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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The U.S. dollar hit a low below $0.95 Cdn. in October 2011, and has since risen above $1.16 Cdn., a gain of 22.1%. In the same period, the U.S. Standard & Poor’s 500 stock index has gained 88.1%, even after allowing for the setback of the past couple of weeks. Together these two factors mean that if you followed our advice and put around a quarter of your portfolio in high-quality U.S. stocks, you probably have substantial capital gains. If so, you may feel tempted to sell some of your U.S. stocks—“harvest” some of your capital gains, as brokers sometimes say. It’s generally a bad idea to sell high-quality stocks simply because their stock prices have gone up. When you do that, you risk selling your best selections when they are just starting to rise. But it’s a particularly bad idea to sell U.S. stocks right now....
Priceline, $1,060.56, symbol PCLN on Nasdaq (Shares outstanding: 52.4 million; Market cap: $56.5 billion; www.priceline.com), is an online travel company that offers airline tickets, hotel rooms, car rentals, vacation packages and cruises. Customers can either buy in the traditional, price-disclosed manner or use the company’s Name Your Own Price service, which lets them make their own offers. Priceline then collects the offers and matches them against its database of seller inventory. The company operates the Priceline.com website, as well as Bookings.com, Agoda.com and RentalCars.com. In 2012, it bought travel search engine Kayak for $1.8 billion. Kayak compiles airline and hotel prices from travel websites and generates considerable traffic for Priceline’s other sites. It also keeps it from having to depend heavily on Google for search traffic....
Encana Corp., $14.81, symbol ECA on Toronto and a recommendation of The Successful Investor, first sold shares of PrairieSky Royalty Ltd., $30.20, symbol PSK on Toronto (Shares outstanding: 130.0 million; Market cap: $3.9 billion; www.prairiesky.com), to the public in May 2014. It sold its remaining 54% stake in PrairieSky in September 2014. Encana set up PrairieSky to hold its Clearwater properties in southern Alberta. PrairieSky owns the oil and natural gas rights to 5.2 million acres. It does not drill wells or explore for new reserves. Instead, it collects royalties from other producers....
Parex Resources, $6.81, symbol PXT on Toronto (Shares outstanding: 134.4 million; Market cap: $864.3 million; www.parexresources.com), produces, develops and explores for oil in Colombia and the Caribbean, with a focus on Colombia’s Llanos and Middle Magdalena basins. In the three months ended September 30, 2014, the company’s production jumped 55.4%, to an average of 25,175 barrels of oil a day from 16,199. Cash flow rose 28.9%, to $88.7 million from $68.3 million. Cash flow per share gained 11.1%, to $0.70 from $0.63, on more shares outstanding. Parex’s debt of $42.3 million is just 4.9% of its $864.3-million market cap....
Arafura Resources, $0.05, symbol ARU on the Australian exchange (Shares outstanding: 396.0 million; Market cap: $19.8 million; www.arultd.com), is an Australian firm with a rare earth property in the country’s Northern Territory. Rare earth elements are a group of metals with unique characteristics. They’re used in catalytic converters, magnets in motors, glass additives and glass-polishing compounds, rechargeable batteries, TV and computer screens, lighting, X-ray machines and lasers. Arafura is focused on its Nolans Rare Earths Project, home to a deposit with high concentrations of neodymium and praseodymium, which are used in high-tech magnets for applications including computer hard drives, wind-turbine generators and audio headphones....
The CI Signature High Income Fund is a balanced mutual fund, holding a mixture of stocks and bonds. It holds 47% of its assets in bonds; 40% in Canadian, U.S. and foreign stocks; and 13% in cash. Its MER is 1.60%. We don’t generally recommend balanced funds. Bonds are unlikely to perform well over the next few years, if only because interest rates will likely hold steady or rise. That means the fund would only earn interest income on its bonds; instead of capital gains, its bond holdings could produce capital losses. The CI Signature High Income Fund holds mostly corporate bonds. Corporate bonds are riskier than government bonds, and their risk levels vary widely. Some corporates are almost as safe as government bonds and offer only slightly higher yields. Others offer higher yields but are much riskier....
Otter Tail Corporation, $29.63, symbol OTTR on Nasdaq (Shares outstanding: 36.8 million; Market cap: $1.1 billion; www.ottertail.com), is the parent of Otter Tail Power Company, which supplies electricity to over 130,000 customers. Otter Tail Corporation also has manufacturing, plastics and construction operations. Otter Tail Power Company’s customers are in a 50,000-square-mile area that covers parts of Minnesota (48% of electrical revenue), North Dakota (43%) and South Dakota (9%). Commercial and farm clients supply 37% of electrical revenue, followed by residential (33%), industrial (23%) and other (7%). Here’s a look at Otter Tail Corporation’s other main segments:...
FlightSafety International and CAE are the world’s two biggest aviation-training companies. CAE, $14.94, symbol CAE on Toronto, is a recommendation of The Successful Investor. While CAE is publicly traded, FlightSafety is a wholly owned subsidiary of Berkshire Hathaway, $147.64, symbol BRK.B on New York. Berkshire acquired the company in 1997 for $1.5 billion in cash and stock. In addition to training pilots, FlightSafety instructs flight attendants, dispatchers and maintenance technicians....
Linn Energy LLC, $11.90, symbol LINE on Nasdaq (Units outstanding: 331.9 million; Market cap: $3.3 billion; www.linnenergy.com), acquires and develops oil and gas properties in the U.S. In December 2013, Linn bought Berry Petroleum for $4.3 billion. The move added long-lasting assets and significantly enhanced Linn’s growth prospects. Berry’s reserves were roughly 75% oil. Linn’s shares have dropped lately, along with oil and gas prices. That’s despite the fact that the company’s overall production jumped 51% from a year earlier....
When they look for stocks to buy, investors sometimes fall into a habit of focusing on those with a particularly attractive reading on a single investment measure. These readings include a low per-share ratio of price-to-earnings, a low price-to-book-value ratio, or a high dividend yield. This seems like a quick, easy way of spotting an investment bargain. However, most investment measures fall on a spectrum that ranges from suspiciously cheap to extraordinarily expensive. For example, suppose you decide you will only consider buying stocks with a per-share price-to-earnings ratio of 10.0 or less. That way, you hope to get more earnings for each dollar you invest. But the “e” or earnings in the p/e only covers earnings, or an earnings estimate, for a single year. The year your low p/e covers may coincide with a peak in the company’s earnings, for any number of reasons....