Pat McKeough has been making investing for beginners simple—and profitable—by helping investors make big gains for more than 25 years. His advice tobeginning investors is the same as it is for all investors: buy high-quality, mostly dividend paying stocks (or ETFs that hold these stocks) and evenly spread your investments over the five main economic sectors (Resources, Manufacturing, Finance, Utilities and Consumer). Pat also believes investors should avoid stocks in the broker/media limelight and focus on those with hidden or little-noticed assets.
In addition, Pat thinks then beginner investors should cultivate two important qualities: a healthy sense of skepticism and patience.
Investors should approach all investments with a healthy sense of skepticism. This can help keep you out of fraudulent stocks that masquerade as high-quality stocks. It will also keep you out of legally operated, but poorly managed, companies that promise more than they can possibly deliver.
If you are a new investor, you should also realize that losing patience can cause you to sell your best choices right before a big rise. All too often, investors buy a promising stock just as it enters a period of price stagnation. Even the best-performing stocks run into these unpredictable phases from time to time. They move mainly sideways in a wide range for months or years before their next big rise begins. (Stock brokers often refer to these stocks as “dead money.”)
If you lack patience, you run a big risk of selling your best choices in the midst of one of these phases, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so in the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.
When we’re looking for smart stocks to recommend in our newsletters and investment services, we start by putting all the important information we know about a company into perspective.
But things are never quite so simple. For example, your stock pick’s latest earnings may reflect unusually favourable or unfavourable conditions. This can make the company look safer or riskier than it really is.
In the end, there are many ways to try to put the facts about a company into perspective. None are perfect, since all involve a mental balancing act between high and low estimates, history and the future, and faith versus skepticism.
The true story on mining stocks
Mining stocks play a key role in your portfolio whether commodity prices are up or down. Pat McKeough tells you why in this special report—and gives you the outlook on gold, copper, uranium, and the remarkable story of Canadian diamonds.
Think like a portfolio manager to find smart stocks
As part of their stock market research, portfolio managers gather information from companies, industry studies and other sources. A good portfolio manager then tries to build their client a portfolio that makes money if things go well, but won’t lose too much if the opinions turn out to be faulty, as often happens.
We do our own stock market research for our newsletters and investment services, and we apply it from a portfolio manager’s perspective. That’s why we advise sticking to mostly well-established companies; they tend to hold on to more value when things go wrong and recover fast.
Bad times usually hit some market segments more severely than others. That’s why we advise spreading your money out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.
Smart stocks to buy often pay dividends
At TSI Network we feel that stocks that have been paying dividends for over 10 years are some of the safest investments you can make. Dividends are a sign of quality and a company’s financial health. Types of stocks that we consider to be safer investments include Canadian banks and utilities.
There are also a host of key indicators to determine if a stock is a safer investment, like management integrity, its growth prospects and its stock price in relation to its sales, earnings, cash flow and so on.
For a true measure of stability, focus on those companies that have maintained or raised their dividends during an economic or stock-market downturn. We think investors will profit most—and with the least risk—by buying shares of well-established, dividend-paying stocks with strong growth prospects.
Well-established companies are examples of smart stocks and the key to profitable and safer investing
Instead of moving between extremes of risk, we continue to think investors will profit most—and with the least risk—by buying shares of well-established companies with strong business prospects and strong positions in healthy industries.
That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established, safety-conscious stocks have the asset size and the financial clout—including solid balance sheets and strong cash flow—to weather market downturns or changing industry conditions.
The investment quality of smart stocks is the key to finding gains
There’s no easy answer to the buy-now-or-wait dilemma. At times it may pay to hold off—for instance, a company’s stock will often rise when it announces a stock split, then fall after the split takes effect.
In the end, our stock trading advice is that if a stock is truly worth investing in, you should be willing to buy it at current prices, even if that means you run the risk of having to sit through a 5% to 10% setback. Before it puts on its next 5% to 10% setback, after all, it may first go up 50% to 100%.
Before looking for smart stocks, develop a clear idea of how much risk you are willing to accept, through good times and bad
For example, some investors become more aggressive as the market rises, and more conservative as the market falls. The problem here is that all market trends, up or down, eventually reach a turning point. If you take on more risk as the market rises, you’ll wind up owning your riskiest portfolio just when the market is near a peak. That’s when risky stocks can do their greatest harm to your net worth.
Strategies for investing long term aren’t built by aiming to make a fast dollar, or profiting from inside information. They are built over time, and most importantly, by learning how not to repeat the market mistakes of the past.
Let’s take a look at some ways… Read More
We regularly publish Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific investment advice. Each Investor Toolkit update gives you a fundamental piece of investment strategy, and shows you how you can put… Read More
Using a sector rotation strategy rarely works. That’s because you need to guess right twice to profit from sector rotation
We have long advised against practicing a top-down sector rotation strategy, and that advice hasn’t changed; under-weighting or over-weighting sectors of the stock market depend on… Read More
To get a comprehensive understanding of a stock, it’s important to use a few different stock market investment basics
Stock market investment basics involve a variety of considerations. Many investors look for patterns or signals in domestic or international politics, or in demographic data. Other investors… Read More
Members of Pat McKeough’s Inner Circle enjoy a double benefit when it comes to taking advantage of our investment research. They get to address investment questions directly to Pat and his research associates about investing in stocks. AND they get to see all other members’… Read More
When a company splits its shares, it is simply cutting itself up into a number of pieces, without changing its fundamental value. It simply wants its stock to trade in a price-per-share range that seems reasonable to investors. This can affect stock market trading in… Read More
Discover how to read stocks for long-term investing success through these tools
Successful investors try to arrange their portfolios so they profit more or less automatically over long periods.
Investors who learn how to read stocks can do this by tapping into long-term growth that inevitably comes… Read More
Dear Inner Circle Member,
If you take a university-level psychology or medical course, you run the risk of “medical student’s disease”. This happens when you read about disease symptoms, and get a sudden fear that they describe something you already suffer from.
A good teacher will tell… Read More
Learn about capital gains exemption and REITS for real estate investing
Owning your house is a great tax shelter. That’s because gains on your principal residence involve a capital gains exemption. Note, though, that this benefit only applies to your principal residence. You must still pay… Read More
Stock investment clubs can help new investors find quality stocks and help them develop their own investing style. But watch out for the drawbacks.
In 2017, learning about stocks is as easy as connecting to the Internet. But if you want to further your knowledge of investing,… Read More
Canadian stock options can generate a lot of money for your broker, but here’s seven ways they can cost you even more
Trading Canadian stock options can generate a lot of brokerage commissions, which is why some young, aggressive brokers recommend them for their clients. That’s despite… Read More
Last year’s stock market volatility spurred a rise in investor questions about capital gains tax. This year’s early bull run as spurred even more.
There are three forms of investment income in Canada: interest, dividends and capital gains. Each is taxed differently. Here’s a reminder of how smart… Read More
Financial, safety, and survival factors are important to consider while looking for stocks on the TSX index
The TSX is the abbreviated name for the Toronto Stock Exchange. You will often see our stock recommendations on TSI Network accompanied by a TSX symbol. When we’re looking… Read More
Looking to take full advantage of your capital gains deduction? You’ve come to the right place for the necessary information
Looking for a capital gains deduction? You have to pay capital gains tax on profit you make from the sale of an asset. An asset can… Read More
The “pendulum theory” grew out of Sir Isaac Newton’s 17th-century studies of gravity and physics, particularly his second law of motion. Yet the theory turns up in discussions of all sorts of non-mechanical topics. This includes investors’ efforts at understanding the stock market.
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