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Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on the fundamentals of successful investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Today’s tip: “Successful investors own big and small companies.” Shares of large, well-established companies have rebounded well after the 2007-2009 market crisis. Investors sometimes refer to these companies as “large cap stocks.” That’s because they have a market “cap” (that’s short for “capitalization,” or total value of shares outstanding) of several billion dollars or more....

High-quality foreign stocks are a great way to diversify your portfolio. Moreover, many fast-growing markets, like China and India, have positive outlooks. That’s because their people are generally younger than North Americans, and rising incomes are helping more of them advance into the middle class. Even so, world stock market investing remains riskier than investing in North America. That’s because many emerging countries have language barriers, weak investor-protection laws, less commitment to openness, fairness and so on. Here are 3 simple ways to tap into world stock market profits at lower risk:...

We continue to recommend a number of companies that are now involved in, or are planning to expand into, green technology and green power production. However, while green stocks appeal to a lot of investors on an emotional and conceptual level, many offer only limited investment potential. That’s because green stocks may need a long time to move from the research or concept stage to profitability. The weak economy has also cast doubt on the future of government subsidies for green stocks. To cut your risk in green stocks, we recommend focusing on established firms that have a sound base of other operations, or whose products have a number of different uses....

Here are three common mistakes most investors make when investing in stocks. By avoiding them, you can increase your portfolio’s long-term returns, and significantly cut your risk.

• Owning too many stocks. When you’re first starting out, you should aim to invest in a minimum of four or five stocks — one from each of most, if not all, of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). But you can buy them one at a time, over a period of months or even years, rather than all at once. After that, you can gradually add new stocks to your portfolio as funds become available, taking care to spread your holdings out as we advise.
  
  When your portfolio gets into the $100,000 to $200,000 range, you should aim for perhaps 15 to 20 stocks. When you get above $200,000 or so, you can gradually increase the number of stocks you hold. When your portfolio reaches the $500,000 to $1 million range, 25 to 30 stocks is a good number to aim for.
  
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Members of Pat McKeough’s Inner Circle enjoy a double benefit when it comes to taking advantage of our stock investing advice. They get to address investment questions directly to me and my research associates; AND they get to see all other members’ questions, and the stock investing advice we give in our answers (of course, we eliminate any personal information). Inner Circle members ask us about a wide range of investment questions, including questions about specific stocks they are considering buying. For example, here’s a recent member question about a highly speculative oil and gas explorer that could be set to tap into a vast deepwater reserve. I hope you enjoy and profit from it. Q: Dear Pat: I saw a story about oil and gas off the shore of Namibia. It gave a name, Chariot, but no details. The oil and gas formation is supposed to be same as that off the shore of Brazil on the other side of the Atlantic. What is your stock investing advice on this? Regards....

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on successful investing, including how to profit in Canadian mutual funds. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Today’s tip: “These 3 rules can help you make higher profits in Canadian mutual funds with less risk.” Here are 3 rules we stick to when we’re researching mutual funds to recommend, including the 10 fund picks we’ve included in our special report “Mutual Funds Canada: Inside the Top 10 Canadian Mutual Funds.” While a mutual fund’s performance is never guaranteed, following these rules should help you avoid making poor choices....

On January 1, 2011, Ottawa will impose a tax on distributions of income trusts and royalty trusts. (Royalty trusts are a form of income trust. They profit from royalties associated with the sale of oil, natural gas or minerals.) The new tax will put income and royalty trusts on an equal tax footing with regular corporations. However, as we note in a just-published issue of The Successful Investor, one royalty trust has an enviable advantage when it comes to dealing with the new tax.

This royalty trust’s tax losses will help maintain its high yield through 2011 and beyond

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For many investors, every investment involves a two-part decision. First they decide what to buy, then they decide what price they’ll pay. Most are looking for bargain stocks, and want to buy, say, 5% to 10% below current prices. These investors often explain that they are simply looking to buy bargain stocks the way a smart consumer buys a car. But they overlook a key difference. Car prices do vary and some buyers do pay less than others, because they have better bargaining skills and more time to spend shopping around. But the stock market is more “efficient” than the car market, as an economist would put it. To get a lower price on a stock, you have to wait for its price to come down.

Underbidding on bargain stocks can filter out your best picks — and fill your portfolio with losers

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ISHARES DEX UNIVERSE BOND INDEX FUND $30.29 (CWA Rating: Income) (Toronto symbol XBB; buy or sell through a broker) mirrors the performance of the DEX Universe Bond Index. This index consists of a wide range of investment-grade Canadian government and corporate bonds with terms to maturity of more than one year. The 351 bonds in the portfolio have an average term to maturity of 9.04 years. The fund’s MER is 0.30%. The bonds in the index are 71.4% government and 28.6% corporate. The fund sticks with high-quality government bonds from issuers such as Canada Housing Trust, Government of Canada and Province of Ontario, plus high-quality corporate bonds from issuers such as Bank of Montreal, TransCanada Pipelines, Bank of Nova Scotia and Bell Canada....

ISHARES DEX SHORT TERM BOND INDEX FUND $29.15 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the DEX Short-Term Bond Index. This index consists of a wide range of investment-grade federal, provincial, municipal and corporate bonds with between one- and five-year terms to maturity. The fund holds 201 bonds with an average term to maturity of 2.92 years. Top issuers include the Government of Canada, Canada Housing Trust and the Province of Ontario. The bonds in the index are 72.1% government and 27.9% corporate. The fund’s MER is 0.25%....

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST $20.15 (Toronto symbol PMZ.UN; Units outstanding: 68.5 million; Market cap: $1.4 billion; SI Rating: Extra Risk; Dividend yield: 6.1%) owns large malls in medium-sized Canadian cities. It also owns major shopping centres in suburbs of large cities. In all, the trust owns 29 properties that contain 11.1 million square feet of leasable area. Primaris has a 96.6% occupancy rate. Its major tenants include Hudson’s Bay Company, Sears, Shoppers Drug Mart, Loblaw, Reitmans, Canadian Tire and Best Buy. In the three months ended June 30, 2010, Primaris’s revenue rose 14.5%, to $76.4 million from $66.8 million a year earlier. Cash flow per unit rose 5.9%, to $0.36 from $0.34. the trust’s annual distribution of $1.22 gives the units a 6.1% yield....

Many Canadians dream of becoming snowbirds and exploring the southern U.S. “sunbelt” states, such as Arizona and Florida, in the winter. Some choose to buy vacation properties in those states, especially in light of the Canadian dollar’s continued strength against the U.S. dollar and lower U.S. house values. Making real estate investments in the sunbelt can be a great personal decision. However, before you consider such a move, you should first make sure that buying a vacation property doesn’t leave your investments overweighted in real estate. What’s more, there are a number of other special risks and costs involved with buying and owning vacation property in the U.S.

5 risk factors to consider when making real estate investments in the sunbelt

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ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $22.28 (Toronto symbol AP.UN; Units outstanding: 42 million; Market cap: $934.8 million; SI Rating: Extra Risk; Dividend yield: 5.9%) owns office buildings in Toronto, Montreal, Quebec City and Winnipeg. These mainly Class I properties contain over 5.9 million square feet of leasable area. Class I refers to 19th and early 20th-century light industrial buildings that have been restored and converted to office and retail space. These properties usually feature high ceilings, natural light, exposed beams, interior brick and hardwood floors. The trust has 53 mainly Class I properties in Toronto (these contain 50.7% of Allied’s leasable area). It also has nine Class I buildings in Montreal (36.7%), seven in Winnipeg (6.5%), five in Quebec City (3.1%), one in Kitchener-Waterloo (1.5%) and one in Calgary (1.5%)....

VANGUARD GROWTH ETF $55.16 (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 0.14%. The $15.2-billion fund’s top holdings are Microsoft, IBM, Apple Inc., Cisco Systems, Wal-Mart Stores, Google Inc., Exxon Mobil, Oracle Corp., Philip Morris International and PepsiCo. Vanguard Growth ETF is broken down by economic segment as follows: Information Technologies (32.9%), Consumer Discretionary (14.3%), Consumer Staples (12.9%), Health Care (10.6%), Industrials (10.3%), Energy (8.1%), Financials (5.1%), Materials (4.6%), Telecommunication Services (0.9%) and Utilities (0.3%)....

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on the fundamentals of successful portfolio investing. Each Investor Toolkit update gives you a fundamental portfolio investing tip and shows you how you can put it into practice right away.

Today’s tip: “Base investments on value, not stock price flip-flops”

Stocks go up and down every day....

VANGUARD EMERGING MARKETS ETF $45.24 (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 fund’s top holdings are China Mobile (China: wireless), Gazprom (Russia: gas utility), Samsung Electronics (South Korea: electronics), Industrial & Commercial Bank of China, America Movil SAB de CV (Latin America: wireless), Petroleo Brasileiro SA (Brazil: oil and gas), China Construction Bank, Vale SA (Brazil: mining), Itau Unibanco Holding SA (Brazil: banking) and Hon Hai Precision Industry (Taiwan: electronics). The $45-billion Vanguard Emerging Markets ETF’s breakdown by country is as follows: China (18.7%), Brazil (16.0%), South Korea (13.4%), Taiwan (10.6%), India (8.0%), South Africa (7.4%), Russia (6.4%), Mexico (4.3%), Malaysia (3.1%), Indonesia (2.4%), Chile (1.8%), Turkey (1.8%), Thailand (1.7%), Poland (1.5%), Peru (0.7%), Colombia (0.6%), Philippines (0.5%), Czech Republic (0.4%), Hungary (0.4%) and Egypt (0.3%)....

In January 2005, we recommended fertilizer-maker Agrium Inc. as our Successful Investor newsletter’s “Stock of the Year.” At the time, the stock was trading at $19.51. By the end of the year, it had risen to $25.62, and investors who followed our advice saw a gain of 31%. Agrium’s positive outlook led us to name it The Successful Investor‘s “Stock of the Year” again in 2006 (it went on to rise 42.1% that year), and again in 2007 (during which it jumped 88.8%.)

Rising food demand and ethanol use pushed potash stocks higher

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BANK OF NOVA SCOTIA $54.80 (Toronto symbol BNS: Shares outstanding: 1.0 billion; Market cap: $56.9 billion; SI Rating: Above Average; Dividend yield: 3.6%) is the third largest of Canada’s five big banks, with assets of $523.4 billion. In the three months ended July 31, 2010, Bank of Nova Scotia earned $1.1 billion. That’s up 14.1% from $931 million a year earlier. Earnings per share rose 12.6%, to $0.98 from $0.87, on more shares outstanding. The bank set aside less money to cover bad loans because of the improving economy. In the latest quarter, loan-loss provisions fell 50.2%, to $276 million from $554 million a year earlier....

We continue to recommend that you cut your investment risk by spreading your money out across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). Most investors should have investments in most, if not all, of these five sectors. The proper proportions depend on your circumstances and temperament. If you’re an income-seeking or conservative investor, you may want to place more emphasis on Utilities. That’s because these firms’ operations (such as power plants and pipelines) generate steady cash flows. That cuts their risk, and gives them plenty of flexibility to invest in new-growth projects. It’s also why utilities are among the best Canadian dividend stocks. In a just-published issue of Canadian Wealth Advisor, our newsletter for conservative investing, we update our buy/sell/hold advice on a utility that’s investing heavily in new-growth projects: TransCanada Corp. (symbol TRP on Toronto). We’ve covered TransCanada for many years in Canadian Wealth Advisor and our flagship publication, The Successful Investor....

Here at TSI Network, we’re always looking for new ways to interact with our readers. For example, you can get our latest investment advice, and send me your thoughts, through the popular social-networking service Twitter. As well, we’ll soon be launching a Facebook page that will give you even more free information and advice, plus the opportunity to participate in investment-related discussions with us and other investors, as well. To make it even easier for you to share your views on our investment advice, we’ve recently opened TSI Network to comments from visitors. Adding your comments couldn’t be easier: just scroll to the bottom of the article you’d like to comment on and type in your thoughts (you’ll have to log in first). We hope this will create an ongoing discussion that will let the site’s visitors share their own views on our investment advice, and read other visitors’ opinions....

When stock prices are highly volatile and bad news (strikes and national bankruptcy risk in Europe, the threat of war in Korea, risk of Japanese-style deflation in North America) seems to be everywhere, it’s natural to wonder if you should sell all or part of your portfolio and simply hold the cash until things look clearer. Going into cash can, of course, relieve stress. You might even get lucky — prices may fall after you sell, and you may manage to buy back in at a lower price. But in the long run, following a stock market timing strategy of going back and forth between stocks and cash is virtually certain to cost you money. How could it be otherwise? After all, if you could consistently spot good times to get in or out of the market, you could consistently make 10% to 20% per year on your money — more if you employed leverage. So why would you work? Why would anybody work?...

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on successful investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Today’s tip: “Treat Canadian stock options like lottery tickets, because the odds are almost as bad.” Canadian stock options come in two varieties. Calls give you a right, but not the obligation, to buy a stock at a fixed price, for a fixed period. Puts give you the right, but not the obligation, to sell....

Consumer stocks tend to add stability to a portfolio. That’s because these stock market investments sell items, like food, that consumers must buy, regardless of the direction of the economy. The best consumer stocks have built brands that have strong customer loyalty and produce steady, predictable revenue streams. Many consumer stocks deeply cut their costs during the recession. This has helped them in the economic recovery, by freeing up cash for expanding, upgrading or raising their dividends. In the a just-published issue of Wall Street Stock Forecaster, our newsletter that focuses on U.S. stock market investments, we’ve upgraded our buy/sell/hold advice on a consumer stock that has been aggressively cutting its costs and putting the savings to good use (including a big dividend increase): food processor Del Monte Foods Co. (symbol DLM on New York)....

Aggressive investors need to be more skeptical and discriminating than conservative investors, because they take on greater risk. Conservative investors mainly buy well-established companies with a history of earnings and possibly dividends, and a secure hold on a growing, or at least stable, clientele. (In the latest issue of Stock Pickers Digest, our newsletter for aggressive investing, we’ve updated our buy/sell/hold advice on a home-security firm that has risen more than 30% for us in the past year. And its U.S. expansion could help push it even higher. Read on for further details.)

Cut risk by keeping aggressive investing picks to a reasonable portion of your overall portfolio

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If you need steady income and want to hold bond funds, we advise you to focus on those with short-term maturity dates (see below for more on bond funds). That’s because bonds with shorter terms face a lower risk from interest-rate increases. You should also avoid funds that take part in any kind of speculative trading.

Low fees, high-quality holdings are pluses for this bond ETF

The iShares DEX Short Term Bond Index Fund (symbol XSB on Toronto) is a bond exchange-traded fund (ETF) that we cover in our Canadian Wealth Advisor newsletter. The fund cuts risk by avoiding speculative trading and emphasizing government bonds.

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