January 26, 2014 Comments

Element Financial is added to the list of stocks and rated Speculative Buy at $12.98. It’s an interesting company whereby an aggressive management has undertaken a a very aggressive growth strategy and turned a small financial company into a much larger one. It is in a somewhat higher risk niche of the lending market. Profits are not (yet?) at an acceptable level. The main concern here would be that it is easier to lend money than it is to =lend money wisely. There is an opportunity to ride along and grow with an aggressive management but also a risk that they have lent and grown too aggressively. It’s worth considering but only for a smaller and more speculative position. We will revaluate after the 2013 annual report is issued.

On Friday the S&P 500 was down 2.1% and Toronto was down 1.5%.

Most of our stocks picks were down including Toll Brothers down 3.4%.

I don’t know if this will be the start of a deeper “correction”. We do know that the the US. market in particular had risen a LOT and that the P/E ratio was getting high (see our DOW and S&P 500 valuation articles). This, in part, explains why we started this year with just two stocks in the Strong Buy range and in general our ratings are lower than at the start of last year. Still, we did see good value in stocks like Wells Fargo, Melcor, and to a lesser extent Canadian Tire, Bank of America and Walmart. Toll Brothers we saw as good value but Speculative. We also had some Buys in the higher yield area.

My strategy will not likely include selling any of these companies (even though I have high exposures to the stocks mentioned, other than Walmart. I mentioned last week that on Thursday I had considered selling some Toll Brothers and of course it now seems clear that would have been a good idea.

In any case, it seems to me that the market is as likely to bounce up on the next bit of good news as it is to bounce down on bad news or negative sentiment. But I accept the risk that stocks can go down as well as up.

I am looking forward to more Q4 earnings reports coming out in the weeks ahead.

My strategy will be to watch for the opportunity to pick up better priced shares. I will not get in a hurry to do so. I believe patience is more a virtue in the markets than is a tendency to act swiftly.

Leave a Reply

Your email address will not be published. Required fields are marked *