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Topic: Daily Advice

How our Inner Circle service can help you make better stock market investments

When you join my Inner Circle service, you get to ask me your own personal questions about stock market investments or any other financial matter. Plus, you get to see what other Inner Circle members have asked, along with our answers.

So you can get a sense of how the service works, and how it can help you make better stock market investments, I’d like to share an example of the kind of question Inner Circle members ask, along with our response. I hope you enjoy and profit from it.

Q: Pat: I bought Teck Resources on your advice in early 2016. At the time, I bought Teck’s class A voting shares, which were trading around $7. They’re now around $28.

The class A shares are trading higher than the class B shares, though the spread is pretty narrow. Still, I’m wondering if it’s worth selling the class A shares and buying a larger number of class B shares with the proceeds.

A: Teck Resources $28.25, symbol TECK.A on Toronto and $27.81, symbol TECK.B on Toronto (Shares outstanding: 578.3 million; Market cap: $15.9 billion), is one of many Canadian companies that have two classes of common shares.

The exact terms and names vary, but the main difference between common-share classes is that one gives the holder voting control over the company, while the other has little, if any, voting power.

Both stock market investments usually pay the same dividend, though sometimes the non-voters pay as much as 10% more. As well, non-voting shares usually trade more actively than voters. Most voting shares also have a one-way conversion feature that lets their holders exchange them for non-voting shares. Non-voting shares have no such option.


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In a takeover, the voting shares may get a better offer than the non-voting shares. However, in order to ensure that all investors get equal treatment, most companies have a “coat-tails” provision that gives non-voting investors a limited right to convert to voting shares. But coat-tails provisions may have exceptions and loopholes.

When choosing between voters and non-voters, we mainly recommend that you buy the one that’s cheaper. However, it’s usually worth paying up to 5% more to buy the voting shares. You’ll almost always get this back (and sometimes more) when you sell these stock market investments. At times, you may want to pay up to 10% more, but that’s only rarely worthwhile.

Teck’s class A common shares have 100 votes per share, and the class B shares each have one. Holders of class A common shares also have the option to convert to class B. As well, the shares also have a coat-tail provision: in the event that an offer to purchase class A common shares is not made at the same time as an identical offer to purchase class B shares, each class B share will be convertible into one class A common share.

The class B shares trade at a 1.6% discount to the class A shares. The discount is pretty narrow, but it has been higher in the past.

We don’t think you should be in a hurry to sell your class A shares. You might want to wait for the discount to widen. The exception would be if you want to nail down a capital loss. In that case, you could sell your class A shares and buy more class B shares at a lower price. But this wouldn’t apply in your situation, because you have a 211% or so gain on your Teck shares.

If you have investment-related questions, or if you’d like to ask me about stocks you’re considering buying (or selling), you should join my Inner Circle service. Click here to learn more.

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