April 2, 2014 Comments

Today, the S&P 500 rose 0.3% and Toronto rose 0.5%.

Canadian Tire rose 1.1% to $106.29. Back in the middle of 2011 this stock had been hammered down by fears of what Target would do to it. I updated it on August 28, 2011 at $52.40 rated Strong Buy. It was trading at just 4% over book value and at a P/E of 10.5 based on trailing earnings. It seemed an obvious bargain. But it had also recently fallen back from prices around $63 and there was never any guarantee that it would be a great investment. I made it my largest holding. Now it has more than doubled. In an effort to be prudent I sold on the way up and reduced my position ultimately to 35%, by share count, of what it once had been. I believe I did buy some shares back on a dip but then later sold those.

Now, Melcor is my largest position. And when I think of buying stocks, buying more Melcor is near the top of my list. By my figures it trades just under book value and at a P/E of 10. But Melcor is more cyclic than Canadian Tire and its assets are mostly marked to market so it is probably not quite the bargain that Canadian Tire was in late August 2011. But it does appear to be a bargain certainly. I heard the head of Edmonton real estate on the radio today opining that house building in Alberta was continuing at a brisk pace. If so Melcor should certainly continue to do well.

I suppose my thoughts should be turning to trimming some positions given recent gains. But I don’t find myself in much of a selling mood.

Very soon we will be into Q1 earnings reports. That always has the potential of moving markets. On Friday we get jobs numbers. The bigger picture seems to be slowly improving economies and interest rates that so far have not risen. That bodes well for markets. Then again there is always the risk of world events such as the situation in the Ukraine or who knows what unexpected event.

Many such event scan have a quick impact on the price of stocks, though they rarely affect the true value of the stocks. The main risk factor that could drive stock values lower is probably a rise in interest rates.

Much investment advice focuses on managing risk. That might be wise. In the long run however it seems that learning to live with risk and volatility is the path to greater ultimate investment wealth.

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