stock prices

investing for beginners advice- Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific investment tips

Here’s the text of the quarterly letter I recently sent to our Portfolio Management clients: “In current media discussions of market trends, here are a couple of issues that often come up:

1. The outlook for corporate earnings, and how that affects the market’s P/E ratio (the ratio of stock prices to earnings).

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Last week I pointed out that learning what not to do can be the hardest and costliest part of an investor’s education. In that issue, I focused on how this applies to technical analysis—the practice of trying to base investment decisions on past trading and market history. This week I want to expand on what I said, since the idea applies to a wide range of narrow approaches to investing. To succeed as an investor, you have to take a broad view in making investment decisions. Technical analysis and other narrow views do sometimes seem to “work” for lengthy periods, of course. But they only work for a minority of the time, and they never work consistently. Instead, they run hot and cold. As with all random events, their successes occur in bunches. These bunches of successes come in random lengths, with random beginning and end points. It’s easy to see how this applies with technical analysis, which has an arcane air about it. But the same principle works for something as straightforward and commonsensical as, say, value investing....

WELLS FARGO & CO. (New York symbol WFC; www.wellsfargo.com) set aside $652 million to cover bad loans in the three months ended June 30, 2013, down 63.8% from $1.8 billion a year earlier....

ROYAL BANK OF CANADA $61 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $85.4 billion; Price-to-sales ratio: 2.4; Dividend yield: 4.1%; TSINetwork Rating: Above Average; www.rbc.com) is part of a consortium that plans to set up a new Canadian stock exchange. Other investors include pension funds and mutual fund company IGM Financial (see page 76).

A new company called Aequitas Innovations Inc. will operate this exchange, which will be mainly aimed at institutional investors. It will also limit high-frequency computer trading, which can distort stock prices. Aequitas plans to begin operating in late 2014.

IGM and Royal did not say how much they are contributing to this new business or how much they will own. Still, this new exchange aims to capture 20% of Canada’s stock-trading volumes over the next few years.
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Like Cisco (see page 71), sales and earnings growth at these four technology giants have waned, as they turn into traditional cyclical growth stocks that are more sensitive to swings in the overall economy.

However, they are still leaders in their fields....

These two leading banks continue to benefit as more borrowers repay their loans on time. That’s helping them offset weaker demand for new residential mortgages and business loans. As well, both firms continue to cut costs, which gives them more room to raise their dividends.

WELLS FARGO & CO....

One of today’s most dated investment terms is “tech stocks”. You’ll hear the term flung about as if it referred to well-defined groups of stocks such as the oils, the mining stocks or the banks. The difference is that changes in the price of oil have a direct impact on oil company profits and oil stock prices. Changes in mineral prices have a direct impact on mining company profits and stock prices. Changes in interest rates and in bank legislation have a direct impact on bank profits and bank stock prices. But there is no over-riding factor that influences the so-called tech stocks as a group. The term made more sense in the 1990s and before, when technology companies were in a much earlier stage of their corporate development. Back then, shares of these companies did tend to move as something of a loosely connected group. That was mainly because investors had limited information on which to base their views of many of these stocks, and decide how much to pay for them. Now, however, you might say the group has matured. The stocks it covers have differentiated. Stocks that qualify as “techs” still include a lot of companies that are little past the start-up phase and are highly speculative. But it also includes stocks issues that qualify as traditional growth stocks....

When you are learning about investing, and preparing to invest more money in stocks, it’s a good idea keep a notebook about stocks you are thinking about buying. Even if you can’t buy, you can still commit yourself on paper. Of course, you’ll have to be scrupulously honest with yourself. (Best to write your journal in ink—not pencil!) If you keep this journal for two or three years, you should begin developing a sense of when to make buy and sell decisions—“when to pull the trigger”, as professional investors say. This can go a long way toward turning you into a successful investor. You’ll find that you have to learn to make these decisions while there is still some doubt in your mind. If you only buy stocks after all your doubt is gone and you’re sure you’re going to make lots of money, you will often wind up with small profits if not losses. This seems paradoxical to many non-investors, but it makes perfect sense....

WELLS FARGO & CO. $44 (New York symbol WFC; Conservative Growth Portfolio, Finance sector; Shares outstanding: 5.3 billion; Market cap: $233.2 billion; Price-to-sales ratio: 2.8; Dividend yield: 2.7%; TSINetwork Rating: Average; www.wellsfargo.com) set aside $652 million to cover bad loans in the three months ended June 30, 2013, down 63.8% from $1.8 billion a year earlier. That helped push up its earnings by 19.7%, to $5.3 billion, or $0.98 a share. A year ago, it earned $4.4 billion, or $0.82 a share.

Revenue rose 0.4%, to $21.4 billion from $21.3 billion. Borrowers continue to refinance their mortgages at lower rates, which cuts Wells Fargo’s interest income. However, the bank is doing a good job of getting its clients to sign up for more services, such as credit cards and wealth management. As a result, income from fees and other sources rose 3.7%.

In addition, Wells Fargo continues to cut its operating costs, like salaries and rent. In the latest quarter, its efficiency ratio (non-interest operating expenses divided by revenue— the lower, the better) improved to 57.3% from 58.2% a year ago.
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