diversification

The state of the U.S. economy continues to worry many investors. Some are wondering if they should dump their U.S. stocks for fear that the U.S. stock market will move further down due to rising debt and unproductive government policies. We think this would be a mistake. In fact, our investment advice is that you should keep at least one fifth of your portfolio in U.S. stocks. Here’s why. The troubles that have stirred markets recently – like the downgrade in the U.S. debt rating – are much different from great house-price collapse in the U.S. in 2007-2009. Today there is no boom that could deflate and bring down the economy....

“Averaging down” is the well-known market tactic by which investors buy more shares of a stock that has come down in price.

Averaging down lowers your average cost per share, but can cost you money in the long run. At the same time, you run the risk of distorting your overall portfolio management strategy.



Here are three problems that crop up with averaging down:

1. Averaging down ignores investment quality. Many investors have made lots of money by “averaging in” to the stock of a well-established, well-managed company — that is, buying more as funds became available over a period of years....

DELPHI ENERGY $2.18 (Toronto symbol DEE; TSI Network Rating: Speculative) (403-265-6171; www.delphienergy.ca; Shares outstanding: 119.7 million; Market cap: $250.3 million; No dividends paid) explores for oil and natural gas in Alberta, Saskatchewan and B.C. Gas makes up 70% of Delphi’s daily output; the remaining 30% is oil. In the three months ended June 30, 2011, Delphi’s average daily output rose 10.8%, to a record 8,906 barrels of oil equivalent (including natural gas) from 8,035 barrels a year earlier. The higher production pushed up Delphi’s cash flow by 40.1%, to $17.5 million from $12.5 million. Cash flow per share rose 25%, to $0.15 from $0.12, on more shares outstanding....

Exchange-traded funds (ETFs) offer very low management fees. As well, the best ETFs offer well-diversified, tax-efficient portfolios of high-quality stocks. But the quality of ETFs varies widely. All too many ETFs 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:...

Growth stocks are companies whose earnings growth has been above the market average, and is likely to remain above average. These firms often pay little or no dividends.

We haven’t found any water-focused stocks we recommend as buys. That’s mostly because the water business has limited growth prospects in developed countries, and is subject to a lot of regulatory hurdles. It may offer more opportunity in developing countries, many of which are in desperate need of clean water, but investing in these countries exposes you to political risk. However, here’s a look at the stocks you asked about: A: GWR Global Water Resources, $6.55, symbol GWR on Toronto (Shares outstanding: 8.8 million; Market cap: $57.3 million; www.gwresources.com), first sold shares to the public and listed on Toronto in December 2010. At the same time, it bought a 48.1% interest in Global Water Resources Inc. (Global Water)....

CANADIAN REIT $33.46 (Toronto symbol REF.UN; Units outstanding: 66.5 million; Market cap: $2.3 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.3%; 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 94.2%. In the three months ended March 31, 2010, the real estate investment trust’s revenue fell slightly, to $81.3 million from $81.7 million a year earlier. Cash flow per unit fell 7.1%, to $0.52 from $0.56. Canadian REIT provides high-interest loans to developers who are building properties that it might take an interest in. It is now making fewer of these loans; that was the main reason for the lower results. Instead, the REIT is focusing on buying lower-risk properties that will provide long-term cash flows. For example, it recently agreed to buy two fully leased malls in Mississauga, Ontario, for $171.0 million....

The improving U.S. economy is helping more consumers repay their loans on time. That’s pushing down loan losses at a number of U.S. banks, and improving their profits. However, the outlook for the U.S. banking industry remains uncertain. High unemployment continues to hurt demand for new loans, and the industry faces greater regulations in the wake of the financial crisis. ...

TRILOGY ENERGY CORP. $22.12 (Toronto symbol TET; TSINetwork Rating: Speculative) (403-290-2900; www.trilogy.com; Shares outstanding: 84.4 million; Market cap: $1.9 billion; Dividend yield: 1.9%) owns oil and gas properties in the Kaybob and Grande Prairie areas of central Alberta. About 78% of Trilogy’s production is natural gas. The remaining 22% is oil. In the three months ended December 31, 2010, Trilogy produced 21,544 barrels of oil equivalent per day (including natural gas). That was down 4.1% from 22,462 barrels a year earlier....

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 how to spot good investments. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “3 ways to miss out on good investments.”

Here are 3 classic errors that can seriously hinder your returns, and cause you to miss out on good investments. All investors make them from time to time.

1. Too little diversification among the 5 sectors: Manufacturing and Resource stocks involve extra risk, Canadian Finance and Utilities involve lower risk, and Consumer falls in the middle. Sectors go in and out of investor favour, depending on economic conditions, corporate earnings, and investor whim. But in the long run, winners and losers appear in all five.
   
   If you stick to one or two sectors, you may get lucky and all of your picks will turn out to be good investments. Or, all your stocks may wind up out of favour and depressed. If you have to sell, you’ll do so at a low. So, spread your money out to eliminate luck. That way, you’ll always have exposure to the year’s most profitable investments, a key to successful investing.
   

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