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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 2009 deadline for tax-loss selling on the Toronto Stock Exchange. If you sell at a loss on or before that date, you could deduct your loss against your 2009 capital gains. However, you can also carry your loss back for the three previous years (2008, 2007 and 2006), or carry it forward indefinitely to offset past or future capital gains.

Beware of the “superficial loss rule” when using tax-loss selling to lower your Canadian capital gains tax

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There are many ways to calculate the performance of a stock market newsletter. Some provide far more favourable figures than others. That’s why, in our newsletters, we simply provide the return since our first recommendation, and leave more detailed calculations to independent sources, particularly The Hulbert Financial Digest. (We recently posted returns that were far higher than an index of all publicly traded U.S. stocks — see below for further details.)

Hulbert is the “bible” of stock market newsletter performance measurement

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When investing in the stock market, most investors place “market orders” or “limit orders.” With a limit order, you specify the highest price you are willing to pay to buy. The main risk here is that you won’t get a fill for your order if there is no stock available at or below your price. This introduces a filtering mechanism that can cost you money, especially if you set your limit below the current market price. If you set a price limit, some of your orders will go unfilled, since no stock is available at the price you want to pay....

Iraq’s instability has weighed heavily on its oil exports. That’s caused many oil companies, including some Canadian oil stocks, to hold off on investing in the country. However, the situation has presented some real bargains for foreign firms willing to take larger interests in Iraq. For example, China’s Sinopec recently paid $8 billion U.S. for Addax Petroleum, which was developing the huge Taq Taq oil field in Iraq’s northern Kurdistan region. (See below for an update on a Canadian oil stock with a new presence in Kurdistan. We’ve updated our view on this company in the latest Stock Pickers Digest.)...

The U.S. dollar is down 22% against the Canadian dollar so far this year. Many investors fear it will keep falling. If you knew the U.S. dollar would keep falling, the best strategy would be to sell all of your U.S. stocks and buy them back when the dollar stabilizes. However, you don’t know where the U.S./Canada exchange rate is going next — you never do.

Wall Street stocks give you opportunities that just aren’t available in Canada

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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, along with our answers. So you can see how the service works, and get a sense of how it might help your portfolio, I’d like to share a member question about the liquidity of more aggressive stock market picks. I hope you enjoy and profit from it. Q: Would you comment on the liquidity of stocks? I fear that if I bought a stock, especially a speculative one, and wanted to sell I wouldn’t be able to. Does the average volume of a stock have any bearing on the stock’s quality, or the ease of being able to sell that stock? I guess what I am asking is if there are any ways to determine the liquidity of a stock. A: Many speculative stocks, including some of our stock market picks in Stock Pickers Digest, our newsletter focusing on more aggressive investments, are inactive or “thin” traders. They trade perhaps a few thousand shares daily, compared to tens, if not hundreds of thousands for, say, a Canadian bank....

Last week, Barrick Gold (symbol ABX on Toronto) said that its research shows that global gold production has been falling by roughly one million ounces a year since 2000. Barrick is the world’s largest gold-mining company. Moreover, the company says that poorer-quality ore has driven down total global mine supply by roughly 10%. In Canada, the U.S, and Australia, for example, average grades of mined ore have fallen to nearly three grams per tonne. That’s down from roughly 12 grams per tonne in 1950. What’s more, Barrick says that South Africa’s gold output has fallen by about 50% from its peak in 1970.

How to profit from a potential gold shortage

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Recently, President Barack Obama visited a Florida solar-power plant operated by FPL Group (symbol FPL on New York), one of the green stocks we cover in our Wall Street Stock Forecaster newsletter. The president was there to announce a $200 million U.S. grant to FPL that will help with the green stock’s installation of “smart meters.” Customers can use these meters to cut their power use and save on their electricity bills. The grant is part of the government’s continuing investment in strengthening and upgrading the country’s power grid. FPL is in a good position to scoop up even more green-power subsidies over the next few years. See below for more on this company’s leading-edge operations....

The term “buying on margin” means that you’re borrowing money from your broker to buy securities. The main cost involved with this stock market trading strategy is interest on the money you borrow. Plus, when you sell a security that you’ve bought on margin, you must first pay back the loan from your broker.

How to build a winning stock market trading strategy using margin

If you could buy on margin when the market hits bottom, stay margined as the market rises, and sell out at the peak, you could very quickly build a large fortune. But of course, no one has the sense of superhuman timing necessary to consistently succeed in that.

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Technology stocks have always been a more speculative segment of the stock market. But you can turn the odds in your favour by investing in those that have hidden assets, or assets that other investors overlook. Hidden assets are items that don’t show up on a company’s balance sheet, but can offer dramatic rewards for investors who are able to spot them.

This technology stock’s research spending is a key hidden asset

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If you feel stocks have become overpriced lately, you might want to take advantage of this by short selling stocks — that is, selling borrowed shares in hopes of a drop in price. We advise against this strategy, mainly because of the perennial drawbacks of short selling. Short selling is when you borrow stock from a broker and then sell it. However, you eventually have to buy back the stock on the market to return it to its owner. If the stock falls in price while you are “short,” you can buy it back at a lower price. You have then made a profit. But if the stock rises in price, you must buy it back at a higher price than you sold it, and you lose money. [ofie_ad]...

When building your portfolio, it’s crucial to follow our stock investing advice of downplaying stocks that seem to be near-universally recommended by brokers and are getting a lot of favourable media coverage. That’s because, in investing, familiarity can breed excessive feelings of comfort, security and performance. After all, brokers get information from the media, investment journalists spend a lot of time talking to brokers, and company managers listen to both. A feedback loop can develop that spurs high expectations, derails criticism, and leads companies (and their investors) to make devastating mistakes. You may get the feeling that these are can’t-miss investments, and that it’s safe to buy and forget them. That’s exactly the wrong thing to do with these stocks. Our stock investing advice is that your in-the-limelight holdings are the ones you need to watch most closely....

We noted with interest (and some amusement) the unveiling of the prototype of “The Rationalizer,” a new device that aims to sense day traders’ stress levels and alert them when it may be time to step back from trading. The idea is to ensure that traders avoid the mistake of trading based on emotion. The device is made by Philips Electronics (symbol PHG on New York), one of the blue chip stocks we’ve taken a close look at in the most recent issue of Wall Street Stock Forecaster (see below for a full update on this Netherlands-based electronics firm). The Dialogues Incubator, an initiative of Dutch bank ABN AMRO, also played a role in its design. Users of the device wear an “Emo Bracelet,” which senses a trader’s stress level and makes the accompanying EmoBowl, which sits on the traders’ desk, change from yellow to red as the trader becomes more stressed....

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.

This bond ETF offers high quality at low cost

The iShares Canadian Short Bond Index Fund (symbol XSB on Toronto) is a bond exchange-traded fund (ETF) that’s a long-time recommendation of our Canadian Wealth Advisor newsletter. The fund cuts risk by avoiding speculative trading and emphasizing government bonds.

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Warren Buffett’s Berkshire Hathaway Inc. recently announced that it will buy the 77% of U.S.-based railway Burlington Northern Santa Fe Corp. that it doesn’t already own. The company will pay $44 billion U.S. to complete the takeover. Burlington Northern owns one of the largest railroad networks in the U.S., with about 51,500 kilometres of track.

Berkshire’s not one of our favourite growth stock picks, but we agree with Buffett on railways

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IBM $121.29 (New York symbol IBM; Shares outstanding: 1.3 billion; Market cap: $159.3 billion; SI Rating: Above Average) is the world’s largest computer company, with operations in over 170 countries. IBM specializes in making large mainframe computers for governments and corporations. The company is also the world’s second-largest software maker, after Microsoft Corp. IBM gets 22% of its revenue from sales of software. IBM’s service division now supplies almost 60% of it’s revenue. As well, long-term contracts for designing and maintaining computer systems provide steady revenue streams. This cuts the company’s risk. In the three months ended September 30, 2009, the slower economy pushed down revenue by 6.9% to $23.6 billion from $25.3 billion a year earlier. However, IBM’s earnings rose 13.8%, to $3.2 billion from $2.8 billion, because of its shift to services and software, which generate higher profit margins. Earnings per share rose 17.6%, to $2.40 from $2.04, on fewer shares outstanding from share buybacks....

ISHARES CDN LARGECAP 60 INDEX FUND $16.46 (Toronto symbol XIU; buy or sell through a broker) (units split 4-for-1 in August 2008) is a good, low-fee way to buy the top stocks and income trusts on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets. Most of the stocks in the index are high-quality companies. However, as it must ensure that all sectors are represented, the index holds a few we wouldn’t include, such as Yellow Pages Income Fund. The index’s top holdings are: Royal Bank, 8.2%; Suncor Energy, 5.9%; TD Bank, 5.7%; Bank of Nova Scotia, 5.0%; EnCana, 4.8%; Barrick Gold, 4.1%;Canadian Natural Resources, 3.9%; Manulife, 3.5%; Research in Motion, 3.2%; Potash Corp., 3.1%; Goldcorp, 3.1%; Bank of Montreal, 2.9%; CN Railway, 2.6%; and CIBC, 2.5%....

DIAMONDS TRUST SHARES $98.27 (New York Exchange symbol DIA; buy or sell through brokers) hold the 30 stocks that make up the Dow Jones Industrial Average. The fund’s top 10 holdings are IBM, Exxon Mobil, Chevron Corp., 3M, Procter & Gamble, McDonald’s Corp., Johnson & Johnson, Caterpillar Inc., United Technologies and Coca-Cola. The fund’s expenses are about 0.18% of its assets. Diamonds Trust Shares are a buy.

NASDAQ-100 TRUST SHARES $41.33 (Nasdaq symbol QQQQ; buy or sell through brokers), or “Qubes,” hold the stocks that represent the Nasdaq 100 Index, which is made up of the 100 largest, most heavily traded stocks on the Nasdaq exchange. The Nasdaq 100 Index contains firms from a number of major industries, including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain financial companies. The shares’ expenses are about 0.20% of assets. The index’s 10 highest-weighted stocks are Apple, Microsoft, Qualcomm, Google, Cisco, Intel, Research in Motion, Gilead Sciences, Oracle and Teva Pharmaceuticals....

ISHARES MCSI CANADA INDEX FUND $24.64 (New York symbol EWC; buy or sell through brokers) is like a market-cap-based index fund, but its managers tinker with the index-fund formula in order to try and improve performance. They do this using their proprietary Morgan Stanley Capital International Canada Index. The fund has an MER of 0.52%. If you want to own a Canadian index fund, you should buy the iShares CDN LargeCap 60. You’ll pay about a third of the management fees. We don’t recommend iShares MCSI Canada Index.

ISHARES DIVIDEND INDEX FUND $17.74 (Toronto symbol XDV; buy or sell through a broker) holds the 30 highest-yielding Canadian stocks based on dividend growth, yield and average payout ratio. The weight of any one stock is limited to 10% of assets. The fund’s MER is 0.50%. iShares Dividend Index Fund has a yield of 4.0%. Top holdings are National Bank, 8.9%; Bank of Montreal, 8.0%; CIBC, 7.2%; TD Bank, 6.3%; IGM Financial, 5.0%; Bank of Nova Scotia, 5.0%; Royal Bank, 4.9%; Manitoba Telecom, 4.6%; TMX Group, 3.6%; Sun Life, 3.2%; Power Financial, 3.2%; Telus, 3.1%; and Russel Metals, 2.8%. iShares Dividend Index Fund is a buy.

S&P DEPOSITORY RECEIPTS $104.92 (New York symbol SPY; buy or sell through brokers) are commonly called “Spiders.” The fund holds the stocks in the S&P 500 Index, which consists of 500 major U.S. stocks that are chosen based on their market share, liquidity and industry group. The index’s 10 highest-weighted stocks are Exxon Mobil, Microsoft, Procter & Gamble, Apple, JP Morgan Chase & Co., Johnson & Johnson, IBM, Chevron, General Electric and AT&T. The fund’s expenses are just 0.10% of its assets. If you want exposure to the S&P 500 Index, S&P Depository Receipts are a buy.

The high Canadian dollar and lower U.S. house values have some investors, including members of our Inner Circle service, seeing opportunity in U.S. real estate investing, particularly in the “sunbelt” states, such as Arizona and Florida. 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.

Real estate investing: Here are 5 risk factors to consider when buying vacation property in the sunbelt

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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....

Starting in 2011, Ottawa will impose a tax on distributions of income trusts, including royalty trusts. This will put trusts on an equal tax footing with regular corporations. Many trusts are converting to corporations as a result. Some are even cutting their distributions. However, as we noted in a recent issue of Canadian Wealth Advisor, two royalty trusts have an enviable advantage when it comes to dealing with the new tax. Oil and natural-gas producer Enerplus Resources Fund (symbol ERF.UN on Toronto) has over $2.5 billion of tax losses on its books. It can use these to defer its conversion to a dividend-paying corporation until 2013 or later. Similarly, Pengrowth Energy Trust (symbol PGF.UN on Toronto), which also produces oil and gas, has $3.0 billion in tax losses that it can use to hold off the trust tax until at least 2013....