InvestorsFriend.com Newsletter Dec 14, 2003
Saddam Hussein
I would think that Saddam's capture will breath some more life into the
market tomorrow (Monday Dec. 15). In the long-run though I don't think it will
have much impact. The U.S. market is not suffering from any kind of a "terrorist
discount" and therefore a lowering of the terrorist threat cannot really help
it. I'm sure that there are some international markets that do suffer from
"terrorism discounts". That is not my area of knowledge but I suspect a bit of
digging would uncover the appropriate markets.
Canadian Dollar
A lot of commentators used to decry the low Canadian dollar claiming that
every drop was a decrease in our standard of living. If that were true then we
all got a huge raise in our standard of living this year as our dollar soared to
77 cents. The problem is that it was not true, the level of our dollar does not
much affect our standard of living. It could only do so if our prices moved up
as the dollar fell and down as the dollar rose. But there seems to be very
little relationship between the dollar and inflation. At least within a certain
range the level of the dollar does not affect us much. Of course it would have a
big impact on anyone, including corporations, that does a lot of cross-border
transactions.
The higher dollar will generally hurt companies that produce in Canada and
sell internationally and will help companies (such as some retailers) that buy
goods in the U.S. and sell their products in Canada.
Stocks To Buy
My approach, like that of many value investors, is to buy good companies at
good (or great) prices.
It is not that hard to recognize a good company if you keep your eyes open.
It's not necessarily the companies that give you a great deal as a consumer,
though it can be (i.e. Wal-Mart, Costco). It may be a company that is able to
charge a premium price but still make a lot of sales. (Harley Davidson, Nike,
Microsoft).
The trickier part is trying to figure out if the "greatness" of a particular
company is already fully reflected in its stock price or not. If you want to
attempt that, I would suggest a heavy course of reading of books on investing
using fundamental and value based approaches (as opposed to charting or
"technical" approaches). In addition, this Site has a number of articles on
investing based on fundamentals.
The Strong Buys featured on this Site are up over
50% in 2003, and have consistently performed much better than the market,
the past four years. There can be no guarantees that this will be the case in
2004, but the same careful, highly analytical approach will be used.
Right now the Site is featuring four Strong Buys. Three of these are
dividend paying stocks which tends to indicate lower risk. I suspect that as a
group these four will be very good investments (but there are no guarantees of
course). Now is a good time to Subscribe to our
Stock Picks since I will be making an extra effort to update all the stocks for
January 1, in order to have a good base on which to measure results in 2004. In
addition I will introduce a new model portfolio for January 1, which will have a
goal of out-performing the market without taking excessive risks. The 2003 model
portfolio is up about 34% in 2003. Individual stocks in the model portfolio rose
an average of 48% but the portfolio lagged this due to some prudent profit
taking to lock in gains.
INSIDER TRADING
It's often not well understood that insider trading is not generally illegal.
It is only illegal when insiders are in possession of material non-public
information such as knowledge of a pending merger or acquisition transaction.
Some people would argue that company directors should not be allowed to trade
the company's stock. I find that ludicrous. To me, it is a very positive signal
when directors or other insiders buy shares on the open market with their own
money. Conversely it is a negative signal when they sell. As an investor, I
would like to be able to know about these trades immediately. Strangely, but not
surprisingly, I know of no company that issues press releases when insiders
trade. However, in a brazen example of selective disclosure, some
companies let stock analyst know about pending insider trades ahead of time.
(They would argue that this does not constitute material information, so there
was no need to tell the public directly).
In Canada until recently, it was not feasible for small investors to access
insider trading data. (The data was not timely, was costly and was not presented
electronically).
Finally, Canada now has a new System for Electronic Disclosure by Insiders.
The Site has been described a bit clunky and you have to drill down several
levels to find the data. The following link
https://www.sedi.ca/NASApp/sedi/SVTItdController?locale=en_CA will take you
directly to the part of the Site where you can find insider trade data by
company. You just need to check the equity box and choose to search by company
(issuer) name. This is really handy, insider trades are posted within 10 days of
the trade. It's a very good idea to check this Site before buying or selling.
A lot of the insider trades are under regular purchase plans or involve
exercising options and then selling immediately. These trades are more routine
and don't offer much of a signal. I would focus on shares that are bought and
sold in the open market. Also, if a guy owns 1,000,000 shares and sells 10,000
it may not be much of a signal. Look at the insider selling as well as how many
shares the insider still holds.
With all this new access to Insider Trading, I suspect we will see a bit less
insider selling. That is unfortunate. Companies that are in a bit of trouble may
encourage insiders not to sell as it would drive down the share price, when
investors saw the insider selling.
END
Shawn Allen
President, InvestorsFriend Inc.