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 Dynamic Strategic Yield Fund is a mutual fund that mostly holds high-quality Canadian and U.S. stocks. But it also holds 20.4% of its portfolio in bonds. We don’t generally recommend bonds right now, because they’re unlikely to perform as well in the next few years as they have in the last few. That’s mainly because interest rates will likely hold steady or rise, which means the fund would only earn interest income on its bonds; instead of capital gains, its bond holdings could produce capital losses. As a general rule, the safest bonds are issued or guaranteed by the federal government. Next are provincial issues or bonds with provincial guarantees. After that come corporate bonds. The Dynamic Strategic Yield Fund mostly holds corporate bonds....
Right now, lots of long-time holders of Canadian Pacific and Canadian Tire are developing what’s known as an “itchy trigger finger”. They are thinking of selling these two long-time mainstays of the Canadian stock market simply because they have been particularly strong performers in the past few years.
This impulse rarely pays off.
When you follow the stock market for a few years, it’s easy to assume a certain consistency that just isn’t there. You may get the idea that a particular stock is a slow-moving dog that will stagnate forever, or that another is a sure-fire growth stock that has decades of growth ahead.
If these stocks depart from the category you have assigned them to, it’s natural to assume the changes are temporary and things will eventually “go back to normal”. So, for instance, if a long-time income stock you own suddenly begins moving up and doubles in price over, say, three years, you may decide to sell all or part of it now, in hopes of buying it back “on a dip”, as investors say. Or, you may want to go on to something new that has not yet had a substantial rise.
The problem is that you are basing a sale decision mainly on a change in the price. But the price change almost certainly reflects other, more fundamental factors. If you only look at the price, you ignore the fundamentals.
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This impulse rarely pays off.
When you follow the stock market for a few years, it’s easy to assume a certain consistency that just isn’t there. You may get the idea that a particular stock is a slow-moving dog that will stagnate forever, or that another is a sure-fire growth stock that has decades of growth ahead.
If these stocks depart from the category you have assigned them to, it’s natural to assume the changes are temporary and things will eventually “go back to normal”. So, for instance, if a long-time income stock you own suddenly begins moving up and doubles in price over, say, three years, you may decide to sell all or part of it now, in hopes of buying it back “on a dip”, as investors say. Or, you may want to go on to something new that has not yet had a substantial rise.
The problem is that you are basing a sale decision mainly on a change in the price. But the price change almost certainly reflects other, more fundamental factors. If you only look at the price, you ignore the fundamentals.
...
Student Transportation Inc., $7.17, symbol STB on Toronto (Shares outstanding: 83.2 million; Market cap: $596.3 million; www.ridesta.com), is North America’s third-largest school bus operator, with more than 11,000 vehicles in Canada and the U.S. In its fiscal 2015 first quarter, which ended September 30, 2014, Student Transportation’s revenue rose 21.0%, to $88.5 million from $73.1 million a year earlier. The company lost $8.8 million, or $0.11 a share, in the latest quarter, unchanged from a year earlier. Student Transportation typically loses money in its fiscal first quarter because it includes the summer break. The stock yields a high 7.8%. Student Transportation has paid dividends for 118 consecutive months, and its payout appears safe for now. But its continued rapid growth by acquisition adds risk, as does its somewhat high $301.9 million of debt, which equals 51% of its market cap. It also operates in a competitive business....
First Majestic Silver Corp., $5.78, symbol FR on Toronto (Shares outstanding: 117.5 million; Market cap: $679.0 million; www.firstmajestic.com), owns and operates five silver mines in Mexico: La Parrilla, San Martin, Del Toro, La Guitarra and La Encantada. In the three months ended September 30, 2014, First Majestic’s production rose 4.5% from a year earlier, to 3.5 million ounces of silver equivalent (including lead, zinc and gold by-products) from 3.4 million. In contrast, revenue fell 46.9%, to $40.8 million from $76.9 million (all amounts except share price and market cap in U.S. dollars). The discrepancy between rising output and falling revenue is due to the fact that the company kept 834,000 ounces silver in inventory in the latest quarter, instead of selling it. It says it is waiting for higher silver prices. In the year-earlier quarter, it sold all the silver it produced. Cash flow remained positive in the latest quarter, but fell 75%, to $0.08 a share from $0.32....
Héroux-Devtek Inc., $11.40, symbol HRX on Toronto (Shares outstanding: 35.9 million; Market cap: $409.6 million; www.herouxdevtek.com), is the world’s third-largest maker of landing gear for aircraft, particularly helicopters and small jets. It also makes metal enclosures for airborne radar and other electronic equipment. Customers include Boeing, Sikorsky, Bombardier and Embraer, as well as various militaries. About 75% of Héroux-Devtek’s sales come from outside of Canada. In February 2014, the company paid $138.8 million for U.K.-based landing gear maker APPH Ltd., which has four plants in the U.K. and one in Wichita, Kansas....
Surge Energy, $6.26, symbol SGY on Toronto (Shares outstanding: 219.8 million; Market cap: $1.4 billion; www.surgeenergy.ca), produces oil and gas in central and northwestern Alberta and southwestern Saskatchewan. Its output is 85% oil and 15% gas. In the three months ended September 30, 2014, Surge produced 20,327 barrels of oil equivalent a day, up 69.3% from 12,008 barrels a year earlier. Acquisitions—including Longview Oil Corp., which Surge bought for $430 million in June 2014—were the main reason for the gain. Longview’s properties are near Surge’s holdings in southeastern Saskatchewan and central Alberta. Cash flow jumped 60.4%, to $71.3 million from $44.5 million, as the increased output and higher natural gas prices offset lower oil prices. However, per-share cash flow fell 10.8%, to $0.33 from $0.37, as the company issued more shares to pay for acquisitions, boosting the total number outstanding by 79%....
Ed Clark became TD Bank’s president and CEO on December 20, 2002. On November 1, 2014, he retired at age 67. Bharat Masrani officially succeeded Clark on November 1, 2014. Mr. Masrani ran the bank’s U.S. retail operation before becoming chief operating officer in July 2013. Earlier in his career, he served as chief risk officer and held executive roles in TD’s commercial and corporate banking and wealth management businesses. We’ll typically mention a CEO change at one of our stock recommendations when it looks like the new chief executive will significantly alter the company’s direction. An example is when CP Rail lured Hunter Harrison, the former CEO of rival Canadian National Railway, out of retirement to take over the company’s management. Mr. Harrison was hired to make quick and radical improvements at CP and wring much more profit out of its extensive assets and well-established business....
CSX Corp., $36.67, symbol CSX on New York (Shares outstanding: 995.4 million; Market cap: $36.5 billion; www.csx.com), has risen lately, along with most railway stocks. The company has also held merger talks with Canadian Pacific Railway. CSX is the biggest railroad in the eastern U.S. The merger talks have now ended, partly because a deal would face significant regulatory obstacles. However, CSX’s outlook is positive, even without a merger. The company posted higher-than-expected profits in the latest quarter on increased grain and crude oil shipments. Total volumes rose 7%. CSX is also investing heavily for longer-term growth—including new connections in the Chicago area, the worst bottleneck in the rail industry....
Xtreme Drilling & Coil Services Corp., $3.04, symbol XDC on Toronto (Shares outstanding: 82.0 million; Market cap: $249.3 million; www.xtremecoil.com), builds and operates a fleet of drilling rigs and related equipment. The company’s rigs use technology that it specifically developed for unconventional wells, such as shale oil deposits. The company believes its systems let its rigs reach deeper deposits and extract more oil than its competitors can. Xtreme makes two types of rigs: its 21 XDR drilling rigs mainly operate in the Alberta oil sands and North Dakota’s Bakken shale region. The company also owns seven XSR coiled-tubing rigs, which insert flexible steel pipe into oil and gas wells to make horizontal drilling more effective. The XSR rigs mainly operate in Saudi Arabia and Texas’s Eagle Ford area....
Your surest route to investment success is to follow our three-pronged Successful Investor approach:
Of course, I still form opinions on which way the market and individual stocks are likely to move in coming months and years. Some of these opinions fall in the category of predictions—others are more like guesses.
From time to time I share these opinions with investors. Sometimes they turn out surprisingly accurate—other times, not so much. This has become a popular part of our service, so we highlight it under the heading “Guesses, Opinions & Predictions”.
...
- Invest mainly in well-established, high-quality companies;
- Spread your money out across most if not all of the five main economic sectors;
- Downplay or avoid stocks in the broker/media limelight.
Of course, I still form opinions on which way the market and individual stocks are likely to move in coming months and years. Some of these opinions fall in the category of predictions—others are more like guesses.
From time to time I share these opinions with investors. Sometimes they turn out surprisingly accurate—other times, not so much. This has become a popular part of our service, so we highlight it under the heading “Guesses, Opinions & Predictions”.
...