How To Invest
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.
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ISHARES MSCI EMERGING MARKETS INDEX FUND $46.07 (New York symbol EEM; buy or sell through brokers), is an exchange-traded fund that aims to track the MSCI Emerging Markets Index. The fund’s geographic breakdown includes: China, 18%; Brazil, 15.9%; South Korea, 13%; Taiwan, 10.4%; South Africa, 7.8%: India, 7.1%; Russia, 6.4%; Mexico, 4.4%; Malaysia, 2.8%; and Indonesia, 2.6%. iShares MSCI Emerging Markets Index Fund’s top holdings are Petrobras (Brazil: energy), 3.4%; Samsung Electronics (South Korea: electronics), 2.1%; China Mobile (China: wireless), 1.6%; Vale SA (Brazil: mining), 1.6%; Gazprom (Russia: gas utility), 1.5%; Banco Itau (Brazil: banking), 1.5%; Taiwan Semiconductor (Taiwan: computer chips), 1.5%; America Movil (Brazil: wireless), 1.5%; and Infosys Technologies (India: software), 1.3%. The fund’s industry breakdown is as follows: Financials, 25.3%; Energy, 14.0%; Materials, 14.0%; Information Technology, 12.5%; Telecommunication Services, 8.2%; Industrials, 7.2%; Consumer Staples, 6.9%; Consumer Discretionary, 6.9%; Utilities, 3.5%; and Health Care, 0.9%....
Get my latest advice on how to cut your portfolio’s volatility — and maximize your stock market investing profits — absolutely FREE. If you’re like many investors, recent market volatility has made you more sensitive to risk. In fact, in light of all the bad news being reported in the mainstream media, you may be tempted to throw up your hands and sell all your stocks. But if you do, you’re likely to miss out on strong gains in the coming months and years....
ISHARES MSCI JAPAN INDEX FUND $10.48 (American Exchange symbol EWJ; buy or sell through a broker; us.ishares.com) is an exchange-traded fund that tries to match the return of the Morgan Stanley Capital International (MSCI) Japan index. The fund’s top holdings include: Toyota Motor, 4.4%; Honda Motor Co., 2.7%; Mitsubishi UFJ Financial Group, 2.7%; Canon, 2.4%; Sumitomo Mitsui Financial, 1.8%; Takeda Pharmaceutical Co., 1.6%; Tokyo Electric Power Co., 1.5%; Sony Corporation, 1.5%; Mitsubishi Corporation, 1.4%; and Mizuho Financial Group, 1.4%. The fund’s industry breakdown is as follows: Industrials, 20.0%; Consumer Discretionary, 19.1%; Financials, 16.7%; Information Technology, 13.3%; Materials, 7.6%; Utilities, 5.9%; Health Care, 5.6%. Consumer Staples, 5.3%; Telecommunication Services, 4.1%; and Energy, 1.5%....
POWER CORP. $27.66 (Toronto symbol POW; Shares outstanding: 409.3 million; Market cap: $11.3 billion; TSINetwork Rating: Above Average; Dividend yield: 4.2%) is a diversified holding company. It holds its financial assets through 66.1%-owned Power Financial. Power Corp.’s financial assets include 68.4% of Great-West Lifeco, one of Canada’s largest life insurers, and 56.6% of IGM Financial, one of the country’s leading mutual-fund companies. Power Financial also owns 50% of holding company Parjointco, which holds a 54.1% stake in Switzerland-listed Pargesa Holdings SA. Pargesa has 95% of its assets in five large European companies: Imerys (minerals), Total SA (oil), Pernod Ricard (wine and spirits), Suez (energy, water and waste services) and Lafarge SA (cement and building materials). Excluding one-time items, Power Corp.’s earnings rose 8.7%, to $274 million, or $0.58 a share, in the three months ended September 30, 2010. A year earlier, it earned $252 million, or $0.53 a share. The increase came from a higher contribution from Power Financial, which gained from its holdings in Great-West Lifeco and IGM Financial....
Tax-loss selling (or tax-loss harvesting) is a strategy for lowering your Canadian capital gains tax that involves selling a security at a loss in order to offset your capital gains. You can then deduct these losses against your taxable capital gains in the current tax year. For example, December 24 is the 2010 deadline for tax-loss selling on the Toronto Stock Exchange. If you sell at a loss on or before that date, you get to deduct your loss against your 2010 capital gains. If you still have capital losses left over, you can carry them back up to three years (2009, 2008 and 2007), or forward indefinitely to offset past or future capital gains....
P/e ratios (the ratio of a stock’s price to its per-share earnings) are published regularly in newspapers and on the Internet. These financial ratios are widely followed, and are an important part of many investors’ decision making. Typically, you calculate p/e’s using a stock’s current price and its earnings for the previous 12 months. The general rule is that the lower a stock’s p/e, the better. And a p/e of less than, say, 10, represents excellent value. A low p/e implies more profit for every dollar you invest.
Look beyond p/e financial ratios when researching stocks for your portfolio
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Recently, we heard from an investor who inquired about our Successful Investor Wealth Management service. She said she likes our approach to investing, but she admits to some concern about what she called our “all-equities philosophy.” Her broker says that all investors need to hold some bonds to reduce the volatility in their portfolios.
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Our view on stocks and bonds is a reaction to the times
“Philosophy” is the wrong word for it. Our view on bonds and other fixed-return investments is a reaction to today’s economic and investment situation. Up till the mid-1990s, in fact, we routinely advised that fixed-return investments, such as bonds, should make up anywhere from one-third to two-thirds of a conservative investor’s portfolio....
Real estate investment trusts (REITs) resemble income trusts, but with a key difference: REITs invest in income-producing real estate, such as office buildings and hotels. The best REITs have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases. The best ones are still doing well, despite the weak economy, and are taking advantage of low interest rates to refinance long-term mortgages. We advise against overindulging in REITs. But high quality REITs can make attractive, low-risk additions to your portfolio....
ISHARES MSCI CANADA INDEX FUND $29.28 (New York symbol EWC; buy or sell through brokers; ca.ishares.com) is like a market-cap-based index fund, but its managers try to improve performance by tinkering with the index-fund formula. They do this through their Morgan Stanley Capital International Canada Index. The fund has an MER of 0.55%. The index’s top holdings are Royal Bank, 6.5%; TD Bank, 5.5%; Bank of Nova Scotia, 4.8%; Suncor Energy, 4.4%; Barrick Gold, 4.0%; Potash Corp., 3.7%; Canadian Natural Resources, 3.3%; Bank of Montreal, 2.8%; Goldcorp, 2.8%; CN Railway, 2.6%; CIBC, 2.5% and TransCanada Corp., 2.2%. If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index Fund (see previous page). You’ll pay about a third of the management fees....
SPDR DOW JONES INDUSTRIAL AVERAGE ETF $112.30 (New York Exchange symbol DIA; buy or sell through brokers; www.spdrs.com) holds the 30 stocks that make up the Dow Jones Industrial Average. The fund’s top holdings are IBM, Exxon Mobil, Chevron Corp., 3M, Procter & Gamble, McDonald’s Corp., Johnson & Johnson, Caterpillar Inc., United Technologies and Boeing Co. The fund’s expenses are about 0.18% of its assets. SPDR Dow Jones ETF is a buy....