Don't say I didn't warn you

Reading a story in today's Globe on how the current consolidation wave in the mining industry is creating a void of blue-chip Canadian resource companies has got me thinking -- why all the fuss over buying expensive companies?

"What do you expect when resource prices are where they are," George Vasic, a strategist at UBS is quoted as saying in the article. "Nobody is taking them over when copper is at 50 cents and gold is at $250."

Well pardon me, but why weren't they? I don't understand why all these companies are clamouring over each other, trying to outbid themselves on $16, $18, $20-billion nickel firms like Inco and Falconbridge, when they could have had them for a fraction of that a few years ago, back when everybody and their mother wasn't obsessed with all things base-metallic.

If buying Inco is such a "bold, strategic move" for Phelps Dodge or CVRD now, while the stock is worth nearly $80, why wasn't it a good idea in 2002 when you could have had it for $20? Aren't you supposed to try to buy the $80 company for $20, not the opposite? That's the sort of question I think the shareholders of these grab-happy miners need to ask of the management that run their companies for them. That, or face a sink-hole acquisition of Time Warner / AOL-like proportions.

What happens when Chinese demand slows by a single iota, and all of a sudden there isn't a ready-made market for all of Sudbury's dirt? It strikes me that in their zeal to drive the resources bandwagon, a lot of these firms are ignoring a fundamental tenet of investing: buy low, and sell high.

A few years down the line, I suspect they might be reminded of that.

An oldie, but a goodie.

Kudos to Ramit over at I will teach you to be rich for summing up my thoughts on why it's important for young people to get educated about money now. He sums up every single reason I could think of for why I think it's so important for twentysomethings like me to get active in their lives and in their finances as soon as possible. You're only young once. I wish I'd found it sooner so I could e-mail it to everyone I know.

It's just a great post.

Turning around -- slowly

I've been a diligent little saver this summer (still a ways off my ambitious net-worth-of-$20,000-by-September pledge, but that's largely due to my existing investments tanking so impressively. But I digress. I'll formally update my progress soon.)

As such, I've amassed a tidy little sum that I've earmarked for an RRSP contribution. I had planned on throwing some cash into a stock I've had my eye on for the better part of a year now -- the horrendously battered publisher Quebecor World Inc.

I pegged it as a potential turnaround story a while back, based on some of the industry's fundamentals. It lost more than 50% of its value last year, yet still pays a dividend (albeit a slashed one) so those two factors attracted me. But something still isn't quite right to justify me jumping in.

I still think the stock has potential, but everything I've been reading and hearing about that industry lead me to believe that it hasn't quite hit bottom yet. Overcapacity is eating into revenues at a time when costs are escalating due to staffing. That's a bad mix. Not exactly a big neon "VALUE STOCK" hanging outside.

I still like the stock long term, but since I'm expecting it to drop a little more before eventually beginning its turnaround hopefully some time in late 2007, there's no rush to buy in just now.

As such, I've decided to park my money in the iShares REIT ETF, ticker symbol XRE on the TSX instead. I've wanted to get into the REIT game for a while, and since I'm not getting the "full speed ahead" sign about any given REIT over any other, I think I'm going to go with the whole bundle and play it safe.

After my initial research, Dundee and Boardwalk REITs looked appealing to me due to their focus on grabbing assets in Western Canada's burgeoning office market. But right now, I'm leaning away from putting my eggs in one basket, so I'll be putting an order in for $3000 worth of XRE early next week.

If you happen to be selling at the time, thanks for the units. Unless of course they tank, in which case I'll probably be calling you in six months, saying "hey buddy, wanna switch back?"

I still exist

I haven't dropped off the face of the earth. I'm just taking a customary summer hiatus from blogging, what with the other worthwhile things we have to do with our lives while the weather's nice.

I'll be back soon with a lot to say on a myriad of personal finance topics -- not the least of which will be the smell of death that's emanating from my Biovail shares after last week's carnage.

You've got to hand it to those guys. It's not often that the same company can be investigated by the OSC on one day, and have the stock hammered by an absolutely devastating patent ruling the next. That's just a special company.

Sometimes I think all Biovail needs is to have a pack of coyotes circling the podium, growling and slowing inching toward the speaker during every press conference they have to report their underwhelming earnings.

Naughty...

Dean Pariposh, of Toronto, said he thought about buying rental properties in Calgary, but then calculated that he would be paying out more in mortgage and maintenance expenses than he was taking in from tenants. He went to Edmonton instead, bought several properties and raised the rents by 20 per cent. (There is no rent control in the province, so rents are negotiated much like any other contract.) Although there have been numerous stories in the local press about tenants suffering from sudden jumps in rent, Mr. Pariposh said none of his tenants gave notice to move out. For him, it is a confirmation of his investment strategy: Incomes are rising, so tenants can afford to pay more, and the flood of workers into the province means there is competition even for more pricey accommodations. "They can complain all they want -- there's a shortage of housing."

Just another snippet from the latest story about Alberta's booming real estate industry. Sure the seemingly instant returns are enticing. But stories like this one make you think. Makes me think, anyway.

Gee, I wonder why there's a shortage of housing in the first place?

...and nice

A lot of people say they want to donate a lot of time and money towards charitable causes they believe in in their retirement, as though socially-responsible acts are something you turn to as an ends -- rather than a means -- in your life and your investing career.

Not so. As the world looks more and more every day like it's going to hell in a handbasket, I've found myself looking for ways to give money to support causes I believe in through the ways I spend and invest my money now, as opposed to when I retire.

Some people think of this as "ethical investing" and until now, the only real way to do it was to buy so-called "ethical" mutual funds. That poses a problem for me because I find mutual funds to be a tad rigid, and I despise the fees and MERs. Plus, the capital is vulnerable during downturns, something that's not good news for people like me who try to live by Buffett's maxim of "never lose money".

In that spirit, I draw your attention to a great little investment opportunity -- one with the added benefit of allowing you to support causes that make the world a slightly better place, while making a few dollars in the process as well.

VanCity credit union sells term deposits with relatively low minimums (some are as low as $500 initial investment) where VanCity re-invests the money you deposit into co-ops, low-interest loans to entrepreneurs, and even affordable housing projects that need help to get off the ground. You can decide whether you want your money to be invested in Canada or overseas, and like a GIC, your principal is protected since VanCity is covered under CDIC.

The best part? You might assume the returns are microscopic, but the returns VanCity currently offers actually beat most of the high-interest savings accounts I've seen, even my very own 3.15% as ING (although that number is set to go up next week)

So there's a capital-protected, RRSP-eligible investment that beats inflation and gives back to the global community in a really tangible way. That's something ol' Warren himself would get behind.

Food for thought

Having read analysts reports in a professional capacity, I've certainly had cause to doubt them occasionally, as I've witnessed turkey after turkey get glowing "buy" or "hold" recommendations from allegedly independent analysts.

Having said that, I love -- LOVE -- a new feature by the Globe's personal finance columnist Rob Carrick. Using the Bloomberg database, Carrick has compiled two dream portfolios: one full of stocks that analysts love (meaning, a consensus "buy" rating) and the other comprised of stocks they by and large hate (with "sell" ratings as a whole)

What could be more fun than grading analysts' picks by tracking their performance?

The results? Although it's still early days, it's interesting to note that the "hate" portfolio has gotten out of the gate quickly, its net value up more than 2% since March 1. Ordinarily 2% would be nothing to write home about, but given the market's slide as a whole (to speak nothing of the "love" portfolio's dismal 10% slide in the same period) and admittedly, much of the discrepancy can be attributed to DOV Pharmaceutical losing 88% of its value on the "buy" side. But things like this are important to remember the next time I catch myself getting too high -- or low -- on any given stock's prospects.

At the end of the day, none of us really know what we're doing!

Caveat emptor

"If you're buying a resale condo," he says, "you need to know the history. Ask for the last two years' worth of minutes from the condo meetings." Is there any hint of a special assessment to pay for building upgrades? People often sell in advance of a fee increase, knowing it's on the way. "If there are any problems in the pipeline, they will be there in excruciating detail," Gray says about the condo minutes.

The above tip is an excerpt from a very interesting Ellen Roseman personal finance column in the Toronto Star today.

Not that I'm anywhere near being a condo buyer. But I would never in a million years think of reading the condo board meeting's minutes in making my decision. Just one more buyer beware tip for anyone thinking of taking the plunge.

Thoughts on RIM stock option news

Not that I was even contemplating buying them (a P/E ratio near 35 doesn't sound like value to me) but I did take notice today of news that RIM's co-CEOs recently cashed in a whack of stock options worth some $76-million.

Perhaps I shouldn't read too much into it. Executives, they say, buy shares in their company only because they think the price is going up, but they may sell them for a multitude of other reasons. So maybe I shouldn't take this as a sign that the RIM boys don't see much upside to their firm's growth prospects.

But still. It seemed noteworthy.

Up and down

Bit of an up and down week for me in the ol' personal finance department. (Incidentally, I apologize for the lack of posting. Rather than some clicheed "I promise to post more, readers" vow, all I can say is my laptop died so I haven't had non-work related internet access in over a week. It should be fixed tomorrow. Sorry.)

UP - A pleasant surprise was that my tax return came in even higher than I was expecting. Despite my best efforts at accounting, I made a few snafus on my return, and as it turns out they worked in my favour. The extra grand that the federal government kindly gave me should come in handy considering the other side of my personal finance coin. Namely...

DOWN - What else? The stock market. Although my miniature diversification strategy has protected me a little in that not all of my investments have tanked by as much as my iShares international equity ETF has tanked for the past few weeks, I'm still hurting. I plan on sitting down and updating my net worth in the near future, to see how far away from my goal of $20,000 by the end of September I am. But off the top of my head? I'd guess I'm down at least $500 to $1000 in the last three weeks.

Ouch.