high quality stocks

Our “sell-half” rule says that if a stock you own has doubled, you should sell half so you get back your initial stake. Once you’ve recovered your initial investment, you’ll be able to think more clearly about the stock. However, the sell-half rule applies mainly to stocks we rate as Start-up or Speculative. Every case is different, but you should generally hold on to high-quality stocks, even if they have doubled in price. One exception would be if a conservative stock makes up too much of your portfolio after doubling — say, more than 8% to 10%. Then you should at least consider taking some profits....

It’s particularly easy for investors to make costly mistakes during the year-end tax-loss selling season. That’s because the lure of a lower tax bill can be a temptation to dump high-quality stocks that are near the end of a downturn, and are set to move back up. A similar pitfall exists during the end-of-the-year rush to take advantage of certain tax shelters, including charitable donations. In our view, you should be as selective about giving money to charity as you are about buying stocks. In fact, bad charities tend to have something in common with bad stocks. ...

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]...

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....

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 just a couple of member questions about stock market trading strategy and stock ideas. I hope you enjoy and profit from them. Q: Dear Pat: My 79-year-old aunt has inherited $250,000 and has asked me to invest the money on her behalf. She is in good health, has pensions that cover her routine expenses, and two financially independent children who will inherit her estate. My thoughts are to invest half the money in about 10 high-quality stocks, as per your long-standing investment advice (essentially on behalf of her children), and leave the other half more liquid to cover contingencies, such as the possible need for in-home care....

A market slump like the one we’ve experienced since 2007 demonstrates the appeal of a conservative, risk-averse portfolio investing philosophy like ours. While the well-established companies we invest in may not fly as high as speculative stocks when the market is soaring, they hold up much better in market downturns.

As part of our portfolio investing strategy, we diversify by spreading the investments of clients of our Successful Investor Wealth Management service out across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; Utilities), even when much of the market’s action is concentrated in one or two industries or sectors.

That’s because the market’s hottest segments can unpredictably jump from hot to cold....

We still think now is a good time to add some U.S. stocks to your portfolio. And we continue to feel that a well-diversified portfolio of high-quality stocks (like those we recommend as buys in our Wall Street Stock Forecaster newsletter) will outperform index funds over the long term. But we do recommend some low-fee index funds in Canadian Wealth Advisor: 1) S&P Depository Receipts, symbol SPY on the American exchange, hold the stocks in the S&P 500 Index. This index is made up of 500 major U.S. stocks chosen for market size, liquidity and industry group. Expenses are just 0.12% of assets. This is our favourite of the three U.S. ETFs, and it’s a buy. 2) Diamond Trust Shares, symbol DIA on the American exchange, hold the 30 stocks that make up the Dow Jones Industrial Average. Expenses are about 0.18% of assets. It’s a buy, as well....

We recently read the Yahoo news story of Ddalgi (Korean for “Strawberry”), a five-year-old parrot from Papua, New Guinea, who competed with 10 human investors in a stock-picking contest in South Korea. Strawberry’s stock market picks reportedly posted a 13.7% return. While not good enough for first, the result put her in a respectable third place. Her human competitors, on the other hand, posted an average loss of 4.6%. (The story reminded me of a Globe and Mail stock-picking contest in which I was pitted against eight other human competitors and a plastic Santa. More on that in a moment...) Stories like these are not uncommon, and are not limited to stock-picking contests. You may have heard of Maggie the Monkey, who makes yearly hockey playoff picks that routinely beat those of human analysts....

Investing is different from many other pursuits in one crucial way: doing the wrong thing as an investor can actually make money for you, but only temporarily. Buying low-quality stocks is a mistake that many investors make. Some get hooked on it, since low-quality stocks can be highly profitable over short periods. That’s because they are generally more volatile than the high-quality stocks (the kind that have a history of earnings, if not dividends) that we recommend in our Successful Investor newsletter. ...

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: ...