stock prices

I’ve mentioned here, and in recent letters to our portfolio-management clients, that I’m optimistic about the stock market’s direction. In fact, I suspect that a secular bull market began in March 2009, when the market began rising after the recession. Secular bull markets take a variety of shapes. Stock prices still go up and down, of course. But the key difference with a secular bull market is that each new upward thrust takes the market to higher peaks than those of the preceding rise. The post-World War Two market rise ran from the late 1940s through the late 1960s. It was a highly rewarding period for investors who followed a conservative, fundamentally based approach like ours. Another secular bull market took place from the late 1980s through around 2007. It was also a profitable time for investors who followed an approach like ours....

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 advice on stock market trading and other investment topics that will help you develop a successful approach to investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Today’s tip: “The saying ‘Sell in May and go away’ is based on an approach to the stock market that works only sporadically and could actually cost you money if you go along with it.”...

Wells Fargo and J.P. Morgan passed the Federal
Reserve’s latest “stress test,”which measures how well
financial firms would cope with a sharp jump in unemployment,
falling stock prices and other unfavourable
conditions. That gives both banks more room to raise
their dividends and buy back shares....

The Dow Jones Industrial Average dropped nearly 600 points in a little over a week. Speculative stocks such as Facebook are down around 20% from their peaks of the previous month. Meanwhile, Russia is concentrating its troops on Ukraine’s eastern border, and Ukrainian troops clashed with pro-Russian protesters who have occupied government buildings in the eastern part of the country. Meanwhile, China says it is restructuring its economy, and this is likely to cut its rate of economic growth. It has allowed its yuan to creep downward in foreign exchange markets in the past year, which will make its exports cheaper in world markets. In response, the European Central Bank has hinted that it may act to weaken the euro, to remain competitive. Many investors wonder what, if anything, they should do with their investments in response to any or all of these news items. The answer depends on what investments you already hold....

If you feel an urge to take advantage of the recent gains and sell your U.S. stocks, my advice is to lie down until that urge goes away. The U.S. dollar has gained around 15% from its mid-2011 low near $0.95 Canadian. This gain comes on top of a far superior performance by U.S. stocks in the past three years, compared to Canadian stocks. The Canadian market is just getting back to its peak of three years ago. Meanwhile, the S&P 500 U.S. index has gained nearly 50%. This difference in performance partly reflects two different political and economic environments. Three years ago, President Obama was forging ahead with a lot of policies that rattled investors and business. This depressed U.S. stock prices. In contrast, Prime Minister Harper seemed economically astute and downright business-friendly. In addition, the Resources sector was on a business upswing three years ago. That’s a much bigger economic plus for Canada than for the U.S. So the Canadian stock market was buoyant....

BAXTER INTERNATIONAL INC., $72.85, Toronto symbol BAX, rose 8% this week on news that it plans to split into two separate public companies. One will focus on medical devices, such as intravenous pumps and kidney-dialysis equipment. This business’s revenue was $8.7 billion, or 57% of Baxter’s $15.3-billion total, in 2013. The other firm will make biopharmaceutical products, including vaccines and drugs for hemophilia. Its 2013 revenue was $6.6 billion....

IGM FINANCIAL INC. $55 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 252.3 million; Market cap: $13.9 billion; Price-to-sales ratio: 5.3; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www. igmfinancial.com) is Canada’s largest independent mutual fund company....

Here’s a good general rule to follow when choosing investments: Simple is better. The easier an investment is to explain and understand, the less likely it is to harbour hidden risks and costs that can only work against you. As the old investor saying goes, “Stick with plain vanilla.” For the investment industry, the rule works in reverse: The more complicated, the better. Each new feature provides a profit opportunity for the institution that sponsors the investment. It’s particularly important to keep this in mind with exchange-traded funds (ETFs). These investments are highly efficient mutual funds. Fees are low because investors don’t pay for management. Instead, ETFs aim to mimic the performance of a market index, by holding the same securities in the same proportions used to calculate the market index. As a liquidity feature, ETFs generally sell newly created units whenever their unit prices develop a premium over the value of the stocks they hold. They buy back units (in large blocks only, to keep costs low) when the unit price gets too far below the value of their holdings....

ROYAL BANK OF CANADA, $72.16, Toronto symbol RY, earned $2.1 billion in the quarter ended January 31, 2014, up 2.2% from $2.05 billion a year earlier. Per-share earnings rose 3.0%, to $1.38 from $1.34, on fewer shares outstanding. Excluding a loss on the sale of its Jamaican banking operations, Royal earned $1.44 share in the latest quarter, matching the consensus forecast. Overall revenue rose 7.6%, to $8.5 billion from $7.6 billion. Revenue at Royal’s retail banking division (which supplied 40% of the total) rose 6.9%. That’s partly due to its February 2013 purchase of Ally Financial’s Canadian operations for $3.7 billion. Ally, which provides car loans through 1,600 dealerships, contributed $62 million to Royal’s revenue and $22 million to its earnings in the latest quarter. Higher demand for mortgages and consumer and business loans also contributed to the improved results....

Recent events in Ukraine leave me with a pleasing sense of déjà vu. This goes back to the early 1960s. I had a number of friends back then who had left Hungary as refugees after the failed revolution of 1956. I had read about conditions in the communist world, of course. But hearing about it from friends who had lived through it made it much more tangible. With those memories in mind, the Eastern European revolutions of 1989 seemed like a wonderful thing. When the Eastern European revolutions broke out, I often stayed up until the early hours of the morning, watching live CNN coverage of events then going on in the former Soviet bloc—the destruction of the Berlin Wall, the non-violent crowds standing up to the dictators, and the on-the-scene discussions of political changes that were likely to follow. I felt a strong personal connection to the changes. But I also had a professional interest. The collapse of communism was likely to be great for the world, and in particular for the stock market. The spread of political and economic liberty, and of the free enterprise system, was bound to lead to greater wealth for all....