November 10, 2001 newsletter from http://www.investment-picks.com
I dedicate this issue to all the brave soldiers who have died or fought for our freedom. These last few decades we have ignored our military and it’s time to give it the support and money it deserves.
UPDATES:
Updates included:
Canadian Tire (Weak Buy)
Canadian Utilities (Buy)
Precision Drilling (Buy)
Quebecor (Weak Buy)
TransCanada Pipelines (Weak Buy)
The next updates will be CAE and Enbridge
Members Only
The following research is available only to members and has not yet been released to casual visitors to to the Site.
CAE inc. (Weak Buy but with speculative potential has done well recently)
Contrans (Buy as a value pick)
Membership
Last time I mentioned that I would be grateful if members would recommend the Site to others. A few did and I thank you. But it’s not quite the response I was hoping for, in my ideal scenario 850 members would each tell two others about the Site and my membership would grow exponentially. Some of you may not know other people who would be interested, but if you do, please consider sending them a link to the site. Most of you would agree that my work is a great resource for Canadian investors and so let’s let others know.
Future of investment-picks.com as a business:
At some point I do need to figure out a way to generate revenue from this Site. This could involve a premium level of membership that, in return for a small fee, gets earlier access to new Strong Buy and Buy research. Another possibility is to charge a small fee for my best picks rather than releasing them for free. I enjoy sharing my work as widely as possible but at some point there has to be a revenue stream. I’d be interested in your thoughts on this.
I’m trying to focus my efforts more and more on providing “investable analysis”. Good, unbiased research takes time to prepare and does have value.
If the membership can grow big enough then there is always the possibility of gaining revenue through some type of advertising or sponsorship.
Performance
I have tracked my performance by comparing how each stock moved from the time I first rated it to today. The performance has been very good. I can’t claim returns of hundreds of percent but I suspect that those who do are usually lying. I was concerned that some of my original ratings are quite old and my performance is getting harder to track because I may later have changed my rating from a Buy to a Sell and also some companies have been bought out so its gets harder to track the performance.
So… I decided to take a look at how well I did on stocks as I rated them 12 months ago. This eliminated some older picks that I was no longer covering. It also excludes any stock that I have not been covering for a full year since these have not yet had time to perform. I am please to show you that my Performance on that basis is very good and very consistent. This provides further evidence that the way in which I rate stocks works (on average).
Investment Theory
I continue to add to my articles on how to analyze companies. I do this because the more ambitious investors can gain value from better understanding the theory. I also find that writing such articles hones my skills as an analyst and allows me to further improve my work.
Recent visitors to the Site may have seen my feature article on picking stocks the Warren Buffet Way.
My latest article sheds some light on the notion of Cash Flow. See the Emperor’s New Cash Flow.
Farewell to the P/E ratio
I will be referring to the P/E ratio quite a bit less. If you read my articles under P/E ratio you will find that this ratio is good as a crude indicator. But it leaves much to be desired in that in some cases a P/E of 12 is cheap while in other cases (low or negative growth, and/or volatile earnings) that 12 would be expensive. The concept of a Price to Value ratio or the price compared to intrinsic value is more difficult to estimate but it arrives at what the P/E ratio is trying to do but in a more sophisticated and reliable manner.
Goofy Management Award
Apparently (and amazingly) there is an Airline with even worse management than Air Canada. “congratulations” to Canada 3000. They no sooner announced that they were buying Royal Airlines then they realized it was a huge mistake and they had over-paid. Their financial advisors should share this goofy award. The airlines were hard hit by September 11, but this was an incredibly stupid and dis-functional industry long before then. (With a very few notable exceptions like West Jet)
To really clean up this industry in Canada would likely require completely new companies operating under non-union rules. And why not let the American companies compete in Canada? A country always benefits in the long run from cheap imports, whether that be cheap cars, cheap steel, cheap beef, cheap air travel or anything else. Canadians can use those cheap imports to create a cost advantage in other industries.
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Regards and thanks for your interest,
Shawn Allen
Editor
investment-picks.com