diversification

You might call it fair-weather investing. Many investors prefer to buy stocks only when economic and financial conditions seem good, if not ideal. When there’s news of rising oil prices or interest rates, for instance, they are inclined to stay out of the market, or get out if they’re already in. Yet when they think conditions are ripe, these “fair-weather” investors can be surprisingly casual about what they buy. They readily accept recommendations from brokers, or they buy stocks that are touted by public-relations firms. They give promoters and insiders the benefit of the doubt....

Because of today’s high government debt, high joblessness and high deficit spending, many people expect we’ll have to suffer through rising taxes and weak economic growth for the next decade. This belief makes sense, but only if you disregard recent developments in energy. Before the start of the financial crisis, pessimists used to look on spikes in oil prices as the greatest threat to the world economy. Oil is a key factor in a lot of industrial activity, as a raw material or as fuel for transportation. Oil is also concentrated in a few locations around the world, particularly the Middle East, so it’s vulnerable to transport bottlenecks that result in supply shortages. When oil prices shoot up, the economy suffers. This, though, could change in the next few years due to the development of oil and gas production from shale and other so-called “tight rock”. Shale oil and gas discoveries are turning up all around the world. New technology can bring these finds to profitability in as little as eight months, compared to two years or so for many conventional finds....

Exchange-traded funds (ETFs) offer very low management fees. As well, the best ETFs offer well-diversified, tax-efficient portfolios of high-quality stocks. However, the quality of ETFs varies widely. All too many exist to tap into popular, but risky, themes and fads. So you need to be highly selective with your ETF holdings. Here are six foreign ETFs we like:...

Economic forecasts attract far more investor attention than they deserve, in view of the meagre advantage, if any, they provide in terms of investing advice. That’s especially true today in light of the debt crisis that keeps flaring up in Europe and the uncertainty that lingers in the U.S. Small wonder, then, that most experienced, successful investors feel skeptical, if not downright cynical, about economic forecasts, for three reasons....

MOSAID TECHNOLOGIES INC., $45.95, symbol MSD on Toronto, has agreed to a friendly, $46.00-a-share, all-cash takeover offer from U.S.-based private-equity firm Sterling Partners. Mosaid mainly licenses computer chip and telecommunications technology, including patents for technology used in smartphones and laptops. The Sterling Partners bid counters last week’s $42-a-share hostile offer from Wi-LAN. Prior to that, Wi-LAN had offered $38 a share....

CANADIAN REIT $34.99 (Toronto symbol REF.UN; Units outstanding: 67.0 million; Market cap: $2.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.1%; www.creit.ca) owns over 160 properties, including retail, industrial and office buildings, located across Canada and in the Chicago area. These properties contain over 22 million square feet of leasable area. Its occupancy rate is 93.3%. In the three months ended June 30, 2011, the real estate investment trust’s revenue rose slightly, to $80.3 million from $79.9 million a year earlier. Cash flow per unit rose 1.8%, to $0.58 from $0.57. In June 2011, Canadian REIT bought two fully leased malls in Mississauga, Ontario, for $174.4 million. Tenants include Future Shop, Famous Players, Chapters, Rona and National Sports. Earlier this year, the REIT raised its annual distribution by 2.1%, to $1.44 a unit from $1.41. It now yields 4.1%....

An American Depositary Receipt, or ADR, is a certificate that represents a foreign stock that trades in the United States. Banks and brokerage firms in the U.S. issue or sponsor ADRs, and investors buy and sell them on U.S. stock markets, just like regular stocks. If you own an American Depositary Receipt, you have the right to obtain the foreign stock it represents. However, investors usually find it more convenient to continue holding ADRs as part of their strategy for portfolio diversification....

We still think investors will profit most — and with the least risk — by buying shares of well-established, dividend-paying stocks 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 remain competitive in a changing marketplace. Stocks like these give investors an additional measure of safety in today’s volatile markets. And the best ones offer an attractive combination of low p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects....

A long-time reader and portfolio-management client recently asked a question that other investors may wonder about in today’s turbulent markets. He wrote, “You constantly remind members to have a balanced portfolio and strategy for long-term success when investing. But when do you take profits? You have mentioned a couple of times to sell, such as when a stock makes up too much of your total portfolio, or if a company shows questionable management or business decisions. My main question is why don’t we sell when stocks move up and there are profits to be had?” I often asked myself that question in my first decade or two in the investment business. In hindsight, it always seems easy to spot market tops and market bottoms. But trying to spot those tops and bottoms as they occur is harder. I investigated all sorts of market theories and signals that purport to tell you how to do it. They all seem to have “worked,” at least some of the time. But none worked consistently....

The best way to profit in the stock market in times of volatility is to stick with the high-quality stocks we recommend. These stocks generally bounce back faster when the stock market rebounds. Here are nine key factors that we always take into account when we do the stock research to uncover high-quality investments. Financial factors:

• 5 to 10 year history of profit. Companies that make money regularly are safer than chronic or even occasional moneylosers.
• 5 to 10 years of dividends. Companies can fake earnings, but dividends are cash outlays. Our stock research has proved time and again that if you only buy dividend-paying stocks, you’ll avoid most frauds.
• Manageable debt. When bad times hit, debt-heavy companies go broke first.

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