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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Investors continue to look for ways to profit from rising commodity prices. Some are considering a unique kind of tax shelter: flow-through funds. Flow-through funds mainly invest in flow-through shares issued by junior mining and oil companies. The companies spend the money they receive for these shares on mineral exploration and development, which carries certain tax benefits, in the form of tax credits and tax deferral. These tax benefits “flow through” to investors in the fund. To take advantage of them, investors need to hang on to the funds for a fixed time, usually 18 months to two years. At the end of that period, flow-through funds convert into standard mutual funds. These tax shelters developed out of a Canadian government plan to encourage natural resource exploration and development....
No matter whether you are a new investor or a seasoned veteran, these four key tips can help you learn how to trade stocks and make greater profits with less risk. They’re at the core of the advice we give in our investment services, including Canadian Wealth Advisor, our newsletter for more conservative investors.
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Successful Investor Tip #1: Hold mainly high-quality, dividend paying stocks or mutual funds that hold those stocks
We think investors will profit most — and with the least risk — by buying shares of well-established companies with strong business prospects. These are companies that have strong positions in healthy industries. They also have strong management that will make the right moves to stay competitive in a changing market....
With the Canadian dollar trading near $0.97 U.S., and outperforming many of the world’s major currencies, interest in forex (or foreign exchange) investments has picked up lately. Forex investments involve dealing in foreign currency futures or options. This can make sense for a business that is forced to take on unacceptable currency risk. Futures or options let the business pass that risk on to speculators who wish to accept it.
Investors are typically the biggest losers in forex investments
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TD HEALTH SCIENCES FUND $15.19 (CWA Rating: Speculative) (TD Asset Management, P.O. Box 7500, Station A, Toronto, Ontario M5W 1P9. 1-800-463-3863; Web site: www.tdcanadatrust.ca. No load — deal directly with the bank) mainly invests in large-capitalization health-care stocks and earlier-stage biotechnology shares in the U.S. The fund’s managers believe these firms will benefit from increased health spending spurred by an aging population. The $151.7-million TD Health Sciences Fund’s top holdings include Gilead Sciences, Alexion Pharmaceuticals, Teva Pharmaceutical, Baxter International, Vertex Pharmaceuticals, Medco Health Solutions, Wyeth, Roche Holdings, Henry Schein Inc. and Schering Plough. TD Health Sciences Fund lost about 7.8% in Canadian dollars in the year ended August 31, 2009, compared to a loss of 15.6% for the S&P 500 (also in Canadian funds). The fund’s MER is 2.68%....
VANGUARD GROWTH ETF $49.28 (New York symbol VUG; buy or sell through brokers) aims to track the MSCI U.S. Prime Market Growth Index, a broadly diversified index that mainly consists of stocks of large U.S. companies. The fund has an MER of just 0.15%. The $14.0-billion fund’s top holdings are Microsoft, IBM, Apple Inc., Cisco Systems, Wal-Mart Stores, Google Inc., Hewlett-Packard, Procter & Gamble, Philip Morris International and PepsiCo. Vanguard Growth ETF is broken down by economic segment as follows: Information Technologies (34.2%), Health Care (15.5%), Consumer Staples (14.7%), Consumer Discretionary (11.9%), Industrials (7.9%), Energy (6.3%), Financials (4.7%), Materials (3.8%), Telecommunication Services (0.6%) and Utilities (0.4%)....
VANGUARD EMERGING MARKETS ETF $38.53 (New York symbol VWO; buy or sell through brokers) aims to track the MSCI Emerging Markets Index, which is made up of common stocks of companies located in emerging markets around the world. The fund has an MER of 0.27%. The funds’s top holdings are China Mobile (China: wireless), Gazprom (Russia: gas utility), Samsung Electronics (South Korea: electronics), Teva Pharmaceutical Industries, America Movil SA de CV (Latin America: wireless), Petroleo Brasileiro SA (Brazil: oil and gas), China Construction Bank, China Life Insurance Co. and Industrial and Commercial Bank of China. The $22.1-billion Vanguard Emerging Markets ETF’s largest holdings by country are: China (18.4%), Brazil (14.8%), South Korea (13.5%), Taiwan (11.2%), South Africa (7.6%), India (7.5%), Russia (6.1%), Mexico (4.6%), Israel (3.0%), Malaysia (2.9%), Indonesia (1.9%), Turkey (1.7%), Chile (1.4%), Thailand (1.4%), Poland (1.3%), Czech Republic (0.6%), Hungary (0.6%), Philippines (0.5%), Peru (0.4%), Egypt (0.3%), Cayman Islands (0.1%) and Colombia (0.1%)....
IMPERIAL OIL $40.75 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $34.5 billion; SI Rating: Average) is Canada’s largest integrated oil company. Imperial earned $0.25 a share in the three months ended June 30, 2009. That was down 80.5% from $1.28 a share a year earlier. Falling oil and natural-gas prices were the main reason for the drop. As well, Imperial’s Cold Lake and 25%-owned Syncrude oil-sands projects were closed for maintenance during the quarter. Revenue fell 40.1%, to $5.3 billion from $8.6 billion. The company’s production is set to rise in the long term, thanks to its new oil-sands projects, including the 70%-owned Kearl Lake project. As well, the outlook for Imperial’s refining business is strong, mainly because there is little competition. Moreover, Imperial is spending $400 million this year to upgrade its refineries....
You’ll find one of our six Successful Investor ratings displayed next to every stock we cover in each of our four investment newsletters. These ratings are a key guide we use to manage the portfolios of clients of our Successful Investor Wealth Management service. And they can give you a leg up in adding winning stock picks to your portfolio, too. Our top rating is Highest Quality, followed by Above Average, Average, Extra Risk, Speculative and, at the bottom of the scale, our riskiest, lowest-quality rating of Start-up....
Price-to-sales is one of the key financial ratios we look at when we assess a company. That’s the ratio you get when you compare a stock’s price to its sales per share (you get sales per share by dividing total annual sales by the number of shares outstanding). Price-to-sales, or p/s, is one of the financial ratios you’ll find displayed with every stock we cover in our Successful Investor newsletter. The basic rule is that a high p/s tends to mean that a stock is expensive, and a low p/s tends to mean that a stock is cheap. However, many individual stocks seem to run counter to this rule. Stocks with deservedly high p/s ratios can rise for lengthy periods, and stocks with deservedly low p/s ratios can fall....
When you join my Inner Circle service, you get to ask me your own personal investment questions, plus you get to see what other Inner Circle members have asked. So you can see how the service works, and get a sense of how it might be able to help your portfolio, I’d like to share a recent member question about inflation’s impact on different stock sectors. I hope you enjoy and profit from it. Q: Pat: If an investor is expecting a surge in inflation in the U.S. within the next 12-18 months, which stock sectors should we invest less in, and which sectors would benefit from high inflation? Thank you. A: Governments have dramatically increased spending in order to pull their economies out of recession. Moreover, central banks have cut interest rates to record lows. These moves will likely help solve the financial crisis. But the cost will be much higher inflation, possibly starting in the next decade. This will have an impact on all stock sectors....