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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AU Optronics (ADR), $5.22, symbol AUO on New York (ADRs outstanding: 962.4 million; Market cap: $5.0 billion; www.auo.com), is a Taiwanese maker of flat-panel displays. It also produces a range of solar-power products, including cells and panels, under the BenQ Solar brand. In 2014, AU’s revenue fell 2.0%, to NT$408.2 billion ($12.9 billion U.S.) from NT$416.4 billion in 2013. Sharply lower expenses pushed up earnings per common share to NT$1.83 ($0.06 U.S.) from NT$0.45 (each ADR represents 10 common shares). AU operates in a highly competitive market, but it continues to expand to meet rising demand, including from Chinese smartphone makers, which now account for more than 50% of the company’s total phone-display shipments....
Union Pacific Corp., $107.51, symbol UNP on New York (Shares outstanding: 881.3 million; Market cap: $94.1 billion; www.up.com), owns Union Pacific Railroad, the largest railroad in the U.S. by track miles and revenue. Union Pacific has nearly 31,974 route miles serving the western two-thirds of the country. The company’s revenue mix is as follows: industrial, 20%; intermodal (merchandise in containers hauled by ship, train and truck), 20%; coal, 18%; agricultural, 17%; chemicals, 16%; and automotive, 9%. In the three months ended December 31, 2014, Union Pacific’s revenue rose 9.3%, to $6.2 billion from $5.6 billion a year earlier. Earnings per share gained 26.6%, to $1.62 from $1.28, as the company raised its prices and improved its productivity....
Ares Capital Corp., $17.13, symbol ARCC on Nasdaq (Shares outstanding: 314.1 million; Market cap: $5.4 billion; www.arescapitalcorp.com), provides debt and equity financing to U.S. mid-sized companies and venture capital-backed businesses. Billionaire Tony Ressler heads Ares and its affiliates. Ares Capital initiates and invests in senior secured loans, mezzanine debt and, to a lesser extent, stock investments. The company’s loans generally entail higher risk. For example, mezzanine financing is a mixture of debt and equity financing private companies use to fund expansion. Mezzanine debt gives the lender the right to convert the debt to equity if the borrower defaults. Mezzanine financing typically involves less due diligence by the lender, and the borrower puts up little or no collateral....
When you complete your income tax return, take a moment to consider the charitable donations you made in 2014. How carefully did you choose the charities you supported? How much time did you spend to investigate how they’ll spend your money? Many people find it uncomfortable to inquire into the goodwill or efficiency of any charity. However, there are limited funds available in the world for charitable purposes. The cause or people you want to help are in no position to demand an accounting or take their business elsewhere. The more that goes to waste, the less is available for those you want to help. But the quality of charities varies as widely as the quality of stocks you can buy for your portfolio. Unfortunately, all too many charitable donors pick charities the way beginning investors pick stocks. They get seduced by an appealing concept. They make snap judgments in response to a photo or sound bite, or the recommendation of a friend or acquaintance. A little digging can go a long way toward making your donations work harder toward bringing about the goal that attracted you....
Pat: Please give me your evaluation of Oaktree Capital. Thank you for many years of reliable advice.
Oaktree Capital Group LLC, $52.03, symbol OAK on New York (Shares outstanding: 43.8 million; Market cap: $8.1 billion; www.oaktreecapital.com), is an investment management firm that focuses on alternative markets, including the debt of distressed companies and high-yield debt, as well as convertible securities, real estate and stocks. The Los Angeles-based firm was founded in 1995. Its chairman and co-founder is prominent investor and billionaire Howard Marks. As of December 31, 2014, Oaktree had $90.9 billion of assets under management. It’s now looking at aggressively investing in depressed energy assets. Oaktree put $400 million into these assets in the fourth quarter of 2014 and still has roughly $10.3 billion of capital waiting to be invested....
International Road Dynamics, $1.02, symbol IRD on Toronto (Shares outstanding: 14.3 million; Market cap: $14.3 million; www.irdinc.com), makes products and systems that manage highway traffic, including automated toll-road and weigh-station systems for trucks. The company’s weigh-in-motion system weighs trucks while they’re moving, rather than at less efficient roadside stations. International Road also makes advanced traffic-control, driver-management and data-collection systems. Recent contracts include a $2.1-million deal for a weigh-in-motion system in Wisconsin and a $1.35-million U.S. order for five weigh-in-motion systems to be installed throughout Chile....
iShares U.S. Small Cap Index ETF (CAD-Hedged), $27.33, symbol XSU on Toronto (Units outstanding: 6.1 million; Market cap: $166.7 million; www.blackrock.com), aims to track the Russell 2000 Index (hedged against the Canadian dollar). The fund’s MER is 0.36%. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index (which measures the performance of the 3,000 largest U.S. firms based on total market capitalization, or “market cap”; these 3,000 represent around 98% of the U.S. equity market). In all, the Russell 2000 represents around 10% of the Russell 3000’s total market cap. The Russell 2000’s average market cap is about $1.3 billion, while the median market cap is about $528 million. The largest company in the index has a market cap of roughly $5.0 billion....
Shaw Communications, $27.49, symbol SJR.B on Toronto (Shares outstanding: 464.7 million; Market cap: $13.0 billion; www.shaw.ca), is one of Canada’s largest cable TV operators. It has 1.9 million basic cable subscribers (mostly in Western Canada), as well as 854,389 satellite customers through its ownership of Shaw Direct. The company also provides high-speed Internet to 1.9 million clients and telephone services to 1.4 million. In September 2014, Shaw completed its $1.2-billion purchase of Colorado-based ViaWest, a privately held operator of data centres, cloud storage and information technology services. ViaWest has 27 data centres in the western U.S. In the three months ended February 28, 2015, Shaw’s revenue rose 4.9%, to $1.34 billion from $1.27 billion a year earlier. Earnings per share fell 26.1%, to $0.34 from $0.46, mostly due to one-time costs related to a restructuring of its customer service call centres that included cutting 1,600 employees. Cash flow per share fell 1.3%, to $0.77 from $0.78....
Basic Energy Services Inc., $7.94, symbol BAS on New York (Shares outstanding: 41.8 million; Market cap: $351.1 million; www.basicenergyservices.com), provides drilling and well services to over 2,000 oil and natural gas exploration firms. Most of Basic Energy’s clients operate in shale oil areas, including the Permian and Eagle Ford (Texas), Bakken (North Dakota), Haynesville (Louisiana) and Marcellus (Pennsylvania). The company has four divisions:...
HarbourEdge Mortgage Investment Corp. is a mortgage investment corporation (MIC). MICs invest in pools of mortgages, then distribute most of their profits to their shareholders. Some MICs yield 6%, 7% or more annually. They sound like conservative investments because they invest in mortgages rather than stocks. However, mortgages vary widely in their investment quality and risk, and MICs can earn high profits because they take on riskier mortgages. HarbourEdge currently yields 9%....