Great minds think alike

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

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

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

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

Pay yourself first -- or you won't

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

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

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

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

Even Ron Popeil knows you're better

off when you set it and forget it...

I was the second gunman on the grassy knoll, too

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

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

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

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

Housing Reaganomics

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


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


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


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


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

vacation

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

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

Too little, too late

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

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

My take? A resounding "meh."

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

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

Want my money? Then gimme the best rate.

It really is that simple

The little REIT that could

Disclosure: I own Artis REIT

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

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

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

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

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

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

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

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

Trading notes

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

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

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

That's it for now.

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

That's it for now.

What drug are Biovail investors on?

(Disclosure: I own Biovail shares)

You know what company completely blows my mind? Biovail.

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

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

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

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

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

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

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

As always, do your own research before buying anything.

The bear [market] necessities

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

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

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

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

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