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When investors are considering hiring us to manage their portfolios through Successful Investor Wealth Management Inc., they sometimes ask about the difference between portfolio management and financial planning.

It’s a good question....

Although stock markets have rebounded lately, they remain sharply lower than their 2008 highs. Likewise, the economy has shown some signs of life, but it remains in recession. In these times of market turbulence, it’s easy for investors to panic and make mistakes. Here are three common ones:

1. Overanalyzing

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Many investors consider investing in alternative investments, like art. It’s an interesting area that we’ve talked about from time to time with my Inner Circle members. Our view is that you can’t really invest in art. An investment is something that may one day produce income — dividends from stocks, interest from bonds, rent from real estate, and so on. Art and similar alternative investments produce no income. In fact, art consumes income: you have to pay to insure and/or store it. It’s also expensive to buy and sell.

Expenses will quickly overwhelm any gains

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Given today’s low prices and interest rates, a lot of people seem to be thinking about real estate investing. It’s also a topic that members of my Inner Circle service ask me about from time to time. Personal real estate investing certainly has tax benefits. You write off your interest costs against current income; your gains are deferred and are taxed at capital-gains rates. It can also pay off in the long run, helped along by leverage available in a big mortgage. However, you should allow a number of years for any new real estate investment to pay off. Meanwhile, you need to be wary of bad tenants. First-time landlords sometimes find their tenants include lots of deadbeats, vandals and abusive complainers who are not at all like the tenants they know personally. The experience may be unpleasant enough to undermine their faith in human nature, and to spur them to sell their property as soon as possible....

Many people come up with unrealistic answers to the question of how much risk is right for them. For instance, when they’re young and just starting out, many investors decide to move away from safe investing principles and speculate. They expect to build a small portfolio into a big one in a hurry, then shift their money into boring, but more dependable safe investing selections.

Rookie mistakes can be doubly costly

As a newcomer in any field, however, it’s easy to fall victim to ruses and snares that a veteran would spot right away. Later on, you’ll know better than to bid on an ugly painting just because it’s the work of a noted artist, or invest in a building that faces expensive repairs due to delayed maintenance, or buy a promotional stock due to rumours or touting....

CAE INC. $6.68 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 255.1 million; Market cap: $1.7 billion; Price-to-sales ratio: 1.0; SI Rating: Average) stands to gain from both developments. CAE makes flight simulators and operates pilot-training facilities. Lower fuel prices leave its airline customers with more cash to spend on new simulators and training. Falling oil prices cut consumer costs, leaving more funds for travel. In addition, CAE gets 90% of its revenue from customers outside of Canada. A low Canadian dollar increases the value of these sales....

CANADIAN TIRE CORP. $50 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.5; SI Rating: Above Average) operates 476 stores that sell automotive, household and sporting goods. These account for around 60% of the company’s revenue, and 45% of its earnings. Canadian Tire also owns other retail chains, including 374 Mark’s Work Wearhouse casual-clothing stores, 274 gas stations (many have car washes and convenience stores) and 87 Part-Source auto-parts stores. Mainly on the strength of its store renovations, Canadian Tire’s sales rose 29.2%, from $7.1 billion in 2004 to $9.1 billion in 2008. Earnings jumped 43.1%, from $3.53 a share (or a total of $291.5 million) in 2004 to $5.05 a share (or $411.7 million) in 2007. The retailer’s 2008 earnings fell to $374.2 million, or $4.59 a share, because of writedowns of currency hedging contracts and gains on the sale of property and equipment. Without these non-recurring items, the company would have earned $572.5 million, or $4.85 a share....

TRANSCONTINENTAL INC. $8.17 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $660.1 million; Price-to-sales ratio: 0.3; SI Rating: Average) gets 50% of its revenue, and 40% of its profits, from its direct-marketing business. Through this division, Transcontinental designs direct mail and other advertising campaigns. It also analyzes customer-purchasing data. These services help its clients increase their sales and build customer loyalty. The company also has a commercial-printing business (25% of revenue, 30% of profits), and publishes newspapers and magazines (25% of revenue, 30% of profits). The recession continues to drive down demand for Transcontinental’s direct-marketing services, particularly in the U.S., where direct-marketing revenue is down 50% from a year ago. In response, the company recently closed a direct-mail plant in Pennsylvania. It has also merged some printing plants and scaled back on newspaper and magazine publishing. These moves should save Transcontinental $100 million a year. It expects to realize $75 million of these savings in its current fiscal year, which ends October 31. The company was also forced to write down $169.3 million of goodwill related to acquisitions, mostly at its commercial-printing division. Transcontinental has experienced a drop in volumes as customers print fewer newspapers, books, magazines and advertising flyers during the recession. This was a non-cash charge, and had no impact on Transcontinental’s cash flow or cash balances....

TORSTAR CORP. $5.04 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 78.9 million; Market cap: $397.7 million; Price-to-sales ratio: 0.3; SI Rating: Above Average) publishes The Toronto Star, which is Canada’s largest daily newspaper by circulation. The company also publishes three other daily papers and over 100 weeklies, mainly in southern Ontario. Newspapers and web sites account for about 70% of Torstar’s revenue, and 60% of its earnings. The company’s other main business is wholly owned Harlequin Enterprises Ltd., the world’s leading publisher of romance-fiction books. Harlequin also publishes non-fiction titles, such as self-help and diet books. Harlequin sells 95% of its books outside of Canada, which helps reduce Torstar’s reliance on Ontario, where the recession has had a significant impact. It also helps Torstar benefit from a lower Canadian dollar. Torstar continues to suffer from lower advertising revenue at its newspapers, with real-estate and employment ads particularly hard hit. However, Torstar’s management feels that demand has stabilized following a sharp drop in the first two months of 2009. As the largest newspaper in its market, The Toronto Star is in a good position to attract advertisers as the economy recovers....

THOMSON REUTERS CORP. $32 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 828.6 million; Market cap: $26.5 billion; Price-to-sales ratio: 2.0; SI Rating: Above Average) divides its operations into two divisions: Markets accounts for 60% of the company’s revenue and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. Thomson Reuters gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%). Thomson Reuters took its present form when the Ontario-based Thomson Corp. bought the U.K.-based Reuters news agency in April 2008 for $17 billion in cash and shares (all amounts except share price and market cap in U.S. dollars). In the three months ended March 31, 2009, Thomson Reuters’ revenue soared 70.3%, to $3.1 billion from $1.8 billion. However, if you assume that Thomson bought Reuters at the start of 2007, sales would have declined 3.3%. The drop was due to the negative impact of the higher U.S. dollar, which hurts the value of the company’s overseas sales. If you disregard exchange rates, revenue would have risen 3%....

CANADIAN PACIFIC RAILWAY LTD. $40 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 168 million; Market cap: $6.7 billion; Price-to-sales ratio: 1.4; SI Rating: Above Average) ships freight over a rail network between Montreal and Vancouver. It also operates in the midwestern and northeastern United States. CP’s first-quarter earnings fell 31.1%, to $62.5 million, or $0.39 a share, from $90.7 million, or $0.59 a share, a year earlier. If you exclude foreign-exchange gains and losses, per-share earnings fell 54.7%, to $0.34 from $0.75. Revenue fell just 6.6%, to $1.07 billion from $1.15 billion. However, that was mostly because CP bought a railway that operates in eight U.S. states last October. Without this, CP’s revenue would have fallen 13%. The company is stepping up its cost cutting in response to weak shipping volumes. This includes laying off 2,400 workers, or 16% of its workforce. CP has also put more trains into storage....

CANADIAN NATIONAL RAILWAY CO. $45 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 468.4 million; Market cap: $21.1 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) operates the largest freight-rail network in Canada. It also serves 16 U.S. states. In the three months ended March 31, 2009, CN’s revenue fell 3.5%, to $1.86 billion from $1.93 billion a year earlier. The recession cut freight volumes, and CN lowered its fuel surcharges in response to the drop in oil prices. Earnings rose 0.7%, to $302 million from $300 million. Earnings per share rose 3.2%, to $0.64 from $0.62, on fewer outstanding shares. These figures exclude several one-time items, including a gain on the sale of a Toronto rail line and expenses related to CN’s recent takeover of a Chicago-area railway. Still, the company benefitted from a lower income-tax rate and a weaker Canadian dollar, which increased the contribution of its American operations....

Over the years, we’ve met a number of investors who favour investing in stocks only when economic and financial conditions seem good, if not ideal. If these investors hear talk of a drawn-out recession or rising interest rates, for example, they are inclined to stay out of the market, or get out if they’re in. In contrast, when they think conditions are ripe, these same investors are relatively casual about what they buy. They readily accept recommendations from brokers, or they buy stocks that are spotlighted by public-relations firms. They give dicey insiders the benefit of the doubt. You might say these investors are highly sensitive to stock market timing risk, but relatively insensitive to investment-quality risk. This is pretty much the opposite of our approach to investing....

We’ve always believed that investors should sell a stock if they have any doubts about the integrity of the people who are in charge of the company. In other words, if you think a company is run by crooks, you should sell the stock right away, no matter how attractive it seems as an investment. As the Madoff scandal so clearly shows, there are no limits to the ways in which unscrupulous operators can abuse and cheat you if they are inclined to do so. Over the years, we’ve refrained from recommending, or advised selling, a number of stocks, including blue chip stocks because we felt their capital structure or promotional materials were designed to make it easy for insiders to mislead or take advantage of the investing public. We didn’t miss much as a result; in fact, we sidestepped some ugly situations. To profit from this rule — that is, to use it to enhance your long-term returns, not just avoid losses — you need to apply it in a moderate fashion. That is, you need to distinguish between lack of integrity on one hand and naiveté, or poor judgment, on the other....

Members of my Inner Circle service often ask me for stock advice about picks they are thinking of buying that we don’t cover in our newsletters. A large number of these stocks fall into a grey area. Sometimes my stock advice is that they are “okay to hold,” but we wouldn’t advise buying them. When Inner Circle members ask about one of these companies, that’s what my stock advice would be: it’s “okay to hold.” Others don’t inspire our confidence at all, and our advice would be to avoid them or sell them if you own them. Here are three recent examples of our Inner Circle stock advice: YELLOW PAGES INCOME FUND (Toronto symbol YLO.UN) is the largest telephone-directory publisher in Canada, where it owns the Yellow Pages and Pages Jaunes trademarks. Aside from phone directories, it prints free, advertising-based publications, including Auto Trader, Buy & Sell and Renters News, through 98%-owned Trader Corp. It also operates web sites devoted to classified advertising....

MANULIFE FINANCIAL $20.19 (Toronto symbol MFC; Shares outstanding: 1.6 billion; Market cap: $32.5 billion; SI Rating: Above Average) sells life and other forms of insurance, as well as mutual funds and investment-management services. It operates in 19 countries and territories worldwide, including the U.S. and Asia. Manulife reported a loss of $1.1 billion, or $0.67 a share, in the three months ended March 31, 2009, compared to a gain of $869 million, or $0.57 a share, a year earlier. Excluding one-time charges, it would have earned $803 million, or $0.50 a share, in the latest quarter. The loss was largely caused by stock-market declines. Manulife also devoted $1.1 billion to strengthening its reserve for segregated-fund guarantees. This is the OSC’s main focus. The OSC may find that Manulife should have anticipated that the big drop in stock markets late last year would hurt its ability to meet those guarantees. Manulife subsequently issued debt and shares to boost reserves for those contracts, which pushed down its stock price. Either way, any OSC ruling shouldn’t hurt Manulife’s positive outlook....

TRIMARK CANADIAN RESOURCES FUND $13.58 (CWA Rating: Aggressive) (Invesco Trimark, 5140 Yonge Street, Suite 900, Toronto, Ontario M2N 6X7. Tel: 1-800-631-7008; Web site: www.invescotrimark.com. Buy or sell through brokers.) includes firms with Successful Investor Ratings of “Speculative” in its top picks. However, we like Trimark Canadian Resources Fund’s value-seeking, conservative approach to picking stocks in the volatile resource sector. The $428.9-million fund’s top holdings are EnCana Corporation, Canadian Natural Resources, Inmet Mining Corp., Husky Energy, Nexen, Cameco Corp., Mayr-Meinhof Karton AG, Goldcorp Inc., Talisman Energy and Addax Petroleum Corp. Trimark Canadian Resources Fund holds 50.3% of its portfolio in the Energy sector, 26.4% in Metals & Minerals and 6.3% in Industrials....

TD RESOURCE FUND $22.44 (CWA Rating: Aggressive) (TD Asset Management, P.O. Box 7500, Station A, Toronto, Ontario, M5W 1P9. Tel: 1-800-386-3757; Web site:www.tdcanadatrust.ca. No load: deal directly with the bank.) invests in companies which it sees as having strong asset bases, proven management and the ability to internally finance growth. The $173.1-million TD Resource Fund’s top stock holdings mostly have Successful Investor Ratings of “Average” or higher. They include EnCana, Suncor Energy, Talisman Energy, Goldcorp, Yamana Gold, Petro-Canada, Red Back Mining, BHP Billiton, Husky Energy, Chevron, Marathon Oil and Nexen. TD Resource Fund holds 59.1% of its portfolio in Energy and 38.1% in Metals & Minerals. It has an MER of 2.15%....

RIOCAN REAL ESTATE INVESTMENT TRUST $15.28 (Toronto symbol REI.UN; Units outstanding: 233.1 million; Market cap: $3.6 billion; SI Rating: Average) is Canada’s largest REIT. It has interests in a portfolio of 247 shopping malls across Canada, including 13 under development. In all, these contain over 59 million square feet of leasable area. RioCan’s occupancy rate stands at 97.5%. In the three months ended March 31, 2009, RioCan posted revenue of $191.1 million, up 4.2% from $183.4 million a year earlier. Cash flow per unit was unchanged, at $0.32. RioCan’s annual distribution of $1.38 gives the units a 9.0% yield. RioCan recently raised $150 million by issuing new units at $14.50 each. The trust didn’t need to raise capital, but will now have the funds to buy other companies, likely at low prices, as opportunities arise....

CANADIAN REIT $24.60 (Toronto symbol REF.UN; Units outstanding: 66.2 million; Market cap: $1.6 billion; SI Rating: Extra Risk) owns more than 160 properties. These consist of retail, industrial and office buildings located across Canada and in the Chicago, Illinois, area. Canadian REIT’s occupancy rate is 96.5%. The trust buys properties in prime locations, usually near major cities, that attract strong tenants, maintain high occupancy rates and deliver a reliable stream of rental income. In the three months ended March 31, 2009, Canadian REIT’s revenue was $85 million, up 9.9% from $77.4 million a year earlier. Cash flow per unit rose 10%, to $0.55 from $0.50. The units yield 5.5%....

H&R REAL ESTATE INVESTMENT TRUST $10.98 (Toronto symbol HR.UN; Units outstanding: 147.8 million; Market cap: $1.6 billion; SI Rating: Extra Risk) owns interests in 35 office properties, 123 industrial properties and 120 retail properties. Together, these contain over 41 million square feet. Over half of H&R’s properties are in the Greater Toronto Area. The rest are in other parts of Ontario, as well as in Quebec, western Canada and the U.S. H&R has an occupancy rate of 96.3%. In the three months ended March 31, 2009, H&R’s revenue was $160.1 million, up 8.3% from $147.9 million a year earlier. Cash flow per unit rose 2.6%, to $0.40 from $0.39. H&R’s units yield 6.6%. H&R REIT is a buy.

Lately we’ve heard from some investors who are unhappy with some of their investments, particularly their more aggressive investing picks. They want to rebuild their portfolios, but are reluctant to sell anything at today’s lower prices. We think that’s a mistake. Obviously you want to think things through and make sure you are not holding low-quality investments, or investments that are wrong for your portfolio. Once you’ve done that, our view is that you should switch to higher quality and more appropriate investments right away. You have nothing to gain by making back any losses you may have in the same aggressive investing selections that gave you those losses. Nor are you any more likely to regain your losses by holding on to the same stocks. In fact, if your investments are genuinely poor quality (rather than simply a bad aggressive investing choice for you), there’s a risk that they will cost you even more money, the longer you hold them....

A stock with a high corporate profile may provide investors with a feeling of security, but it doesn’t pay them any dividends. Instead, owning a lot of in-the-limelight stocks can work against safe investing. Lots of smart people work in the public relations and the brokerage business. They do a highly effective job of publicizing and promoting their clients’ stocks. Many stocks in the broker/public relations limelight go up more-or-less steadily for years at a time. But when they come down, they can fall much further than you ever thought possible. That’s why it’s a mistake to stuff your portfolio full of them. On the other hand, at any given time, lots of prosperous, well-established companies are out of investor fashion. Some of the biggest profits you ever make will come from buying these stocks before they find their way into the limelight....

In our Financial Question of the Week, we recently asked TSI Network users how many stocks they own. The results were as follows: 33% of users owned 16 to 30 stocks, 29% owned five to 15, 21% owned less than five and 17% owned more than 30. So what is the right number of stocks to own? It’s a piece of investing advice we are asked about often, so it’s just one of the questions we answer in our free report: Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada....

A member of my Inner Circle recently asked us whether a reverse mortgage would be a good way to tap into the equity she had built up in her home. Reverse mortgages in Canada typically let homeowners (age 60 or older) borrow on their home equity (maximum 40%). The loan and accumulated interest are repaid only if the house is sold (or if the borrower moves out) or from the proceeds of the estate. Generally, the borrower will get between 28% and 33% of the value of their home, depending on their age and the location and type of home.

Reverse mortgages in Canada: Look closely at the costs

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