting $60 into my account. I didn't even have to call them to get this entire fiasco fixed without my involvement. Good on them for that.

Now, technically, I have no idea how one of the conventional banks would respond to a situation like this. But based on my brief dealings with CIBC (and the 20 years before that sidestepping Royal Bank's nickeling and diming) I suspect it would have been nowhere near as painless.

What can I say? Make the switch. You'll be glad you did.

Confessional

The point of a blog, if not the characteristic that makes the good ones really special, is when bloggers feel truly free to write from their heart and aren't compelled to self-censor themselves or hold anything back. On that front, I haven't been the most open of bloggers of late, as there's been a fairly major change in my life that I haven't had the stomach or inclination to deal with here.

A few weeks ago, I made the difficult decision to pull the plug on my long-term relationship with my girlfriend. As is always the case with these things, the reasons are complicated and difficult to understand -- even to me. And even though I was the one who initiated it, it's still the most difficult thing I've ever had to do in my life. Typically, writing is a cathartic process for me whenever I undergo times of stress and difficulty, so one might imagine I'd take advantage or an outlet such as this one to sort through my thoughts. But in this instance, I don't really feel comfortable pouring my heart out on this subject, as this doesn't really seem like the ideal medium to do it in. Nor did the breakup have anything to do with money, for that matter.

Still, I felt like I owed it to myself, and my few readers, to come clean here. By ignoring the elephant in the room and prattling on about my personal finances, I just feel like I'm being dishonest somehow. And my posts of late, I think, have tended towards the superficial as a result.

So there you have it. I'm basically going through as close to a divorce as you can (without ever actually getting married, that is) and while it's as amicable as these things can be, it's safe to say this is a major life change for yours truly. Maybe I'll feel like hashing out my thoughts here some day, but that day's not here yet. In the meantime, expect numerous posts on how expensive this process is turning out to be. Even after we've finished splitting all our stuff and finding new places to live, I'd forgotten how expensive single life can be.

I hope you understand.

January net worth -- surveying the damage

I updated my net worth last night, and I was pleased to discover that it actually went up, albeit marginally, despite the stock market carnage that continued through most of the month. Click the chart in the right sidebar for the gory details. Proof positive that automatic savings programs work.

And as for the stocks, not that this really means anything in and of itself (since the only time one should care about the value of their stocks is when you want to sell) but it's nice for a little reassurance that I have indeed chosen solid firms that are better positioned than some to weather inevitable storms. I wasn't worried when the TSX lost 600 points in a day, and I'm not worried now.

Pot Pourri

A few finance-related things I've found of interest out there on the Internets:

1) Are we in a recession? A bear market? A correction? And is it over? I have no idea. But I do know that when Starbucks starts departing from their traditional strategy of selling overpriced coffee, the big guys must be worried. $1 coffee and free refills? What is this, my local coffee shop?

2) Beyond the shock value of a nice big round number, I couldn't put my finger on what exactly I found so troubling about the news that a french trader at Societe Generale racked up over $7-billion in stock market losses, until Eric Reguly nailed it for me:

What is astounding is the amount of money he would have had to invest to pile up losses of €4.9-billion. European indexes are down 15 per cent, give or take a couple of points, since the late autumn. This implies the face value of his positions must have been €30-billion or more. How could a single, young bank employee have built enormous positions without the risk gnomes knowing about it? The answer is obvious: There are serious flaws in SocGen's oversight and risk management departments.

And if it can happen there, what's stopping it from happening somewhere else?

3) I thought lowering interest rates was supposed to make currencies weaker, but today's news that the loonie gained nearly 2 cents bucks that logic. Just more evidence that all the rules are apparently out the window in our current, nervous and crazy markets.

4) Ink-stained wretches like me, take heart. People do indeed still like reading newspapers. They just don't like paying for it, and they're doing it online. Maybe this blog thing is going to pan out for me after all. Of course, I'd probably need more than my current 25 cents a day from Google Adsense to live off it...

Why I'm not worried

OK. Calm down. Breathe. You're going to get through this.

I'm not going to lie to you, it's not pretty. The TSX has been a ski-slope downwards all year, and all of 2007's gains have been wiped out in the first three weeks of 2008.  And today's 600-point loss is just the cherry on top -- although I suspect there's more to come.

If you're new to this game, you're probably cursing your rotten luck for jumping in at the worst possible time, or worse, blaming yourself and thinking you're the only dummy managing to lose money on the stock market. You're not -- we're all in this together.  And I promise you, there's a way out.  

The old me would have been right there with you. Whining, and wincing, and screaming about the injustice of being cheated out of money for doing the right thing and investing even while everyone else my age is blowing their cash on vacations, cars, and consumer debt.

But that's not me anymore. There's a new sheriff in town, and his hand is calm and steady when he's staring down the bad guys. I'm not worried. For a few simple reasons.

Thanks to the pruning I've done in recent weeks and months, when I look at my battered portfolio today, there isn't a single name that I don't think has the ability to weather this storm and be a thriving, growing business several years down the line. Not next week, or next month. But down the line. And I'm likewise sure that those beleaguered stock prices are one day going to be worth much more than they are today -- not to mention much more than what I paid for them -- at some point in the mid to distant future. Gone are the penny stocks, the poor-quality income trusts, and of course, the Biovails (down another 5% since I sold, not that I'm keeping track or anything  :)  ) that ordinarily made me worry because they were speculative flyers I bought out of greed. I'm down to the bedrock I'm building my future on.

I'm looking at the banks, large-cap ETFs, asset managers, REITs and of course, failed textile manufacturers that populate my portfolio and I like what I see. I don't necessarily like the numbers next to them at the moment, but I'm sure these are the companies I want to own for the long-term. That's how I'll sleep tonight.

Will you?

The great investing experiment

My sister, bless her heart, is not what you might call great with money. I've discussed this a few times on this site, but basically she's a textbook case of someone with a high income, but high expenses, who's always complaining that she never has any money left over at the end of the month. I've had a look at her cash flow and in truth, it's not as bad as it may seem. She's deep in debt, yes, but it's primarily "good debt" -- a mortgage and a $48,000 loan to put her through law school she's currently paying off. But still, that four-figure credit card balance she rolls over every month makes me wince -- as does her tendency to drive to work and pay $20 for the privilege (when the streetcar gets her there in 25 minutes, stress free).

I like to tease her about it, but truth be told, that's probably just my natural sibling tendency to play down how well she's turned out. She's a wickedly smart cookie, a success by any reasonable metric, albeit one with some shoddy financial habits she's been able to get away with because of a high income. Bottom line is, I'm really proud of her, which is why I'm particularly enthused by the plan she's concocted to help get her on the right financial path.

For Christmas, her partner's affluent father was amazingly generous and bought the two of them a brand new car, to replace the two clunkers they've each been driving since about the mid-1990s. She'd originally planned on driving her car under it literally died on her (as opposed to trading it in for a small head-start on an expensive new one) but this new development means she now has an unneeded asset she can sell. She's poked around and according to autotrader.ca, each of their two cars has a resale value of a little under $3000. So selling both would net a windfall of at least $5,000 in "found" money.

Her idea is to give this cash to her "investing nerd" of a brother, so he can use his dizzying valuation skills to make them both overnight millionaires, or something like it. I can already hear the clamour of voices screaming "DON'T INVEST -- PAY DOWN THAT DEBT FIRST" and believe me, I agree. But unfortunately, it's a non-starter for her. She refuses to do anything as "boring" as paying down debt with this windfall -- no matter how many times I assure her it's extremely unlikely I, of all people, can better, on the stock market, the 19% after-tax return that bringing Mr. Visa down to 0 would do. But she's insistent. I'm cautiously willing to go along, on certain conditions. She's assured me she'll pay down that debt out of different funds, but she really wants to "have a little fun" with this mini-windfall. It's an emotional reaction, but it's one I can understand I suppose. I think she can do it all if I keep working on her.

So the obvious question is, what investments am I going to buy for her? Ordinarily, if anyone in their 20s or 30s comes to me and asks "what should I invest in?" I say as long as it's for the long-term, stick it in a broad-based ETF like XIC or VTI and forget about it for a few decades. But it's not that simple, in her case at least. She has a bunch of underperforming mutual funds that, strangely enough, seem to do nothing but bleed out fees and commissions without giving her any paper gains of late. (Editor's note: Sound familiar?) So, buying her $5000 worth of XIC, for example, wouldn't give her any more exposure than she already has in her anemic balanced funds, and would only sour her views on investing even more. And I can't bring myself to tell her to give the $5000 to her adviser because I don't think she needs to be paying this person like, 2.5% per year, when an ETF could do pretty much the same thing for her.

As such, my aims for her are a little bit different. I can roll the dice and stick my lot in with one or two companies, with the knowledge that her balanced funds will at least track the stock market as a whole. I'm going to be very strategic with my picks, as I'm trying to convey two broad notions to her:

1) Investing is about the long term. It's great if she can look at my picks in six months and see that she's "up" or "made money" on them, but ultimately, that's not important. I want to pick a company she can buy and hold for years, that'll increase in value slowly over time, so the magic of compounding, and stock splits, and dividends, can get to work for her. I want to rid her of the notion that you can get rich quick, and show her how getting rich slowly is not only easier, but also actually attainable.

2) Dividends are cool. Capital gains can be fleeting, but companies that pay out any excess cash in the form of dividends to shareholders are the best in my book. The day I realized that essentially, these firms are paying me to own them was an eye-opening one for me. I want her to get that, too. Plus, the dividends can be like little rewards for her. It's cash she can take out of the account and spend as she sees fit, without having to sell or reduce her stake to monetize. Surely that will turn her into a buy-and-hold investor -- quarterly cheques she can spend as a reward for her patience.

One thing I should mention is that I'm going to be conducting this little experiment in an unregistered account (i.e. not in an RRSP) I'll set up for her with a low-fee online brokerage like Qtrade, Questrade or Etrade. My sister has a large income and puts relatively little into an RRSP at the moment, so she's got a lot of unused contribution room. One day, when she's figures all this stuff out, that contribution room is going to be worth a lot to her as a tax shelter, so I don't want something I screwed around with today to impact that. I'll keep it unregistered, and we'll worry about capital gains if and when they're up and we sell. If that happens, it'll have been a worthwhile lesson for her, so it's not a bad problem to have. And I should also add that I'm going to be including her, as much as she's willing, in the selection process. Because this is supposed to be a learning experience for her. I want her to understand the how and why of what I'm doing, as opposed to her just shooing me away and saying "you deal with this stuff," the way she does at the moment with anything regarding money.

As far as companies go, I've got a few contenders I'm currently researching based on my above-stated criteria, and I'll keep you updated on how this progresses. But I'm eager for feedback and suggestions on this. Feel free to try to convince me why she's better off paying off the Visa bill -- like I said, I agree with you. But it's a non-starter for her, so this seems like the next best thing.

Trading note -- BVF to CDZ

Last week, in an attempt to stop the bleeding, I put my first ever stop-loss order on my stake in Biovail. A few days later, the trigger was hit, and my online brokerage sold the entire stake. I haven't calculalted what the total damage was, dividends and all, but i'd guess it was somewhere between a 40-50% loss.

For what it's worth, everything I've ever said about the company remains true. I think it's an excellent speculative high-dividend payer that has the potential for huge gains to anyone willing to roll the dice. I'm just not, at the moment. The stock market is doing some strange things at the moment, and I'm reasonably confident in saying that if we're not in a bear market, we're at least in one that's moving sideway for the foreseeable future until this subprime mess shakes out. I'll stick to my savings plans, and whenever I accumulate enough money, I'll probably add it to some long-term holdings I already have (many Canadian banks are well below where they were this time last year, for example.)

That said, I've decided to park what's left of my biovail cash in my dividend focused ETF. I own Claymore's Dividend fund, (CDZ on the TSX) a basket of stocks that's tailored towards the members of Mergent's Dividend Achievers, who have track records of steadily paying, and increasing, their dividend payout. No sense having cash in the investment account not earning anything for me, and CDZ provides me with some downside protection (in the form of dividends) while keeping me invested in Canadian large caps. I can live with that until another opportunity presents itself down the line.

Changing banks -- update

Ever since RBC made the mistake of denying me their multiproduct rebate for customers with multiple accounts, I've been working towards moving my accounts away from them, or switching to no-fee versions of the accounts I choose to keep with them -- for now.

Things are progressing nicely on all fronts. I opened a no-fee President's Choice chequing account a few weeks ago, and I've been diligently transferring paycheques and automatic bill payments over to that account for the past month or so. Once I knew everything was kosher on that end, I set about cutting the fee-taps on my existing RBC chequing account. I decided there's no point in officially closing it altogether, but I've switched it to what they call a Day-to-Day Savings account in the interim. The account will pretty much be dormant, although it is there if I ever want to fire it up again for some new promotion they're offering me. In the meantime, there's no charge to put money into it via ATMs, and I get one free debit per month (which I'll probably use to pay my Royal VISA with.)

And speaking of VISA, I went ahead and switched from the RBC Platinum Avion card (with an annual fee of $120) to a lesser card that has no annual fee and accumulates points twice as slowly. The key component here is the no annual fee part.

Add it all up, and Royal no longer gets a penny from me in bank fees or VISA charges (since I pay my balance in full every month.) I'm quite pleased with myself for following through with this. There's simply no reason to pay bank fees in this day and age, because it's such a competitive marketplace. The minute I realized this, RBC's goose was cooked.

I should also mention I'd be more than happy to switch back if they'd simply give me what I wanted in the first place -- to not have to pay monthly fees for having a basic chequing account.

My last remaining account with RBC is my investment account, which I'm currently talking myself into changing. It's the last hassle, really, but after having come this far, there's no point in stopping here.

As always, I'll keep you posted.