Newsletter - June 24, 2002
Updates:
Updates since last newsletter are provided for Transat
AT and Cognos.
Stock Picking.
I recently studied an excellent book called, What Works on Wall Street. Click
to read my review and summary. This book reveals
exactly which strategies work and which don't.
As part of my own learning from this book, I have decided to lay out a
defined criteria for rating stocks as "Strong
Buy", "Speculative Strong Buy", "Buy" and "Speculative Buy". Previously I have
weighed a variety of value, growth and quality factors to decide which stock is
a strong buy. The book mentioned above caused me to realize that it would be
better to have a firm minimum standard of value for Strong Buy and Buy rated
stocks. Stocks which I like but which don't meet all the strict minimum value
and growth criteria will be labeled speculative picks for future reports.
MORE CONTENT:
Soon you will see more content on this Site. I have contracted with two
individuals to help me evaluate more companies.
PORTFOLIO REVIEW:
In today's tough markets, now is a very good time for investors to review
their equity portfolios.
My belief is that most investors should insure that at least 80% of their money is
in stocks with P/E ratios below 20. Investors can easily check
this by entering their portfolio on Yahoo or globeinvestor and reviewing the
P/E. For
stocks with no earnings or P/E above 20, now is a good time to consider how
likely it is that those stocks will recover.
Maybe it is okay to keep some of these high P/E stocks but it seems risky to have these
represent more than 10 or 20% of a portfolio.
A P/E under 20 does not in any way guarantee that a stock is not over-valued.
But is does eliminate most of the hugely over-valued situations.
OPPORTUNITIES:
Declining markets do provide opportunities to pick up stocks at bargain
prices. The best opportunities probably lie in stocks with real earnings and low
P/E ratios. Good companies that spit out real earnings (or better yet dividends)
have real value. If the market starts to price some of these at low prices then
that spells opportunity.
Some of my most recent picks in that area are available only to members and
trial members of Baystreet.ca. Those picks will be made available to members of
this site by August 31. Meanwhile they can be accessed at
Baystreet.ca by
joining the free trial membership there.
Canadian Western Bank displays consistent
earnings growth and a P/E of about 11. It is falling along with other Banks but
does not face the same issues with international loan losses. I feel confident
that this will be a good investment if held for a minimum of 12 months.
Sino-Forest also seems to fit that bill. The location in China makes it
riskier but the P/E of less than 4 compensates for the risk (in my opinion).
Investors with cash should not rush to invest it all, but averaging into this
market over the next 6 to 12 months should be a wise strategy.
INCOME TAX COMPLIANCE SURVEY:
Last time I asked members to "vote" on whether they thought at least 25% of
investors were likely not self reporting all their capital gains. The result was
close about 47% thought that at least 25% were not reporting. So just over half
of you think that at least 75% of investors are honest enough to self report
their capital gains.