buy stocks
The p/e ratio (the ratio of a stock’s price to its per-share earnings) is one of many handy investing tools. The concept seems straightforward: A high p/e means a stock is expensive, a low one means it’s cheap. If only it was so simple. The problem is with the “e”. Reported earnings are an accounting assessment. Projected earnings are an outsider’s guess. Stocks rise and fall on vastly more information than that. Some investors refuse to buy stocks that trade above a certain p/e, often as low as 20.0-to-1. But all the market’s great successes go through lengthy periods when they trade at much higher p/e’s, often 50.0-to-1 or higher....
As a general rule, it’s better to borrow to buy stocks after a drop, rather than when the market has steadily risen for several years. We think you’ll benefit most from this buying opportunity by sticking with the kind of stocks we recommend, as well as the mutual funds and ETFs we recommend in Canadian Wealth Advisor.
These include the iUnits Dividend Index Fund $15.50, symbol XDV on Toronto, (Shares outstanding: 21.4 million; Market cap: $332.5 million), which holds the 30 highest-yielding Canadian stocks. These stocks are included in the index based on their proportionate dividend-per-share weight. The weight of any one stock is limited to 10% of the fund’s assets. iUnits’ MER is 0.50%, and it has a dividend yield of 4.7%.
Dividend-paying stocks or funds that invest in high-quality, dividend-paying stocks will give you regular dividend income and cash flow to pay the interest on your investment loan. They’ll also benefit most from a stock market rebound.
Today, you can borrow for as little as 3.25% if you use your home as collateral. Over long periods, the total return on well-diversified, high-quality stocks and mutual funds runs between 10% and 11%. So, in addition to the tax advantages, you can expect to earn more than your borrowing cost.
But borrowing to invest is not without risks, including the risk of increasing your leverage. The amount you owe on your investment loan will stay the same, regardless of what the market does, but every dollar your portfolio gains or loses will come out of your equity. In addition, if you take out a variable rate loan, the interest rate you pay could eventually rise about the return on the fund.
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These include the iUnits Dividend Index Fund $15.50, symbol XDV on Toronto, (Shares outstanding: 21.4 million; Market cap: $332.5 million), which holds the 30 highest-yielding Canadian stocks. These stocks are included in the index based on their proportionate dividend-per-share weight. The weight of any one stock is limited to 10% of the fund’s assets. iUnits’ MER is 0.50%, and it has a dividend yield of 4.7%.
Dividend-paying stocks or funds that invest in high-quality, dividend-paying stocks will give you regular dividend income and cash flow to pay the interest on your investment loan. They’ll also benefit most from a stock market rebound.
Today, you can borrow for as little as 3.25% if you use your home as collateral. Over long periods, the total return on well-diversified, high-quality stocks and mutual funds runs between 10% and 11%. So, in addition to the tax advantages, you can expect to earn more than your borrowing cost.
But borrowing to invest is not without risks, including the risk of increasing your leverage. The amount you owe on your investment loan will stay the same, regardless of what the market does, but every dollar your portfolio gains or loses will come out of your equity. In addition, if you take out a variable rate loan, the interest rate you pay could eventually rise about the return on the fund.
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Many aggressive investors find stock option investing hard to resist. However, the vast majority of investors lose money with options. An option is a contract between a buyer and a seller that is based on an underlying security, usually a stock. The buyer pays the seller a fee, or premium, for certain rights to the stock. In exchange for the premium, the seller assumes certain obligations. Options trade through stock exchanges, and each options contract is for 100 shares of a particular company. So one contract quoted at $5 will cost you $500 (before commissions). Each contract has an expiration date, which gives it a limited life span (usually less than nine months). The strike price (or exercise price), is the price at which the buyer can exercise their rights under the contract. There are two types of options:...
A: Fairfax Financial Holdings, $398, symbol FFH on Toronto, (Shares outstanding: 16.9 million; Market cap: $6.7 billion), is a good replacement for Northbridge. Fairfax is a financial services holding company with assets of $27.9 billion. Fairfax engages in insurance, reinsurance and investment management. Fairfax provides reinsurance through Odyssey Re and Group Re. Reinsurers provide insurance to insurers. Crum & Forster is Fairfax’s main U.S. insurance subsidiary, and Northbridge Financial is its principal subsidiary in Canada. Fairfax also sells insurance in Asia. Fairfax recently acquired the 36.9% of Northbridge Financial that it didn’t already own. Northbridge was a recommendation of our Stock Pickers Digest newsletter. Fairfax’s insurance operations have remained profitable, excluding hurricane losses. Insurance businesses hold a lot of cash for investment. Since 2003, Fairfax has invested conservatively, offsetting stock and bond holdings with investments that rose when stock markets fell. These included short sales and credit default swaps (insurance against defaults on bonds). Its biggest gains came last year....
FAIRFAX FINANCIAL HOLDINGS $360 (Toronto symbol FFH: SI Rating: Average) (416-367-2612; www.fairfax.ca; Shares outstanding: 16.9 million; Market cap: $6.1 billion) is a financial services holding company with assets of $27.9 billion. Fairfax engages in insurance, reinsurance and investment management. Prem Watsa is the chairman and founder of the company. Fairfax’s shares are high priced, but you can buy an odd lot of as few as 10 shares or so through any broker. Fairfax provides reinsurance through OdysseyRe and Group Re. Reinsurers provide insurance to insurers. Crum & Forster is Fairfax’s main U.S. insurance subsidiary, and Northbridge Financial is its principal subsidiary in Canada. Fairfax also sells insurance in Asia. Fairfax recently announced that it will acquire the 36.9% of Northbridge Financial not already held. Northbridge is a recommendation of Stock Pickers Digest. In the nine months ended September 30, 2008, Fairfax’s earnings jumped 112.8%, to $1.13 billion or $60.63 a share, from $532.2 million or $29.54 a share. The latest nine months included net gains on investments of $1.9 billion, offset by net catastrophe losses (including net losses related to Hurricanes Ike and Gustav) of $366.2 million....
Many aggressive investors find the lure of stock option investing hard to resist. However, despite their appeal, the vast majority of investors lose money with options. An option is a contract between a buyer and a seller, based on an underlying security, usually a stock. The buyer pays the seller a fee, or premium, for certain rights to the stock. In exchange for the premium, the seller assumes certain obligations. Options trade through stock exchanges, with prices quoted each day in the financial section of newspapers. Each options contract is for 100 shares of stock. So one contract quoted at $5 will cost you $500 (before commissions). Each contract has a limited life span, or time to expiry — usually less than nine months. The expiry date is the date on which the contract expires. The strike, or exercise price, is the price at which the rights granted to the buyer can be exercised. There are two types of options:...
You may want to have a look at my June 20, 2008 interview on the Business News Network “Market Call” program with Michael Hainsworth. (You can find it at www.bnn.ca). The show got way more calls than we could handle. Many came from investors who hoped to profit from investing ‘themes’ such as uranium, or fertilizer, or even water. Many callers started their questions with ‘If': For example, “If oil goes to $200…" You are far better off to buy stocks that don’t need a big jump in the price of their product to make them attractive....
Many members of my Inner Circle have asked the same question this week: Is it time to buy? If I had to choose between “Buy” and “Sell”, I’d say “Buy”, by a big margin. Having said that, I’m obliged to repeat a caveat you’ve often heard from me over the years: Nobody can predict these things consistently. If you could do that, you’d eventually acquire a measurable proportion of all the money in the world, and nobody ever does that....
I’d choose ‘Buy’ Many members of my Inner Circle have asked the same question this week: Is it time to buy? If I had to choose between “Buy” and “Sell”, I’m going to say “Buy”, by a big margin....
Investors often ask how long they should hang on to a disappointing stock, even if it’s not an outright loser. There is no single answer to the question. We do our best to look at as much information as possible, and to weigh each tidbit of information according to how much impact we expect it to have. That way, you can develop a realistic outlook. If you try to analyze a mass of information without breaking it down into manageable pieces, you can get caught up in the crescendo of negative emotion that often occurs when a stock is hitting a low that will turn out to be its bottom. Here are some points you can apply when deciding if you should sell, hold or buy more....