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DIY Investing by Peter Lang

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Article #1: DIY Investing — A Twist of Fate

In 2008 I experienced a strange personal convergence of events: I fell sick with an immune system disorder which kept me from my woodworking shop and the stock market crashed.

For twenty years Kerrie (my wife) and I had faithfully made our RRSP contributions to an investment house with the expectation that we would net at least 5% per year in profit for our later years. Yet upon my illness, when I had time to sit down and figure it out, disregarding our contributions, and fees — the annual profit was only 2%. And it would have been much worse if I hadn’t transferred all our equity funds into a bond fund prior to the crash! But, in that I was already retired, I figured that I didn’t have much time left to build the principal before I would have to take an income from our investments.

Simply, I took matters in hand, opened a discount brokerage, moved our Mutual Funds into it, and for the last three years I’ve been investing as I’ve been learning. There was no time to practice. I began carefully, logically, and safely. The bottom line from the start has been to conserve our principal, and never to gamble. And our goal is at least that 5% annual increase in our portfolio value not the 2% or so that a GIC might ensure.

The following articles are a step by step series in how to invest on your own due diligence. It does take a leap of faith to do so, as it’s a departure from the experts but, be assured that the information you need is at your finger tips if you are computer literate, and if you frequent libraries and bookstores. I should add that membership (and being mentored) in a local Share Club for the last two years has been particularly helpful.

So, you ask, is there a secret to DIY investing: And, is it safe?

Einstein once said that the secret of compounding yields was, perhaps, the greatest scientific truth. And while it should be no secret, I had never heard it explained with reference to investing in individual blue chip companies which pay regular and set dividends. If anything, the notion was blurred under the big umbrella of mutual funds. And as I said, dividends or not, mutual funds contributed very little to increasing my bottom line.

But to illustrate Einstein’s point, the dividends of individual railway stocks, utility stocks, and brand name consumer stocks have traditionally been seen as widow and orphan stocks. Many rich people have known this and have made investing a family legacy. Unlike a work pension, investment principal can be passed on to beneficiaries other than one’s spouse.

As for safety, we could keep our nest eggs under our mattress, or buried in the back yard. Sometimes I figure that silver coins would be the best option. However, I’m still more optimistic than that. Somehow I believe that our national economies and the market place will survive, and that we will continually devise ways to make our online banking and investing safe and safer. But, I do concede that anything could happen. I can only show you how to be as safe as many millions of others who engage in online brokerage investments. Surely, I believe that it is as safe as entrusting one’s investments in most other ways.

Until next time, think about DIY investing and pass this article along to your kids. They have more time to benefit from investing than we do.

Article 2: Doing It!

I figure that you’ll soon tire of reading about DIY investing if you don’t start doing something to begin your journey.

So to follow up on last month’s article, we’ll focus on one of those dividend aristocrat stocks, Fortis Incorporated — using one of the resources mentioned in that article, Google Finance. But you have to do it! (I know, I know, it breaks with your current inertia. You just wanted to be entertained, and titillated before you moved on to the next article. But I promise that it will be worth it to you. Go now. Get to that computer…)

Once at the Google Finance site, search Fortis Incorporated. What you will see on one page is a lot of information at your fingertips. To begin, look down under the chart and related companies to see a short description of Fortis, the company.’ You will see it’s primarily a hydro power utility, with plants across 8 Canadian provinces, some diversity into hotels, and a modest global footprint. From above the chart you will note that it is a large Canadian company with a market cap of over $6 B (ie, a large blue chip Canadian company).

Next, look at the chart which tracks Fortis share price for the day. You can see above the chart its range of prices for 52 weeks. But, better yet click on the 5 year option in the top left of the box. This interactive chart shows you a lot: the price range over 5 years, the dividend per share, and the frequency of dividend payments. Note that Fortis has raised its quarterly dividend every year during that period. Now, click on the 10 yr chart! Not only did Fortis raise its dividend for a full 10 years, but in 2005 it split, giving 4 shares for every 1.*

Above the chart you will see in the top right centre that in 2012 Fortis now pays a qtly dividend of 30 cents (ie, an annual dividend of $1.20), with a yield of about 3.6%. While that’s not so wonderful, Fortis also has a DRIP (ie, a dividend reinvestment program) which allows you to reinvest your dividends with a further 2% discount upon reinvestment. If you buy Fortis stocks through an online brokerage there is an initial purchase charge (which varies according to the size of your portfolio), but by telephone you can ask to be enrolled in the DRIP without charge and without further purchase charges upon subsequent reinvestment. As well, with buying stocks in an online account there are no annual management fees.

Timing the Market, and yield-to-cost.

While you are still looking at the Fortis chart consider that the market is cyclical. Share prices go up and down. Also consider this: Your dividend yield goes up and down with the share price. For example, at $32 an annual dividend of 1.20 would yield 3.75%. It’s a ratio of one to the other (ie, 1.20/32 x 100 = 3.75). However if Fortis share price should dip to $28 its rough average over 5 years, would yield 4.28%. And if some investor should have bought it at about $22, where it was at the time of the 08 crash, the yield-to-cost would have been 5.45%.

That is not to say that you or anyone else, for that matter  can time the market. If you watch the TSX (Toronto Stock Exchange) you will be amazed to find that it will go up when (from the financial news) you would have expected it to go down. And vice versa. Most analysts will say that the market is irrational and runs on the extremes of fear and euphoria (greed). Most will also say that the average business cycle is about 5 years. Not necessarily true, but useful.

That said, go back to Google Finance. On the home page look for World Markets, lower right, and click on S&P TSX. Then click on the 5 and 10 year charts to see the range of valuations over time. In 2008 when the market crashed, credit froze and the global market place practically ceased to function. The TSX went from a high of almost 15,000 to half that value in a matter of about 5 months.

So while you can’t time the market, you can certainly watch it. And you can buy according to reasonable targets that you can set yourself, using the 5 year charts. There is no guarantee that Fortis share price will ever drop to $22 again. In fact, the sign of a good company is that its share price does steadily increase over time barring market downturns. That is the case with Fortis. However, as you will note from the charts, prices fluctuate enough for you to wait for good prices. Better to buy ‘reasonably low’ than to buy at what you can see is a cyclical high. It’s called patient capital management a kind of delayed financial gratification. And, believe me, some people will be prompted to buy way too much, way too soon. It’s a psychology much written about in stock market literature. When buying stocks, one must be cool, detached, and tune out the hype.

Once again, pass this along to your kids (They’ll be quicker than you to check out Google Finance, Fortis, and the TSE).

Until the next time,

Peter Lang, RLP

* A share split usually results in a proportionate reduction in the dividend which only serves to maintain your dividend stream. However, the increased number of shares means that, most likely, you will benefit from future potential capital gains (ie, share price increases). If, for example, 100 shares of Fortis should split 2:1 and the share price should rise from $32 to $40, instead of an increase of $800 you would gain $1600. Of course, you would have to sell them to actually reap your reward but it certainly would increase the paper value of your portfolio.

Article #3:? The Dividend Stream & Creating a Watch List

The Dividend Stream

I was 63 years old and had been investing in RRSPs for 25 years when I finally learned about the dividend stream. Somewhat unaccountably during that time, the concept had never been explained to me by my financial advisers — and I was too preoccupied with life to discover it for myself. Yet as I see it now, the dividend stream is the critical key to achieving a reasonable and relatively secure retirement income.

For those of you who are reading this for the first time I hope this is a Eureka moment. The dividend stream is actually a simple answer to explain how much and in what form you might take income from your investments when you decide to do so. It’s simply the monthly (or yearly) total of the dividends from each of your dividend stock holdings.

Accordingly, the process of dividend investing is to patiently build the best dividend stream that you can by buying good companies, at good prices. The lower the share price, the more shares you can buy with the same investment outlay And the more shares you can buy the greater your dividend stream.

The book that put this all together for me was Derek Foster’s Stop Working. It is a bit glib, in that it’s written by an under 40 young man who claims to have achieved an early retirement solely as a result of his dividend investing. However, for me, in a very easy read Foster pulled together what I had been learning piecemeal for a year and a half. Stop Working is available at Chapters for about $20 and at the Thunder Bay Public Library for free.

The magazine, Canadian MoneySaver (with 3 yrs of back issues), can also be read for free at Waverly Library. CMS is a magazine mostly geared to DIY investors who are approaching, or are at retirement age. Its main focus is on dividend stocks, but it widely covers the related subjects of taxable income, types of investment accounts (ie, RRSPs, RRIFs, TFSAs and non-registered accounts), life insurance, annuities, wills, and even financial literacy).

The Investment Reporter at Brodie Library (also with 3 yrs of back issues) focuses almost exclusively on dividend investing. In doing so, over time IR analyzes and re-analyzes the economic performances of various companies you might want to buy. Their emphasis is on building portfolios of Key Stocks which IR feels are safe, but modestly lucrative. The 90 year old host of our Share Club is a retired accountant who has lived mainly from his dividend stream for over 20 years. He calls IR his investment bible, and is happy to say that he doesn’t care a fig whether the market rises or falls as his dividend stream stays the same.*

Creating a Watch List

Now, for the hands-on computer portion of this session.

In article 2 we used Google Finance (GF) to look at Fortis Inc. as an example of a dividend aristocrat. We used its ticker FTS to search it out on the GF site. At claymoreinvestments.ca/en/etf/fund/cdz you will find a list of Canadian dividend aristocrats — listed in order by percentage weight according to their representation on the Toronto Stock Exchange. Essentially, this is the home page for Claymore’s Canadian Dividend Aristocrats ETF.? But click on the holdings tab. The companies included in the list have raised their dividends consecutively for (at least) 5 yrs. They are a good place to start in your selection process.

Make your own list, including one or two companies (with their ticker-acronyms) from each of the main economic sectors of the TSX: 1. finance (banks & insurance co’s), 2. utilities (including telecoms), 3. consumer products and services, 4. manufacturing, and 5. resources. The first two are most stable, and the last two are most volatile. Personally, my portfolio has very few stocks from sectors 4 and 5.

Now go to googlefinance.com. Under markets (top left side), click on portfolios. When the new screen comes up it will be titled my portfolio. Then, one by one, add each symbol (ie, ticker), and click add to portfolio. When your portfolio watch list is complete, click on each of your tickers. As mentioned in last week’s article on Fortis — you will then have at your fingertips: price charts, relevant company news, and the actual quarterly financial spreadsheets for each of your watch list choices.

You’ve come a long way and — now you’re laughing!

Peter Lang (Remember to pass this along to your kids.)

* In bad economic times some companies do cut or eliminate their dividends, their DRIP program  or, perhaps just their DRIP discount. However, the companies that we’ve focused on, the dividend aristocrats, did not drop their dividends in the last 5 years — ie: not even during the crash of 08. Thus, they are a cut above the rest, and the best companies to buy and hold for the benefit of compounding, and a dependable dividend stream.

Article 4:? Reflections on Socially Responsible Investing

A Preamble: Just to repeat

Before getting into the meat of this article on Socially Responsible Investing, let me repeat that if you are serious about learning from this series, you have to digest these articles in sequence, and you have to do the computer excercises. Then, also, if you read Derek Foster’s Stop Working, and check out the back copies of Canadian MoneySaver at Waverly library, and the back copies of The Investment Reporter at Brodie library you’ll pretty well understand my core focus dividend investing. As well, just for support, try to attend a Share Club meeting. Where this is leading, of course, is for you to control your own investments through an online discount brokerage, which I will discuss in the fall.

Meanwhile, you should know that the Thunder Bay Seniors newspaper won’t be publishing for July and August.

Socially Responsible Investing (SRI)

For this article you can forget the computer. Let’s just reflect on SRI.

A friend of mine is a trained economist who works for Inter Pares, a third world non-governmental help agency with headquarters in Ottawa. They organize and facilitate economic co-operatives in various oppressed regions of the world. I’ve donated to IP for years, and subscribe to their Bulletin. When I told her that I had been investing for myself she replied, The stock market is evil! It was a spontaneous response, but from what she’s seen first hand throughout the globe, particularly in the realm of resource extraction, she knows that many companies are engaged in pretty horrifying exploitations of peoples and their lands and Canadian companies (some of the largest mining, and gas and oil companies in the world) are often the culprits.

As well, you might have seen Michael Moore’s Capitalism: A Love Story. In it Moore calls capitalism evil pointing to US companies like Wal-Mart, Citibank, Bank of America, Proctor & Gamble, and AT&T who have stooped so low as to take out insurance policies on their employees for reimbursement to themselves, rather than the grieving families. Moore calls it a white collar crime for the 1% of Americans to hold so much wealth, while so many are poor, homeless, and without proper health care and education. This was before the Occupy Movement.

But think about your own investments: your mutual funds, your company pension plan, and also our two government pension plans (CPP and OAS). Many of the holdings in these funds and pension plans would be on my friend’s black list. For example, would you be comfortable knowing that the CPP Investment Board last year committed $250M of our tax money to Laricina Energy Ltd a company that invests largely in the tar sands so that you and I can retire with a small government pension. And wouldn’t there be a conflict of interest if a federal government agency were entrusted to oversee or, perhaps, to sanction Laricina’s operations?

Yet a DIY investor can make the specific choices that a pension plan can’t, or won’t.

I believe that as with democracy, we should be politically involved in the market place. Both areas of influence require our constant due diligence, and our periodic interventions. DIY investing is a new practice for most of us; but if we’re concerned about the quality of life on the planet, and the future lives of our kids and grandkids, we should be aware and active in making things better.

As for actual choices, in article three I mentioned the list of dividend aristocrats you can find at the Claymore ETF site. If you are interested in a specific company you can google it, and rate it for SRI at corporateknights.ca. Each year CK publishes a list of global and Canadian companies which they’ve rated for a wide range of corporate responsibilities: from governance and hiring, to human rights, health and safety, and environmental practices.

Another investment choice for you might be the Jantzi Social Index Fund, an ETF found as a specialty fund at ishares.com. Both CK and Jantzi work with investors to lobby the companies they review, or hold in their ETF, to be better corporate citizens. There are other mutual funds that offer SRI but I’m not really big on mutual funds (see articles 1, 2 & 3). You might also check mining, and oil and gas companies at miningwatch.ca. A website I’ve just discovered is renewableenergyworld.com. And I’ve been told that the Good Guide series, may well review companies for corporate responsibility. I’m still learning.

I should also stress that I invest mostly in Canadian company stocks. I figure that from within Canada I can find more news and information about a Canadian company than I could about an international one. And here, most likely, is where my investment will contribute to my community, and where I might have some influence in its performance. If I want some international market exposure I invest in Canadian companies with a global presence — like Fortis. Personally I don’t invest in things nuclear, offshore oil, tarsands oil, tobacco, big pharma, junk food, or most mining. As my former union (OPSEU) says on a t-shirt I like to wear, ‘We are who we stand with’. And maybe some of my old colleagues will stand with me to start an OPSEU pensioners lobby group for SRI purposes I’d really like that.

In conclusion, even regular business magazines such as MoneySense and Canadian Business are carrying increasing content critical of sheer exploitive capitalism. This is new, and growing in momentum. In the end it’s up to you and me to exercise ethical choices. The market, as with evil, has always been with us. Some of each is intertwined. But today we have more opportunity than ever to know about, and influence market direction.

So, in conclusion besides basic financial literacy and investing  talk business ethics with those younger investors in your life.

Peter Lang

Article 5: Setting Up an Online Brokerage Account

After Mays article #3, you should have progressed to the point where you now understand the concept of the dividend stream: essentially that it will be your actual income when you retire; and that while your portfolio value will go up and down with the market — your dividend stream should remain quite stable and predictable. You should also have set up a watch list of dividend aristocrats on Google Finance. At that learning plateau you could have read June’s article #4 on socially responsible investing for interest’s sake — and had time over the summer to learn about and monitor the companies on your watch list.*

So as it has been a theme in this series — let’s do something. Let’s go to an article by Rob Carrick of the Globe and Mail, evaluating online brokerages. The link is theglobeandmail.com/globe-investor/investment-ideas/portfolio-strategy/how-to-choose-an-online-brokerage/article2409488/. The article is an annual review which weighs the strength and weaknesses of the various brokerage choices. After reading Carrick’s 2009 review I chose BMO Investorline, and have been happy with its features and the phone-in support (Friends in my Share Club like TD Waterhouse). Note that on Carrick’s cost-chart there is an annual admin charge for most RRSP accounts under $25,000. As well, most brokerages charge trading fees of $29 with accounts less than $50,000 but charge only $9.95 on trades with larger accounts.

As for setting up our account, Kerrie and I went personally to BMO and had their adviser fill out the transfer papers (ie, the legally-documented authority addressed to your current broker from your new broker to transfer your investments). So, don’t get your current adviser to do that! The forms can also be done online if you wish.

When I transferred my investments I first mistakenly converted my mutual funds into cash. However, what’s best is to simply transfer your investments in kind. It’s faster, and quite easy. There is actually a time limit that your current adviser must meet in doing the transfer (I believe that it’s two weeks).

Before you can actually make trades (ie, buy and sell), you must register on each of the stock exchanges you wish to use. We registered on the TSX, and the NYSE (New York Stock Exchange) online, by following the prompts. It’s a bit tedious and repetitious, but really it’s not so difficult. Of course, you must also choose a user ID and a password to access the website; and another to actually trade.

For security’s sake I use only one designated web brower (Firefox) to access our brokerage account, and always do so in the private browsing mode. I don’t use that browser for any other purpose. I also use Kaspersky security software, and do short and long checks every 2-3 weeks.

At the time Kerrie and I set up our Investorline account we had only RRSPs; but now we’ve added TFSAs and a non-registered joint account. All are listed on the BMO Investorline home page, and all are linked to info and trading modes under my trading authority. Whenever I’m unsure about a process I phone their help line and after three years I’ve not been disappointed in their response.

One thing to know is that the help line does not offer investment advice. That’s your responsibility! **

BMO and TD Waterhouse staff will also do a 1:1 session, and/or a group session on how to make the best use their site, its resources, and how to trade.? That’s worth doing.

I still keep all my watchlists on Google Finance, but the option is there to do it on your online brokerage site.

One of your concerns in transferring to a brokerage account might be that there may be time-related redemption (ie, penalty) fees associated with any mutual funds that you might hold. Address this with your current adviser before you transfer your accounts. Get him/her to list such times and fees for you. Then, after the transfer, at your own discretion, you can either wait out the time periods, or pay the penalties. Weigh penalties against potential dividends and capital gains or against further losses if the market crashes as it did in 08.

When you talk to your mutual fund adviser, be gently assertive. Thank him/her for what they’ve done for you, and if you must, tell him/her that you will be investing in conservative Canadian dividend aristocrat companies through an online brokerage. By now you should have an understanding of what that means. Know too that you’re part of a wave, and this should not be new to your adviser. Don’t fall prey to a lack of confidence, or worry that you are disappointing a friend. It’s your business, your money, and your retirement.

Oh, and don’t feel rushed to make your first investments. Cash is king when the market is as volatile as it has been this year. Basically it’s moved more sideways than it has up or down over the last year. And with Europe still in turmoil and economic gridlock likely between the US Republicans and Democrats, the market is not likely to rise much over the next few months. That isn’t good news for the general economy but it’s likely that share prices will be reasonable when you’re ready to make your first online trades.

Next month we’ll discuss due diligence in making specific investment choices.

Peter Lang
* Previous articles can be read by going to http://www.tbayseniors.com and clicking on the DIY investing link on the left side of the page.

* See article 3. Rather than using the claymore link for a list of Canadian dividend aristocrats, use ishares.com. From the Quickfinder sidebar, select S&P/TSX Cnd. Dividend Aristocrats (CDZ). Then on the horizontal bar toward the top of the page, select holdings. Then, proceed as directed in article 3 to set up a watch list from across the main economic sectors of the TSX.


Article 6:Due Diligence

Hopefully the previous articles in this DIY investing series have systematically and painlessly brought you to where you have a watch list of some of the safest Canadian blue chip companies the dividend aristocrats. As well, you now have a beginner’s sense of what information is available to help you track the performance of these companies for potential investment choices.

Yes, it does take some work to invest in stocks (ie, equities), as opposed to the insured holdings you could make (and forget) in term deposits, GICs, and government bonds. But, as we know, all of these investment instruments currently pay less than inflation which is no answer to investment, let alone retirement income needs.

So, what is the nature of the work? And, how time-consuming must it be?

Due Diligence

In the investment literature it is often suggested that investors who know little about the market should allocate about 50% of their savings to the safest of holdings: ie, those above-mentioned term deposits, GICs, and govt bonds — and put the rest into a basket of company stocks in the form of a mutual fund (in order to spread out the risk). I can’t argue with this at all. In fact, just protecting your savings with the deposit insurance these holdings provide is worth it –while you learn more. But, as I’m presenting in this DIY series, knowledge is power. With the right knowledge you can accept some reasonable risk to invest directly in individual conservative companies rather than in mutual funds.’ And if and when you feel you are knowledgeable enough, you might decide, as I do, to allocate even more than 50% of your investment portfolio to stocks. As discussed in article two, the rewards are well worth it.

Due diligence is the practice of researching, understanding, and taking responsibility — for yourself, and/or your dependants. In business it’s the owner who is directly accountable for the success or failure of a company. To buy shares in a company is to become an owner. In fact, that’s the difference between being a bond-holder, and a stock owner. The former has lent money to a company and, in turn, gets interest payments on that loan; the latter (for better or worse) has actually bought in. As a stock holder you either profit or lose from your investment. It’s a higher level of participation: the risk is greater — but the rewards are also greater.

Yet, I don’t want to scare you off. We’ve ventured a long way together already. So, for today let’s consider investing in Fortis Inc. the Canadian company with the longest history of increasing dividends. Note that I??m not saying you should invest in FTS just consider it. You must make your own choices.

So to get to the computer portion of this article, let’s move directly to Fortis (as per Article 2), at Google Finance. As an owner, ask yourself what you would want to know about FTS? What should you monitor?

After Article 2 we know that FTS is a utility. So as an owner you would want to monitor relevant news (economic and political), analyst commentary, and required financial reporting. All are integral to the FTS home site on Google Finance. Click on the latest news. Is it generally positive or negative Has FTS made acquisitions; have there been power plant shutdowns; scandals, or have there been downgrades to their security ratings. Do they have coal plants? Are they moving into alternative fuels? What are the government directives and timelines on the matter? When was the last qtly report? Was profit (net income) up or down? How do total assets compare to total liabilities? What is the usual cash flow from operations?Is there enough cash, quarter to quarter, to weather an economic downturn? Are there trends evident? Time the news to the stock performance.? Has the share price been affected? The economic news will give you a general picture and Google Finance makes that available.? In fact, GF ties company news to the interactive price chart over time. Love those charts! Try all of the time periods, from the current day to 10 years. Note the splits, the increases in dividends. Compare today’s prices to those of the crash of 08. Very interesting.

If this sounds intimidating, give it some time. Start with one company. Due diligence questions are similar from one company to the next. I keep 3 ring binders for my watch list companies, grouped by economic sectors; FTS is in a binder with other Utilities. Before long you will find that your due diligence reviews will become routine.

And if you are now feeling quite dubious about the demands of DIY investing, remember that the reason why I advocate investing in Canadian dividend aristocrats is because on a scale of risk — they are the safest of stocks.

Besides Google Finance I also monitor morningstar.ca, check the BNN TV channel, and read The Investment Reporter. An interesting and wide summary of analyst commentary is found on stockchase.com. You can also review quarterly and annual financial reports which are required by law, and are available to the public at sedar.com. I actually enjoy reading the Management Discussion and Analysis. You could spend 3 hours a week, an hour a day — or more. It’s up to you to do your own due diligence. After all, as an owner you will rise or fall upon the due-diligence you devote to your investment choices. That’s why I would advocate that, as a beginner, you start with a watch list of less than a dozen companies. And if you invest in dividend aristocrats, one at a time over a few months or a year, I believe that it will become an interesting hobby.

In many ways it’s a good thing to think like an owner, an entrepreneur. It’s been too little a portion of our Canadian education. As citizens and voters, how can we discuss and understand economics if we don’t have some sense of what it means to make the economy work. Mostly it’s a combination of consumers and entrepreneurs who drive it, and government that regulates it. If it were up to me I would espouse Shakespeare’s middle road, Neither a borrower nor a lender be. Kind of Canadian isn’t it, to blend small c capitalism with small s socialism.

Next month I’ll focus directly on due-diligence by taking you to FTS company financial reports.

See you soon and pass this on to the kids.

Article #7: What You’ll Find Between the (Spread) Sheets

Since article 6 on Due Diligence, I’ve received considerable personal feedback. A few find that the work required in investing directly in dividend aristocrat stocks is more than they are willing to do. Fair enough, and that’s a matter of choice. However, more have responded by saying they want to meet for coffee — or even attend the beginners ShareClub meetings (every third Weds at Con College, Shuniah bldg, Rm C231 at 7 pm). Some are changing over to online investment brokerages. So, without backtracking into easier and less lucrative investments, let’s carry on with more on due diligence for dividend aristocrats.

In order to check the financials of a company, let’s start with a new info source: Morningstar at http://www2.morningstar.ca. On the home page, top centre under Fund/Stock, type FTS (we discussed Fortis Inc in articles 2 and 6). What you’ll find on Morningstar for Fortis is much the same as you would find on Google Finance but it’s another source which you can explore and use.Note, as on GF, when you click on Financials you can access either annual or quarterly reports. However, Morningstar offers a backlog of 5 years (which for another year will still take us back to the year of the crash). GF offers only 4 years. The quarterly reports are useful in reviewing a company’s performance over the last year. But the annuals, going back 5 years, will show longer, and perhaps even seasonal trends. I like to see how companies fared through the 08 crash.

Of the 3 reported spreadsheets (required by securities law), I usually look at the Balance Sheet first. What you’re looking for are trends — or blips which fall outside the trends. You’re also looking for a sizable spread between assets and liabilities. For FTS, annually from 2007 through 2011, its Total Assets have steadily grown from $10.27 B to 13.56 (32%). Meanwhile Total Liabilities have only grown from 7.55 to 9 B (19%). There’s a comfortable spread between the two, and the growth pattern of total assets is outstripping total liabilities over a 5 yr period.

If you want to do the quarterly math yourself, compare the last 5 quarters (by choosing the quarterly display), and you will find the same reassuring growth pattern.

On the Income Sheet (ie Profit and Loss), annual Net Income (profit) shows an absolutely steady growth over 5 years. The qtly view shows a downward blip for the qtr ending June 30/12. But the TTM (trailing twelve months) which averages in the last qtr — shows profit to be increasing. Given the blip, I’d check the Sept report when it’s issued to see if anything is/was amiss. But, for the most part, FTS shows the classic pattern of a very dependable and predictable company. In this case boring is good.

On GF check the Income Sheet for an item which doesn’t appear on Morningstar. Note, well down the page, the Diluted EPS (earnings per share). Essentially that’s the net income divided by the number of shares which the company has sold. But the Dividends Per Share, compared to the EPS is quite important. What you want to see, of course, is that the company’s earnings exceed what they’re paying out in dividends. In this case, both annually and quarterly, earnings have significantly outweighed dividends. In other words, FTS payout ratio is good.

Finally, we should look at the Cash Flow Sheet. Cash flow is often compared to the blood supply of the company. Without a strong and dependable cash flow a company too deep in debt, and without fairly liquid assets to sell, could go bankrupt in short order. FTS annual cash flow over 5 years on Morningstar shows a growing cash flow from operations (ie, from doing business).

But cash flow is a tricky performance measure, as certain items on the spreadsheet can be manipulated: such as waiting a quarter to pay creditors, or waiting to enter certain expenses including taxes. So, it’s even more critical to watch for patterns in the cash flow of a company, as sooner or later those manipulations should show up as a blip.

Usually, too, the Cash Flow sheet has more red ink items than the Balance and Income sheets, so it’s a bit harder to read. However, if you calculate from the top, ie: from Cash from Operating Activities, in descending sequence, adding or subtracting the positive or negative totals from Cash from Investing Activities, and Cash from Financing Activities you will end up with the Net Change in Cash. You have to do it! In this case (on GF), the net change in cash for the 12 mos ending Dec 31/11 is minus $20M. It’s definitely a blip as compared to the prior three years. However the net change in cash for the last 2 qtrs has been positive at + $23 and +144, thus erasing that blip from any possible ongoing negative pattern.

I should add that companies such as utilities and telecoms usually have steady and dependable cash flow generated by their contracted subscribers. I like them a lot. This feature gives them the financial flexibility to periodically invest in expensive new capital projects such as power plants and informational grids, networks, and systems. Accordingly, for a period of time these types of companies might incur significant debt during a building or project phase which would appear as a blip on their spreadsheets. Accordingly, too, for some period of time their dividend payments might even exceed their earnings per share. However, the fact that such companies and dividend aristocrats as Fortis and Emera (utilities), and Telus and Rogers (telecoms) can do that and still maintain strong financial spreadsheets, is an indication of their long term strength. That’s why they could well be a good base for your investment portfolios.

In the next article we’ll look at the market as it’s shaping up, with some practical thoughts (and reminders from article #2) on when to buy, and what’s the measure of a successful portfolio. By that time we’ll be on the eve of the US election.

It’s all for the kids (and grandkids), isn’t it?

Article #8: Cliffs and The Ring of Fire

As in article #4, let’s jump off the strategic learning curve and look at investing in a company already at work in our own backyard, Cliffs Natural Resources. We’ll use some of our regular due diligence principles, as well as some others which I’d argue are no less valid. And I would ask you to explore the web links I??ll mention.

Cliffs is a $5B, large cap, US company based in Cleveland. It mines mostly metallurgical coal and iron ore which unfortunately for them are in dwindling global demand at this time. In fact, upon Sept 30/12 (Q3) their net income (profit) fell from just over $600M to 85M. Accordingly, their shares have fallen dramatically. In fact, Cliffs share price has fallen steadily from about $100/shr in the summer of 11, to less than $40 at present. What’s quite stunning, and certainly out of sync with what an investor would expect, is that during that time they’ve raised their annual dividend from just 14 cents to $2.48. At a share price of $40 that would be a dividend yield of 6.2%. See http://www.google.com/finance.

Yet commodities do fluctuate wildly between good times and bad, and a company with as deep pockets as Cliffs could hemorrhage money for years while they diversify into new ventures as into, say, mining chromite in the Ring of Fire. From what we’ve heard, RoF profits could be worth hundreds of millions of dollars, and Cliffs hopes to begin production in two or three years. But, mining chromite would be a first in North America.

Chromite, if you didn’t know, is carcinogenic: both in the mining processes and in the smelting. The culprits are Cr III, and especially Cr VI. Check www.miningwatch.ca, and search for their chromite series fact sheets. Like mining uranium, mining chromite is a bit scary, and demands very long term containment of waste products. Which brings me to that other value-approach to investing: the one espousing social responsibility.

I was at the Cliffs Open House in Thunder Bay on Oct 24. And as much as I looked at the glossy information presented, I missed any specific reference to Cr III and Cr VI. And when I asked one of their representatives why Cliffs wasn’t cited for full environmental hearings (ie, a Joint Federal and Provincial Panel) on the matter, the representative I talked to responded that Cliffs is approaching each of the near-communities (most of them fly-in First Nations communities) to do something similar even going so far as to provide interpreters to do so. Hmmm Isn’t that a bit like trusting the fox in the chicken coop Please read on.

People who I know in the provincial ministries of the environment and natural resources believe that it’s a done deal — that there won’t be full hearings on the matter. They inform me that full hearings are the feds call anyway. Well, that certainly corresponds to Mr Harper’s streamlining (ie, gutting) of environmental assessments in his omnibus bill, C-38. Check the CUSP (Citizens for a Sustainable Planet) website at http://sustainableplanet.ca. Follow the links through News and Views to read a letter to Peter Kent, the federal Minister of Environment Canada.

Meanwhile, on Sept 22/12, La Presse published an article focused on Cliffs, entitled Spills from Bloom Lake Iron Mine Becoming Routine. It cites five environmental accidents in 18 mos, with the equivalent of 20 Olympic-sized swimming pools of untreated drainage water, contaminating some 15 natural water bodies. The spills are now under consideration by the Quebec Ministry of the environment.

I could be wrong, but I doubt that Cliffs, as with their silence on Cr III and Cr VI at their Open House in Thunder Bay, would volunteer that failure of containment in their in-house hearings to the First Nations folks.

And what do First Nations people say? While it’s not unanimous, six of eight communities in the Ring of Fire area issued an eviction notice this summer to all the mining companies in the region, citing concern for over 100 bodies of water and four major rivers in the James Bay Lowlands. You can follow some of that controversy by linking to http://wawataynews.ca.

But mining legislation, despite Ontario’s new duty to consult, is still a very enabling law which favours corporate development.

In conclusion, temptation might come to us all in different ways: whether from dividend paying corporations, or from promises of jobs and shared riches. And we know that desperate people sometimes make desperate choices. But any of us lucky enough to be able to invest in corporations should set ourselves a bottom line. From my initial due diligence review, including a good measure of social responsibility, I’d say that Cliffs falls below that line.

Just sayin!

Pass this on to the kids.

Article #9: 2013 — The Year of the Bull!

After four years of pretty concentrated effort, it’s clear to me that no one can predict which way the market will go. Despite the apparent recovery which saw the TSX rise from about 7,500 points upon the 08 crash, to its current level (stalled about 12,000), there hasn’t been a time when the pundits on both sides werent calling for either a bull or a bear market. And each always made a convincing case. But I’m generally a bear, expecting the worst and in that downward market, hoping to buy those over-expensive dividend aristocrats at a lower price.

Yet.. if the global financial world improves for another round(maybe a Last Waltz) what should you do?

Consider this scenario: The US solves the fiscal cliff, Europe solves its debt problems, and China picks up again. Markets rise on confidence. Commodities like oil, copper, iron, and agricultural crops rise in sync. Services, manufactured goods, and food — the same. Remember the double digit inflation of the 1980s. Or the price of oil before the 08 crash. Central banks would then likely hike interest rates in order to dampen the damage that rising prices would inflict on consumers. But during that rise (market euphoria, they say) the buying power of our 5% dividend income might seem a bit paltry.

So in this article let’s look briefly at preferred stocks and growth stocks as alternatives to dividend paying stocks. I don’t really want to stress them, as I don’t expect that the global economy will see a significant upturn in fortunes for a while yet. But to ignore these options is to ignore a couple of the hedges you might have against a rising market.

Preferred Shares

Preferred Shares are a kind of hybrid, with elements of both stocks and bonds. They’re actually debt, like bonds, that a company will sell to you in order to finance their capital developments. In return for your purchase they pay interest distributions, like bonds. But you can buy and sell them on the stock exchange at fluctuating prices. They’re not so hard to follow; and unlike bonds, which have hidden purchase costs and complicated yield formulae, preferred shares are fairly straight forward. *

Preferreds are usually issued at $25 with a yield of about 4-5%. Most of the big companies sell them, and I seek out the dividend aristocrats as being the safest. Although there are different types of preferred shares, they usually have a term, after which they are bought back at somewhere near the issue price. But, as I say, there are different types with different features.

What makes preferreds a hedge against a rising market is that if the market rises, the ensuing inflation makes preferred yields look bad much as the dividend aristocrats. But rather than their prices going up (as would most growth stocks), they plunge. In the summer of 2010, after a year of low interest rates and various financial stimulus, there were threats of possible interest rate hikes. Suddenly the preferred stocks fell from about $25 to as low as $16. Not so good if you’d bought them at $25. But good if you wanted a bargain… Sure, for the meantime your interest distributions would have been only 4-5%. However, after governments assured us that interest rates would stay low, those same preferreds quickly rose back to the $25 level: with a capital gain of about 50% — along with ongoing interest yield. Preferreds are thus quite volatile in response to interest rates. Keep that in mind when the conditions arise.

For some return to the familiar, the ticker for one of Fortis Inc’s preferred shares is FTS.PR.F. See it in a list of many others at www.prefinfo.com. The site is managed by James Hymas who writes for Canadian MoneySaver (remember, the origin of ShareClubs in Canada). He has another website at www.prefshares.com. You can also read an article by Rob Carrick of the Globe; try Globe and Mail/Rob Carrick/Preferred Shares/How to navigate rising rates. And/or go to www.investopedia/preferreds. I keep a watchlist of about 8 preferreds on my BMO Investorline brokerage website, as Google Finance didn’t seem able to do it. Very little has happened with them for over a year.

So, in conclusion to this mention of preferreds try to absorb the notion, and some of the distinctions between types. As inflation and rising rates is not an issue now, we can discuss it further when it’s more appropriate.

Growth Stocks

On the other hand, growth stocks are relevant now, as they are quite cheap. Most of them are associated with commodities (see above). They don’t usually pay much of a dividend, as they put most of their profit into developing the expanding financial base of their company. They’re currently cheap because, while the market could be said to have recovered from 08, it is somewhat paralysed in fear of the fiscal cliff, Europe, and the slowing Chinese market. Note that the TSX has been locked in a range from about 12,000 to 12,400 for about 2 years.

A good, easy read on commodities is John Stephenson’s The Little Book of Commodity Investing. It’s at Chapters for about $20. Unfortunately, I find most of the mineral-based companies unpalatable. For horror stories look up any one of them at www.miningwatch.ca.

However, to give you an example of a growth stock that I own, check out Potash Corp of Sask (POT) on Google Finance. Its 5 year chart shows it at a 2.5 year low, and it pays 2% at $40/shr. It’s a bit expensive to buy 100 shares, but note that POT split 3:1 on Valentine’s day, 2011 (get that for a particularly friendly way to offer its shareholders a major perk!). Also note that as a fertilizer mining and distribution company, in an uncertain market potash isn’t selling much. It’salso the beginning of winter in the northern hemisphere where potash is mostly sold. Planting is in the spring. But from that 5 yr chart note the potential. POT could easily rise to $60, and your capital gain would be 50%. It’s a huge company, and its financials are very solid. Just a matter of buying and waiting.

Let’s just see what happens in 2013. I suspect that there will be small compromises in the US and Europe, leading to another slow year on the markets. But didn’t I begin by saying that no one can predict the market.

Have a great holiday season ? with the kids.

Peter Lang

* I don’t follow individual bonds, though I do follow i-shares ETF bond funds, which I have bought and sold as a market hedge, like stocks. Go to www.i-shares.com, and under the left side bar check fixed income/Canadian and see the list. XCB is an all corporate bond fund. XGB is all government. Use their tickers to buy and sell. But like preferreds, bond prices are high now. Not a bargain until the market breaks out.

Article #10? What’s Important?

Since the last issue of TBay Seniors I’ve been thinking about Michael Sabota’s notion of the incremental apocalypse. Not with a bang, but a whimper. Are we just fiddling here while Rome burns? I really wonder how far under the surface do we all share a growing awareness that the impetus of our current civilization is on a downward track?

I’m not saying that it’s wrong to invest in the stock market for our retirement. I enjoy it, and believe it’s prudent to do so. But let’s consider our investing less selfishly. How do we apply due diligence to a wider perspective? What’s ultimately important to us as human beings? From the start of these articles I’ve suggested that we should invest for, and share with — the kids. My allusion wasn’t limited to stock market investing. On a wider scale I meant it as a reference to civilization itself. Indeed, if civilization is on a downward path — as older adults we are its’ stewards, and it is truly our duty to apply all our skills and insight to make things right. Above all, we owe that to our kids.

Now, back to the market and an unexpected twist.

For the practical portion of this article I’m going to suggest that you consider both a small-cap, and a mid-cap dividend paying company. I do so because, while it’s our objective to invest in dividend aristocrats, most of them are currently quite expensive. For example, BCE’s share price of $42 is at a 5 year high. But you can also see on the GF 10 yr chart that twice during that period the share price was lower than $30. Knowing that the business cycle over a couple of decades has been approximately 5 years, I can wait patiently in cash until the price comes down as low as $35. Interest rates and inflation are low. My cash isn??t losing value. And if BCE’s price falls even lower — I’ll buy more. The problem is that investors like you and I have popularized dividend stocks for retirement income, and now most of the best are too costly.

So, in the meantime my suggestion is to look at some not so popular smaller dividend paying companies whose values haven’t been so inflated by that trend — but whose financials look very good. Chances are, because they haven’t been unduly inflated, they won’t drop so much when a market correction occurs. This means that you can put some of your cash to work now, for dividend yields that are comparable to dividend aristocrats like BCE.

Use Google Finance and/or Morningstar to review mid-cap company, Capital Power Corp (CPX). It’s a utility mentioned to me over a year ago by an engineering friend, and the following article in the Globe recently prompted me to do a due-diligence review. Read it at http://www.theglobeandmail.com/globe-investor/investment-ideas/electrify-your-dividends-with-power-company-stocks/article4375624/. Of the seven utilities suggested, CPX’s price, diversity, and financials appeared to be the best choice.

As BCE, CPX pays just over 5% — but unlike BCE, CPX is at a discount of some 11% to its high from mid 2011; its price is half that of BCE; and it has a 5% DRIP discount.

I did have concern for the last 2 qtrs which showed a negative change in cash on the Cash Flow Sheet, so I checked Sedar.ca for the company’s explanation (see www.sedar.ca. Click in succession: English/company profiles/c/Capital Power Corporation/view/Oct 31 2012/MD&A-English/code verification/accept and you can read all 34 pages). But what I was specifically looking for was the explanation for the negative change in cash. What I found was that CPX had two capital projects underway, one of which is now completed: before the deadline, and 10% under budget; the other is on track. Both will be new revenue producers. So I was satisfied.

Another friend, who is in the Thunder Bay Share Club, did his own review and found that since Feb ’12 top CPX insiders (ie the CFO, the CEO, and the Directors) have been regularly buying the company’s shares, to a total of more than $1M — which is an excellent indicator of investor confidence. I was able to buy 200 shares at $21.20 in mid-November.

The small-cap company I’m asking you to consider is clearly a green one. It’s Waterfurnace Renewable Energy (WFI): not a dividend aristocrat, not a large cap company — and I’m not telling you to invest in it. But using the acquired skills and interest which has led you through the previous 9 articles, decide for yourself.

First off, you will notice that its share price at $15 is half the price it was prior to the crash of 08. Some of this is due to the fact that WFI is a geothermal heating installer, and the winter season is a slow business in the frozen ground of North America. But some is due to the decline the US residential housing market since 08. Yet for a small cap company the financial spreadsheets represent a company that should survive very nicely to the next up-market cycle. Note on either GF or Morningstar the annual stats on 1) rising net income (Income Sheet), 2) EPS as compared to dividends paid (also on the Income Sheet), 3) the “cash from operating activities” (Cash Flow Sheet), and 4) the spread between total assets and total liabilities (on the Balance Sheet). Unfortunately, WFI has no DRIP. But with a dividend yield of over 6%, it might pay to buy now, and wait for as long as it takes for the US residential market to recover at which time you could make a considerable capital gain. But, remember too: if you are able to buy a good stock at a low price, there is a strong argument for not selling, and keeping that potential capital gain as a ??margin of safety against a future market downturn.

That’s it for this month. Dedicated to the kids.

Article # 11 — Contrarian Thoughts

In order to best understand this step-by-step, how-to self-investment series, it’s suggested that you read these articles from the beginning. Go to tbayseniors.com and click on the DIY Investing tab.

Early in the new year, as a self-investor, you would do well to consider a contrarian strategy. What’s that you say? Well, in essence, a contrarian swims against the current. For example, from Christmas until the end of February it’s the object of the investment industry to have you put your money directly into RRSP investments, most often mutual funds. Yet, at this time of year the markets usually rise. That’s what usually happens at RRSP time and why wouldn’t it? It’s the law of supply and demand. When a whole lot of people buy something at the same time, the price will go up. In fact, if you look at the GF 10 year chart for the TSX what you will see is that for 8 of the last 9 years the market has risen during the early part of the new year — and on until spring. In 09 it was different — perhaps due to a market reaffirmation after the crash of 08. But a rising market until the spring is the norm. So why would you want to join the herd and buy stocks just at the time when their share prices are most expensive?

Benj Gallander, a well-known investment contrarian, says that he rarely buys stocks until the summer, and buys mostly in the late fall into December. Thus, what you could do as a contrarian self-investor (although, I acknowledge that by the time you read this article the RRSP deadline will have passed) is to simply put cash into your RRSP account and wait until prices fall later in the year to invest in individual stocks. As I’ve said a number of times (and as honest brokers would largely agree), most good dividend stocks are now overbought, and overvalued. They simply cost too much.

Now, depending on how long it is before you have to take an income from your investments, I’m going to suggest an even more contrarian strategy. How about riding that likely market rise until late March or early April and then sell some of your current holdings: for example, the ones which haven’t done as well as you had hoped, and perhaps those with lower yields. Or, maybe those you’ve discovered are not socially responsible. If the market rises until April you might just break even with your purchase price, or have made a modest capital gain. Of course, keep the ones you bought at good prices, which have passed your due-diligence scrutiny — and which yield well. Consider their nominal capital gains as your margin of safety rather than profit.

From my look at those 10 year charts, the most likely drop in market prices is around mid-April, which coincides with Gallander’s expressed opinion. So you would have to set some sell-target prices for yourself, monitor the market, and realize that no one is able to pick the best time to sell.

Also, from the TSX 10 year GF chart, as a contrarian you could wait with a percentage of cash even beyond next fall for the next market bottom. It could come in just another year, or perhaps two, if the business cycle should continue to be approximately 5 years. The reason I would hold out with significant cash for that long is that upon such a market bottom share prices could fall very sharply. For example, current prices for Fortis, TD Bank, and Telus are now (as of Jan 25/13) $34.38, 83.58, and 65.03. After the 08 crash they were 21.90, 35.36, and 31.72 respectively. On average, the total cost of the three stocks on March 6/09 was less than half of today’s cost. So even if the market doesn’t crash as it did in ’08, and even if you don’t buy at market bottom — the odds are that if you monitor prices you can buy at much better prices if you wait with some of your cash for a prolonged period.

That would be a very contrarian thing to do, because most investment advisers would tell you that your cash doesn’t make you money. But ask yourself, who does that serve? With inflation and interest rates so low consider that your strategic cash won’t lose much value in the meantime. A look at the tables below, and some easy math, will give you an idea of how long it might take to recoup your supposed loss. Not very long! Especially if you plan to hold those bargains, and take your dividend income for a long, long time.

The following tables give you an idea of the difference in the dividend stream when you buy good stocks at a market low. Remember that the dividend you would receive now for purchases you might have made on March 6/09 would be at the current dividend rate. What would be significantly different, however, is your dividend stream: approximately twice as many shares paying the same dividend would double your dividend stream. That’s the object of your quest: the best dividend stream, based on the best yield to original cost.

For the purposes of these two tables consider that in each case (but on different dates) you are investing $10,000 in each of three good dividend aristocrat stocks: a utility, a bank, and a telecom.


I think the tables speak for themselves. In each case a total investment of $30,000 has radically different results. The total annual dividend stream for table 1 is $2201, and for table 2, only $1103. The former stream is double the latter!

Once again, the situation is an ideal one: as market patterns of the past are only possibilities for the future; and as no one is able to time the market. Yet even if you did only half as well, with the three above investments you could add some $550 per year to your dividend stream by being more strategic in your buying.

What I’m saying, on good grounds, is that a self-investor could do very well if he/she were to keep a significant portion of your portfolio in cash, then monitor prices — and wait for a much better time to buy than today.

Be a contrarian. And encourage your kids to be the same lest we all migrate off the same steep cliff together.

A Reminder: The Thunder Bay ShareClub meets regularly at the Shuniah Bldg, Confederation College, Rm C212 at 7 pm on the second Friday of every month.? Newbies meet in the same room on the third Wednesday.

Article #12: A Year in Review

It’s hard to believe, but this month’s piece represents a year of step-by-step, DIY investment articles. So, for the sake of an overview (and so that I don’t repeat myself), this article is a summary. As such, at a glance you can review what you’ve learned, and refer back to the complete on-line text of the articles at www.tbayseniors.com.

Article #1:A Twist of Fate
-how I came to self investment, ie: the push, and the leap of faith
-investments in safer, individual dividend stocks
-a goal of 5%, rather than 2% for GICs
-the secret of compounding yields
-Reference: Thunder Bay ShareClub

Article #2:Doing it!
-using Google Finance, and 5 & 10 year charts
-Fortis (FTS), a dividend aristocrat
-dividend reinvestment programs (DRIPs)
-yield as a ratio of dividend to share price
-yield to cost (ie: buying low makes for greater yields)
-you can??t time the market but you can watch it (and buy low)
-the business cycle, the TSX 5 year chart
-patient capital management (ie, cool and disciplined buying)
-split shares: another advantage of buying individual stocks

Article #3: The Dividend Stream & Creating a Watch List
-the dividend stream is the total of your monthly dividends from all your stocks
-it could be your income when you need to take it; or, until then — it can be reinvested
-References: Stop Working, Canadian MoneySaver, The Investment Reporter
-setting up a Watch List of dividend aristocrats on Google Finance

Article #4:Reflections on Socially Responsible Investing (SRI)
-investing in specific stocks avoids investment in some of the exploitive companies which are included in mutual funds
-References: www.corporateknights.ca, the Jantzi Social Index Fund, www.miningwatch.ca
-advantages of investing in Canadian stocks: information is more available

Article #5: Setting up an Online Brokerage Account
-Rob Carrick’s annual Globe & Mail review of online brokerages; fees
-how to transfer current investments; doing so in kind: possible redemption fees
-computer security measures: security providers, browsers and passwords

Article #6: Due Diligence
-taking responsibility; being an owner
-using Fortis (FTS) as an example; researching news, quarterly reports, & charts
-keeping a file for each company you follow, and each one you buy
-References: www2.morningstar.ca, BNN TV, www.sedar.com

Article #7: What You’ll Find Between the (Spread) Sheets
-using morningstar.ca: a backlog of 5 years financial records and trends
-the Balance Sheet: reviewing Total Assets to Total Liabilities
-the Income Sheet: reviewing net income (ie: profit), and comparing earnings
per share to payouts in dividends: what is sustainable?
-the Cash Flow Sheet: trends and blips and capital expenditures

Article #8: Cliffs and the Ring of Fire
-Cliffs as an example of a potential new mining company in this region
-commodities and prices; chromite as a North American first
-5 incidents in 18 mos at the Bloom Lake site in Quebec
-no full environmental hearings, despite calls by indigenous & non profit groups
-consider your socially responsible investment choices: reject Cliffs

Article #9: 2013  Year of the Bull
-What to do if the market rises and dividend stocks become even more expensive?
-Preferred Shares: a hybrid of stocks and bonds; could become a bargain
-growth Stocks (mostly commodities) are at a bargain now
-Reference: John Stephenson’s he Little Book of Commodity Investing
-consider the Potash Corporation of Saskatchewan (POT)

Article #10: What’s Important?
-as older adults we’re stewards; keeping it in mind as we make investment choices
-while the dividend aristocrats are currently expensive, using our due-diligence skills ? let??s look at some alternatives
-a mid cap dividend paying company: Capital Power Corp (CPX)
-a small cap dividend paying company: Waterfurnace Renewable Energy (WFI)

Article #11: Contrarian Thoughts
-RRSP season creates a market rise wherein individual stocks rise in price
-make your RRSP contribution in cash and wait for prices to fall
-usually a significant market dip after March, to mid-April: check 10 yr charts
-Also save some strategic cash for the next business cycle bottom
– 3 dividend aristocrat dividend streams compared: bought in 08, and in 13
– Result: the dividend stream could be as much as doubled!

Article 13: Alternative Investments in Community

Yesterday (April 12) I had a wonderful day. This was despite the fact that Kerrie and I drove through 8 inches of new-fallen snow on 10 miles of back country roads to be at the Conmee Community Hall by 7 am on a Saturday morning. Truth be told, I was sorely tempted to stay in bed. But the occasion was the unloading, re-sorting, and distribution of a huge bi-annual food order. As a co-op member I had been called upon to do my share. Not really so onerous a task in that larger context.

Yet what made the day so remarkable was community. Not only were some of my family and friends there, but our practice in re-distributing the food shipment is always to work in teams with people you don’t know. And, not surprisingly, what brings people to cooperatives, as with other non-profit organizations, is usually quite people-positive. So, at the end of that day I made a number of new friends; and what was a physically taxing activity for this young-elder was really quite exhilarating. In short it was time and energy well invested.

Any time I can do that I find that I’ve offset what sometimes feels like the dire momentum of a world that is rapidly running off the rails. In fact, in an alternative way, I think of it as an investment in the most important portfolio there is — basic humanity and good will. We truly need that. So, because I’d rather bask in that light rather than feel powerless in this world, I invest quite a lot in the alternative economy.

For instance, have you seriously considered investing your time in a Credit Union Mine, Bay Credit Union (I am proud to say) returns its annual profit to the members — in the true spirit of co-operatives. And because they treated me so well for 40 years while I worked and raised a family I now serve as a volunteer on their Board of Directors. As with the food co-op, I have both old and new friends at BCU, and I look forward to seeing them at Board meetings, AGMs, at other sub-committee meetings and celebrations.? Check out BCU at http://baycreditunion.com.? BCU also has a new Facebook page. Let them know you like it.

In contrast, think about the opposite scenario. Consider that under Chapter 11 of the North American Free Trade Act, corporations (mostly large American ones) have been successfully suing governments (read that as  us taxpayers) for restricting their potential profits (go to http://canadians.org/trade/documents/NAFTA-chapter11.pdf ). In their realm money is the only goal. We hear too much about that kind of profit and investment — where people are a distant second to corporate interests and development, and where (in our region) the boom and bust economy expects taxpayers to both pay for corporate infrastructure, and eventually the clean-up; and this — long after the jobs are gone.

I also invest my time as BCU’s delegate to the Bay and Algoma Business Association, which is a very interesting volunteer group of mostly small business owners who, together, are seriously engaged in making their community (they call it a neighbourhood) the cultural and artistic center of Thunder Bay. And they are doing well at it. In fact I find myself quite inspired for a number of reasons. First, it allows me to work with my wife, Kerrie, who is an owner of Fireweed. Secondly, as the BCU delegate to the BA I can spread the co-operative spirit, as well as offer some modest financial support. Thirdly, I like their energy and vision, which actually feels more like a co-op than a group of business people pursuing profits. And, although I’m a socialist, I admire and support the spirit, necessity, and success of entrepreneurs who care about people. The Bay and Algoma BA is working on a website, but you can find them on Facebook under Bay and Algoma Neighbourhood. Like them, too.

Finally, I invest in community with CUSP: Citizens United for a Sustainable Planet (www.sustainableplanet.ca). Simply, as a grandfather I had to do it. The planet will surely die if we don’t change the rate at which we humans are contributing carbon waste to the atmosphere. So, too, we must offset the overriding corporate exploitation of peoples and our natural habitat. And, again, as with the other above-mentioned organizations — the involvement with my friends in CUSP always makes it a most life-affirming activity.Like CUSP, as well, on its Facebook page.

So, in conclusion, think about investing your time and energy in co-ops and non-profit volunteer organizations. What they will contribute to your human investment portfolio is hope in the future. That’s priceless!

Please pass this along to the kids. We know that they see the writing on the wall — and they need hope even more than we do. Encourage them to invest with you — in community.



Article 14: Market Crashes and Vulnerability

You might expect that it’s a challenge to write a monthly column on something as changeable as the stock market. On the contrary; there should be no need to be so current when advocating for investments in dividend aristocrats. As mentioned in previous articles, this long term strategy purposefully sidesteps volatility: you systematically choose the best companies, watch and wait for them to decline to a reasonable price, and then add them one-by-one to your portfolio. Accordingly, the object is to build a secure and stable dividend income stream for retirement (or prior to that — have your holdings compound by using dividend reinvestment programs).

But what about Market Crashes You can’t just ignore them, because they will drastically affect the market value of your portfolio — if not break you financially. Yet dire losses should be seen to occur largely within certain bounds. As an investor in dividend aristocrats you can be spared.

The worst market crash was in 1929. On the topic read the respected Canadian economist, J.K.Galbraiths The Great Crash of 1929 (available within the TBay library system). It’s the stone cold and sobering portrait of total loss ? for some people. From Galbraith’s historical perspective, there was little evidence of trouble prior to the crash. There were few voices of reason. Rather, in America there was a culture of market euphoria, a kind of collective insanity which saw only boundless opportunity. Financiers were revered, and investors were largely trusting and niave. And despite the legislative controls to curtail excessive marginal buying or the exponential leveraging of financial institutions — politicians were either complicit, or feared to be the ones to burst the bubble.

Today the analysts, economists, and politicians are more cautious because as recently as 2008 we suffered the second worst market crash in modern history. If you follow the economy at all you know that since then the central banks of the US, Canada, and Europe have conjoined to print more and more money, sell more and more government bonds, and keep interest rates at the minimum for the foreseeable future. The current market forecast is for continued slow growth, and the market has taken confidence in that. Yet today it’s understood (at least, better than in 29) that what sustains the economy is very insubstantial. Essentially it’s our faith in virtual and paper money. Government no longer anchors money to the value of gold. Neil Macdonald’s TV piece, The Monarchs of Money, which aired last month on CBC (check http://www.cbc.ca/news/world/story/2013/04/26/f-rfa-macdonald-power-shift-savers.htmlcmp=rss) suggests that with so many borrowers increasing their debt, eventually some creditor’s demand for a huge payment won’t be met and the bubble will break. Credit will then freeze everywhere overnight — which is exactly what happened in 08. Macdonald postulates that current monetary policy under the central banks is an experiment which is unprecedented, and should be feared.

But who were the losers in those major stock market crashes? For the most part they were those who had invested on margin (ie, bought stock on borrowed money), hadn’t paid off their own personal debts and mortgages, and those whose stock holdings were in companies with excessive debt and poor balance sheets. It was also those who panicked and sold their holdings at deflated prices. Potentially, if this is you or your kids — beware! The safeguards against such a crash are not much better than in 29 or 08, and global debt is far worse, and growing.

But knowing the crash is also the wisdom of J. K. Galbraith, as well as a couple other living fellow-financier-octogenarians: Warren Buffet and Stephen Jarislowsky. Buffet, the famous American investment guru and entrepreneur, has written many books on investing, and is the protege of Benjamin Graham, the father of value investing. Graham wrote the classic, The Intelligent Investor. Jarislowsky wrote The Investment Zoo, and is the Canadian version of a Graham protege. If you, as I, have become that kind of investment nerd, you will enjoy these books over the summer. Their combined wisdom directs us to review balance sheets, apply due diligence, and to buy large blue chip companies — particularly those which have well known products and services, and histories of increasing revenues and dividends. Buy them low and hold them long, they say. And, if the market should crash (and crash again as in 1932) they will be the companies most likely to survive and keep your portfolio afloat.

After the crashes of 29 and 08, those who maintained their stock holdings recovered quite well. Also, it should be emphasized — during those times they continued to collect their dividend stream! And, furthermore, if you were a dividend investor with cash to invest in early 2009, you would have done very well indeed (See article #11).

For Article #15: If you are, or would like to be a DIY dividend investor, and if you have read this series of step-by-step articles (you could do this over the summer) — I would invite you to submit questions to be answered for the September article. While I have tried to be methodical and clear in my explanations, I need a reality check from you. Please address your questions in writing to this paper, c/o Peter Lang, or online to tbayseniors@tbaytel.net.

You might also benefit from attending meetings of the Thunder Bay ShareClub, held in room #377on the second Thursday of each month in the Shuniah Bldg at Confederation College.

Yours for the Kids, Peter Lang

Article #15

In June’s article #14 I offered to answer any questions arising from this step-by-step series on how to self-invest in dividend-paying stocks. Oh I know, it was summer, and no one likes to do summer homework… Yet in the meantime I’ve had many friends ask me personally whether or not I had found any summer bargains. So, for how-to’s sake, in this article I decided to be as forthcoming as I could on the question.
As in past articles, what I’d suggest in reading the following is to check out each stock I name on www.google.com/finance. Use its stock ticker symbol to call up each stock’s own home page information. Look at their respective 5 year charts for changing prices and dividends; and look over the patterns on their financial spreadsheets (use of these resources has been explained in previous articles available at www.tbayseniors.com.) Hopefully, some of these stocks are already on your watch list.
While this series is designed to help you be your own investor, I’ve regularly stressed the importance of doing appropriate due-diligence research before committing hard-earned savings to the discount brokerages which would be the e-vehicles for your self-investing.
My Summer Bargains
In article # 11 I discussed the fact that summer and fall are often good times to find bargains in the stock market. In fact, so far this year there have been a few golden opportunities.
In June, after US Federal Reserve Chairman Ben Bernanke hinted that it was time to slow down ‘quantative easing’ because the economy was slowly recovering, the fear of inflation caused many investors to dump dividend stocks for the potential of fast-gaining commodity stocks. Inflation, of course, devalues money, making interest-sensitive holdings like utilities, pipelines, telecoms, Reits and preferred stocks seem less desirable. The consequence of investors dumping such stocks is that their share price drops. Simple supply and demand. So, over the course of a month a number of dividend aristocrats fell about 15%. That’s the kind of pullback that patient dividend investors wait for.
At the time I bought a couple of REITs.). Artis Real Estate Investment Trust (AX.UN) owns a range of retail, office, and industrial properties across Canada and the US. Its Total Assets are double its Total Liabilities; its earings per share (EPS) exceeds its dividend by a 3:1 margin. As well, its dividend yields about 7%, and it has a dividend reinvestment program (DRIP) with a 4% reinvestment discount.
The Canadian Apartment Properties Real Estate Trust (CAR.UN) holds various residential properties. Its financials are very similar to AX.UN with a dividend yield of about 5%, with a DRIP, and a 5% DRIP discount. Both are approximately $2 billion dollar market cap companies.
From previous articles you would know that Fortis is the grand daddy of Canadian dividend aristocrats — having increased its dividend each year over two decades. While in this summer decline it has fallen only about 9%, FTS is a stock that doesn’t fall very far unless there is a genuine market crash. No need to speak much of its financial fundamentals, as it’s often cited by the analysts as a model company. But its dividend is only about 4%, which could be low if inflation really kicks in. However, FTS has an added DRIP and DRIP discount of 2%.? As a baseline investment at this price FTS is hard to beat.
Upon that June decline there was simultaneous concern that Verizon, the second largest US telecom, was about to make inroads into the Canadian market. Consequently the Canadian telecoms fell further — at which time I was able to buy Telus at a 20% discount to its price over the last year. Suffice it to say that Telus is the second largest Canadian telecom, a dividend aristocrat, and seen to be the most prudent and fiscally-conservative of our big 3: BCE, Telus, and Rogers.
Then a “black swan” event occurred. Saskatchewan Potash (POT) share price fell from about $38 to $28 (about 25%) overnight because of an unforeseen shake-up of a cartel which had kept fertilizers at a fixed world price. My previous purchase price had been at $40 (where it had been for about 2 years. So I bought more in order to average down to about $35. To date, the price has risen back to about $32.
But let me say more about Sask Potash — since I haven’t mentioned it before. First, it’s the largest potash mine in the world — and it’s in Canada. Accordingly it holds a wide-moat/ economy-of-scale advantage over its competitors. Secondly, over the last couple of years POT has split once at 3 shares for 1, and raised its dividend from .07/Q to .37/Q , which has effectively rendered this commodity-producer a good dividend-paying stock (at $30 its yield is about 4.5%). And thirdly, POT has very deep pockets as a $27 B market cap company. Its total assets to total liabilities ratio is almost 3:1; and its EPS (earnings per share) comfortably exceeds its dividend payout — even with the above-cited dramatic dividend increase. And finally, if you look at the google finance 5 year charts you’ll see that eventually the potential for a good capital gain is quite likely — even if you must ‘suffer’ a couple years at a 4.5% dividend yield…
Yield-to-Cost Reminder
When talking to a friend this month I was reminded that many new self-investors may not fully understand that a stock`s reported current yield is only relevant to its current price. In his case, my friend wanted to sell a stock that was reported to be yielding only 2%. However he had bought it at lower than the current price. Thus his yield-to-cost was actually considerably higher. Remember that yield is a simple ratio of the actual annual dividend to the share price you bought it at. So buying low is your key to greater yields (see the comparative tables in article #11). And that’s why you should be ready, with cash, for those summer bargains!
It’s true, as they say, that you can never time the market but from looking at the 5 year charts you can see that significant pullbacks in share price for even the best stocks are inevitable at any time, for any number of reasons. Wait for them.
“Teach Your Children Well”,

Article #16:? The Annual September/October Market Fall

In the last two articles I discussed market crashes and summer buying opportunities. This month I’ll do the same as September (just passed) and October are frequently the months when the stock market declines the most. I’ll also follow up on some of my past picks.

Buying Strategy

Most advisors and analysts would have you buy something at all times. The advisers suggest dollar cost averaging (ie, contributing a monthly amount for them to invest for you), and the analysts tend to hype the market, as it’s their bread and butter to bring you to their particular media for the sake of their advertisers. That’s fine. Just don’t be too influenced by it. Currently, as always, you’ll find totally opposite opinions from one to the other on where the market is going and what you should do.

My approach to buying is to monitor my watch list. Most days I diligently scan their percentages of loss or gain. If I see a share price drop I watch more closely. When the stock reaches about an 8% drop I get very interested  but I don’t buy unless I do my due diligence review even though most of my watch list is comprised of dividend aristocrats. And this summer, as I wrote in Article #15 I bought two Reits (real estate investment trusts): Artis (AX.UN), and Canadian Apartments (CAR.UN). Upon this writing, although they had dropped some 15% — they’ve dropped even more. I also bought Fortis (FTS), Telus (T), and Potash (POT) on good declines; but all have dropped another few dollars per share.

And if the market should continue to drop, my portfolio holdings will show some red. But that’s OK. It will always fluctuate between red and black. I know that because at one meeting of our share club some time ago I complained that when the market dropped I lost the equivalent of a good used car. My friend, a millionaire, laughed and commented that in the same decline he lost the equivalent of a modest house. Remember, dividend investing is about the escalating value of your dividend stream over the long term. It’s not about the net value of your holdings which should climb steadily over time, but which will continually rise and fall in the short term.

In buying, my concern is to buy patiently, and at good prices compared to the 5 year price charts which roughly correspond to what is often called the business cycle. Then, in a kind of dollar cost averaging which is the DRIP (dividend reinvestment program) program, I do buy (and compound) regularly, and at no cost, as my dividends come in each month or each quarter.

Past Picks

This brings me to two past picks which were green energy stocks that I wrote about in Article #10: Capital Energy (CPX), and Water Furnace Renewable Energy (WFI).

I bought 200 shares of Capital Energy last November at $21.20. Its current price has increased by only half a dollar, for a minor capital gain (but we ignore that). And since the purchase, I’ve collected dividends of $64 in each of the last 3 quarters, as well as two additional shares per quarter at no purchase cost.

As far as its financials, CPX’s cash flow from operating (ie, doing business) continues to grow, but like most utilities it’s also investing heavily in new power producing facilities, so its net earnings per share (EPS) to dividends paid is a bit higher than would be ideal. Yet if there was a sudden significant market downturn, it has total assets well in excess of total liabilities, an income based upon long term contracts, and in late August CPX announced a huge sale of its Eastern assets to Emera (EMA).

As you might recall (or you can view article #10 itself on line at www.tbayseniors.ca), after describing Water Furnace Renewable Energy (WFI), I let you decide for yourself whether or not you would buy it. I did. My average cost is $16, and current share price is now over $21 — which might tempt one to take a capital gain. However, $5 is now my margin of safety, and with 300 shrs my monthly income from WFI is $24. Unfortunately it has no DRIP but the yield is 6%.

What is particularly nice about WFI is its financials. Like CPX, WFI is a utility of sorts (it installs commercial and residential geothermal heating units). Accordingly, the capital costs are high. And despite a prolonged residential housing decline in the US, WFI has continued to hold its own quite well, with total assets exceeding total liabilities by a more than a 2:1 ratio.

Of note is that neither of the above companies are dividend aristocrats, and neither is a large cap company. For that reason they require a bit more in the way of ongoing due diligence. However, both CPX and WFI are doing well and it feels good to own these two green energy companies.

May your dividend stream become a river for the kids.

Peter Lang

Article #17: North American Palladium Ltd

If you follow this column you’ll know I’m a dividend investor, and expressly avoid speculative investing. You’ll also know I try to invest in environmentally and socially responsible companies. However, never having been underground, I jumped at an invitation by Keith Nymark, to attend the October 22nd ribbon-cutting ceremony of North American Palladium’s (NAP) newly expanded underground mine at Lac des Illes (LDI).

The Romance

As a writer I find the North American Palladium story remarkable, — but probably not so different than those of many other small mining companies who rise and fall each year in the Canadian mining sector. Yet what is compelling about NAP is that it’s a one-mine-company, the only mine in the Thunder Bay district, and only one of two primary palladium producers in the world.

As I was told by one of the board directors, the LDI mine was discovered almost by accident by a prospector chipping rock on his way home from a more northerly mine. Upon delivering his samples to a well-respected local assayer, he was surprised to learn that he had discovered palladium. The thing is that palladium is virtually indistinguishable from the host rock. Unlike gold, this paler gold/silver-coloured precious metal is only visible after the crushing and chemical flotation reduces it to a concentrate. Amazingly, only 3 to 4 grams of palladium can be extracted from a full ton of this ore body. So you can imagine the achievements in finding and developing this new mine. And you can also imagine the size of the growing tailings piles.

What I saw at LDI on October 22 was the result of a three year project. Besides more and larger administration and outbuildings, a huge head frame with major hoist containers looms above the surface; and miles of underground tunnels and shafts have been blasted and dug through the hard rock to a depth of 900 feet.

Now with phase 1 complete, NAP is poised at a critical moment in its 20 year history. Lacking the deep pockets of more well-known mining giants, NAP has survived the market crash of 08, a three year devaluation of precious metals, and the depletion of palladium from their open pit.If NAP can begin the new mine with the increased production and reduced costs their company guidance has projected; if global demand picks up; and if larger secondary producers don’t dump palladium on the market  then perhaps NAP can prevail. Then, perhaps they can repay their considerable and relatively expensive debt. Otherwise I would expect that the company could fail, or be acquired by a larger player.

As LDI is in our own regional backyard, and as many Thunder Bay workers are employed there, we should be interested in this continuing romance.

The Lure

For an investor, LDI’s prospects are speculative. But, it’s feasible that this single-company mine could be the next big thing? the home run that many younger investors I talk to would like to own. I usually discourage them.

But just think: the world price for palladium and other precious metals is beginning to rise as we speak, with many analysts calling for improved markets. Certainly anyone with a thousand dollars could buy a thousand shares of NAP at the current price of a dollar. At this entry price, as low as shares were in 1999, charts show that the price could possibly rise as high as $16 where it was in 01 and 04 — or to $13 where it was in 06 and 07.

That’s the lure.

The Real Price

On the other hand, what trumps all considerations for me is that I’m an environmentalist. And for all the speculative hope expressed at LDI on Oct 22, there were only general words of assurance with regard to the environment, mostly directed to the First Nations chief of Gull Bay. But nothing in the presentations mentioned the toxic by-products of the milling and flotation-reduction process. The tour didn’t take us to see the mill or the tailing ponds. Nothing was said about the safe handling and long term containment of the actual potential pollutants. If anything, it was up to us to chase down all those details — and that should not be our job (FYI, the website link to the issue, as it is expressed by NAP is as follows: http://www.napalladium.com/about-nap/social-responsibility/environment).

Of course, that’s exactly what I found when I went to the Cliffs Open House. Nothing was displayed or said about the poisonous by-products of chromium 3 and 6. Nothing was said about Cliffs failures to contain the tailings at their Bloom Lake mine. This was also true at the Trans Canada Energy East pipeline Open House. Nothing was mentioned of the Beardmore blast and the stress cracks in a forty year old pipe that caused it.

This leads me to believe that corporate and political culture would still rather not deal specifically and publicly with the unpleasant details of the whole mining process, and resource extraction in general. At the same time it’s beginning to look like our species could well destroy the planet with its waste.

That could be the real price that we’ll pay for our achievements.

In Conclusion

I’m happy to admit that I was mine-boggled by the day, and subtly drawn in by the spectacle of the place, and the range of people I was able to meet informally at LDI: from the driller-explorer, the mill worker, the union rep, the contractor, the market analyst, the provincial and city mining development reps, to the chairman of the board and two other fellow directors. I liked them all. And I wish them all well. I get the quest, and I don’t believe that it simply a drive for profits.

However, as a society, the longer we gloss over long term project outcomes, I fear the sooner we will bring on our own demise. If LDI should succeed, and if we are to reap the benefit of jobs, training, and increased prosperity, I believe that it is incumbent upon the corporations and the politicians to provide us with relevant forums and hearings, where together as a community we can develop truly sustainable outcomes.

With and for the kids, let’s demand it!

Article # 18: Perpetual Preferred Stocks

In the fall of 2010 my Mentor in the Thunder Bay ShareClub*, Senior Citizen, sat me down at his home computer and mechanically showed me how to invest online in preferred stocks. At the time preferreds were at a bargain to their issue price of $25. Now, three years later, the bargain pendulum is swinging back. So get ready.

Without the long explanation**, preferred stock is issued by a company at a set issue price in order to finance capital expenditures. When you buy preferreds you are loaning money to that company in return for a regular and fixed distribution payment — much like a bond. And even though you can buy and sell preferreds on the stock market, they are very different from common stocks in that with common stocks you actually buy ownership in the company; and as an owner you might lose everything if the company fails. But with preferreds, there’s a chance that as a creditor you’ll be repaid.

(Know that when I discuss any investments my aim is to suggest only the best companies, most of which I choose from amongst the Dividend Aristocrats. In turn, you must always apply due-diligence before you buy, as in previous articles #6 and #7.)

Additionally, the particular type of preferred shares that I follow are called perpetual preferreds. I like them because the concept is simple. That is, unlike bonds, perpetual preferreds don’t have a redemption date. So, unless the company recalls them (that would generally be at the issue price of $25) you could collect their distributions ad infinitum. It’s a nice dividend stream concept for retirees. With perpetuals I know what I’ve got. And if I buy them low, I feel that I’ve adjusted for inflation.

But the point of this article is that it’s time to watch for those preferred bargains again. Long term interest rates have gone up, and consequently the share prices of interest-sensitive common stocks and preferred stocks have fallen. What I’m suggesting is that you get to a computer now, and enter a few of those preferreds on your watchlist.

The following perpetual preferreds that I’d suggest are issued by three good companies: Fortis Inc, Emera Inc, and George Weston Ltd. They are listed with other reset preferreds at http://www.prefinfo.com/. If you read down the list you will note that some preferreds have been recalled, and you will also see the actual distributions for each preferred stock. The ones I’ve selected are at lower distributions than other preferreds by the same company. Thus, as you would expect, their share prices are at a better bargain.
To set up a watchlist on Google Finance (https://www.google.com/finance) use the following short-symbols for the above-mentioned preferreds: FTS-J, EMA-E, and WN-E. There, on the charts, you’ll see that their share prices have dropped to the $21-23 level; and if you compare that to the performance of the TSX, you’ll note that like bonds and GICs — preferreds often act oppositely to the stock market. Accordingly, they tend to balance the value of your portfolio.

But when you buy preferreds on a discount brokerage account you’ll have to enter the full ‘stock ticker’, ie: FTS.PR.F; EMA.PR.E; and WN.PR.E.

Significant, with respect to the preferreds I’ve cited is the fact that all three have cumulative distributions.? If you read down the list at prefinfo.com you’ll find that a few companies actually suspended distributions while they steered through troubled times. So, unless an issue of preferreds is designated cumulative, the company isn’t liable to repay you those suspended distributions. Note that few banks issue cumulatives.

Finally, resist the urge to buy common stock during the usual Santa Claus rally. Rather, consider buying preferreds at a bargain, for the long term.? Be a contrarian ? for the kids.

* Meet Senior Citizen (and the rest of the gang) at the Thunder Bay ShareClub when it meets in the Shuniah Blg, Con College, Rm 265, at 7 pm on the 2nd Friday of the month. A session for beginners is usually held in the same place, same time, on the 3rd Wednesday of the month.? To be sure, contact Ron at dkrhwatons@shaw.ca.

** Read more at http://www.investopedia.com/terms/p/preferredstock.asp

Article #19:? The Contrarian Shuffle

(Correction to Article #18: In the second sentence of the first paragraph the text should read: At the time preferreds were at a bargain to their issue price of $25.)

In article #18 (see tbayseniors.com) I discouraged you from buying into the stock market when it usually rises through Christmas and into the spring — and when common stocks are just plain too expensive. Instead, I suggested that there were bargains in preferred stocks, three of which you could add to your watchlist. This article will bolster your confidence in making that alternative choice from common stocks into fixed income or what I’d call doing the Contrarian Shuffle. It will also add to your technical skills. So let’s go to the computer. It’ll be easy, fun, and useful for this article — and the next. Go to ishares at http://ca.ishares.com/home.htm.

Now, don’t misunderstand as we proceed. I’m not explaining how to invest in ETFs* (exchange traded funds). But for the sake of trends and comparison I’m going to have you compose a chart to illustrate how common stocks, preferred stocks, and the TSX have tracked together over the last 10 years. I’ll use two ETFs: CDZ (comprised of common stocks), and CPD (comprised of preferred stocks). Also, I’m not suggesting that in moving to fixed income holdings you sell good common stocks you’ve bought at good prices. Rather, use the cash you’ve saved for bargains.

So to proceed. On the ishares home page, in the top left you’ll see the blue tab Find an ishares ETF. Put the cursor on it and note the drop-down list of ETFs. Click on Specialty; then click on the top listed fund, CDZ. It’s actually an ETF comprised of those dividend aristocrats I’ve advocated in many past articles. But don’t get distracted by that. Go down to the middle left of the CDZ home page, and at the bottom of the chart, and beside ‘tools’, click on the blue quotes & charts link. Then, for the purpose of this article, click on the arrow beside the 3 month display. Choose the 10 year display. For fun, just move the cursor back and forth across the interactive price chart, noting close-prices on particular dates over the last 10 years. Hit the peaks. Dip into the 08 crash. To carry on above the chart, under comparisons, select TSX Composite. Now you’ll have two price lines across your chart: CDZ (in blue) and the TSX (in yellow). You also want to include CPD.

In the box to the right of the comparisons box, enter CPD. Check Add. You should now have three lines showing price fluctuations for CDZ, CPD, and the TSX. CPD is an orange colour. Since you began with CDZ, it’s still those prices that you’ll see interactively across the chart.

Here’s what I believe is relevant:

Notice that CDZ began in 06, and CPD in 07 — so not yet a full 10 yr history.
Generally, common stocks (ie: CDZ) are more volatile than preferreds (ie: CPD)
CDZ reached similar peaks simultaneously with the TSX just prior to the crash.
On the other hand, CPD fell fairly steadily from its inception in late April 07. In fact, its downward trend proceeded the dramatic fall of CDZ in September by about 4 months. Its trend was more obvious than CDZ — and evident much sooner.
Both CDZ and CPD bottomed during the crash; so preferreds will never fully balance your portfolio.
Most important: While through late 2013, when the TSX and common stocks were rising in parallel, preferred stocks had begun falling fairly steadily as early as May. And they could decline further if the market continues upwards.

Accordingly, now would be the time to begin the ‘Contrarian Shuffle’.

To be more specific, consider one of the three preferred stocks I mentioned in article #18: Emera Inc’s preferred series E (EMA.PR.E). With a fixed annual distribution of $1.125, its yield at the issue price of $25 would have been just 4.5%. But as I write, it’s price is $19.85 which increases the yield-to-cost to 5.66 %. Yet, if the price should decline to $18, the yield reaches 6.25% — a very nice long term income stream.

Hey, and if the company ever recalls it, and if you had bought it at $20 — you could make a 20% capital gain bonus. This, of course, is in addition to your interim income distributions. You could call that the Contrarian-Three-Step. Strike up the band!

Just a-shufflin fool — for the kids, of course.

* For more info on ETFs see http://www.investopedia.com/articles/exchangetradedfunds.
If current trends continue, article #20 will discuss bond ETFs, and how to use them
as an alternative to buying into a rising and expensive stock market.

Article # 20:Code Red

I hope I didn’t scare too many of you off with Article #19’s computer-technical focus. But here’s the thing: If you don’t take charge of your investments (as Doctor John once sang –),Somebody Else Will). But, for a change of pace, I’ll discuss current global economics, and implications for the future as presented in a very recent book called Code Red (available at Chapters), by John Mauldin and Jonathan Tepper (JM&JT). I must say that when I read it, after some 5 years of concerted study, I felt like I’d reached another milestone of understanding.

As DIY investors we need to know how our investment choices will fare against uncertainties and change, particularly if we are retired, on fixed incomes, and without a huge portfolio to draw income from. Code Red dares to predict? And it casts stones. But what draws my attention is concern for the little people who, because of repressive interest rates, are being forced to either take a loss because of real inflation (with paltry savings interest), or forced into risky investments in the stock market for perceived higher yields or capital gains? The subtitle of Code Red is How to protect your savings from the Coming Crisis? For the most part I’ll report JM&JT’s findings as opinion. Certainly it’s not the mainstream view which says: we’re riding a somewhat fragile recovery — but that the trend is for continued slow growth for the next few years.

Code Red predicts that the exponential printing of money and the prolonged zero percent interest rates which the central banks of the US, Britain, Europe and Japan have all adopted in order to re-invigorate the economy will most surely lead to bubbles in the stock market. In fact, JM and JT believe the extent to which such Keynesian* measures have been adopted by central banks leaves analysts flying blind. Not only that, but by taking on so much debt, sovereign governments and central banks are deliberately devaluing their currencies in order to induce inflation, make the stock market rally, and to sell their exports cheaply. The result of that is a growing currency war, led not by the US who began it in 2010, but now by Japan whose 20 year economic stagnation, and sunami and nuclear meltdown leaves them with no choice but to up-the-ante on their global trading partners.

As JM and JT show, analysts, regulators, and government bodies have also failed to predict the last 4 recessions. They document that in the lead-up to the 2008 crash, 90% of them were wrong and surprised at the sudden and dramatic market decline. Governments in particular have clearly ignored dependable leading market indicators (such as the yield curve**) each time they’ve tabled their predictions. Rather, they model economic forecasts on current trends — and are never able to predict the ‘turning points’ (ie, when markets finally begin to fall). Accordingly, their budgets defy history and logic, and pander to short term political ends. So what happens when there is another recession, and government debt is policy-dependant on being repaid at less than 2%. What happens when no one will buy new government bonds because yields are too low And what happens when government bonds come due and deficits are so high that governments can’t make payment? This could occur anywhere in the global banking system. Once again, as in 08, there will be a sudden chain of defaults and a world wide economic collapse. Beware those investors who borrowed (bought on margin) in order to invest!

Cynically, JM and JT report that after the 08 crash the same overpaid and unrepentant people remain in charge of our economic destiny, and that the cult of central bankers (including our own former Chair, Mark Carney), continues to be sacrosanct.

What should be important to you, as a DIY investor, is to understand that the widely reported economic recovery is more public relations than real, that stocks are increasingly over-valued, and that a reserve of cash will allow you to buy stocks at much better prices when the inevitable crash occurs. In fact, in contrast to Japan where the recession has lasted 20 years, the US market has suffered 2 recessions per decade. After five years since 2008, JM and JT reason that we should expect another relatively soon. So hang on to significant cash, be patient, do your homework, and be ready for the best bargains you could imagine — when the time comes.

In part two, unless something major occurs in the markets, I would like to summarize the five phases of a market bubble. Meanwhile, according to past patterns, the winter rally should continue for another month or two. Again, it might be time to sell a few of your laggards which have finally reached your purchase price, or to sell a few big gainers.

Yours, for the kids.
* Famous economist, John Maynard Keynes, advocated the easing of monetary policy during bad times, and repaying debt in good times.

** The yield curve is the difference in yield between short and long term government bonds. In normal times the long term yield is greater, but before recessions it happens that short term yields climb higher, closing the gap between the two. At the moment there is little difference. This, according to JM and JT has been the best real-time predictor of an impending recession. However, they note that by keeping rates artificially low for so long, Code Red has distorted the yield curve as a dependable indicator.

Article #21

At the conclusion of article #19 I said that if current trends continued I would write about buying bond ETFs as a sequel to buying preferred shares — and as a contrarian alternative to buying overvalued and rising common stocks. Also, at the end of article #20 I said that as a sequel to Code Red I would summarize the 5 phases of a market bubble. Permit me to do both.

I-shares CLF is a laddered Canadian Government Bond ETF

First, I would say that Canadian government bonds, with the exception of GICs, are as safe an investment as a DIY investor can make.? Second, CLF is the actual name (and ticker *) of an exchange traded government bond fund (an ETF), and its shares are readily bought and sold in online discount brokerage accounts just as easily as common stocks.

Besides the safety feature of this particular ETF**, current timing is auspicious. When you navigate through i-shares CLF home page (as per article #19) you will see that CLF’s share price is at its lowest since the crash of 08. As such its current price could be a buy signal if you are interested.

But, you ask, what is a laddered bond fund anyway? With CLF it’s 99% a compilation of some 38 federal, provincial, and municipal bonds, with varied terms up to 5 years. As each comes due it is replaced by a new 5 year bond at a current yield: hence, the ladder. The hope is that as interest rates rise over 5 years, so too will your ETF bond yield. However, what’s timely right now is that most analysts expect interest rates to rise before long. Thus buying now could put you nicely into that uptrend. Certainly, for the last few months the stock market has risen, making stocks appear more desirable. Consequently bond prices have been driven down.

CLF yields an approximate 3% after its minimal management fees; and its periodic distributions are paid to your account monthly if you’re not taking them as interest income. It’s not a high earner, as essentially you pay for the safety that it offers — but it helps you ride out inflation.

Another strong benefit is that CLF’s price range over 5 years falls very narrowly between $19.50/shr and $21. So, like cash, CLF tends to stabilize and balance the value of your portfolio against the volatility of sometimes wildly-fluctuating stock prices. In that sense the current dollar and a half discount in its price may not sound like much. Yet, consider this: from June 1/08 to December 1/08 CLF rose 5%, from $20 to 21, while at the same time the TSX fell a whopping 42%, from 14,700 to 8,500! If you had held CLF at that time you would have gained a little but saved a whole lot (not to mention the subsequent years of recovery time).

It’s conceivable that the time might be right for you to use CLF as a strategic ‘cash park’ in anticipation of a possible market decline. For awhile you would collect your safe 3%; but eventually when stocks do fall, you could sell some (or all) of your CLF at a 5% premium in order to buy stocks at bargain basement prices.

Crashes and Phases

When I reviewed CLF recently I compared it to i-shares CLG, a 10 year laddered Canadian government bond fund. Remember from article #20 it was noted by the authors of Code Red that previously when the yield of long term bonds approached that of shorter term bonds, it had been a leading indicator of an impending recession? Well, true or not, CLG now yields even less than CLF. And to emphasize the significance, consider that the size of the CLF fund is 27 times larger than CLG: $957 M to $35M. In other words 27 times more investors believe that it is better to hold short term bonds because they believe that coming inflation will minimize the gains of long term bond investments.

In Code Red the authors cite market crashes in 1929, 62, 87, 98, 00, and 08. Some analysts would refer to a number of these as market corrections, or perhaps a recurring business cycle. However you see it, the likelihood of another significant market decline would seem quite plausible, in that there have been 4 in the last 20 years, for an average interim period of only 5 years.

The authors of Code Red suggest that Charles Kindleberger’s book Manias, Panics, and Crashes is the bible on bubbles. Kindleberger characterizes five stages the first being ‘displacement’, in which a particular market sector (such as tech in 00; or subprime real estate in 08) receives increasing attention over the other sectors. In phase two the focus becomes a ‘popular narrative’, and lending restrictions loosen as lenders themselves begin to believe the hype. Phase three is characterized by ‘euphoria’, wherein early investors have made a lot of money and everyone jumps on the bandwagon. But in phase four, market insiders begin to sell as they realize that stocks are overvalued and likely to drop. In 08 when the CEO’s of large companies like Lehman Brothers began to dump stocks, large investment houses and pension funds, in turn, began to sell. Panic ensued and credit froze. In phase five, with prices bottomed out, the media lays blame, and the public finds revulsion in the market.

From what I hear and read, the popular narrative is calling for continued slow growth, and I see no real signs of euphoria. Actually, I wonder if we’ll even get to euphoria this time around. We were stung pretty severely by the last crash, which doesn’t seem that long ago. If it were for me to say, the next crash could be a prolonged series of increasingly loud whimpers and gasps, rather than an outright bang.

In the meantime, get out there and enjoy the last few weeks of winter. My wife, Kerrie, and I find this the best time to snow shoe. Days are getting warmer and longer. And you guessed it — take the kids, and talk about things that really matter, like life, love, and climate change.

Check out the following on Investopedia.com:

* A ticker is the symbol for a stock, bond, or fund which is used in actual buying and selling.

** An ETF is a representative fund, much like a mutual fund (but with much reduced
management fees) which can be bought and sold by the share on the stock market.

 Article 22: The Super Cycle (Code Red Part 2) and Farewell

In article 21 my discussion of the safe government bond fund, CLF, was a ‘bridging’ suggestion for parking your cash while you wait for cheaper stock prices. But it wasn’t a suggestion for long term investing, as in the long run a laddered GIC at low interest income will have trouble beating inflation.

In this article I would like to return to the book Code Red (see article 20). Even though it warned that the combination of low interest rates and escalating global central bank debts could only result in inflation and a likely market crash, the authors believe that the market will correct itself. Ill-founded or not, they believe in the ingenuity of human kind, and that the global market place will continue much as it always has. According to the historic charts from 1800 to the present, its authors point to a pattern of Super Cycles averaging some 17 years  and figure that the next one is scheduled to hit its market low prices about now. In the short term, as you read in article 20, they expect a period of high inflation, market turbulence, and another possible recessionary business cycle.

For fun I would suggest that you google the 17 year stock market super cycle. You’ll see that there is a lot to read on the subject. But whether the cycle is 17, 20, or even 36 years — and when it should actually begin — is really a matter of opinion. The science doesn’t speak clearly. But an excellent series on cycles and bubbles is by Wynn Quon written for Canadian MoneySaver, beginning with the June 12 issue (Remember that back issues of CMS are available, free of charge, at the Waverly Library. You can copy the articles. Also remember that The Investment Reporter is in backlog at the Brodie St Library.When you’re there, please urge the staff to continue subscribing to those two publications. They’re two of the best DIY print investment resources around.)

The truth is that markets do cycle, that we are reaching a five year high since 08, and that currently stocks are understood by many to be overvalued. So the message here is that if you have watch lists of good companies, and are patient enough to wait until you can buy into the market at low prices — then maybe you can benefit from either the next business cycle (likely 4-5 yrs), or perhaps even grow old during the next super cycle  while in receipt of reasonable investment returns.

P/E as a buy-time indicator

Price over earnings is a changing measurement of relative stock price by means of a ratio. If the price compared to its earnings (P/E) is high, you are probably paying too much that stock. For example, as I write this, Google Finance indicates that a share of Telus common stock sells for $37.83, and its EPS (earnings per share) is 2.01. Thus P/E (37.83/2.01) equals 18.80. That’s high. In fact, Telus’ price actually leads the market by 5% in a surge which has seen the TSX rise 16% since late July 13. While its popularity is obvious, and Telus is a good company, the P/E suggests that Telus is now overvalued.

A better ratio would be closer to 10. In a 10 year chart comparing the P/E of stocks rated from 8 to 24, the authors of Code Red show that the lower the P/E, the higher the returns. Accordingly, an 8 valuation returned 11%, and a 24 returned minus 1.2%. It should be said here that their chart measures the combined value of stocks on the American S&P 500 Stock Exchange. As well, it’s really an assessment of capital gains, not ‘total returns’, because it doesn’t include dividends.

Yet when you listen to the BNN analysts talking you will hear most say that that the market will likely rise slowly and steadily through 2014, and that Telus may well have more ‘upside’  (or still have ‘legs’) suggesting that if you buy now you might still make money. But make no mistake, this is the language of a trader, not a value investor; and/or the spin of someone who wants to invest your money for a fee. Granted, Telus may rise for awhile, but when the market dives you can buy it for much less. For example, during the market crash of 08 Telus stock sold for $15  less than half of its present price.

As for myself, I’d buy a little if Telus fell to $30, more if it fell to $25, and even more if it fell to $20. It’s called ‘pyramid buying’. That way, if the pundits are right and the market moves laterally for a few years, investing at $30 I am at least making 4.8%. But if I keep enough reserve cash and can buy at $25 the yield-to-cost rises to 5.75% — and at $20 it’s 7.2%.

Two related guiding principles from investing guru Warren Buffet are to buy a quality company at a bargain price, and that buying a good company in bad times (as in a market crash) is not something to be afraid of.

As for which of those companies (besides Telus, of course) to keep on your watch list, and how to determine whether or not their financial reports demonstrate good solvency, or a sustainable dividend, please refer back to my previous articles on line at tbayseniors.com. For a quick reference, article #12 is a review of previous topics.

As it Goes Farewell!

In writing this column I have had an outlet which has kept me interested and occupied for almost two years. Hopefully it has been of benefit to you. I really don’t have too much to add, for if you have followed these DIY articles sequentially you should now be motivated, and have enough resources and references to find your own way forward. Don’t forget the Share Club if you are interested in discussing investments for free. And while I will maintain my interest in investing, there are many more things to do in life.

Thanks for being there, thanks to Keith for providing me with the outlet, and hope to see you around.

Finally, if living isn’t ‘for the kids’, then what is it about anyway.


Peter Lang

Article # 23: An Update on DIY Dividend Investing

A Portfolio of Mutual Funds is a Risk in a Market Decline

A friend of mine, who has gradually been converting his investments to an online brokerage for DIY investing purposes, told me lately that his mutual fund portfolio was up 15%. As a result he was reluctant to transfer that ‘investment basket’ to his DIY portfolio. I didn’t say much because the choice to fully embrace do-it-yourself investing isn’t an easy one, and I don’t want to overly-influence anyone’s personal choices. However, what I would have said if I had been more forthcoming was that when the market declines dramatically (and it will) — most, if not all of that 15% will disappear. Capital gains vanish when the assets (in this case, mutual funds) cease to be in demand and are sold off. In fact, if you recall the 2008 crash, most people in mutual funds lost some 30-50% of the value of their investments, and it took years to recover. The stock market performs in ‘business cycles’, and most analysts would agree that the cycle which began after the ’08 crash is now somewhat ancient and high-priced ( or, ‘overvalued’) by historical standards.

Safer than Mutual funds and more Appropriate to Retirement

This is not to say that in a major market decline a DIY dividend investor will not lose a percentage of his/her portfolio value. But companies with good balance sheets and a history of survival through those difficult periods (ie, ‘defensive stocks’) will decline much less than the hundreds of variously-risky companies that are bought during RRSP season at higher prices and included in most mutual funds. Besides, in the kind of DIY investing that I would advocate, the object is different. Simply, it’s in buying single, quality companies, which have paid continuous, and/or rising dividends over time. You put them on a watch list, monitor their prices, and buy low when the time is right. The plan is to gradually build a comprehensive ‘dividend stream’ from those individual company stocks. This will be your income upon retirement,? or as soon as you decide you need it. It’s not really so difficult if you are willing to spend a few hours per week at it, and have a few years to do it in. And if you don’t take income, the dividends compound within your portfolio. It’s also an interesting hobby if you can focus on the goal — and do basic math.

Market Volatility and What to do About it

In view of recent volatility which saw the TSX fall from 15,657 on Sept 3/14 to 13,870 on Oct 15 (-11.4%) — and then yo-yo back to 14,858 on Nov 12 (as I write this) — there should be some reasonable explanation… Besides fears about Ebola, Europe’s ongoing sovereign debt crisis, and China’s declining demand for our resources, Jason Kelly, in his book Stock Market Investing (published in 2013), suggests that another significant factor is high-frequency trading. He says “HFT makes up almost 70% of (trading) volume”, adding that much of it is done through pension and hedge funds. But what’s particularly interesting is that “their client base is much shorter-term oriented than 15 yrs ago”. If you watch BNN, most call-ins are about whether the market will go higher? hence whether the caller can still make capital gains. Yet, most people are even more adverse to losing money. Greed and fear make for extreme volatility.

An earlier notable example of such volatility was in May ’13 when just the fear of interest rate hikes caused all the interest-rate-sensitive stocks (utilities, REITS, telecoms and Preferred shares) to drop 15%.? A corollary, of course, is that it was an excellent time to buy those stocks ? many of which are now among the core holdings of my portfolio.

A current example of fear-based market volatility occurred when?the TSX immediately fell some 250 pts upon news of the shooter in parliament on October 22nd. That morning the TSX had started upwards at 9:30 am — and then crashed at about 10 am when the news broke. Yet, two days after the dust settled, and it was understood that the shooter was a lone gunman, the market rose back to where it had been.

Fear and High Frequency Trading is an Opportunity

Regarding HFT, we now know that HF traders skew the market by computer-buying (and selling) an instant before we smaller players can complete our computer transactions. In essence, they twig to our intentions as we process our orders, in order to make minute gains ? multiplied by millions. On a day-to day basis they win. But we’re not day-traders.

In my opinion, long term dividend investors have an advantage over HFT if we’re patient. Sooner or later some particular event will be fearful enough to depress stock prices for awhile — and then we’ll get our chance to buy low. If you look at the 10 year TSX chart on Google Finance you’ll see that after ’08 it reached some 14,000 points in the spring of 2011. Then it fell almost 20% to September ’11 and maintained at an average of 12,000 points (or 14% below what it had been) until the autumn of 2013. That was a prolonged buying time when one could build a good portion of a portfolio with a great dividend stream. ?Those utilities, REITs, telecoms, and Preferreds (mentioned above), bought at that time, would now pay you an ongoing dividend stream of approximately 5-6% per year (those bought in early ’09 would pay more like 8-9%).

While a 15-20% decline hasn’t happened for two or three years it will again. In the meantime, set up your watch lists and be ready with cash reserves. As explained in Article 21, much of my cash reserves are ‘parked’ in i-Shares’ CLF, a Canadian government bond fund which pays me 3.5% and which is highly liquid (ie, saleable).

For a step-by-step series of articles (articles 1-22) by Peter Lang on DIY dividend investing, see http://www.tbayseniors.com/

Article #24
I just read, and am re-reading Michael Lewis’ “The Big Short”, an expose of the development and melt down of the US sub prime mortgage bond business which led to the default of investment houses Bear Stearns and Lehman Bros — and the eventual market crash of ‘08. It’s a very interesting read for an investment (and world-event-interested) nerd like me.  And Lewis is the guy who has recently written “The Flash Boys”, about high frequency traders.  It’s well written, and Lewis writes it from the viewpoint of a number of individuals who recognized the dead-end foolishness of sub prime mortgages — and successfully bet against them.
However… what I took from it, besides the history and the characters, was the notion of “Event driven investing”.   Here are four possibilities:
1) Knowing that the business cycle is likely to wind down, and that some black swan event will probably lead very suddenly to it.  Accordingly, a strategy would be to keep a lot of cash parked in a safe, laddered government bond fund that will pay both a modest interim interest, and likely generate a capital gain — just when the market drops.
Sound familiar?
2) Another, for me, is that I’m getting old, and within 5 to 10 years I may not be able to manage my own investments.  What is the strategy to meet that challenge?  Do I research the best ETFs, in order to cut back on due diligence?  Do I hand it over to someone else: family, a trusted friend, or god-forbid — an investment advisor?
What are the age/career events that will most likely challenge you?
3) Another certain event is climate change.  Check this out:
It’s bad enough that we humans keep adding to carbon in the atmosphere, but if we’ve now warmed the planet enough to free naturally stored methane from the permafrost, I think we’d better build climate change into our investment planning.
Some suggestions might be: to divest in the oil sands, begin to re-think how our lifestyles contribute to climate change, and to ‘get political about it’.  From what I’ve read (quite a lot) we’re  well into a process which could change our natural world faster and more completely than we would ever have guessed.
4) And finally, for an fun ‘event driven’ investment possibility — put BLO on your watch list.  Some people expect that as states and provinces move to legalize marijuana there will be new companies which will be able to grow pot and prosper exponentially.  While I don’t speculate, a breathalyzer tool to measure THC in the bloodstream might do very well, indeed.