InvestorsFriend Inc. Newsletter February 8, 2014
At Last, $10 Trades for Everyone
There is good news for those just getting started investing in individual stocks.
For quite a few years Canadian investors with larger portfolios have been able to trade through self-directed discount brokers for about $10 per trade or even less. All of the large banks have offered such accounts.
Unfortunately those with the smallest accounts were charged about $30 per trade.
The $30 trades meant that realistically the minimum trade size that made sense was roughly $3000. (Since $30 is 1% of $3000). This, in turn meant that it was hard to even get started investing in individual stocks with less than perhaps $30,000. (Since $30,000 would be needed to have ten stocks which many would argue would be a minimum for diversification purposes). The need to have $30,000 to get started and the need to pay $30 per trade was a significant barrier to getting started investing in individual stocks even for people who wanted to do so.
Now a couple of the major banks are offering $10 trades for all accounts. TD and RBC have introduced the $10 trades for everyone and the other bank brokers may soon follow.
Unfortunately, I understand that TD still imposes a $100 annual fee on smaller RSP accounts and charges $25 per quarter as an inactivity fee. RBC does not charge the maintenance fee if you have at least $15,000 across all of your brokerage accounts with them.
With $10 trades investors can consider investing amounts as small as $1000 in individual stocks.
The 2008 Stock Market Crash – Was it Such a Bad Thing?
The stock market crash of 2008 / 2009 was a horrible thing for investors to live through. Many investors lost (at least temporarily) 50% or more of their stock investments. Bonds got crushed as well.
Many venerable and well-know companies went broke with investors losing their entire investment. This included General Motors, Lehman Brothers, Washington Mutual, Wachovia Bank and many others.
The crash bottomed out on March 9, 2009. And, five years later that stock crash is looking like just a temporary dip for the broader stock market indexes.
Investors who simply held on to their stocks have, on average, recovered all of their losses and went on to make good returns.
And it turns out that there were some absolutely incredible bargains available at that time. Investors who bravely bought near the lows have been richly rewarded.
Here are some figures (split-adjusted where appropriate)
| Company | Dec. 31, 2007 | March 9, 2009 | Loss | 8-Feb-14 | Recovery | Gain per year since the low | Gain per year since end 2007 |
| Dow Average | 13,265 | 6,547 | -51% | 15,794 | 141% | 19% | 3% |
| S&P 500 | 1468 | 677 | -54% | 1797 | 165% | 22% | 3% |
| Toronto Index | 13,833 | 7567 | -45% | 13,786 | 82% | 13% | 0% |
| Starbucks | $20.47 | $8.27 | -60% | $74.04 | 795% | 55% | 24% |
| American Express | $52.02 | $10.64 | -80% | $87.00 | 718% | 52% | 9% |
| Canadian Tire | $74.20 | $39.82 | -46% | $95.17 | 139% | 19% | 4% |
| Canadian National Railway | $23.33 | $19.37 | -17% | $60.66 | 213% | 26% | 17% |
| FedEx | $89.17 | $34.28 | -62% | $131.76 | 284% | 31% | 7% |
The last column shows that those who simply rode out the stock market crash have made positive returns. In the case of the stock market indexes the returns were relatively small but still positive. In the case of Canadian National and Starbucks, the returns were exceptionally good.
The second last column shows that anyone who was brave and smart enough to buy at or near the lows has made spectacular returns on those purchases in the five years since the lows.
PREDICTING THE MARKETS
Time and again it has been proven that most investors have no hope of predicting where stock markets are headed. It’s basically a waste of time. People may have some limited ability to predict whether the economy is getting bettor or worse, or if interest rates will rise or fall. But the stock market has a habit of being out of step with these things.
What investors can do is react to stock market levels. If stocks seem very expensive then positions can be trimmed. This is not the same as predicting a market correction. This is simply saying that if stocks are expensive then on average it will be a wise move to trim equity exposures. And if stocks seem very cheap or if they have fallen a lot then it would seem logical to buy stocks. Most investors should buy stocks steadily over their working lives and such a program will tend to work out quite well. It is simply not necessary to predict stock market moves to do well in stocks. As often has been said, the important thing is time in the market, not timing the market.
Subscribe
InvestorsFriend Inc. offers a stock rating service that has a very good track record. Those who are not already subscribers can learn more by clicking this link.
END
Shawn Allen, President
InvestorsFriend Inc.
To see older editions of this newsletter, or to get off of this email list , click here.