How To Invest
In addition, Pat thinks then beginner investors should cultivate two important qualities: a healthy sense of skepticism and patience.
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Investors should approach all investments with a healthy sense of skepticism. This can help keep you out of fraudulent stocks that masquerade as high-quality stocks. It will also keep you out of legally operated, but poorly managed, companies that promise more than they can possibly deliver.
If you are a new investor, you should also realize that losing patience can cause you to sell your best choices right before a big rise. All too often, investors buy a promising stock just as it enters a period of price stagnation. Even the best-performing stocks run into these unpredictable phases from time to time. They move mainly sideways in a wide range for months or years before their next big rise begins. (Stock brokers often refer to these stocks as “dead money.”)
If you lack patience, you run a big risk of selling your best choices in the midst of one of these phases, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so in the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.
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Vogogo Inc., $0.81, symbol VGO on Toronto (Shares outstanding: 35.0 million; Market cap: $35.5 million; www.vogogo.com), makes software that helps financial firms and merchants process electronic payments that use cryptocurrencies like bitcoin. Its products aim to cut fraud and make it easier for bitcoin transactions to comply with banking regulations. Bitcoin is a digital currency invented in 2009 by Satoshi Nakamoto (possibly a real person, possibly a pseudonym for one or more hackers). It isn’t the first digital currency, but Nakamoto’s innovation was to use math-heavy coding techniques that allow bitcoins to be exchanged without the need for a central authority or a physical standard, like gold, to deter counterfeiters and regulate the supply. Right now, supply is limited to about 12.2 million bitcoins....
Ag Growth International Inc., $29.09, symbol AFN on Toronto (Shares outstanding: 14.4 million; Market cap: $418.3 million; www.aggrowth.com), is a leading maker of portable and stationary grain-handling, storage and conditioning equipment. The company is based in Winnipeg. Ag Growth sells its products through dealers and distributors in Canada and the U.S., as well as overseas, including Russia, Ukraine and Kazakhstan. It gets 44% of its sales from the U.S., followed by Canada (34%) and international markets (22%). The company started out as an income trust. It first sold units to the public at $10 each and began trading on Toronto in May 2004. In June 2009, it converted to a corporation and changed its name from Ag Growth Income Fund to Ag Growth International....
Over the past few decades, we’ve built a list of what we call “reasons for wariness”. No single one of these factors is a sure sign of a bad investment. But we watch out for them when analyzing investments, especially where we find more than one. When we spot reasons for wariness in a business model or a growth plan, we want to be sure the company understands the risk. One prominent factor on our list is growth by acquisition. A company can speed up its growth by buying other companies, rather than building on or duplicating its existing operations. But, while acquisitions speed growth, they also accumulate risk. After all, the seller of something always knows more about it than the buyer. When a company focuses on acquisitions for corporate growth, it assumes it can out-perform the current management of what it buys. It assumes it can raise the return by a wide enough margin to increase its earnings, over and above the acquisition’s cost....
In June 1999, the Loewen Group, North America’s second-largest funeral company, filed for bankruptcy protection in the U.S. and Canada. At the time, it operated 1,116 funeral homes and 429 cemeteries in North America and 32 funeral homes in the U.K.
Loewen Group grew rapidly by acquisition, but it made other moves that greatly added to its risk.
For one, it took on a lot of debt to finance its purchases, many of which it bought at inflated prices in bidding wars with larger rival Service Corporation International.
The new operations’ profits didn’t cover the extra interest costs. Loewen eventually had to sell many of them below cost to comply with its debt obligations.
Loewen Group’s debt stood at $2.3 billion when it filed for bankruptcy in 1999. That was high even in relation to its market cap of $3.4 billion at its stock-price peak of $57 in 1996. It was insurmountable in 1998, when the company’s interest costs of $182.4 million exceeded all its earnings and cash flow. That year, Loewen had negative cash flow (more money flowed out than in) of $34.3 million.
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Loewen Group grew rapidly by acquisition, but it made other moves that greatly added to its risk.
For one, it took on a lot of debt to finance its purchases, many of which it bought at inflated prices in bidding wars with larger rival Service Corporation International.
The new operations’ profits didn’t cover the extra interest costs. Loewen eventually had to sell many of them below cost to comply with its debt obligations.
Loewen Group’s debt stood at $2.3 billion when it filed for bankruptcy in 1999. That was high even in relation to its market cap of $3.4 billion at its stock-price peak of $57 in 1996. It was insurmountable in 1998, when the company’s interest costs of $182.4 million exceeded all its earnings and cash flow. That year, Loewen had negative cash flow (more money flowed out than in) of $34.3 million.
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Concordia Healthcare Corp., $48.01, symbol CXR on Toronto (Shares outstanding: 41.7 million; Market cap: $2.5 billion; www.concordiarx.com), is an Oakville, Ontario-based drug company that acquires and sells established treatments, mainly in the U.S. Concordia aims to acquire the rights to relatively small, mature products as opposed to the newer treatments larger pharmaceutical firms target. Its main products include Donnatal, for irritable bowel syndrome and acute enterocolitis; Zonegran, for epilepsy; and Photofrin, a cancer drug. In April 2015, the company paid $1.2 billion for 12 branded drugs and five generic products from Covis Pharma (all figures except share price and market cap in U.S. dollars). These include Nilandron (prostate cancer); Dibenzyline (vascular disease); Lanoxin (heart disorders); and Plaqueni (lupus and rheumatoid arthritis)....
Hong Kong-based Biel Crystal Manufactory (HK) Ltd. makes cover glass for watches, touch screens and front and back cameras on mobile phones. Its main clients are Apple and Samsung Electronics, the world’s two leading smartphone makers. However, Biel Crystal is privately held, so you can’t buy shares. Lens Technology Co. Ltd., 92.55 Chinese yuan, is publicly traded on the Shenzhen exchange, on the Growth Enterprise Market, under the symbol/designation 300433....
Winpak Ltd., $44.25, symbol WPK on Toronto (Shares outstanding: 65.0 million; Market cap: $2.9 billion; www.winpak.com), makes and distributes packaging machines and materials. Its products are mainly used for perishable foods, beverages and in health care applications. The U.S. is Winpak’s largest market, accounting for 81% of its revenue. Canada supplies 12%, and the rest of world accounts for the remaining 7%. In the three months ended September 27, 2015, the company’s revenue rose 0.4%, to $193.7 million from $193.0 million a year earlier (all figures except share price and market cap in U.S. dollars)....
Home Depot Inc., $132.87, symbol HD on New York (Shares outstanding: 1.3 billion; Market cap: $170.1 billion; www.homedepot.com), operates warehouse-style home-improvement stores that average 104,000 square feet, plus an additional 24,000-square-foot garden centre. Each outlet typically carries 30,000 to 40,000 items. The company has 2,273 locations in the U.S., Canada, Mexico, Puerto Rico and Guam. In its fiscal 2016 third quarter, which ended November 1, 2015, Home Depot’s sales rose 6.4%, to $21.8 billion from $20.5 billion a year earlier. The number of transactions rose 4.4%, while the average size of each purchase increased 0.8%, to $58.03 from $57.55....
The need for perspective comes up virtually every day in the life of a successful investor. That’s because your daily experience helps to mould your view of the world. It gives you an idea, right or wrong, about how current events will affect your investments. When you lack perspective, it’s easy to jump to mistaken conclusions and make costly investing errors. This came to mind on Friday, when the Dow slumped more than 200 points. The drop was at least partly a response to the Paris terrorist attacks. Some investors undoubtedly sold stocks in panic, out of fear that similar attacks would break out throughout the west....
Nordic American Tanker, $15.10, symbol NAT on New York (Shares outstanding: 89.2 million; Market cap: $1.4 billion; www.nat.bm), operates 23 Suezmax vessels that ship crude oil. Suezmaxes are the largest tankers able to go through the Suez Canal. In July 2015, Nordic American announced the purchase of two more Suezmax vessels. The first joined the fleet in September, and the second will be delivered shortly. In addition, the company signed a deal for the construction of two more Suezmaxes in December 2014 that are slated for delivery in August 2016 and January 2017. Nordic’s shares have moved up lately, despite lower oil prices, for two main reasons:...