2014 and 2013 daily comments

December 31, 2014

Element Financial is updated and rated Highly Speculative Weak Buy at $14.14. This company may do very well. Management is expanding it very aggressively. I spent a full say looking at its reports. I just could not get comfortable with what I feel is its aggressive view of how to calculate adjusted earnings and with its high executive compensation. It compensates executives very highly, mostly with stock options but also with millions in cash incentive pay. It then proceeds to add back the stock-related compensation as if it were not a real expense. I totally disagree with that view. In a recent acquisition it paid out $24 million in contingent compensation ($14 million in cash) and then added all that back because it was not an ongoing expense. I have some sympathy for that view but then again if they do repeated acquisitions this expense will occur again. With their method this expense is totally ignored forever. They even add back all income taxes on the basis that they will not pay cash taxes for the next 20 years. That does not give me comfort that the earnings are “real” and basically is simply distasteful to us. Finally, the provision for bad debt looked low to me. I could have rated this a By, albeit a highly speculative one, but overall I am more comfortable calling it a highly speculative weak Buy. Perhaps I am just jealous of the high salaries of management but I just don’t feel comfortable with this investment. (I edited this paragraph on Jan 1 with very minor edits, I generally never change any posts after they are written except I occasionally fix obvious typos, if changes are at all substantive I will make a note of that or add it as a P.S. to identify it was written after the original post)

December 30, 2014

On Tuesday the S&P 500 was down 0.5% and Toronto was down 0.2%.

I will have a few more updates before the start of trading for the new year.

Bombardier Inc. is updated and rated Speculative Buy at CAN $4.11. It reports in U.S. dollars and does most of its business in U.S. dollars. Our report is therefore in U.S. dollars. The emphasis here is on the word “speculative”. The company has a LOT of negative aspects. But it is likely moving into a period of improved profitability. It is a low margin business but the upside of that is that a given increase in revenues can lead to a large increase in profits. For investors willing to take a risk this could be a good speculative choice. I will consider increasing my position.

The Bombardier perpetual preferred shares report is updated and rated Speculative Buy. at $21.84 These yield 7.2% because Bombardier is a weak company. There is some risk here. And the possible upside is certainly not as good as on the common shares. I hold shares. I am attracted to the 7.2% yield despite the risk. We first added to this site on June 17, 2010  at $21.75. So, overall it has delivered the 7.2% yield since then but has had no capital gain. In the that period of time the shares were mostly above $22 and got as high as $25 but were recently as low as $21 and so there can be volatility.

December 29, 2014

On Monday, the S&P 500 was up 0.1% and Toronto was up 0.4% despite another decline in the price of oil.

Most of the stocks on my list were up. Liquors Stores N.A. was up 3.3% to $15.46. Maybe some of their stores are doing well. But in my area they have too many stores and the industry has FAR too many stores. One of their small competitors, Solo Liquor is trouncing them in my area. Then there is Super Store Liquor Stores and Costco to compete against. As far as I can see the earnings don’t justify the price. They recently issued stock. I suppose that keeps the dividend safe for a while. But unless earnings increase I don’t see how the dividend can be maintained longer term. And perhaps the earnings will increase but I am just not seeing any sign of it.

Melcor was down 1.9% to $19.51. This is a thinly traded stock which has very little analyst coverage. The market has pushed it down due to lower oil prices. It could certainly fall further and its earnings could certainly be hit hard by low oil prices. But it seem to me that there is a margin of safety here in its assets. Very few profitable companies trade at less than book value. But Melcor’s stock trades at 75% of book value. And that book value consists mostly of raw land, developed land and commercial rental buildings. Those seem like solid assets. Of course land values could plummet if there is a very deep recession in Alberta. And the value of commercial rental buildings would also decline. But it seems to me that it would take a deep and relatively permanent recession in Alberta to justify Melcor trading at 75% of book value. I feel good about holding Melcor but only time will tell how the economy in Alberta unfolds.

December 28, 2014

Alimentation Couche-Tard is updated and rated Sell at $47.50. I feel I am going out on a limb by rating this great company “Sell” but it just seems too expensive at this time. We had rated it only a (lower) Buy at the start of this year and it is now up 78%. We first added it to this site on March 31, 2005 rated (lower) Strong Buy at a split-adjusted $5.80. Since then it is up 719%. Over the years we mostly had it rated in the Buy range and sometimes the Strong Buy range and never in the Sell range. I did (sadly) sell my own shares in April 2012 when it “popped” on the announcement it would acquire Statoil Retail. I have always been impressed with management and the growth. Those who own it could consider selling or reducing their position.

December 27, 2014

FirstService is updated and rated Weak Buy / Hold at $US. 49.95 or CAN $58.49. Due to both its cyclical nature and to a number of accounting complexities it has a been a difficult company to value or predict. I have always thought that it was well managed. It may be worth investing in based on its management. It will also benefit if the U.S. economy continues to improve.  It’s unfortunate that I cannot be more definitive in rating this and other companies as either a buy or a sell. But in theory the stock market is supposed to do a good job in valuing companies and when it does most companies should be rated Hold. It is only a minority of companies that tend to look like clear Buys or clear sells at any given time. Canadian investors face currency risk in investing in FirstService. This is the case even when it is bought on Toronto. Currency risk is linked to where the earnings come from, not from where a stock trades. For this company, the price on Toronto will fall if the Canadian dollar rises, all else equal.

December 26, 2014

Fedex is updated and rated Weak Buy / Hold. This company has been difficult to rate over the years due to its profits being quite volatile with the state of the economy in recent years.

eBay is updated and rated Weak Buy / Hold at $57.01. This is a difficult company to rate for several reasons. First, it is to be broken up into two companies in 2015. More importantly it is subject to the risk that larger financial players like VISA or the banks will eventually dominate the online payments business or at least push the margins in that business down. Its marketplaces (eBay and classified ads) may be subject to less competition than the PayPal business.  Given its current market position I would consider buying it as a speculative pick except for the fact that I just don’t trust and respect its management due to their insistence on adding back stock options as if they were not a real expense and also due to the very large compensation and due to a recent flip-flop on the issue of breaking up the company.

December 25, 2014

On the short trading day of Wednesday the 24th the Canadian and U.S. markets were about flat overall.

Melcor was up 4.0% but as always it can jump around more than other stocks due to its thin trading.

The thinly traded Canadian Tire voting shares (CTC) lurched up 10% to a new high of $260. This makes no sense to me and I don’t see the basis for it. The non-voting shares (CTC.a) are at $122.

Yesterday I sold about 25% of my Wells Fargo shares at about $55.60. After the sale it will still represent close to 15% of my equity investments. I had basically been letting this ride despite having a very large position in it. I also added to the position at lower prices in October. Considering that I also have a large position in Bank of America and a very large exposure to Toll Brothers, I have overall a very large exposure to the U.S. economy and the rebound in its housing market.  That is probably a good bet but it certainly seems prudent, given my exposure, to trim this somewhat at this time.

I don’t believe that Toronto is open for trading on the 26th but I believe the U.S. markets will be open.

December 23, 2014

On Tuesday the S&P 500 and The DOW again hit record highs.

The S&P 500 was up 0.2% and Toronto was up 1.1%

Most of the stocks I monitor were up. Canadian Western Bank was up 3.3%. Melcor was down 2.2% which I would attribute more to randomness and the thin trading than anything.

I am pondering if I should trim my Wells Fargo position tomorrow. It makes up a rotund 19% of my equities. I have not taken profits in Wells Fargo in quite some time. Selling it would be an opportunity have at least a modest cash position. The news from the American economy has been quite strong and so maybe I should hang on. But prudence would suggest that I trim the position. I am leaning towards trimming.

December 22, 2014

On Monday, the Dow and the S&P 500 hit record highs….

The S&P 500 was up 0.4% while Toronto was down 0.3%.

Melcor was up 3.2% at $19.56…

I note the very (very) thinly traded Canadian Tire voting shares have dropped from recent highs of $257 to $202,. The non-voting shares are at $123. (The voting shares should probably be about the same.) I said the voting shares were an accident waiting to happen. Maybe they will go back up but I see no reason for it. It seems to me  highly unlikely that 1) Canadian Tire voting shares are about to be sold by the founding Billes family and that 2) in any case the voting shares even then would be worth more than the non-voting shares even if that unlikely scenario came to pass. The voting shares seem to have defied gravity for several years now. I doubt that that can continue indefinitely.

December 21, 2014

Costco is updated and rated Weak Buy / Hold at $141.77. Based on the P/E at 29.5 we could have rated it a Weak Sell. But one has to respect the fact that it is the one of the very lowest cost and most efficient retailers in the world. It will continue to grow. And it could increase profits at will by raising prices or using more debt. But it is very unlikely to raise its markups and there is no sign that it will leverage up or do things like sell off its real estate. We first added it to this site in 2008 rated (lower) Buy at $72.55. Most of the time since then we have had it rated Weak Buy or even Weak Sell. The earnings and the share price multiple have both done better than we would have expected.

The weaker Canadian dollar will hurt it somewhat next quarter. But the price might not fall because it will likely still do very well in the U.S. In the perhaps unlikely event that it fell to $125 or especially $115 I would then consider buying it. It’s a powerful company due to its low costs and so even though the P/E is high, the P/E could stay that way. I certainly would not expect the P/E to rise.

December 20, 2014

On Friday, the S&P 500 was up 0.5% and Toronto was up 0.8%. The oil sands ETF, CLO was a notable gainer, up 5.0%.

American Express is updated and rated Buy at $92.90. We first added American Express to the site last February 8 rated Buy at $87. We also indicated that a reasonable strategy might be to take a quarter or half position and look to add on dips. That is what I ended up doing. Since February the price has varies from about $84 to $96, with a recent dip to about $80 with the stock market weakness that bottomed in mid October. Overall there has not been that much of an opportunity to buy on dips. I would continue to want to hold a modest position and look to buy more on any sharp dips. Canadian investors have benefited from the slide int eh Canadian dollar. But I don’t attribute that to American Express. That gain is associated with the decision to be invested in U.S. stocks in general and is not associated with the particular stock chosen.

December 19, 2014

On Thursday, the S&P 500 was up 2.4% and Toronto was up 0.9%.

Almost all the stocks on our list were up.

As always I don’t spend much time trying to predict where the market is headed. Basically no one can because it is subject to many random events. Instead I focus on trying to react to existing stock prices by trying to find and buy some companies that appear to be under-valued and to sell out of (or reduce) positions that I hold that become apparently over-valued. This is an exercise that at least has a chance of success. Trying to predict random events does not seem worthwhile. Some people may have success predicting how long certain trends will last once set in motion. I don’t think very many have success at that. trends may also end for random unpredictable reasons.

Investors should decide if they think of stocks as ownership of small pieces of real businesses or as mere squiggles on a  screen. Most apparently are in the second camp.

December 18, 2014 12:45 pm  eastern, 9:45 am mountain time.

Wednesday was a strong day in the markets and today, Thursday is strong as well.

Canadian Western Bank and Melcor have risen somewhat.

Couche-Tard (note, our analysis is out of date due to the large price increase) is up 7.6% after announcing a large acquisition. There has just been no stopping this company. I have long said it is one of the best managed companies in Canada. In July I thought it was a reasonable but not a screaming buy at $29.26. Now it is $45.78. I sold my shares a few years ago after gaining a bout 100% and thereby missed out on much larger gains. The value was helped by the lower Canadian dollar as most of its revenues comes from outside of Canada.

When it comes to world markets I wondering what the fallout will be from the Russian situation. Also, I wonder who has lost money on oil futures. When there are massive changes in currency values and commodities there are huge traders and possibly investment banks somewhere that are on the wrong end of those bets. And their losses can cause ripple effects on financial institutions. So far I have no seen any news or concern about this.

December 16, 2014

On Tuesday the price of oil did not drop – which was news. The S&P 500 fell 0.9% while Toronto rose 1.1%.

The oils sands ETF, trading under the symbol CLO rose 4.5%. A number of stocks on our list rose but none by exciting amounts especially given the recent declines. Although CN rail was up 2.7%.

Oil was trading again this evening and appeared to be giving back Tuesday’s increase.

December 15, 2014

On Monday the S&P 500 fell 0.6% and Toronto fell 0.2%

Melcor was down another 2.2% to $17.80, Canadian Western Bank was down 1.8% to $29.41.

A few stocks on our list rose – Couche-Tard up 4.1%, and Element Financial up 2.7%.

My long-time and large investment in Melcor certainly has taken a pounding down recently.  And I bought more as it fell. Canadian Western Bank also went down a lot and I bought too early on the way down. I also bought a small amount of Stantec after it fell — and then it fell some more.

These three Edmonton-headquartered companies have fallen due to the lower oil prices. I did not anticipate that oil would fall like that. I have never attempted to predict oil prices and have generally not invested in energy stocks over the years. I did have some exposure to CLO the oils sands ETF for the last two years or so – and managed to add to that position on the way down.

Even with oil down I have been surprised at how far Melcor and Canadian Western Bank have fallen in response. It’s my assessment that Melcor is trading well below its intrinsic value and the same is true to a lesser extent of Canadian Western Bank and Stantec. It is true that if oil prices stay very low then a reasonable assessment of the intrinsic value of these companies will fall. But at this time I would judge these stocks to be under-valued.

If the Alberta economy is larger in several years then it is now then it seems highly likely that these stocks will be significantly higher in several years.

In regards to the reasons for the low price of oil I can’t pretend to have any special knowledge. But here are my thoughts.

I would say that the notion that the Saudi’s are letting oil drop simply to protect market share seems a bit absurd. To use some made up but illustrative numbers: Can it really be true that they would rather have say 30% of a $50 billion market ($15 billion for them) than say 28% of a $100 billion market ($28 billion for them)? These are made-up numbers but that would seem to be the illustrative result if they push oil prices down by 50%. It seems to me that having a market share for a finite resource like oil is a bit different than having and maintaining a market share for something like Coke. It would seem logical that a country would want to maximize its short- and long-term benefit from a finite resource. Driving the price lower would be a strange way to do that. Decreasing production at times of low oil prices would seem more logical.

One explanation for low oil prices that I have heard centers around the Saudi’s desire to economically hurt some of their enemies. That makes more sense to me.

Another explanation is that they are trying to drive shale oil out of the market. That seems unlikely to me since even if current shale producers are bankrupted the resource would still be in the ground and would be bought up on the cheap out of bankruptcy auctions and so would likely then be able to produce at lower oil prices due to the low cost of acquiring the resource.

We are also told that demand for oil is dropping. Yet the graphs I see show it increasing. Perhaps they mean increasing at a a slower rate.

We also hear that oil supply outstrips demand. What does that mean? Do they mean potential supply? I thought Economics 101 teaches that supply must equal demand and that the price adjusts to make that happen. I believe I was taught that every barrel of oil (or anything else) that is supplied (sold) must also be demanded (bought). Perhaps they mean some oil is bought for storage, but that is still demand. Or perhaps we are into some new math of economics?

Or perhaps 90% of what we hear on business television is again the need for talking heads to fill air time whether they know what they are talking about or not.

But I am not suggesting that I know where oil prices are headed. In the short term that would seem to be anyone’s guess. In the longer term I would guess higher but it’s an uneducated guess on my part since I don’t pretend to know the economics of the business. My uneducated guess would be that oil demand will keep growing to some extent with the world economy. And I would be surprised if that demand can be met at lower prices but again I have never followed the economics of the business.

It will be interesting to see if Warren Buffett comes in with an oil investment sometime during the period of low oil prices. I certainly would not be surprised by that. However, upon checking a site called www.warrenbuffett.com I see that Buffett is busy attending football games at the moment. The man gets around. I marvel at how he manages his time so well. It helps to have private jets at his disposal. Still…

December 14, 2014

Toll Brothers is updated and rated Buy at $31.56. This stock was added to the site in mid 2011, rated Speculative Buy at $21.03 at a time when it was suffering heavy losses. I added it to the site as a way to benefit from the expected recovery in U.S. home building and home prices. After that the stock briefly got as low as about $14 and has been as high as $39 and has spent the past two and a half years mostly in the $30 to $37 range. It’s earnings recovered steadily from negative levels and were recently at an “acceptable” level with a P/E of about 17 depending on how one adjusts for unusual items. This company is unusual in that it operates with a predictable lag of perhaps 15 months from signing a sale to delivering the house and booking the revenue and profit. While earnings continues to increase rapidly in 2014 its contracted sales in terms of number of units were flat with 2013 although up 7% in dollars. however signed contracts were up 10% in units and 16% in dollars in its latest quarter. It now seems likely that its earnings growth will be quite modest in 2015. But if signed contracts exhibit strong growth then the share price could increase on that basis. Now that its earnings have returned to a reasonable level and given the price to book value ratio does not seem excessive at 1.52, this company now seems like an attractive investment. It has potential for significant growth if U.S. new home construction levels return to historic levels and if the economy there continues to recover. Canadian investors face the risk that the Canadian dollar could rise against the U.S. currency.

On Friday, the S&P 500 fell 1.6% and Toronto fell 1.3%. Almost all of the stocks on our list were down as well.

December 11, 2014

On Thursday, the S&P 500 was up 0.4% and Toronto was also up 0.4%.

Most of the stocks on my list were up somewhat.

A notable decliner was Melcor, down 7.0% to $18.35. This is a thinly traded stock and can be volatile partly for that reason. But apparently the market is afraid that oil prices are going to stay low and that Melcor’s sales of new home building lots are going to decline substantially and/ or that the prices it obtains for lots is going to decline materially. I notice the Melcor REIT units have not declined much in price and were up slightly today. This would seem to suggest that the market has not (at least not yet) pushed down the value of commercial investment properties. 45% of Melcor’s assets are investment properties of which its ownership in its REIT is part. If the investment properties have not declined much in value with the oil price decline then it would appear that the market believes that Melcor’s land inventory has declined in value quite significantly. And perhaps it has or will if indeed oil prices remain low and if that in turn causes a serious decline in housing starts and lot prices.

I continue to view Melcor as a good investment especially for the long term. I am already heavily exposed to it but may add to my position.

A director at Melcor bought 1000 shares a few days ago at just under $20.

Similarly an executive at Canadian Western Bank bought 2000 shares in the past few days at about $31.50.

Perhaps we will see more insider buying which would be a positive signal.

December 10, 2014

On Wednesday, the S&P 500 fell 1.6% and Toronto fell 2.4%.

Almost all of the stocks on my list were down.

The biggest decline was for Toll Brothers, down 7.9%.

Toll Brothers released earnings this morning. Earnings were up 25% compared to the same quarter last year. The company’s earnings and sales have risen rapidly since the low point in 2011. It appears that 2015 will see modest growth but the company was quite optimistic about 2016 and beyond.

This recent market decline marks the third time this year that markets have pulled back noticeably. On the past two occasions our stocks picks recovered on average. Markets are always unpredictable in the short term. In the long term they do continue to rise. The average large corporation is not going to stop making money or to stop growing its earnings.

December 9, 2014

On Tuesday, the S&P 500 ended the day about flat while Toronto gained 0.4%.

Canadian Western Bank fell another 1.5% and I added to my position in it. Most of the stocks I track were up somewhat today.

As I drove to work this morning I heard on the business news that “oil is plunging”. That sounded depressing. But, actually, they meant it plunged the day before. It was actually up for the day at the very time they were spreading that false news. In my mind it is almost never correct to say a stock or commodity IS rising or IS falling. That would appear to suggest that someone knows the direction something will head next, rather than the reality that they simply know the direction something headed in the past. And if they really do know where things are headed they ought perhaps to be buying or selling based on their apparent knowledge of the future. I mean every “trend” turns around at some point. How do people who say something IS rising or IS falling know that it did not turn around just as they made their claim? Are these the same sort of people who say things like “my gut tells me XXX will go down another YY%”? Or I “see” it headed down another ZZ%. Do people really listen to the advise of people’s guts or what they “see” (apparently in the stars). Oh well, there are 24 hours times multiple business news T.V. channels and other business news media outlets and they have to fill all that air time with something. And people do listen to this stuff, they will even constantly ask where do you “see” ZZZ heading? I say good luck with that approach to investing. And luck will be needed, I suspect.

December 8, 2014

On Monday, the S&P 500 fell 0.7% and Toronto was down 2.3%.

Once again lower oil prices were causing investors to bid down the price of many stocks.

Many reports will say that investors “pulled money out of stocks”. It’s true that some investors did so, but they could only do so by having other investors buy their shares. As a population, investors are powerless to pull money out of the market. The overall TSX market had a lower value today than it did on Friday. The difference in wealth was not “pulled out”. Instead, it evaporated into thin air. That’s how markets work.

The value of the overall stock market index should, in theory, reflect the present value of the future cash flows from the market index from now to eternity discounted at an appropriate interest rate. As forecasts of the growth of earnings and of interest rates change then the valuation of the market changes. These changes tend to be fairly radical at times in both directions. On some days the average investor makes money, on other days the average investor loses money. Those gains and losses basically come from thin air (or at least not from other investors) reflecting future expectations. In this aspect of the market winning days outnumber losing days because over time the present value of the future earnings from the overall stock market index (of corporate Canada or of corporate America as Buffett likes to say)  is constantly (but irregularly) growing as the economy expands over the years. This is a positive sum game, the average investor wins over the years. Layered on top of that, everyday some individual investors profit at the expense of other individual investors as they trade stocks with each other. That part of the market is a zero sum game.

Notable decliners today among the stocks I follow included: Canadian Western Bank down 2.8%, Stantec down 3.0%, Couche-Tard down 3.1% and Constellation Software down 3.9%.

Under the category of “Life is Just Not Fair”, we can perhaps file the fact that Berkshire Hathaway was up 0.8% today and has been setting new all-time highs quite regularly including today. And I read today that the recent huge gains in Berkshire has pushed Warren Buffett past Carlos Slim Helu into second place on the list of the world’s richest people. Number one on the list is Buffett’s very close friend, Bill Gates.

Perhaps we can take some comfort at this time from the fact that Buffett never let oil prices or macro economics interfere with his investment decisions. He simply bought the best companies he could find that were likely to earn the highest profits per dollar that he invested. He then benefited as those companies grew through investment of retained earnings. Or, if they paid a high dividend he took that money and repeated the process. He selected only companies that he felt were simple to understand — those where he could predict with confidence that earnings would grow relatively rapidly. And he focused on their earnings, not their share prices. The ideal scenario would be a share price drop even as earnings grew so that he buy more shares (of a fundamentally more valuable company) at a lower price. He never relied on the ability to sell the shares at a profit. He bought companies that he expected would ultimately be good investments if held forever and never sold. But he also did occasionally sell shares when the price seemed over-valued or he had better used for the the money.  When he bought outright control of an entire company for Berkshire, it was always “for keeps”, never to be sold. As he would say, the returns made in this fashion  have been “satisfactory”.

Shares of most profitable companies, and most certainly the broad market indexes, tend to move upwards over time. But not in straight lines. A volatile market presents opportunities for those still in the investment phase of their lives to buy more shares at opportune prices. Unfortunately, once one is in the phase of life where savings are being drawn down it is difficult to see an upside to market declines. Only if dividends are larger than the annual withdrawals or if there was a substantial allocation to cash or to assets that have not fallen in price is there much opportunity to take advantage of lower prices.

It is interesting that it is always AFTER the market falls 10% or whatever that everyone seems to get fearful. It might have been more logical to have been more fearful when the Canadian market was higher. Similarly with oil. At $64 people seem fearful of further drops but at prices over $100 they were not so fearful of a decline. I certainly can’t predict short-term oil price movements. It’s probably safe to say that oil will be over $100 again. Whether that will be in one year or five years or more I don’t know. Does anyone?

December 7, 2014

Canadian Western Bank is updated and now rated (lower) Strong Buy. Its share price has recently fallen from the $40 to $42 range of this past Summer. Nothing it its achieved earnings explains the decline. Rather, the decline is based on fears of a slow down in Western Canada (and possibly a spike in loan losses) due to lower oil prices. The company itself is projecting somewhat lower earnings growth of 5 to 8% in 2015. Obviously a slow down could a occur. Nevertheless on the numbers and on its past record of growth this stock looks relatively compelling at this price. But those who buy should, as always, be prepared to withstand a decline if that should occur.

Stantec is updated and rated Buy at $31.15 (It had a recent two for one stock split). At the start of this year we had rated it Weak Buy at $32.93 (split-adjusted). Since then its trailing earnings have increased 7.1% or 9.5% annualized and its book value per share has increased 12.1% or 16.1% annualized. On the basis of trailing earnings Stantec is a better value now than it was at the start of 2014. There are fears that its outlook for growth is lower no due to lower oil prices. However this may be offset by growth in the U.S. and by the lower Canadian dollar. About 40% of its revenues are from the U.S. I had sold my the last of my shares in Stantec in late 2013 at about $34.50 (split-adjusted) after making a very strong gain. Now I have started to buy back in. I don’t consider it be a strong Buy (which would be a more compelling Buy) but I do consider it to be a Buy and expect that it will be a good long-term investment. The short-term is always unpredictable.

December 6, 2014

I have updated the composition of my own portfolio. For this update I included an explanation of why I like to track the P/E ratio and earnings of my overall portfolio. I had started doing that years ago based on some advice I read from Warren Buffett. Later I could not find where he had said that. Recently I was re-reading his old annual letters and came across the advice in his 1991 letter.

My own portfolio gain for 2014 is still good at 10.2% despite the recent declines in Melcor which is my largest position.

On Friday the S&P 500 gained 0.2% and Toronto was about flat.

Most of our stocks rose but Canadian Western Bank fell another 2.2%. I think that is a buying opportunity. However, I have always said that banks can be risky. They operate with extreme financial leverage. At the same time a well managed bank is an earnings generating machine most of the time. In the past when Canadian Western was hammered down to low prices on fears of loan losses, those losses did not appear and the stock recovered. At this time the fears may involve both lower growth (which is certainly quite possible, even probable) and higher loan losses (which is possible but perhaps not probable to any great degree). Time will tell.

December 4, 2014

Thursday was a nasty day in the Canadian markets with Toronto down 1.9% while the S&P 500 was down 0.1%

Our Alberta stock picks were hard hit with Melcor down 6.2%, Stantec down 2.1% and Canadian Western bank down 4.6%.

I was surprised to see Canadian Western Bank down 4.6% to $33.15 after announcing record earnings of 72 cents per share and a 5% increase to the dividend after having already increased the dividend about 6% since this time last year. If it were to make 72 cents per share for four quarters that would be $2.88 per share or a P/E of 11.5.  It’s actual trailing earnings are $2.70 or $2.76 adjusted for a few items and so the actual trailing P/E ratio is about 12.1. That’s an earnings yield of over 8%. That seems attractive with interest rates at record lows.

Obviously there is a lot of fear in the markets and people are bidding down the price of stocks linked to the Alberta economy due to low oil prices. Will the the down draft continue? I can’t predict that. What I can do is observe that these three stocks alls seem to be trading at attractive prices. Alberta may well have a slow down. But I don’t think it will be permanent. It simply seems to me that on the face of it these three should all be good long term investments.

I added to my Canadian Western Bank position today. It’s always been my strategy to add to positions at lower prices unless something has happened to change the long-term positive outlook for the companies.

I may have to suffer more short term pain before seeing the long-term gains. Time will tell.

Melcor is trading at 76% of book value. And the assets that you can buy for 76 cents of the equity value on the balance sheet consist almost entirely of land, investment properties and accounts receivable. If a huge company came into Alberta and wanted to replicate these assets it seems certain that they would have to pay more than book value for the land while the investment properties and the accounts receivable should be obtainable at book value. Then there would be administrative costs to set up the business. So, it seems attractive to me to be able to buy the equity ownership in these assets for 76 cents on that dollar. In my experience it is rare for profitable companies to trade down near, let alone under, book value. The market however appears to fear that the profits are about to plunge with lower oil prices. That is always possible. It’s my belief that equity investing involves accepting a certain amount of risk and volatility.

December 3, 2014

Wednesday was a better day for the Canadian stock market with Toronto up 0.9%. Meanwhile, the S&P 500 was up 0.4%.

Canadian winners today included Canadian Western Bank up 2.0%, Stantec up 1.9%, and FirstService up 3.6%.

After the close of trading Canadian Western Bank released its Q4 earnings and reported another record quarter. Here are some value ratios calculated based on its trailing earnings as at Q3 (When I enter the Q4 numbers the value ratios will improve slightly). It’s trading at 1.85 times book value. It’s ROE is 14.2%. It retains 68% of its earnings and pays out 32% as a dividend. The dividends  yield is modest at 2.3%. But if you have an earnings engine that that is making 14% on equity it’s questionable if it should pay out any dividend at all. If you had a bank account paying double digit returns would you withdraw any money?

One can always come with scenarios of doom. What if the Alberta economy tanks due to low oil prices? What if the bank suffers huge loan losses. Well anything is possible but the question is, is this company more likely to suffer that problem or more likely to keep growing its earnings? I have been tracking it for just over 15 years. During that time its stock price is up 604% or a compounded average of 13.6% per year. It’s had its downs as well as its ups in those 15 years. I certainly like its chances for being a good investment over the next ten years. As far as the next 10 days or ten months that is harder to predict. But I am happy to climb aboard and see what happens.

December 2, 2014

Tuesday was yet another interesting day in the markets.

The S&P 500 was up 0.6% whole Toronto was about flat.

Most of the stocks on our list were up. But three Edmonton-headquartered companies that I like were down. Melcor was down another 2.8% to $20.77, Stantec was down 3.0% to $31.11 ($62.22 adjusting for its recent split) and Canadian Western Bank was down 1.8% to $34.08. I have been following two these for over 15 years and the third for 12 years. All three have seen big price drops on more than one occasion over that period. And all three have done very well over that period. I consider all three to be very well managed companies. I suspect all three will be excellent long-term investments. In the short term they could certainly continue to go down, as can any stock.

Today I bought back into Stantec which I had sold last year at about $69 (about $35 adjusting for the split). I also added to my Canadian Western Bank position. It’s entirely possible that my buying on this dip has been too aggressive and too early. Only time will tell.

Berkshire Hathaway’s A shares closed today at an even $225,000. It is almost beyond comprehension that these are the same shares that were trading at about the $14 to $18 range when Buffett took control of the company in 1965. In late February Buffett’s annual letter will tally up the results of his first 50 years of running Berkshire. Other stocks have rocketed thousands of percent in a short time. But I am not sure if any others can claim a gain of over one million percent in the last 50 years or less. If there was another, it was likely a penny stock. A one cent stock going to $100 (adjusting for splits) would be a one million percent increase, so maybe it has happened.

December 1, 2014

Monday was another ugly day for the Canadian stock market. Toronto was down 0.8% and the S&P 500 was down 0.7%.

The last I had looked the Canadian dollar was up about three quarters of a cent which reduces the value of American stocks when measured in Canadian dollars.

Notable losers included CN rail down 5.1% (apparently on fears there will be less crude oil being transported). Stantec was down 3.4%. Both of these stocks trade actively in the U.S. as well as Canada. My unscientific observation is that U.S. markets are often a lot faster to push a stock down on bad news. It may be that a higher percentage of market participants in the U.S. are trading on pure momentum and when they see a dip they push prices down fast as many people head for the exits and the only way to find buyers is at lower prices. The fact that these two trade in the U.S. may be part of the reason for such a rapid drop.

I considered buying some Stantec today but I don’t have much cash left in my accounts. Stantec’s earnings come from all over Canada and the U.S. and I don’t think are all that tightly linked to the Canadian energy “patch” or to energy in general.

I may sell more of my rate reset preferred shares to raise some cash. But I hate to sell unless I can get somewhat more than I paid.

Meanwhile seeing a new offering for a 4.5% five year rate reset preferred share from Husky (I got the notice from TD Direct) I put in for 500 shares of that. That was before I noticed Stantec was down.

Another decliner was Canadian Western Bank down 3.9%. I added to my position today. I believe it is due to report earnings in the next week or two.

Liquor Stores N.A. has announced that it is selling 3.4 million shares at a gross price of $14.65. (and presumably somewhat less than that net of fees_. The process will be used “initially top repay outstanding indebtedness under its credit facility, thereby freeing up borrowing capacity that may be redrawn and applied, as required, to fund, among other things, working capital, acquisitions, construction and/or renovations of new or existing stores and information system upgrades.”

The current share count is 23 million, so this is a hefty 15% increase in the share count.

This is a high dividend entity. It is constantly paying out cash and now it is selling shares to raise cash. I struggle with how that makes sense mathematically.

I realize that REITs do this and I hope to do some analysis to understand why it makes sense for REITs.

If a REIT or a Liquor Store chain is paying a dividend from the profit or at least cash flows on existing buildings and stores and then uses newly raised cash to build new buildings or new stores, maybe that makes sense (Although I am not really convinced of that).

But in the case of Liquor Stores N.A. it has been paying our more than it earns lately.  As a consequence , its debt has increased. On the face of it, it appears to have been borrowing to maintain the dividend. It has done some investing in stores, but lately not more than its depreciation expense.

I do think it is a good thing for the company to sell shares. The sale will strengthen the balance sheet and I think they are getting a good price for the shares. If the company is getting a good deal selling the shares at $14.65 (less costs) are the share buyers getting a good deal?

Maybe this will all work out and Liquor Stores N.A. will resume its former growth. But I am just not convinced.

November 30, 2014

Canadian National Railway Company (CNR or CN or CNI) is updated and rated Weak Buy / Hold at CAN $81.23 and U.S. $71.05. I have now been “tracking” CN for 15 years. Its share price is up a staggering 905% in that time or 17% per year on average. I have not tracked its ROE all the way back but in the last five years the ROE has been above 20%.  That explains much of the earnings and share price growth. I have long described CN as having to some extent monopolistic characteristics. The stock is up 34% this year to date . That’s a HUGE gain for such a large company. Part of the recent gain is explained by the lower Canadian dollar because its U.S. earnings are worth more as the Canadian dollar sinks. It has also see huge growth in hauling crude oil in the past few years and it had a bumper crop of grain to haul in 2014. I like it very much as a company. But as a stock it seems somewhat expensive and I am not a buyer at this price.

Regarding Liquor Stores N.A.  I lost money on that company and, more importantly, some others no doubt invested based on our analysis (albeit at their own risk) and lost money. We have it rated as a Sell at $13.31 and it is currently at $14.85. So, I may be somewhat biased against it. (We all have our biases whether we admit it or not). In any case I was in one of their stores yesterday. (I have to admit they have convenient locations, which is the reason I was there for a small purchase). In other news I spoke to someone recently who had worked at one of their large new Wine and Beyond stores. This person told me that sales were slow in November and that some staff shifts had been cut back. I imagine all liquor stores will do pretty well in December. But the problem in Alberta is there seems to FAR to many stores.

November 29, 2014

Friday was an ugly day in the market for those with exposure to oil and gas stocks or anything related to it.

The S&P 500 was down 0.5% and Toronto was down 1.2%.

Lower oil prices hit the Toronto market hard. I have always been clear that I have no ability to predict oil prices. It seems there are some people who, also having no such ability, nevertheless thought and claimed that they had that ability. Jeff Rubin threw away a very lucrative career as chief economist at CIBC World Markets in order to be free to go forth and warn the world that oils was going to get WAY more expensive. On a quick Google search I find the following: “In April 2008, Jeff Rubin, chief economist at CIBC World Markets, predicted a barrel of oil would cost $225 by 2012. With oil at $118, it was a controversial call.” In 2009 he quit his big job in order to publish his book predicting “peak oil”.

Well at least Jeff had the courage of his predictions. He was wrong but honorable. With the current lower oil prices I am sure we will hear from many who will claim to have predicted it. Many will also jump on the band wagon and predict prices to go lower.

Again, I can’t predict oil prices. I have often mentioned in the posts below that lower oil prices were a risk to the Alberta economy. I did not predict it but I noted the risk.

My approach to investment over the years has not been to avoid risk. It has been more an approach of accepting risk. In particular I accept short term risk when I think the long term outlook for a company is solid.

While my own account saw losses in the last two days, I am still ahead by 11.9% this year which is not a bad result.

Back to Friday’s stock movements…

Melcor was down 6.5% to $21.51. With the lower price I (perhaps in an act of stubbornness) added modestly to my position at $22.10. And I placed an order to buy a bit more at $21.10. Our latest update on the stock indicated that it looked very good based on its numbers but specifically mentioned the risks associated with oil prices and the Alberta economy. I am comfortable holding it, but it is not without risk. Other notable declines, in stocks on our list, were CN rail down 4.4% and Stantec down 1.8%.

U.S. stocks fared better. Walmart was up 3.0% to $87.54

Costco continued its winning ways, up 1.7% to $142.12.

The drop in the Canadian dollar on Friday also pushed up the value of American stocks when measured in Canadian dollars.

November 27, 2014

On Thursday, the American  stocks exchanges were closed. But Toronto was open and fell 0.8%.

I got clobbered on my oils sands ETF CLO which was down 8.7% to $10.59. This ETF reached a high of $16.00 in late Spring / early summer this year. That’s a decline of  34%. With this decline I added a little to my position at $10.73.

Obviously the decline in oil prices is a worry for the Alberta economy.

Canadian Western Bank fell 4.1% to $35.95. I had an order in to add to my position in this bank if it fell to $35.75. As a few days ago that looked unlikely. But it did touch $35.75 today. My order was for 500 shares and I got 100. Canadian Western Bank has a very strong history and I like it at this price. It’s share price could certainly drop if oil stays low and its earnings could too. But longer term on  the balance of probabilities this will turn out to be a good investment.

Canadian Tire had a strong day, rising 1.8% despite the weak market.

My guess is that tomorrow will see some bounce back in oil prices.

The Canadian dollar fell today which does push up the Canadian dollar value of any U.S. stocks that we own.

Given this display in Canada, it will be nice to see the U.S. markets open tomorrow even if for just a half day.

November 26, 2014

On Wednesday, the S&P 500 was up 0.3% and Toronto was down 0.2%.

Liquor Stores N.A. was up 1.6% to $14.91. Looking at the earnings and looking at the low level of business at their stores in my area and looking at the extreme level of competition in Alberta I would use the price rise to sell this. I sold at lower prices…

I notice Agrium was down 1.8% to $109.20. I sold last week at $116.69, so with one week down and infinity to go, my sell looks like a good move so far.

Today, Manulife was out with an IPO of 5 year rate reset preferred shares. With a yield of 3.8% I did not buy any. Some of the rate reset shares that I bought earlier this year had yields as high as 4.5% and seemed like safe companies. My threshold is 4%. At 4% or more I don’t mind grabbing some of these as an alternative to cash. But given some risk that they could trade under the issue price I am not going to bother buying any under 4.0%.

The one investment that has been a noticeable negative for my portfolio in the last several months is my investment in the oil sands ETF, that trades under the symbol CLO. This ETF is not on my list above but has long been on my list of Canadian Exchange Traded Funds.

In 25 years of investing I have rarely owned any energy or mining stocks or any other commodity stocks. And that was working well. I bought this one for perhaps a silly reason, to get “exposure” to this sector. This spring I was sitting on about a 30% gain and considered selling but I kept it. Now I am sitting on a 5% loss. I certainly had no ability to predict short-term oil prices. At this point there seems to be a lot of pessimism around oil prices. At this point I will likely keep this and will even add to it if it goes down much more. At some point oil prices will likely rise again but I have no idea when. Also perhaps this one will rise if Keystone pipeline is approved in January. I am not in a big hurry to buy more commodity companies.

November 25, 2014

Canadian Tire is updated and rated (lower) Buy at $125.50. The stock is up 26% this year to date. We had rated Buy at $99.49. Normally it might be expected to rate a weak buy / hold after a 26% gain in 11 months. But the earnings per share have risen about 14% since the Q3 2013 numbers that we used to arrive at the Buy rating for the start of this year. Based on earnings it is roughly 10% more expensive per dollar of earnings than it was year ago.

A bit if history…

I have mixed feelings about Canadian Tire’s performance. I still own 700 shares and so I benefit from the rise. But in the late Summer of 2011 I owned 3736 shares and the price was $57 (and my price paid was likely below that). It was my largest position. Back then the stock was selling down close to book value and seemed like an obvious bargain. We had it rated Strong Buy at $52.40 in an update of August 27, 2011. I mentioned it to a number of people back then even outside of this web site and the general reaction was quite skeptical.

Somewhat regrettably I started selling too soon as the stock rose in price. It had been over 20% of my portfolio which by conventional wisdom was WAY too high. Perhaps I should have ignored such conventional wisdom and let it run up to 30% of my portfolio. In any case I made good money on this investment despite taking some potential gains off the table too early. Also, I did buy some back on dips after selling and then sold those again later but that helped my return versus simply selling.

At its current price it could keep rising. But it could also easily slip back 10% or more on an earnings stumble. Such a slip would likely be a buying opportunity.

I notice the Canadian Tire voting shares CTC are now trading at $255 over 100% higher than the non-voting shares CTC.a The voting shares are extremely thinly trades (635 shares today). I have been skeptical about the huge premium on the voting shares for a long time. And so far I have been wrong. But I firmly believe that these voting shares are an accident waiting to happen. Over 90% of the voting shares are held by the founding Billes family (Matha Billes 41%, her son 20%), the dealers association and the employees profit sharing plan.  In this situation the ability to cast a vote seems pointless as the controlling owners can always win every vote. Possibly someone is trying to get a hold of several percent to try and get a Board seat. Back in the 80’s there was a big take-over battle for Canadian Tire and someone tried to buy control by offering a high price for only the voting shares. The courts ruled against it and there is now a stipulation that if someone buys a majority of the voting shares then all shares become voting. It does not look like anyone could gain control without all shares becoming voting. In theory one might gain effective control by buying only Martha Billes 41% but it is highly likely that such a move would face challenges. And, if someone wanted to Buy Martha’s shares, why would they fool around buying a few percentage on the market at a huge premium?

I conclude that the $255 voting shares are an accident waiting to happen. Someday, someway they will end up worth no more than the non-voting shares. That is my long-term prediction.

On Tuesday the S&P 500 was down 0.1% and Toronto was up 0.4%.

Couche-Tard was up 4.0% on another good earnings release.

November 24, 2014

On Monday the S&P 500 was up 0.3% while Toronto was down 0.6%.

Toll Brothers was up 0.8% which put it just above $35. In October it had gotten down under $30 and I reported adding to my position under $30. Stantec was down 2.1% at $34.00 (it recently split 2 for 1). I am tempted to buy back into this company at this price.

November 23, 2014

As another year draws to a close our performance figures for 2014 look good. Our two Strong Buys from the start of the year are up 19% (Wells Fargo) and 18% (Melcor). The average for all the 15 stocks rated in the Buy or Strong Buy ranges is a gain of 10.9% which matches the rise in the TSX. My own total portfolio is up 14.1% despite having a healthy allocation to cash most of the year. Regarding my two RRSP accounts the gain there was 13.4%. If I calculate this year’s RRSP gain as a percentage of the total money that ever went into these two RRSPs the gain on that basis is 107%.

Friday was a strong day in the markets with the S&P 500 up 0.5% and Toronto up 0.2%

I mentioned that I had placed an order to sell any of my pref. shares if they happen to rise to about $26.00. They only pay 4 to 4.5% per year and $26 is 4% higher than the $25 I paid for these and I figured I might as well grab the 4% if they go to $26. Also it was a way to “play” market volatility.

For  Brookfield Asset Management series F preferred share I set the sell price at $26.10 and it sold on Friday. I had bought these at the IPO at $25.00 as noted under May 27 below. I have received one dividend on September 11 of 36.06 cents per share. (I believe the first dividend was for a bit more than three months). So in total I had a return of $1.4606 per share or 5.84% in about six months. So, that is a good return. Some would calculate this as 11.68% annualized but I don’t really think that is a useful way to look at it. In the other half of the year that money might be in cash earning nothing or in stocks earning or losing who knows what. So I just look at it as a 5.84% return. But yes it is nice to do that in six months on a low risk investment. Maybe I would have been better off to hold the shares but that depends what I do with the funds received.

I posted a new article with some very basic math on how to value cash flows from things like safe bonds and safe preferred shares where the cash flows to be received are known with close to 100% certainty.

I plan to write another article extending this valuation to stocks where the cash flows are always uncertain (but sometimes can be conservatively estimated).

November 20, 2014

On Thursday, the S&P 500 rose 0.2% and Toronto rose 0.6%

Couche-Tard was down 3.8%. I did not see any news top explain why.

November 19, 2014

On Wednesday the S&P 500 was down 0.2% and Toronto was about flat.

Bombardier was up 2.0%. The company always seems to have its struggles. I’d certainly like to see it it do well. It seems to have great products but is in a very competitive industry.

Walmart was up 1.4% to an all time high. It’s still a powerful competitor in the market place. A lot of people sort of wrote it off as an investment in the last decade but it has quietly increased it earnings and gone about its business.

I see a report today that grocer Metro has seen sales benefit due to a rise in meat prices. Actually I don’t think a business benefits when its sales rise simply because of inflation. Same store volume sold matters more than same store sales dollars. If , for example, prices fell 5% and a grocer’s sales fell only 3% I would call that a great quarter because volume had increased 2%. Analyst focus too much on same store dollar growth. If they had the figures they would likely focus on same-store volume growth. But such figures are typically not available. In a world of 3% inflation a grocer needs 3% same store dollar sales growth just to stand still. If inflation were 0% and same-store dollar volume great 2% that would be a strong result, and far superior to 3% growth in a 3% inflation world.

November 18, 2014

On Tuesday the S&P 500 closed up 0.5% for yet another record high. Toronto was up 0.6%.

The biggest gainer for the stocks on my list as Agrium which closed up 2.6% at $115.60. This morning it was as high as $117.56 or up 4.3%. At my recent update of this stock I was relatively luke warm on it. So, this morning seeing a 4% jump and not immediately seeing the reason for it I decided to just sell my relatively modest position. I sold at $116.69. It seems that the reason for the gain today was that another company had had to shut down a potash mine and this would push up the price of potash.  I had bought the shares at the end of June for just under $100. So, I was up about 17% and just decided to take my gain and move this money into cash. Perhaps I should have held to see what happens with the activist investor. I considered selling just half but it was a relatively small position so I just cleared it out.

My thinking is also that I don’t mind having some cash in the account just in case we get a pull back related to the economy or “geo-politics’ / world terrorism.

November 17, 2014

On Monday, the S&P 500 was up 0.1% and Toronto was up 0.3%.

Canadian Tire was up 1.7% to $127.137and set another high. It’s up 28% this year. And that’s on top of a 43% gain in 2012. It started 2013 at $69.38. I have not yet updated for its excellent Q3 results. Given the strong Q3 the stock is probably still not very expensive. Still, I took most of my money off the table on this one. I still hold some in a taxable account. In tax free accounts where there is more freedom to trade without capital gains taxes I would be inclined to reduce my position at this price (But keep in mind I have not updated my analysis for the Q3 earnings – nevertheless, that is how I feel at the moment).

Liquor Stores N.A. was up 2.9% today. Having lost faith in management of that company, if I had not already sold I would be using this current increase as an opportunity to reduce or eliminate this position.

I mentioned activist investors yesterday. Sometimes they certainly push share prices up. But when I look at the most successful and fastest growing (in terms of share price) companies that I have followed for may years none of them benefited from an activist shareholder. They all have had the same CEO for many years or else promoted CEOs from within. This includes Stantec, Canadian Tire, Melcor, Canadian Western Bank and Alimentation Couche-Tard. I believe that would also include all the big Canadian banks and Wells Fargo and. of course, Berkshire Hathaway.   It seems to me that activist shareholders are a big benefit only where current management is relatively incompetent.

What about some companies that took in CEOs from outside? Nortel was one, Blackberry is another. Air Canada under Robert Milton was one. I always take it as a bad sign when a company feels that it must go outside for a CEO.

November 16, 2014

As you may have seen in my email of yesterday if you are on the list for my free newsletter, I am currently working on a series of articles that shows with actual data that people who invested annually in U.S. stocks (the S&P 500 index) over a 30 year period have ALWAYS ended up at least preserving their spending power after inflation and, on average, have more than tripled their spending power, after inflation. And keep in mind that when money is saved regularly for 30 years, the average length of investment is only 15 years. The results from investing in the S&P 500 index only get better when longer time periods are examined. These results are not restricted to the S&P 500 index, but that is the index for which I have all required the data.

Here is a link to the first article in this new series.


On Friday the S&P 500 was flat while Toronto was up 0.4%.

Alimentation Couche-Tard was up another 1.6% and is up a stunning 52% this year. Subject to further updates we would judge it too expensive at this point. (I personally sold this one WAY too early). This company flies somewhat under the radar but is truly an amazing Canadian success story. Element Financial was up 3.1%. It has been relatively volatile. Liquor Stores N.A. managed a 2.9% gain on Friday after releasing earnings that did not look impressive to me.

Agrium is updated a rated Speculative Buy at $113.19 or U.S. $100.28. It’s a strong company with excellent past growth. It is also cyclical. At this time earnings have been declining and I do not find its valuation to be compelling. It might be worth holding as a speculative pick. The recent share price increase due to an activist investor getting involved is s=not something that enters my analysis. Maybe that investor will encourage actions that “release” value. But to me, activist investors are only a benefit where a company was poorly managed and where a change of management can be brought about which appears to have been the case at, for example, CP Rail. I did not own CP rail and I can not think of a single case where one of my investments benefited from an activist investor in all the years I have been investing.

Agrium is a complex company. It’s relatively new to our list and I can’t say that I have really internalized a lot about its operations to the point where I have much of an understanding of its economics and outlook. In addition its product prices are very cyclic and so are some its major input costs including natural gas.  I cannot claim any particular insight into its future earnings. I do think it is an interesting company and one that I will enjoy learning more about. Looking simply at the numbers right now it is neither very expensive nor very cheap. Given the recent share price rise which was simply associated with activist interest I personally am perhaps more inclined to reduce my position and take my modest profit than I am to add to my position. The path of least resistance for me is to just continue hold my modest position.

My plan for the rest of this year (six weeks) is to try to get all the stocks updated for Q3 earnings releases or any other earnings releases out by year end. Every year I try to start to the new year off with everything updated relatively close to to the end of the year. At that time I also tend to delete any companies that are both well out of date and which I don’t update due to lack of time or interest in them. This year there may not be any deletions or at most about two. After that early in the new year I would hope to find time to add a few new and perhaps interesting stocks to the list.

November 14, 2014

On Thursday, the S&P 500 was about unchanged while Toronto fell 0.5% on lower oil prices.

After the close Melcor announced that it would sell $138 million worth of its rental buildings to its 47% owned REIT. It appears that $45 million will be paid through issuance of REIT units to Melcor which will increase its ownership of the REIT to 56%. Fundamentally not a whole lot is happening here since property already carried at market value is being sold to an entity which Melcor owns about half of for market value. If the market views this as favorable to the REIT and its growth then the REIT units might rise which would in turn pull the Melcor shares up. If nothing else this news may bring Melcor to the attention of investors which should be positive for its price.

Berkshire Hathaway announced this morning a small to medium acquisition. It will buy the Duracell battery brand from Proctor and Gamble for $3 billion. It’s an odd deal in that Berkshire will pay for it by trading essentially all of the shares it owns in Proctor and Gamble. To make things even out Proctor and Gamble has to throw in $1.7 billion in cash. This is really not a large acquisition for Berkshire which has $517 billion in assets.

Buffett / Berkshire has held P&G shares for many years. The shares were acquired when P&G bought Gillette which Berkshire had previously owned for quite a few years. In recent times P&G had come in for some criticism and as I recall Buffett had been mildly critical.  Buffett was sitting on HUGE capital gains on these P&G shares and would have faced hundreds of millions in income tax if he simply sold the shares. So this acquisition allows him to trade the P&G shares for Duracell and likely will not generate any capital gains taxes.

I had been surprised over the years to hear that Duracell was a money loser or at least not a big profit maker. When you look at the price of batteries and consider manufacturing efficiencies, I would have though they would be a high profit item. Also Duracell is a strong brand name. To me, this looks like a good fit. Buffett gets yet another brand name business. And he will set it up so that he president of it or top manager will have big incentives to minimize the capital invested and maximize profits. Berkshire will make sure that Duracell has all the money it needs to invest appropriately and to advertise. Any excess cash flow will go straight to Buffett to invest elsewhere. Duracell will be relieved of certain head-office related costs and will likely have a reduced burden of reporting. Buffett will want all the details on weekly sales but they won’t likely have to spend time preparing budgets and strategic plans or Board presentations for Buffett since he is not a big believer in such things.

For Proctor and Gamble this is basically a massive stock buyback funded partly with cash and partly with its Duracell unit.

Berkshire (B) shares are up 23% this year to $146. Buffett has crushed the likes of Doug Kass who was stupid enough to short Berkshire shares in the Spring of 2013 at prices from about $90 to $110 who and even got invited to speak his silly views at the 2013 annual meeting. It would be one thing to simply choose not to own Berkshire. That is perfectly valid. But to short the company was just stupid.

Liquor Stores N.A. released earnings after the close. While the same store sales growth was good at 3%, profits are down somewhat compared to last year. As noted previously, I basically gave up on this company. I used to think it could be a good growth and industry consolidation story with scale advantages but I basically lost faith in management.

November 12, 2014

Wednesday was a case of another day and another few dollars made. The S&P 500 was down 0.1% but Toronto was up 0.6%

Gainers included Canadian Tire up 1.7% to $126.00. Agrium. up 2.3%.

I noticed an offering today of Melcor REIT convertible debentures at 5.5%. I got an alert email from TD Waterhouse. It looked somewhat tempting. One of the problems with new issues is there is usually zero time for analysis by the time the alert comes out. There may have been a preliminary prospectus filed earlier but few investors would be aware of it. If I am not mistaken, the institutional investors do get time for analysis. This takes place in a “road show” process that follows strange archaic rules. I believe it is an instutionalized form of legal selective disclosure. Whatever, there are alwys parts of the market that are unfair to retail investors. On the other hand there are PLENTY of opportunities for retail investors. Institutional investors are usually somewhat forced to go along with the crowd where as retail investors are free to be contrarian whenever they wish. Ultimately, one does not beat the market (the crowd) by following the crowd.

This particular convertible debenture sold out quickly. All else equal a convertible option on a REIT may not be as attractive as a convertible option on a more normal corporation. REITs dividends all their earnings and so can have a hard time growing the unit price. Perhaps Melcor will grow but it does not have the advantage of retained earnings to add to the growth in price per unit.

With the lack of time for any analysis and with the fact that I am already hugely exposed to Melcor I decided not to grab any of this convertible debt.

November 11, 2014

While many of us had today off the American and the Canadian stock markets were both open.

As happens every day “the market” or at least the consensus opinion of the marginal sellers and the marginal buyers of each stock changed the view of the value of most every stock. Some up, some down, a few basically unchanged. This happens everyday and, except for as few as four times a year, usually has nothing to do with any real specific news about the companies involved. Sometimes it has to do with general changes in the economy such as interest rates or jobs reports. Most of the time (probably at least 90% of the time) these day to day price changes are basically meaningless noise. When the moves are larger or accumulate up to larger moves over a period of time we can perhaps use the price change to advantage in buying and selling — assuming we have some idea if the stock is now over-priced or under-priced.

Despite the fact that the movements are usually noise, we do tend to pay attention.

In the longer run there is a method to this noisy madness and stocks tend to rise or fall  for important fundamental reasons over the long term.

And sometimes what looks like daily noise can in fact be linked to important fundamental reasons. Sometimes the reasons are fairly widely known (but I may not be aware of them) other times the reasons could be relatively unknown such as leaked information.

In today’s noise:

The S&P 500 rose 0.1% and Toronto rose 0.3%

Toll Brothers was up 2.3% (In fairness there is some signal on this one as this movement is still related to its improved sales figures released Monday morning).

Melcor fell 1.8%. I certainly consider that to be noise because the stock is thinly traded and therefore subject to downside volatility simply because an extra trader or two decides to sell on a given day. Similarly its price can rise a few percentage points just because a few extra people decide they want to buy on a given day.

I notice the debentures of Liquor Stores N.A. were up 1.4% to $104.98. These pay 5.85% on a $100 and mature in about three and a half years. So roughly this looks like about a yield to maturity of about 4.15% considering that the current yield is 5.57% and from that I would deduct about 1.42% per year to reflect it maturing at $100. (The math is not exact here but should be close). The debentures also are convertible into common shares at $24.90. At the moment the common shares trade at $13.70 and the company has been struggling. So I can’t see much if any value on that conversion option.

For a yield of around 4% and reasonable stability of price or expected redemption I would look to some of the rate reset pref shares I have mentioned.

Overall I would ascribe the little rise in this debenture to its low trading liquidity and what I might call “silly buyer syndrome”. Note that I did rate these a (lower) Buy in August 2013 at $104. But at that time the common was at $15.90 and seemed more likely the conversion option could pay off. The trade up to to $104.98 today looks like noise to me.

November 10, 2014

On Monday the S&P 500 rose 0.3% and Toronto rose 0.1%

The Canadian dollar fell which raises your wealth if you own U.S. assets and measure your wealth in Canadian dollars. But it lowers your wealth if you have Canadian assets and measure in U.S. dollars. If you are Canadian and own Canadian assets that are unaffected by currency (houses would be one) then the currency change really has no impact. Most people would measure their wealth in the currency in which they live. If you think you might spend 25% of your wealth in the U.S. then a logical approach might be to have 25% of your investments in the U.S. and then ignore currency movements. That is measure two pots of wealth, a Canadian pot and a U.S. pot and ignore currency changes.

However, some Canadian companies are affected by changes in the dollar. In general those that have costs in Canadian dollars and sales in U.S. dollars (exporters) benefit from a lower Canadian dollar. Those who face costs in U.S. dollars and sell in Canadian dollars (many retailers) are hurt by a lower Canadian dollar. Hedging can offset this for a while but it can only be a temporary solution. (Virtually no company does or even can hedge out more than a couple years.)

Toll Brothers was up 2.3% today after an early release of its latest quarterly sales figures.

As of today, 2014 has been a bumpy but rewarding year.

November 9, 2014

Melcor is updated and rated (lower) Strong Buy at $23.89. Its just released Q3 earnings report was very strong. There was however a modest market value decline on some of its rental buildings and this could be a sign of more to come. Based on achieved earnings and the fact that it is selling at about 92% of book value per share this is clearly a Strong Buy on that basis. However it is a cyclical company and so that certainly adds risk in the shorter to mid term. If Alberta’s economy declines materially such as due to lower oil prices then the share price would likely decline. A sharp rise in interest rates would likely have the same effect. Longer term It is very likely to be a good investment barring any large and permanent decline in the Alberta economy. Overall based o the achieved earnings and the price in relation to earnings and book value, I feel quite comfortable owning this stock. But like most stocks it is not without risk.

November 8, 2014

Berkshire Hathaway is updated and rated (lower) Buy at $143.61. Berkshire has always been difficult to analyze because its results are a bit volatile by nature due to the impact of catastrophes on insurance results. Also its earnings have been under-stated because when it owns say 9% of Wells Fargo it only gets to report the dividends as earnings and not its full 9% share of earnings. These missing earnings turn up in gains on the Wells Fargo shares but those do not flow into earnings. For this update I have introduced a new view of adjusted earnings for Berkshire based on the assumption that its adjusted earnings are 10% of book value per share since it has increased its book value per share by a (lumpy) average of 10.7% per year in the last ten years (and the last five years was over 14%). On this basis its intrinsic value appears to be in the range of $129 to $169.

On Friday the S&P 500 was about flat, while Toronto rose 0.9%.

November 6, 2014

In Thursdays market the S&P 500 rose 0.4% and Toronto rose 0.1%.

Melcor rose 3.0% to $23.90. Volume at 21,500 shares was a little higher than normal. It’s a somewhat thinly traded stock. The value traded today was about $514,000. And lots of days it might trade only $100,000 worth.  By way of comparison, Royal Bank traded about $144 million worth today and Stantec traded about $9 million worth. Melcor is thinly traded but it’s not incredibly thin. It has enough trading volume to suit the needs of most retail investors. One simply has to be a bit more cautious in buying and selling to not simply put in a market order as the price can move even on a few hundred shares bought or sold. It’s best to put in an order at a specific price (a limit order).

About the only time I worry about really thinly traded stocks is that I would not put an extremely thinly traded stock on my list because in that case a few buys from my subscribers could push the price up. I never ever engage in trying to push stock prices up. I try to predict which stocks will rise (on the basis of fundamentals). I would never engage in promoting a stock in the hopes of causing it to rise. I consider that to be unethical even if the stock truly should rise. It’s definitely unethical if a stock is not worth much and someone tries to push the price up just so that they can sell at a profit. Always be cautious is someone is promoting a very tiny company or a very thinly traded stock. Those are prime candidates for “pump and dump” schemes.

I was a bit surprised when Royal Bank rated Melcor a Buy this Spring. With their many thousands of brokerage customers I would have thought Melcor would be too thinly traded for them to rate it.

November 5, 2014

On Wednesday stocks rose. In part, this was due to the republican gains in the U.S. elections.

The S&P 500 was up 0.6% and Toronto was up 1.1%.

Some notable gainers included:

VISA Inc. up 2.7% at $250. This is a company that touched under $200 less than three weeks ago on October 15.  A 12.5% gain in three weeks would not be out of the ordinary for a small company. But this is a HUGE company.  The market cap is $157 billion. On October 15 the market cap was about $126 billion, or $31 billion less than today. It’s interesting to ask where did this extra $31 billion which we might say is “invested in Visa” and “invested in the market” come from? The answer is from thin air. The extra $31 billion is a result of investors simply deciding to bid up the price of the shares. In theory this is because investors have decided that the risk-adjusted or present value of all the probable future earnings of VISA is now about $157 billion, $31 billion more than the perception of the of the value as of October 15. It’s not likely that both of these perceived valued were “correct”.

The financial press likes to describe a price rise as money flowing into a stock. As popular as that description is, it is in fact totally wrong. It is certainly not the case that anything close to $31 billion “flowed into” VISA stock in these three weeks. In fact basically not a cent flowed into or out of VISA. It did not pay a dividend though it may have gone ex-dividend which should have decreased its price by 40 cents, which is immaterial. And a small amount of options may have been exercised but that would be immaterial and also would have added to the share count and should have decreased the share price if anything. And there may have been some share buy backs which would be money flowing OUT of VISA as opposed to in. What happened was investors traded shares of VISA among themselves and bid up the price by $50 and so bid up the market cap by $31 billion but those trades were between investors and did not involve any cash flowing to or from VISA. I am not sure of the total dollar volume traded but it basically has no relation to the $31 billion in any case. (VISA can trade $500 million a day and the stock can go up or down, there is no relation here).

I had rated VISA as only a (lower) Buy on October 12 at $212. It certainly looks expensive now. I had the trailing P/E at 25 at $212, so now it would seem to be about 29, which is high. But the recent share price illustrates that it is hard to keep a good (largely unregulated and near) monopoly down. It seems I recently sold too early at $241 and so I may be a bit biased for that reasons, but I would not buy it now and since I sold at $141 it can assumed that I would certainly be a seller at $250. I would not however short the stock which is a FAR different game. Also the I note that the P/E based on analyst projected 2016 earnings is 20 which is high but not outrageously high. On that basis holding could still be a reasonable strategy. If I held it I would want to be in a position to add to the position if it fell back to $220 or $210 or so.

Okay, other gainers:

Canadian Western Bank up 2.4%, Canadian Tire up 2.2%, The oil sands ETF CLO on Toronto up 3.1% (This one appears on our list of Canadian Exchange traded Funds and is in my own portfolio though not on the list above.)

As far as decliners, Constellation Software was down 3.5% but this is after recent sharp rises.

Melcor was out with strong earnings after the close. This stock looks like excellent value, But there is the risk of a decline in the Alberta economy with lower oil prices. The company has not seen any slowdown and continues to say it is cautiously optimistic. This is my biggest holding which is a risk, but overall I feel very good about owning it. I await to see if there is any price reaction tomorrow.

November 4, 2014

I remember times when the markets seemed boring for weeks and months at a time. But it seems like its been years since that was the case.

Today the S&P 500 fell 0.3% and Toronto fell 1.0% as oil fell about 3% to just over U.S. $77.

I got fairly clobbered with Melcor down 4.7% to $23.15. A 4.7% decline hurts when its your largest position. On the other hand today’s loss comes at a time when my portfolio had in recent days regained and surpassed its previous high for the year. So, perhaps it just my turn. Since I have a highly concentrated portfolio and one with significant exposure to Alberta and oil, a certain amount of volatility is not surprising.

Canadian Western Bank was down 3.8% today to $36.24 and I grabbed some more of that. Also grabbed some more of the oil sand ETF CLO on Toronto which was down 4.3%. That may seem a strange and dangerous strategy given I already had heavy exposure to oil. But it fits in with my usual modus operandi of buying low or at least lower.

I am confident (but can’t guarantee) that Canadian Western Bank will be going higher in the long term.

As for oil, I really have no ability to forecast that but am just buying the oil sands ETF at this lower price.

As always. some stocks rose today. Costco was up 1.7% to another record high.

Sometimes buying on dips can turn into short term pain for (hopefully) eventual long term gain. That is a risk I am taking.

Couche-Tard was up 1.7%, possibly helped by the small cuts to merchant fees that were announced by Visa and MasterCard. Regarding those fee cuts I have not seen any information on how the cost is shared between VISA Inc. and MasterCard versus the banks.

Agrium rose 1.2% on earnings that were lower but that beat expectations. I will plan to update Agrium within a few days.

I mentioned the other day that tend to sell those rate reset preferred shares that I bought on IPOs this year when they hit $26. I had thought one of them was over $26 but I had the wrong symbol. I have now placed orders to sell any of these that hit $26. This is in RRSP and RESP accounts where I don’t have to worry about tax consequences.

November 3, 2014

On Monday the S&P 500 was about unchanged while Toronto fell 0.5%.

Oil fell 2 or 3% to close under U.S. $80. This pushed the Canadian dollar down so that it worth only 88.1 U.S. cents.

I should probably start to get a bit concerned about the price of oil because I am indirectly but perhaps heavily exposed to oil through Melcor and Canadian Western Bank. (P.S. forgot to mention my oil sands ETF symbol CLO on Toronto) However, I am not inclined to reduce that exposure.

With the Canadian dollar at about 88 U.S. cents I have placed an order to move some cash from A U.S. money market account to a Canadian money market account. In part this is due to the favorable exchange rate but its also because in that account I had a fair amount of U.S. cash and little Canadian cash so this will balance that out.


November 2, 2014

Dolllarama is updated and rated (lower) Buy at $99.02. As I mentioned back on September 27, 2013, this is one of the best managed companies that I know of. They are shockingly profitable. Unfortunately the shares have always traded at a high multiple so it it never looks like a bargain. Certainly, I would like it better at say $85. If I were to buy this, I would buy what amounts to a quarter to half position and hope that the price fell to allow me to buy more at a lower price. Alternatively, rather than buy at $99, I could place an order at say $90 and see if it dips. But its not that likely to dip unless the whole market dips.

In the last 18 months or so Dollarama has been buying back shares quite aggressively. Some people consider that to boost earnings per share by mere financial engineering. In this case while it adds to earnings per share growth the underlying growth was already very strong. This is a growing company but it still has excess profits that it can use to buy back shares. Also it increased its use of debt. But I see nothing wrong with that as long as the debt level is still relatively modest which I consider it to be.

On Friday, the S&P 500 was up 1.2% and Toronto was up 1.1%.

That was driven by renewed quantitative easing in Japan. I can’t pretend to very much understand quantitative easing and the ultra low interest rates that result. Low interest rates make the returns on stocks look attractive in comparison to bonds.

This rapid recovery from the recent market decline has been a pleasant surprise. The U.S. market has fully recovered. My own portfolio has fully recovered and is back to a 14% return for the year. I certainly can’t pretend to accurately predict where the market will head next. On the last dip I reacted by buying. At this time I will look to see what I might sell.

I notice at least one of my rate reset pref shares went above $26 on Friday. The Brookfield A pref. My habit with these rate rest prefs has been to sell when they hit $26 so I will look to do so tomorrow. My reason to sell at $26 is that it is 4% higher than $25 and these things only pay about 4% per year and I expect they will eventually go back to $25.

Constellation Software rose 4.8% on its earnings release. Melcor was up 3.2% but I consider that to be basically “noise” as it is so thinly traded. Agrium was up another 2.0%.

Visa was up another 2.0% or $4.78 to $241.73. It had only been about three weeks since I bought it on October 9 and I was up about 15%. So I decided to sell it Friday at about $241. I had last rated it (lower) Buy at $212 on October 4 and so it seemed to make sense to sell at $241. Selling may well have been a mistake given the monopolistic characteristics. I’ll consider buying it back on a dip to say $220 or lower.

October 30, 2014

Well, I had to laugh when I checked the markets today and saw Visa up about 10%. Not sure I would want to buy at the new price but its certainly a nice jump in the last couple of weeks. I had noted that I bought some Visa on October 9. As a company it is “monopolicious”, though not at any price and again it does face technology and regulation risks.

This sharp rise in Visa contributed to the S&P 500 rising 0.6%. Toronto fell 0.5%.

lat week I circulated the latest edition of our free newsletter in which I mentioned that it was not surprising that Visa had done well (I did not predict this latest “pop”). Most of you likely received a link to that free newsletter in an email last Thursday evening. If you are not on the list for the free newsletter you can join the list by clicking the link here and entering your email address.


If you are already on the list the system will indicate that.

Most of our Stock picks were up today.

Constellation Software announced earnings that were 44% higher in Q3. I had rated it only a (lower) Buy because I would be reluctant to assume and pay in advance for growth anything close to this 44% level. So I assume a more normal level of growth in my analysis. Possibly I should be upping my earnings growth assumptions for really strong companies like this. There is a tendency to assume a regression to the mean which can tend to under value the best companies. Ideally I would find companies that would be good value even at modest growth rates and then if they happen to grow extremely fast that just becomes a thick layer of icing on the cake.

I notice Barrick Gold was in the news today regarding another 20-year low in their share price. I have mentioned the company before. In my opinion (and I admit I don’t know the full story) and on the face of things it has been an abysmal destroyer of shareholder money. I am not talking about a decline in market price. I am talking about a decline in book value where a dollar is raised from shareholders by selling shares and ultimately turned into less than a dollar over a long period of year. Peter Munk is often lauded as a business leader and yet I understand he has been losing money for shareholders for about 50 years. See Clairtone, Nova Scotia which went broke in 1967. Apparently though destroying other peoples wealth has paid handsomely.

Not only has money been lost in Barrick but it apparently (and again I don’t have al the facts) on the face of it, the company has more or less poured equipment and manpower and all manner of valuable and useful materials down a hole much of it apparently never to emerge. The Gold extracted quite simply has been worth less than what was poured down the hole.

Economies (and people) benefit when manpower and materials and knowledge are combined in such a way that the output is more valuable than the inputs.

Barrick’s apparent destruction of real and tangible goods and labour is reflected in its loss of money. I have not done a thorough analysis but I believe the figures indicate that the sum total of its reported earnings since its inception are a negative number.

October 29, 2014

On Wednesday the FED, as expected, confirmed it would end its bond buying program. There was no indication of imminent interest rate increases.

The market fell only modestly. The S&P 500 was down 0.1% but Toronto was down 0.7%.

Visa was down 1.0% but then announced earnings after the close and was up 4.2% in after hours trading. As I have said before its got monopoly characteristics. Despite the risk of regulations of its fees it is never much of a surprise when it earns more money.

October 28, 2014

Tuesday was a strong day in the markets, with the S&P 500 up 1.2% and Toronto up 1.1%

Almost all of the stocks on our list were up. FirstService however was a notable decliner, down 6.9% after releasing earnings before the start of today’s trading. It’s still up 25% in 2014.

Melcor was down 2.7% to $23.70. I would chalk that up to the volatility of a thinly traded stock. Perhaps it is a delayed reaction to the dimmer outlook for oil prices released by A Goldman Sacks analyst yesterday.

Tomorrow, Wednesday should prove to be an interesting day in the market as the FED will apparently have some statement about the outlook for interest rates and is expected to wrap up its QE3 bond buying program.

October 27, 2014

On Monday the S&P 500 fell 0.23% and Toronto fell 0.5%.

Constellation Software rose 1.9% to close just over $300. Agrium rose an additional 2.1% for the same reason noted on Friday. While energy stocks were down, most of the stocks on our list were up modestly on Monday. Many Canadian companies will report Q2 earnings in the next two weeks.

October 25, 2014

Bank of America is updated and rated Speculative (higher) Buy at $16.72. This bank is difficult to analyze because it earnings have been affected by numerous litigation settlements related to the financial crisis and other unusual items. It’s balance sheet is strong enough that even if the economy int he U.S. continues to languish this bank will almost certainly survive. It’s very likely to be a good investment in the long term. It is expected to report good earnings going forward. The analyst earnings projection combined with the P/E increasing to 14 would push its price up by 25% by the end of 2015.  I consider Wells Fargo to be a significantly better bank but Bank of America probably has the higher short-term potential to rise.

October 24, 2014

On Friday, the S&P 500 was up 0.7% and Toronto was up 0.4%

Agrium was up 7.5% on news that an activist investor now owned a stake around 6%. I am not sure that this is a good reason for the stock to go up. But the market seems to believe that the activist will generate some change that will drive the earnings up or otherwise add value to the shares.

FirstService was up 4.4% although it will not release earnings until next week.

Anatomy of a Winning Stock

Canadian Tire reached a new high today and closed over $125.

Three years ago in the Fall of 2011 Canadian Tire was trading around $56 to $65. It was under $60 from mid-July through tot the end of October 2011. So the stock is up over 100% from the prevailing price three years ago.

So what explains that?

We can divide the gain into two components:

  1. Gains in its earnings per share and resulting gains in its book value per share.
  2. Gains in its multiple as in the P/E ratio and Price to book ratio which in turn reflect many things including the outlook for earnings.

Canadian Tire’s earnings per share since the Fall of 2011 are up 42%. And the book value per share is up 28%. So, 42% of the rise in the stock can be accounted for by the rise in achieved earnings.

If we are conservative and use $62.50 for the share price in the Fall of then the P/E ratio was an attractive 12.4 times earnings (and at $56 it was only 11.1). Today the P/E ratio is 17.4 times.

So the P/E ratio is up by 40% or more (depending on which price we use from 2011)

If we compound a 42% increase in earnings and a 40% increase in the P/E ratio we get an increase of 1.42 times 1.40 = 1.99 or not coincidently an increase of about 100%.

So… Canadian Tire has risen 100% from about $62.50 in the fall of 2011 to $125 today. This is explained about equally by the increase in its achieved trailing earnings and an increase in the P/E ratio.

In the Fall of 2011 Canadian Tire looked like an obvious bargain and we said so at the time and I made it over 20% of my own portfolio. The stock was basically pricing in a lot fear including what Target would do to it and pessimism about the economy and markets in general.

Today, Canadian Tire is not a screaming bargain but at 17.4 times earnings and just under 2 times book value it is also not all that expensive. We last rated it only a (lower) Buy at $115.51. Possibly I have been too conservative with this company as it has continued to do very well. But at some point P/E ratios can also come down.

A small drop in earnings  combined with a small drop in the P/E ratio can pull any stock down say 20% quite quickly. I have tried to be conservative and assumed that the P/E ratio for Canadian Tire will be in the range of 14 after my assumed five year holding period. Perhaps I should assume more like 16. I also assumed a conservative earnings growth rate of no more than 7.5% per year. By using higher growth rates and a higher P/E ratio it is possible to push the apparent value of a stock to just about any number desired within reason. I try to be conservative without being too conservative (in which case everything looks too expensive).

The ideal scenario is when we find stocks of high quality companies that appear to be obvious bargains even assuming quite low earnings growth and assuming a conservatively low P/E ratio. In 2009 and in 2011 we had a number of stocks like that. Today we don’t have anything quite that attractive on the list.

Melcor is perhaps our best obvious bargain though it can be quite cyclical. Basically to the extent some of our picks look like bargains (our banking picks come to mind) they also come with risk. Then again the market and even Canadian Tire was perceived as quite risky in 2011 which was why the bargains existed.

October 23, 2014

On Thursday, the S&P 500 was up 1.2% and Toronto was also up 1.2%

The strength of the recovery, particularly in U.S. stocks, seems surprising. It illustrates how hard it is to guess the direction of the market in the short term. I basically avoid trying to do so.

Like almost everyone, I can’t help but pay attention to short term gains and losses but it is the long term that really matters. The short term is best used to react by taking advantage of (hopefully temporary) lower prices of quality companies when the occur rather than trying to predict them.

Notable gainers today included Melcor up 2.9% to $24.10, Couche-Tard up 2.4% to $36.70.

I did add to my position in CLO the oil sands ETF at the opening price of $12.10 this morning. I had entered my order the night before with a price just above the close yesterday knowing I would pay $12.10 or less but that I would not get any if it opened above $12.10 and stayed there. It closed up  2.7% at $12.29.

Canadian Tire was up 1.0% to $124.15. It’s a strong company but I would likely take some profit if I still held it. In fact I already sold all I had in tax deferred or tax free accounts (sold too early it seems) but have held onto the shares I hold in a corporate taxable account as I prefer not to pay the capital gains tax and also not to create a transaction that I have to report for taxes.

Wells Fargo and Bank of America may be benefiting from a jump in mortgage refinancing in response to lower rates. Strangely in the U.S. most mortgages can be refinanced if rates drop and it does not hurt the banks. I believe the interest rate hit to the bank may be paid by Fannie / Freddie or they have sold the mortgages so that the hit is taken by investors in mortgage backed securities. In any case the banks do earn a fee for the refinancing and benefit that way. However, in the long run lower interest do hurt bank earnings. But then again the p?E ratios rise with lower rates. The end result is that I am comfortable buying or holding these banks.

October 22, 2014

Terrible news from Ottawa today. It was impressive the way the Seargeant at arms apparently shot and killed the terrorist. No surprise really that these ISIS-linked attacked have reached Canada. But Canada will not be cowed by this. Security will be tightened but business will continue. It’s basically our responsibility not to let these events stand in the way of normal day to day life in Canada.

Today the S&P 500 was down 0.7% and Toronto was down 1.6%.

Canadian Tire had a strong day even in the face of this day rising 1.8% to almost $123.

CLO the oils sands ETF was down 3.67% today. I can’t even pretend to know where oil prices are headed. But I do know oil is down noticable from recent levels. I will add to my CLO position tomorrow if it stays around $12.

This ETF is on our list of Canadian ETFs

October 21, 2014

Wells Fargo is updated and rated Buy at $50.45. Possibly it should be rated higher than that but I will be a bit conservative due to its leveraged nature as a Bank and due to the still slow U.S. economic recovery.

Tuesday was a strong day in the markets with the S&P 500 up 2.0% and Toronto up 1.5%.

For the S&P 500, the recent market “correction” has been recovered back to a good degree.

Notable gainers included Constellation Software up 4.6%. Couche-Tard up 3.8%. Visa and Wells Fargo and Fedex all up 2.6%.

Canadian National Railway was out with earnings up 21%  and with revenues up 16% and car loads up 11%. This is another sign that the economy in North America is growing.

October 20, 2014

On Monday the S&P was up 0.9%  and Toronto was up 0.8%. The S&P rose despite IBM reporting a big loss.

I read the Wells Fargo Q3 report (from last week) and this bank is still growing strongly in almost all of its business lines. Its net interest margin however is continuing to decline as older higher interest rate loans roll over to new lower interest rates loan. Overall it looks like a good long term investment.

Toll Brothers was up 1.3% today to $31.64. It appears that its recent trip down to under $30 was a good buying opportunity. I think it is a good investment that has the potential to be be over $40 or higher in the next year. That is not to say it can’t decline. It would if the U.S. housing recovery stalls.

Melcor was about flat today. I continue to think it will be a good investment. It’s trading around book value. There is lots of upside potential and it I think would take quite a sharp decline in the Alberta economy to cause this to be a poor investment for a holding period of at least several years. In other words it seems to me that there is some margin of safety here on a balance sheet basis.

Costco was up 3.0%. I have been waiting for a bigger dip before I would buy but the experience seems to be that this stock has not offered big dips. It’s a case where it might be worth paying a high multiple on earnings due to the high quality of the company.

October 19, 2014

On Friday the S&P 500 was up 1.3% and Toronto was up 1.2%.

As of Sunday night the Dow futures were up 84 points. It’s anyone’s guess whether the market remains volatile. But in the end owning high quality companies tends to work out unless one really over-pays for them.

October 16, 2014

On Thursday, the markets again had people guessing where they will head next. Markets opened down quite noticeably but in the end the S&P 500 was about unchanged and Toronto was up 1.3%.

Some of the earnings reports coming out were strong and that helped markets.

I had thought about entering bids on several stocks that I like say 5% below current prices. That might be a good way to buy on the steep dips that have been occurring. For those committed to buying on dips a strategy like that can make sense. But it’s not a strategy that everyone would like because it can you man you buy at 5% down on a day when the stock ends down 10% or more.

October 15, 2014

It probably did not escape anyone’s notice that markets got hammered down on Wednesday. Even after a partial recovery from steeper declines, the S&P 500 was down 0.8% and Toronto was down 1.2%

Bank of America reported approximate break-even results after another huge settlement charge related to the financial crisis. Other than that charge the results looked pretty good. This bank is trading at about 80% of book value and 120% of tangible book value. A more normal price to tangible book might be towards 200%.

I grabbed a few more share of this as Well as Wells Fargo today.

Canadian Western Bank fell 3.5% to $36.46. No doubt there are concerns that the lower oil price could cause bad debt. But overall this price may represent a good opportunity to initiate a position in this banks with its long history of growth.

Boston Pizza  at $19.71 yields 6.2% which seems attractive even though I would expect very modest growth if any due to the nature of this entity.

My strategy be to continue to buy selected stocks on dips.

It remains to be seen whether markets continue to decline or of instead earnings reports or other economic news causes the market to rise.

October 14, 2014

On Tuesday the S&P 500 was up 0.2%, while Toronto, playing catch-up (or catch-down) for yesterday’s holiday was down 1.3%.

Wells Fargo ended the day down 2.7% at $48.83. I was surprised they got their earnings out so fast. Seems to be a competition among big companies to see how fast they can report. I find it impressive that a detailed quarterly report can be put together and approved for issuance that fast. I am pretty sure that a lot of people worked late and weekends to get that done. Wells Fargo is now trading at a P/E of 13.0. Now one might argue that the profit has been boosted by low loan losses but even so I don’t think the P/E would be above 14 even adjusting for that although I am not sure. And one could argue that earnings will decline for various reasons. that is always a risk. But this bank has been growing for years and even if earnings do decline (which I have no reason to suspect they will) it would likely recover. The price to book ratio is 1.6 which does not seem excessive. The price to tangible book (after deducting goodwill ) is 1.92 which is not particularly attractive but is also not that high for a best in class bank and one which is earning an ROE of about 13% in a world where 10-years government bonds earn 2.2%. The dividend yield is 2.9%. All in all, Wells Fargo certainly looks attractive to me although there is certainly no guarantee that the price won’t continue to fall.

Toll Brothers rose 2.8% after yesterdays fall of 4.1%.

Stantec was down 1.4% to $67.12 and is worth considering. It’s been a tremendous growth company over the years.

As my own portfolio breakdown indicates, I have a position in the Claymore Oils sands ETF, CLO. I had just let that ride for a long time. Back in June when I updated the list of Canadian ETFs I called that one unattractive and yet I held on to it. The thought of selling it had crossed my mind but I just let it ride. At this point I’d be more interested in buying than selling.

If oil stays down in the low eighties or lower then presumably it will affect the Alberta economy at some point. On the other hand it would likely be good for the much of the North American economy.

I don’t have any particular insight into this market correction. Attempting to guess the market direction has never been part of my strategy at all. I react to where the market is and where stock prices are and try to buy low and then hold or sell high.

Corrections always loom large when we are experiencing them but most turn out to minor in hindsight. But obviously some do extend quite deeply.

I’ve generally ridden through corrections. I try to keep some cash on hand to take advantage of bargains and that has worked for me.

October 14, 2015 10:20 a.m. eastern time

Wells Fargo is out with Q3 earnings this morning. Earnings per share growth was only 3% but overall the report seemed strong. Deposit growth was very strong and loan growth was good. The shares were down 1.5% adding to recent declines. I grabbed a few more shares this morning.

October 13, 2014

On Monday the S&P 500 fell 1.7%. Toronto was closed.

It seems that the declines will test the resolve of those of us who invest based on fundamental analysis. Stocks can always get cheaper and for that reason it is probably best to nibble at positions rather than buying too aggressively.

Our Toll Brothers was pounded down 4.1% to $29.18. I added a bit more to my position. American express was down 2.6% to $82.78.

Constellation Software is updated and rate (lower) Buy at $280.50. It’s been a fantastic growth story and will likely continue to grow rapidly. It’s management appears to be excellent and are extremity candid. The difficulty is that the stock is already pricing in a lot of growth. I would consider taking a small position or hope for a pull-back to perhaps $250 before starting to nibble. Those holding it probably should continue to do so.

It recently had a rights offering whereby shareholders received rights to buy a long-term but floating rate bond that initially pays 7.4% and then resets to 6.5% plus or minus inflation. It takes just over 21 rights to purchase just $100 in bond face value and shareholders only received 1 right per share. The rights trade at trade around 54 cents per share and have to be exercised by November  Next March bond holders will have the option of giving the company five years notice that they want to redeem or turn in their bonds for face value. This five year notice seems a bit bizarre. I understand the bonds will trade on the TSX – which is surprising for bonds. I wonder what happens if you give notice in March to redeem in five years but meanwhile you forget about that and sell them. For those holding a few hundred rights I don’t see the point of exercising them it is probably just as well to sell them. The company also has the right to provide notice that it will redeem the bonds at face value but only upon five years notice! The whole matter of this bond and the associated rights seems very complicated and I really am not sure what to make of it. Very strange.

October 12, 2014

On Friday, Stocks also got cheaper. The S&P 500 was down 1.2% and Toronto was down 1.6%.

For the year to date Toronto remains up 4.4% and the S&P remains up 3.1% while the DOW is down 0.2%.

Our two Strong Buys from January 1, 2014 remain up 12% (wells Fargo) and 13% (Melcor). Our 15 stocks that were rated Buy or higher are up an average of 5.0% each. My own portfolio with a heavy weighting in Melcor, Wells Fargo and a few others remains up 7.3%.

Markets and the gains on this site are down from what they were earlier this year. But it is never realistic to expect to invest in stocks without periodic declines. The recent declines are relatively modest. I don’t think it is possible to predict the direction of markets in the short term. Owning shares in profitable and growing companies has always worked out well in the longer term. Shorter term volatility is basically the price we pay to enjoy the longer term gains.

An order I had in to add modestly to my large Melcor position if it hit $23.10 was filled as Melcor closed at $22.71. Melcor is now trading at 95% of its book value. It’s assets are strong. 47% of its assets are investment buildings that are rented out. These are marked to market which means they are fully valued in the book value. 39% of its assets consist of its land inventory. This is reflected at cost (including costs to develop the land and capitalized interest) and is almost certainly worth more than book value. The remaining assets are mostly receivables and cash and would be worth book value.  Melcor is also trading at 10.5 times trailing earnings (with the earnings adjusted down to remove gains related to marking buildings to market). But its earnings are cyclic.

In this case the chance to buy assets and this business below book value seems quite attractive. If you were to start your own such business today, you would have to pay market value for the assets which would be somewhat more than Melcor’s book value. And it seems unlikely that you could be as profitable as Melcor given their years of experience and their scale.

The main risk with Melcor is that due to lower oil prices or for other reasons sales of new building lots in Alberta could slow substantially and/or the prices could drop. I don’t have access to market data but I am not aware of any such slowdown. The company will no-doubt provide an update int his regard when it releases its Q3 earnings in about one month from now. Melcor has weathered such slowdowns int eh past but they do tend to send the share price down when they occur.

There are always risks, but I view the chance to buy this business at slightly below book value to be quite attractive.

The stock is thinly traded which makes it more volatile and which also can allow the share price to deviate further from its intrinsic value than is the case for most companies.

On Friday I also bought a small amount more of Canadian Western Bank and Toll Brothers to take advantage of the lower prices.

By my calculations, Toll Brothers trailing adjusted P/E ratio is 20.3. Still  not cheap but much lower than it has been in some years. I expect it to report increased earnings int he next two quarters based on houses it has already sold and is int eh process of building. Warren Buffett said last week that the housing market recovery has not been as fast as he expected. He expected to to continue to recover. He stated that that with Americans able to lock in 30 year mortgages at very low rates (and to refinance if rates get lower) it was a no brainer for people to buy houses. (I believe he is taking into account that houses in the U.S. are reasonably priced and he referred to new families starting out). His comments add to my comfort in holding and buying Toll Brothers.

Canadian Western Bank is not cheap but tends to grow earnings fairly steadily over the years and the recent price drop provides an opportunity to accumulate some shares for those interested.

For fixed income, I like Boston Pizza. It would decline if long-term interest rates rise substantially but at the moment that does not appear to be imminent.

October 9, 2014

On Thursday … stocks got cheaper.

The S&P 500 was down 2.1% and Toronto was down 1.4%.

One of the few gainers was Canadian Tire up an impressive 3.1% as its new or incoming CEO predicted profit growth an at investor day conference. Those holding a a large position in it may wish to reduce their holdings or even sell entirely.

This stock is up over 100% in three years since the Summer and Fall of 2011. Back then it got ridiculously cheap on worries that Target coming to Canada would give it a pounding. Turned out, not so much.

With stocks down today I figured I should do a little buying. I added to my small position in Canadian Western Bank and opened a new position in Visa.

I can’t predict where the markets will head in the short-term. I do know that most (but not all) of the time it turns out to be a mistake to sell heavily into a decline because it is the rare investor who ever managed to get back in before the market has already recovered most or all of the lost ground.

We are just entering into the third quarter earnings season. Those reports could determine where the market heads next.

October 8, 2014

On Wednesday the markets were down for a time but then ended very strong to the upside as the FED signaled that an interest rate hike was not likely imminent.

The S&P 500 was up 1.7% and Toronto was up 0.6%.

Fedex was up 2.7%. Costco reported strong earnings and was up 2.8%.

Liquor Stores N.A. managed to be down 2.4%. I wonder if someone could buy it out and take it private? Perhaps the money going to dividends now could go to paying debt in a leveraged buyout. But the problem is it has not been earning its dividend and needs some kind of major surgery to get back to profitability. I have lost faith in current management. Maybe they will prove me wrong.

Perhaps yesterday and this morning I should have been nibbling on some stocks but I have wanted to be cautious about spending my “dry powder”.

October 7, 2014

On Tuesday, the S&P 500 fell 1.5% and Toronto was down 1.1%.

Most of the stocks I monitor were down. A notable gainer was Canadian Tire up 1.0% to a hew high of $117.37. That is impressive on a down day. I did not see any special reason for that. They were doing some marketing but I am not sure why the stock went up. Actually almost all daily moves in stock prices are pretty much random. Companies only tend to release real news about four to 10 times in a year and yet stock prices gyrate daily. Usually there is really no particular reason.

I have never claimed any ability to predict where markets are headed especially in the short term. I did observe a few weeks ago that the S&P 500 looked some 16% over valued. But that was not a prediction it would fall in the short term and in fact it had looked somewhat over-valued on that analysis since February of 2013. I did not get out of the market in early 2013 and that was a good thing because the markets are up a LOT since then.

In any case I do not find myself disturbed by this decline. It’s always nice when the market is up but declines offer opportunities as well. I will be looking to add to some positions but I don’t want to get into a rush.

This morning, before the open I got an alert from TD about a Brookfield Office Properties rate reset preferred at 4.75%.  and I grabbed some basically sight unseen because with these offering I have no time for analysis. I have never analyzed any Brookfield company but I do recognize them as smart successful companies over the years.

Coincidently Brookfield properties fund bought a casino today for some 5% of what it cost to build it two years ago. Without any analysis that sounds like a sweet deal. I have not analyzed it but am tempted to just buy some Brookfield Properties partnership. But I will likely try to analyze it first.

Another comment on Share Buy Backs

It is often said that companies are inflating their share prices with share buybacks. There is some truth to it. But buying back shares does not automatically raise the share price. If a company is profitable and is sitting on cash earning nothing then yes a share buy back will increase earnings per share. But it also means the company has less cash, and that means it may be less able to fund growth. Its book value per share almost always declines (since the shares usually trade above book value). Sure the buying in itself may support the share price momentarily in the market but that effect evaporates quickly and the shares will stay high based on earnings and growth prospects (or may fall). The shares could fall in price if the market realizes that growth will be slower with less cash to fund it.

It seems true that the market often pushes share prices up on news of buy backs. Sometimes that is quite irrational but it can work for a while. Longer term the share price is determined by earnings and growth prospects not by expectations of buy backs.

Buying back shares makes perfect sense when the shares are trading below a fair value and when the company has no better use for its cash. A one time buyback could lead to a misleading earnings per share growth that can not be counted on in future. But if a company buys back 2% of its shares every year and that adds say 2% to earnings per share in the process and it can keep doing that, funding the buybacks from earnings then to my mind that 2% earnings growth is perfectly good growth and can be projected into the future.

Companies are free to buy back their shares and recent commentary about it is mostly just noise. Non share owners who want to tell companies what they should do with their cash. The noise makers should worry about their own cash.

If a company really wants to increase its share price over the years it should retain all earnings (pay no dividends and do no buybacks) then it can invest all the earnings for growth and if it has good growth opportunities including acquisitions, then its share price will rise. Stantec was an example until it more recently brought in a small dividend. Berkshire is a classic example. In both of these cases the growth was highly logical and not done to pump up the share price per se, though it did do that.

October 6, 2014

Walmart is updated and rated (lower) Buy at $77.32 (That was Friday’s close it closed today at about the same price $77.35). It’s not an exciting investment and it is not very likely to deliver double digit returns over the next five to ten years. But it is likely relatively safe. A reasonable strategy might be to buy on dips.

We first added it to this site on April 20, 2006 rated Buy at $46.70. Since then it is up 65% (excluding dividends) which is a decent but not spectacular return.

It is currently in a period of flat earnings due to currency impacts and weak to moderately declining same store sales. If it can resume growth the share price would likely rise somewhat. If the share price were to decline to about $70 I might buy.

Even if we conclude Walmart is likely to be a decent investment I might still not Buy. There may simply be better opportunities.

On Monday the S&P 500 fell 0.2% and Toronto fell 0.3%

This evening the Canadian dollar is at 89.44 U.S. cents. A lower Canadian dollar means U.S. stocks gain when valued in Canadian dollars. However American investors holding Canadian stocks see a decline. Whether a stock is “Canadian” or America in this context is NOT determined by the exchange it trades on. It is determined by where it earns most of its money. A lower Canadian dollar is generally considered good for the Canadian economy. It will harm retailers such as Canadian Tire as their costs s of good sold will rise.

Recently I have judged the America market to be somewhat over valued. That is definitely NOT the same as predicting it will decline. I will follow Buffett’s view on that and admit that I cannot predict the direction of markets especially in the short term. Nevertheless I can react to the a higher market by being cautious in buying and by perhaps cutting back some positions.

However, another consideration is that an expensive market does not means that every stock in the market is expensive. If I like what I hold I can potentially even add to those particular positions even while suspecting that the overall market is somewhat high.

The Canadian “market” is harder to judge in part because it is too concentrated in a few sectors. And also because I have had difficulty getting reliable earnings figures for the Toronto index.

October 5, 2014

On Friday the S&P 500 gained 1.2% while Toronto was up 0.2%. Almost all of the stocks on my list were up.

Wal-Mart will be updated shortly and most likely rated (lower) Buy. Not an exciting investment but probably a fairly safe one.

Walmart has bought back 25% of its shares over the past years and at relatively attractive prices. We like that.

Walmart has continued to grow despite share buy backs and dividends paid and without taking on excessive debt. It can do this because it has been a highly profitable and cash generating entity.

Speaking of share buy-backs…

One of the strange but well accepted fictions is that share buybacks return money to share holders just like dividends do. It may well be the same thing from the companies perspective but it is definitely not the same from the perspective of share owners.

Share buy backs return money only to departing share owners. If the share price was where it should be the continuing owners own a larger share of a company with a bit less money than it had before the buy back. It’s a wash from the perspective of continuing shareholders unless the shares were bought back at a good price. Often that is the case. Sometimes it is not.

To illustrate:

Imagine if 5 people owned 20% each of a local Boston Pizza Restaurant owned through a corporation. One wants to sell out and the ownership corporation has the money to buy back the shares of the departing owner. It’s clear to see that the remaining four now own 25% each of a  restaurant that no longer has the money that was just paid to the departing owner. Money has been returned to the departing owner and not to the four continuing owners. In contrast a dividend returns money to all owners. If the restaurant continues to do well the four remaining owners may well benefit by their increased ownership. But that is not a given. And the restaurant may need to borrow money now that its cash has been depleted by the buy-back. It is not necessarily the case that the earnings per share of the four remaining owners will increase. However that is likely the case if the cash used to buy back the shares of the departee had been sitting earning little return. But the point is that a corporation buying back shares certainly does not return money to the non-selling share holders by buying back shares. For whatever reason the fiction that this is the case seems widespread.

Theorists may point out that the share buy back is exactly like a dividend if all owners sell back the exact same proportion of shares. But no one would suggest that this ever happens in reality. Also the tax consequences would differ.

October 4, 2014

Visa Inc. is updated and rated (lower) Buy at $212. It was last updated on December 29, 2013 and rated Weak Buy / Hold at $220. It traded above $220 for the first tree months of 2014 and then dipped very briefly under $200 in April and has since been around the $215 level plus or minus about $5. It looks moderately more attractive today than at the start of the year because the price is down slightly and the earnings have increased.

We first added it to this site on April 15, 2009 (just after the bottom of the market at a time when fear still reigned supreme), we rated it Buy at $58 at that time. We rated it a Strong Buy in May 2011 at $79 and it is up 167% since then. It dropped off at our list at the end of 2012 but we added it bank to the list March 28 2012 rated Buy at $119 in November 2012 we updated and rated it Buy at $147 on August 4, 2014 we rated it Weak Buy at $184.

Visa is a great company with some monopoly characteristics. It does have risks due to regulation and future competition and it is not a cheap stock. Therefore I am not in a big hurry to invest but would consider a small position with a hope to buy on dips.

October 2, 2014

On Thursday markets were at one point down more noticeably but ended the day with the S&P 500 unchanged and Toronto down 0.3%.

Agrium was down 2.5% on a warning of lower profits. That does not seem too surprising given that profits had declined in earlier quarters. What is more important is the outlook for the next few years and beyond. I did not see any comments about that. I would want to see the Q3 results and more detail on the outlook before buying or selling.

I expect to update a couple of the reports within the next few days.

October 1, 2014

On Wednesday the S&P 500 was down 1.3% and Toronto was down 1.0%. But the S&P is still up 7.3% year to date and Toronto is up 10.3% year to date, so really there is not much to complain about.

Melcor managed a 1.2% gain today although on very little volume. Constellation Software was up  1.1%. My strategy when the market is falling has always been to sort of nibble and add to positions but to do so patiently and slowly. I believe the only order I have in is to buy a bit more Melcor at $23.10. It touched that price a few days ago but my order was not filled as there must have been orders ahead of me at the same price.

I noticed TD Waterhouse has had a couple of new issues of 5 year rate reset shares 3.9% National Bank and 4.5% Brookfield Asset Management. The market apparently has a big appetite for these. If you are interested in getting these when issued you have to register for new issue alerts with your broker and then pounce on them. I bought some earlier this year figuring they were relatively low risk and at least beat holding cash.

Warren Buffett traces his starting point with Berkshire Hathaway back to 50 years ago today. He took over control of the company 50 years ago next May 10. But he counts the year ended September 30, 1966 as his first year for his performance history in running the company. Possibly he was already having an influence on the company somewhat before the May 10, 1965 coup d’etat when he ousted the long-time CEO. At the end of February Buffett will release his annual letter and will review the results of his first 50 years on the job. He has asked his partner Charlie Munger to write about why did their methods work and will Berkshire continue to work in the future. That letter will be absolute must reading.

September 30, 2014

On Tuesday the S&P 500 was down 0.3% and Toronto was down 0.1%.

The Canadian dollar is worth 89.15 U.S. cents in the U.S. It remains, as always, worth precisely $1.00 in Canada. A lower dollar benefits Canadian exporters and makes imported things more expensive. It makes travel to the U.S. more expensive.  It also hurts the Canadian NHL hockey teams who generally pay salaries in U.S. dollars but collect most of their revenue in Canadian dollars. (So sad for them) For investors if you have U.S. investments that you will eventually spend in the U.S. the exchange rate change is of no real meaning. But it does increase the value of those investments as measured in Canadian dollars.

eBay rose 7.5% today after announcing they will split off PayPal into a separate company. They were under pressure to do so but had resisted the idea. There were some good synergies between the two and it probably is a dumb idea to break it up but activist investors are only interested in short-term gains.

Today marks the end of Q3 and within a week or or so the Q3 earnings reports will start to come in although most will arrive in three to five weeks.

Melcor declined 2.6%. As a thinly traded stock it can be volatile. There may be some fear that the Alberta economy will soften. But overall Melcor appears to offer good value. Melcor will likely report good Q3 numbers. Toll Brothers declined 1.5% and I took the opportunity to add to my position.

September 29, 2014

On Monday the S&P 500 ended the day down 0.25% and Toronto was down 0.3%.

I added a new short article about Buffett just to document the total return achieved since he took over Berkshire in 1965.

September 28, 2014

Most subscribers will be aware that this web site is something I work at on a part-time or side-business basis. Starting around next May I expect to devote closer to full time hours to this site and to my investment work in general.

Stantec is updated and rated (lower) Buy at $72.20. It is clearly a great company. But it is not an obvious bargain. Still it will likely turn out to be a good long term investment. I would consider it particularly on pull-backs.

September 26, 2014

My personal portfolio composition is updated. My own portfolio is highly concentrated and not diversified. Somewhat offsetting this is the fact that I have a 23% allocation to cash.

Our Buys and Strong Buys have averaged a gain of 5.9% this year to date. The two stocks that were in the Strong Buy range at the start of the year have averaged a gain of 16.8% each. My own portfolio has a return of up 9.6% (including dividends)

On Friday markets partially recovered from Thursday’s decline with the S&P 500 and Toronto each up 0.9%

September 25, 2014

A down day on Thursday as the S&P 500 fell 1.6% and Toronto fell 1.5%.

It’s anyone’s guess where the market will head next. My tactic has always been to react to overall market moves rather than predict them. I have an order in to get a bit more Melcor if it hits $23.10. Also I may add to my small Canadian Western Bank position.

If you find a pull-back of the size we have had recently to be particularly disturbing then perhaps you should not be invested in stocks at all. I believe Buffett used to say that if you would be very troubled by a 40% decline, perhaps you should not be in stocks. That seems a bit extreme. I think almost all of us would be VERY troubled by a 40% decline. I guess what really matters is what your reaction would be. If you would sell your stocks if they took a sudden 40% swoon and would not be prepared to wait it out then likely you should not be in stocks. If you would be disturbed but would nevertheless hang in there and also not be afraid to put in new money then you are probably okay to be in stocks. If you have a large amount invested and truly would not be upset at a 40% loss then I am not sure I believe you. Anyhow the 40% was just something Buffett used to say probably to scare weak knee’d (is that a word?) investors away from investing with him. I am certainly not predicting a 40% decline.

September 24, 2014

Wednesday was a good day for U.S. stocks with the S&P up 0.8%. But Toronto was basically flat.

Toll Brothers did not participate in the rise and instead fell 0.4% even as a report came out that new home sales (deliveries)  in August were well above forecast. The problem is that orders for new homes have been weaker. Also KB homes reported what was apparently poor earnings today.  We will see in the next few months how the orders for new homes go. In any case I expect Toll Brothers to have another two or three quarters of earnings growth due to orders already in the pipeline. I would think that would push the P/E down to attractive levels but I can’t be sure. Also a lower P/E will still not be considered attractive if the outlook turns to earnings declines.

Costco was up 1.7% today. And Walmart rose 2.0%. Possibly this was due to an announcement that it was getting deeper into banking by offering chequing accounts. Stantec was up 5.0% on news of a fair-sized acquisition in Quebec.

Melcor drifted a bit lower today.

September 23, 2014

Tuesday saw the S&P 500 down 0.6% while Toronto was flat.

Most stocks fell today. Among the rare winners were Couche-Tard, up 3.3%  and Agrium up 2.7% on news that some other fertilizer company was being taken over.

Canadian Western Bank is down to $39.55 and is worth considering.

September 22, 2014

On Monday, the S&P 500 fell 0.8% and Toronto was down 0.9%.

Stocks on our list that declined included Stantec and Canadian Tire each down 1.9%. Toll Brothers down 3.1% and Liquor Stores N.A. down 3.4%. Toll Brothers shorter term stock price will depend on the U.S. housing market. Given the decline I added a small amount to my Toll Brothers position today.

Stocks on our list that rose today included Couche-Tard up 3.0% and Melcor up 1.8%.

September 21, 2014

I have updated my article on the valuation of the S&P 500. The index does appear to be over-valued using conservative (but not pessimistic) assumptions. That is not a prediction of an imminent decline but it does offer reason to be cautious.

September 20,2014

On Friday, the S&P 500 was flat but at one point during the day set another record high at 2019. Toronto fell 1.3%.

Wells Fargo hit a new high of $53.80 and closed at $53.36. My figures show that the P/E is 14.2, the price to book value is 1.8, the dividend yield is 2.6% and the ROE is 12.9%. While there are always risks in investing, the overall picture here is “what’s not to like?”.

Canadian Tire has been hitting new highs, I calculate its stats as  P/E 16.3, price to book value 1.8, yield 1.7% and ROE 11.4%. Those stats are not as good looking as Wells Fargo but a P/E of 16.3 is still below that of the average stock.

Melcors earnings are volatile due to both its cyclic nature and accounting rules that mark it portfolio of rental properties to market as if they were investments in stocks. In that case I focus on the attractive price to book value of 1.0. I also consider that while Melcor’s reported earnings are volatile they have never been negative on an annual basis in the past ten years.

Overall, I am feeling quite good about how the markets and the economy has been doing. Things can change but at the moment I like how things have unfolded this year.

September 18, 2014

Thursday was a strong day in the U.S. markets with the S&P 500 up 0.5%. Toronto however was up less than 0.1%.

Gainers of particular interest included Bank of America up 1.6% and Berkshire Hathaway up 1.2% and Wells Fargo up 1.4%.

Liquor Stores N.A. was up 6.4% to $14. There has been no news from the company that would explain the recent strong recovery in this stock. Possible some analyst are recommending it. It’s also possible that some good news is pending such as maybe selling some of its British Columbia licenses to large grocery stores. Or maybe it will announce an acquisition (But where would it get the money?). Or maybe a buyout is in the wind? Without confirmation (or even any indication) of positive news I am skeptical that the rise will last. As reported previously I have rather soured on the company and no longer own it. It has lately been earning far less than it pays out as a dividend and seems to indicate that earnings will remain low until 2016. In my area it has way too many stores and they are not busy at all and strong competitors are taking market share. Maybe they are doing well in other areas and especially with their newer big box stores. I was recently in Vancouver and happened to walk past its Kitsilano wine store which was very nice and was busy. Overall, if I owned it I would likely reduce my position given the recent price rise.

I had entered an order a couple of weeks ago to sell my Berkshire shares if they got as high as $141. Partly just to grab profits and partly because there could be a perception of a conflict of interest for me due an acquisition that is pending by one of its subsidiaries that affects a company that I am involved in another aspect of my life. Every time I have ever sold some Berkshire shares it has later felt like a mistake (partly because one never quite remembers or tracks where the money from the sale gets reinvested). Anyhow at this time I don’t own any Berkshire shares.

Berkshire Hathaway closed at a record high of $141.28 for the B shares and a staggering $212,075 for the A shares. Earlier this year there was much ado when Buffett noted that in the six years ended December 31, 2013 Berkshire’s book value had not kept pace with the S&P 500. Buffett measures progress by book value not share price. A number of analysts jumped on this and talked about Berkshire under-performing. A look at the chart will dispel that nonsense.


An analyst named Doug Bass was famously short Berkshire and was silly enough to go to Berkshire’s annual meeting in Spring 2013 and debate the matter with Buffett. If Bass is still short the stock he has gotten absolutely clobbered.

September 17, 2014

On Wednesday the S&P 500 rose 0.1% and Toronto fell 0.3%. U.S. markets were slightly buoyed be the FED statement which was basically a stay-the-course statement.

Housing stocks were buoyed by news that homebuilder sentiment was up and by a strong earnings report from one of the builders. Toll Brothers gained 1.9%. Fedex was up 3.3% on a strong earnings report. It is often thought of as some kind of indicator of business growth in the economy so this is a positive sign for markets.

Canadian Tire hit a  new high today.

An interesting news item indicates that Costco will no longer take America Express in Canada. I don’t know if this is particularly bad news for AMEX since Costco had probably negotiated quite a skinny fee. It may indicate retailers starting to push back against the credit card companies. Also of interest Costco has an outsized presence in Canada with 88 stores versus 468 in the U.S. Based on 10% of the population you would expect Canada to have more like 47 stores in Canada. Costco likes Canada perhaps due to our demographics and income distribution and also perhaps because there are few close competitors to Cost in Canada.

September 16, 2014

Markets rose on Tuesday after reports indicated that the U.S. inflation rate remains subdued which was interpreted as meaning that the FED will not be in a hurry to raise interest rates.

The S&P 500 rose 0.75% and Toronto rose 0.2%.

Canadian Tire had a strong day rising 1.5% to almost $116.

Melcor fell 1.9% to $23.19. This thinly traded stock has been relatively volatile since May. It first rose above $23 around May 1 and then rose to a peak of $27.60 but has now fallen back to the $23 level. Apparently part of the reason it was rising this Spring and earlier Summer was a strong recommendation by RBC capital. That at least temporarily boosted demand for the stock. While probably 99% of investors worry about market demand for a stock. That is not my concern or certainly not my main concern. As long as the company continues to do well the stock price will eventually follow suit.  I have always said that every stock and every company has its risks. This is particularly true if you define risk as the chance of a stock price decline even if temporary. I would be more concerned about the risk to Melcor’s earnings. And its earnings would decline if the Alberta economy and the demand for new homes in Alberta slows down. Even in that case the earnings would, if history is any guide, eventually recover. And at this time I am not aware of any slow-down in the Alberta new house market. The bottom line is that Melcor appears to offer good to excellent value. I have an order in to add still a bit more to my position if it drops to $23.10.

Melcor’s stock price has about doubled from the $11 range at the start of 2010. Therefore you might think the stock is not the bargain now that it was then. But the book value has more than doubled from about $10 at the start of 2010 to over $23 at this time. Some of the increased book value is due to new mark to market valuation accounting for its rental buildings. But most of the increase is simply due to retained earnings. The stock may actually be more of a bargain at this time compared to early 2010 based on trailing valuations. But of course we now know its earnings grew a LOT since the start of 2010 and we don’t know for sure what the earnings will do in the next five years. I strongly suspect the earnings will rise although they will have their ups and downs as well.

I was just noticing that Canadian National Railways is up 10 fold since I first started following it 15 years. Over the years it often looked expensive but I consistently recognized it as an excellent company and noted that it appears to have certain monopoly characteristics. In my January 2003 article called “Do as the Rich Do” I mentioned that rich people were buying the likes of CN while most investors were chasing various penny stocks. It’s almost painful to mention that Bill Gates became its largest shareholder I believer over 15 years ago and has therefore made at least 10 times his money on the millions he invested back then. And I believe he has added tot he position over the years.

September 15, 2014

Monday was not a particularly exciting day in the market, at least not for the stocks I follow.

The S&P 500 was down 0.1% and Toronto was down 0.3%.

September 14, 2014

On Friday the S&P 500 was down 0.6% while Toronto was about unchanged.

Toll Brothers was down 1.8% to $33.07. Melcor was down 1.1% to $23.74. That drops the price to book value to 1.0. It is a cyclic company that would suffer if there happens to be a slowdown in housing construction in Alberta and the western provinces. And the book value has been pushed up somewhat by its rental buildings that are marked to market under IFRS accounting. Nevertheless, I find the chance to buy this company with a long history of growth at book value to be attractive.

As of Sunday evening, markets were set to open lower on Monday. While rising markets are always more enjoyable, declining markets offer opportunities as well.

September 13, 2014

Canadian Tire is updated and rated (lower) Buy at $115.51. We rated this company a Buy at the start of this year at $99.49 and it is up 16% this year. At the start of 2013 we had rated it (lower) strong Buy at $69.38 and it rose 43%.  At the start of 2012 we had it rated (higher) Buy at $65.90 and it rose 5%. Back on August 11, 2011 we updated it as a Strong Buy at $52.40 with a price to book value of 1.04 and a P/E of 10.5. Soon after that it became my largest position. Since then it has more than doubled. In April 2013 it represented 22% of my equities. I sold gradually on the way up but it was still recently 6.4% of my portfolio and 8.0% of my equities.

But that is history. At this time it is still a great company but it appears to be about fully valued. On Friday I noticed it hitting $116 and I sold 30% of my position. These were shares that I had bought at $101.50 in late June after I had earlier sold most of my shares at around $110.

I may be tempted to buy back these recently sold shares if it happens to fall back to even $112. In any case it now represents about 6% of my equities and that is held in a taxable account and I will likely hang onto to that for the long term.

I don’t see any reason that Canadian Tire will not continue to do well in terms of earnings. It is also selling off 20% of its credit card operation to Scotia Bank and that could also provide another boost to the share price although that is, in theory, already priced in.

Obviously, the shares could also decline with the general market if the economy softens. Overall it remains a reasonable investment but is certainly not at the bargain basement price it was in August of 2011.

September 11, 2014

On Thursday, the S&P 500 was down 0.1% while Toronto was up 0.4%

Bank of America rose again today, up 1.3% to $16.57.

The Canadian dollar was down close to a cent and that pushes up the value of American stocks when valued in Canadian dollars. For the most part, it’s probably not worth worrying about what the dollar does. It’s very hard to predict.  A while back I toyed with hedging against a rise in the Canadian dollar which would reverse my gains from holding U.S. stocks. I bought an ETF called FXC to do that. As mentioned previously I have sold out of that. Since I will someday need U.S. dolalrs in retirement. I rally don’t need to hedge the currency risk anyhow. It’s only because my portfolio is reported in Candain dolalrs taht there is an apparent risk there. The reality is that my future need to spend U.S. dollars provides a natural hedge agaisnt the currency change.

Speaking of currency, I am not at all in favor of currency trading which is a zero sum leveraged game. Many times I have been approached to place links on this site to forex trading sites. I would never do that. The whole notion of forex trading is at odds with the mind set that as investors we should seek to make money by owning profitable companies. Many people think that stock market investing is all about making money from other investors. They think that stock investing is a zero sum game. They are wrong. In stock investing we should think mostly about making money from the customers of the businesses we own (as the company provides valuable goods and services) and not so much about making money from other investors (though we are OK we doing some of that as well).

An old article of mine explains this in more detail.

September 10, 2014

On Wednesday, the S&P 500 rose 0.4% and Toronto fell 0.4%.

As long-time subscribers know, my approach when the prices of stocks that I own and like fall is usually to add to positions.

Most investors would not do that. And a major reason for that is that most investors find themselves judging a company by its stock price. Consider that almost all investors look at price charts but are not able to look at charts of earnings per share. Even more shocking is the fact that investment television shows tens to show you a chart of what the price did today. They often don’t even look at the say the last year. They are focused on today. The reality is that the price movements in a given day are almost always effectively random noise as opposed to any kind of signal.

If you own a stock but are not very familiar with how the company makes money, with its long term outlook and with its competitive advantages, then when the price falls your natural reaction is to be very concerned. In this situation most investors figure that “the market” knows that bad news is coming and so they are inclined to sell.

I find that by developing a strong (but certainly never perfect) knowledge of a select group of companies I can be in a position to be much more sanguine about price declines. If it still looks to me like the outlook is good then I would tend to buy on dips. Sometimes that can turn out wrong but most of the time it has worked out well.

September 9, 2014

On Tuesday, the S&P 500 fell 0.7% while Toronto rose 0.2%.

I picked up some more Melcor shares based on an order I had placed at $24.10. There was a report today that the pace of Canadian home building was down slightly but that the pace in Alberta was higher. Barring a slow-down in Alberta, Melcor is likely to continue report good results.

September 8, 2014

Stocks fell on Monday with the S&P 500 down 0.3% and Toronto down 0.4%.

Bank of America was up 2.1%. It should rise in price as it finally puts the the problems of the financial crisis and the resulting litigation behind it (or at least mostly behind it).

I added a modest position in Canadian Western Bank today.

Melcor continues to slip and was down 1.4% today to $24.20.

September 7, 2014

Canadian Western Bank is updated and rated Buy at $40.54. This has been a very well managed bank and been an excellent investment over the years. I made the mistake of selling my shares last August (as detailed at that time) due to concerns about their losses caused by the floods in Alberta last year (They have a property insurance division). It turned out the losses were minimal. I compounded that mistake by not buying the shares back at a slightly higher price after it became apparent the losses were minimal. The shares rose a lot in the last part of 2013 which made it even harder to consider buying back into it. Psychologically, it is always hard to buy back into a stock at a higher price. However, I am now ready to do so and I plan to buy some shares.

On Friday the S&P 500 rose 0.5% to another record closing high while Toronto was essentially flat.

Canadian Tire rose 1.0% to $113.95 which is at or close to a record high at it has risen 14.5% this year.

Costco was up 1.5% to a record $127.01 and is up 6.7% this year.

Melcor was down 1.1% to $24.55. It’s still up 22.4% this year but after reaching highs over $27 after RBC has put a target of $35 on it, it now seems to suffer from some lack of interest. Ultimately the share price will be be determined by its earnings performance.

September 5, 2014

Toll Brothers is updated and is rated Buy at $33.78. It’s P/E is still high at about 23 and the ROE is too low at 7.9%. But it is set to continue to increase earnings strongly in the next six to nine months. However with new contracts to sell houses having declined slightly, its earnings may flatten after that. The company believes that the housing recovery continues although it is bumpy. Toll Brothers is a luxury home builder with an average selling price just over $700,000. More recently it has gotten into building expensive condos in New York and other cities. A joint venture in New York is selling condos that in recent quarters averaged $3 to $5 million per unit.

September 4, 2014

On Thursday stocks were mostly down slightly with the S&P 500 down 0.15% and Toronto down 0.5%.

Costco was up 3.1%to $125 on a strong earnings report (and very strong same-store sales in August). It’s another example of a strong and very well managed company that always seems to look expensive but manages to maintain its high P/E ratio. Couche-Tard was up another 3.5%.

Toll Brothers was down 0.7%. I have ran some numbers and I calculate its P/E at 22.5 times adjusted earnings and 20.4 times GAAP earnings. That does not seem excessive given that its adjusted earnings growth has been over 100% in each of the last four quarters. Clearly its earnings growth will slow or flatten now. And the next quarter it faces a high comparable in the prior year. Analysts are worried about a slow-down in signed contracts in the latest quarter months versus the prior year. Sales and earnings lag signed contracts and so this is a worry. Definitely there are some signs weakness in some of its geographic areas. But it has also expanded its geography in the west. Management points to the fact that its business tends to be lumpy and argues that the slow recovery in housing continues. I would continue to judge this to be a good long-term investment.

September 3, 2014

On Wednesday the S&P 500 was down less than 0.1% and Toronto was up 0.25%

Toll Brothers was down 4.7% to $33.95 after it reported earnings this morning. This was a case where a year over year earnings increase of 110% and revenue increase of 53% was just not enough. The concern is that the sales were a little weaker than its pervious quarter although much better than the year ago quarter. Management appears to believe that the housing recover continues but is “bumpy”. They believe that the pace of new building should be 50% higher to reflect population growth.

Basically this is a bet that the housing recovery will continue in the U.S. In the past the stock has been pricing in a continued rapid increase in earnings. In the past year the stock price has bounced around but is relatively unchanged from October 2013. Meanwhile the earnings are up strongly and so the P/E ratio has started to look more reasonable although it is still somewhere around 24.

I continue to think it will be a good long-term investment and added to my position today at $34.10.

Liquor Stores N.A. was up another 4.4% today.

Couche-Tard was up 6.7% after reporting another strong quarter. It’s a case of a very strong and superbly managed company that has usually looked expensive but that has continued to out perform.

September 2, 2014

On Tuesday, the S&P 500 and Toronto both ended the day down very slightly less than 0.1%.

FirstService was up 3.8% to $62.00. I had apparently under-rated it at my last look at it in May. I have long said that I really like the management. It has been a tough company to analyze due to being cyclical and basically my analysis does not seem to work well for this company.

An order I had placed previously to add modestly to my Melcor position was filled today at $25.10. Perhaps I am being reckless adding to my large position but I think the company offers good value. I then placed another order to add a bit more at $24.10 if it goes that low. As a thinly traded stock it can be volatile for that reason alone.

Toll Brothers will report earnings tomorrow Wednesday before the market opens. The expectations are high and the stock will react to the actual results versus the expectations as well as to the outlook.

August 29, 2014

Liquor Stores N.A.  is updated and rated Sell at $13.37. I mentioned in recent posts that I had pretty much given up on this entity and had sold my shares. With a strong gain in the price in the past two weeks (which gains did not seem based on any news from the company as the shares did not gain in the first day after the earnings release) it seems opportune to sell these shares. It seems to me that the company is weak and it is going to take some kind of restructuring for earnings to recover to acceptable levels. The company seems to indicate that the dividend will not be cut but the financials would seem to suggest it should be.

With Warren Buffett’s $3 billion preferred share investment in the Tim Hortons deal in the news, it is interesting to look at his similar $8 billion investment in 9% preferred shares of Heinz with the same partner called 3G.

Berkshire’s Q2 report indicated that it made the expected $360 million in the first half of 2014 on these shares. But that it lost $20 million on its half of the common shares of Heinz. In other words 3G (which only owns common shares) made a loss of $20 billion on Heinz in the first half of 2014 while Berkshire made $340 million even after deducting its share of the losses.  This seems a bit hilarious and is par for the course for Buffett who certainly knows how to make a profitable deal.

In the case of Tim Hortons, Berkshire is not involved in the common shares and is very much a passive investor simply collecting the 9% on  $3 billion. Berkshire has approximately $55 billion in cash (out of total assets of $504 billion) and this$3 billion at 9% is a nice alternative to cash that earns next to nothing. This investment is really not much of an endorsement of Tim Hortons or Burger King since Berkshire is not investing in the common shares. It simply gets its 9% on $3 billion.

August 28, 2014

On Thursday the S&P 500 was down 0.2% and Toronto was down 0.3%.

Melcor was down 3.4% to $25.11. But most of the decline was based on one small trade at the end of the day.

August 28, 2014 (before the market opening)

On Wednesday the S&P 500 was flat and and Toronto was down 0.1%.

Stantec was up  1.4%. Melcor was down 1.25% to $25.98 as the interest that had been generated this Summer by the RBC analysis that it was really worth more like $35 has waned. I will buy a little more if it dips to $25.10 as I havce an order in at that level.

Also on the theme of real estate I am looking forward to see Toll Brothers results on September 3. I expect them to be good but really an expectation for continued earnings growth is already reflected in the stock price. So they might need to be better than just good to move the stock price. What they have to say about the outlook may be more important than the quarterly earnings.

August 26, 2014

On Tuesday the S&P 500 rose 0.1% to finish at an even 2000. Toronto also rose 0.1%.

Liquor Stores N.A. rose 5.9%. I did not see any news to justify the recent gain. Presumably some investors have taken a sudden interest.

Tim Hortons rose 8.1% after it was announced that the Burger King deal would be mostly hash and was worth about $84 per share with $65 of that in cash and the rest in shares of the new combined company. Burger King fell 4.3%. Whiel the rise in Tim Hortons is understandable, the big gain in Burger King (yesterday) is more of a puzzle. Burger King is apparently paying 30 times earnings for Tim Hortons. That would certainly not appear to be a bargain.

They are going to have to leverage the heck out of it and also squeeze costs out like crazy.

Buffett is apparently just collecting 9% on his $3 billion investment. Good for him.

I did sell 150 B shares of Berkshire that I bought about 3 weeks ago. I got a very quick 9% gain. I still own 400 shares in another account. I may sell those because a tiny conflict of interest may arise due to one of Berkshire’s pending acquisitions.

August 26, 2014 (before market opening)

There is in fact mostly cash involved with the Tim Hortons deal, so it appears selling yesterday would have been pre mature. Still there is a long ways to go before this deal closes. As I speculated in my first post yesterday, Buffett is involved. This deal was apparently leaked badly. That is both unfair and illegal. Anyhow good times for Tim Hortons shareholders. I owned it and rated it a Buy here a few years back but got out too soon. I would sell today.

August 25, 2014

Monday provided an interesting start to the week. The proposed Burger King / Tim Hortons merger is big news taht send both companies stocks up about 20%.

In other trading, the S&P 500 rose 0.5% to 1998. It also briefly rose above 2000 which excited some people since it such a nice big fat round number being reached for the first time. Toronto rose 0.4%. Liquor Stores N.A. was up 3.6%. Good for the stock, but as I mentioned recently I have pretty much given up on this company. Melcor was down 0.6% on low volume and seems not to be generating much interest at least at recent prices.

Getting back to the Tim Hortons story, I am not a fan of this. Why should Tim Hortons share owners collectively want to trade say 55% of Tim Hortons for 45% of Burger King? We are told that the Burger King share holders will have majority control so Tim’s is getting less than 50%, perhaps closer to 40%. The deal was announced because news of the merger discussions had leaked (which speaks to poor management of the process). There may never be even a proposed deal here and after that actual approval would be a long ways off.  Most likely the Tim Hortons CEO has been all over this deal. It’s possible the Tim Hortons Board of directors did not even know about it. This might be a case where the Board should vote against it. It’s one thing to allow a CEO to run the company. It’s another thing to allow the CEO to effectively sell more than half of the power house that is Tim Hortons in return for part ownership of the large but third place burger operation.

And if I was a Tim Hortons corporate employee or a franchise owner I would certain not be excited by this. 3G, the controlling owner and manager of Burger King, has a reputation for ruthless cost cutting.

I see no reason for both (or either) company’s shares to rise about 20% given a complete lack of detail and even a lack of a signed deal. If I owned Tim Hortons shares I would sell at least half and perhaps all. And particularly if I owned them in a non-taxable account.

August 25, 2014 7:10 a.m. Mountain time (9:10 a.m. eastern)

There was interesting news yesterday about a proposed Tim Hortons / Burger King merger.

This is far from done and may never happen. It may not be a good deal for Tim Hortons shareholders who will apparently trade a majority stake in Tim Hortons (a wonderful business that has long been number one in its market by a mile) for a minority stake in a rather tired third place burger chain. For Burger King it is apparently driven by Canada’s lower corporate income tax rate (about 25% versus 35% in the U.S.). There was no indication that Tim Hortons share holders would receive cash. If cash were involved then I would wonder if 3G’s friend Mr. Buffett would get involved. Burger King is controlled by 3G, Buffett’s partner in the Heinze deal.

August 22, 2014

FedEx is updated and rated Weak Buy at $149.47. It is an interesting company. It’s profit margin is surprisingly low but may mean there is an opportunity for improvement. It could be more aggressive in the use of debt to boost profits. It is projecting a 30% profit increase in the next year but that appears to be already reflected in the share price.

Markets were relatively flat on Friday.

August 22, 2014 (12:45 eastern)

On Thursday, Bank of America was up 4.1% as it reached a huge settlement of fines and penalties associated with mortgages from the financial crisis era. I had noted previously that it appears that Bank of America is about finished with these past troubles. I expect it to be a good investment.

August has been strong for most of our stock picks and the market. The market “correction” of July seems to have been short lived for the major indexes. My own portfolio has recovered losses from July and moved on to new highs.

Having made a 9% gain on some Berkshire shares that I purchased three weeks ago today, I am tempted to sell for the short-term gain. In the past every time I have sold Berkshire it seems to look like a mistake a year later.

Overall I don’t plan a lot of buying or selling. Continuing to ride along with the stocks I own has worked out quite well.

I own some FXC on New York that is a hedge against a rising Canadian dollar. I find it more of a distraction than anything and may sell that.

August 20, 2014

Markets were positive in Wednesday as the S&P 500 rose 0.2% and Toronto rose 0.5%. CN Rail was up 1.6%. Liquor Stores N.A. rose 2.2%

Melcor was down slightly but still remains close to its recent highs and is up about 30% this year.

August 19, 2014

Tuesday was another good day for our stock picks. The S&P 500 was up 0.5% and Toronto was up 0.9%.

We had Toll Brothers up 2.2% on news of higher housing starts in the U.S. Liquor Stores N.A. was up 2.2% though that is one I gave up on. FirstService was up 3.2%. Canadian Tire hit a new high today.

August 18, 2014

On Monday, the markets got off to a strong start for the week. The S&P 500 was up 0.8% and Toronto was up 0.2%. Toll Brothers was up 1.7%, Visa was up 2.0%. All in all it was a good day for our stock picks.

August 17, 2014

On Friday, the S&P 500 was about unchanged and Toronto was up 0.1%

I am working now on an update for Fedex. It’s a great company but is probably not much of a bargain. But I have not crunched the numbers yet.

Owning equities is always risky or at least exposes us to volatility. But the only way to benefit from the good days (and years) is to be in the market. That comes at the cost of losses on the bad days. But over time the good days (and years) have historically more than made up for the bad days (and years).

It’s up to each of us to determine how much volatility we can accept emotionally and can afford financially. It’s never a good idea to invest the money you really need for groceries or the rent. Most of us can afford financially to take some risks. And most of us can either emotionally handle losing days (and years) or we can learn to handle it emotionally through experience and and education. Then there is the old saying; If you can’t handle the heat, stay out of the kitchen.

August 16, 2014

eBay is updated and rated Weak Buy / Hold at $52.64. It’s a powerful and relatively fast growing and profitable company. The share price is not cheap at about 22 times earnings. Still, it may be a good investment. I am tempted to buy just a modest amount.

August 14, 2014

On Thursday, the S&P 500 rose 0.4% and Toronto rosé 0.2%.

Notable gainers included Berkshire up 1.7% and Toll Brothers up 2.1%.

Melcor was up 1.3% on decent volume.

Element Financial was up 4.2% and that was on top of a good gain yesterday as it released a good earnings report.

A number of news stores noted that Berkshire had reached $200,000 per share today. Only the American Press service noted that these were the same shares that Buffett began buying at $7.50 and that were at about $15 to $18 as he took over the company 49 years ago. Basically, I think the gain (over one million percent) is just incomprehensible to most people. It seems well beyond the realm of the possible even in 49 years.

Liquor Stores N.A. has released earnings this evening. Better than Q1 but nothing great. Earnings per share are at 14 cents and the dividend is 27 cents. They are expecting improvements in 2016. This company has been a disappointment. As noted earlier, I have sold most of my shares.

August 14, 2014 9:30 am eastern

On Wednesday the markets were relatively flat.

The next update will be for eBay, it continues to show strong growth.

Much has been made of Stats Canada’s error in the July job numbers. I have never believed that things like jobs added or certainly the unemployment rate could be measured very accurately in the first place. Analysts may have been wrong to assume such numbers were ultra accurate and not susceptible to errors. As far as the numbers having an impact on the stock market, I don’t think that is Stats Canada’s worry. They produce the numbers. They have no responsibility for how how others use the numbers. Of course they have to be as accurate as they can. But to assume there would never be errors was unrealistic.

The very thinly traded Canadian Tire voting shares have jumped to $194 versus about $110 for the non-voting shares. I have mentioned before that I see no rationale for the big premium on the voting shares. No one can take over the company by buying those shares as there is a provision that in a change of control all shares become voting. I think those buying the voting shares at such a big premium are at risk for a vary large decline. So far though the voting shares continue to rise and I have been wrong. However over an investment lifetime, acting rationally will tend to win in the end. I just don’t see a rationale to buying the voting shares. If there is effectively one buyer attempting to accumulate the A shares then perhaps they can keep rising. I just checked and the major holding of the A shares have not been buying with the exception that the Dealers association bought a small amount of shares (less than 4000 in small lots)  in the last nine months with the last buy at the end of June at $146.

August 12, 2014

On Tuesday the S&P 500 fell 0.2% and Toronto rose 0.1%

Melcor fell 1.5% to $25.61 after being up slightly for much of the day. I am comfortable holding Melcor and I think it will be a good long term investment and that it will be worthwhile buying, particularly on dips.

I usually do not read any analyst reports on companies. But it is encouraging the RBC has reiterated its $35 target on Melcor. That report was updated yesterday and could cause some short-term interest in the stock. Until very recently no big bank was “covering” Melcor to my knowledge. The recent IPO of the Melcor REIT has no-doubt generated interest in Melcor from the banks. Perhaps they are hoping Melcor will issue common shares at some point. That could even take the form of the Melton family selling off some of its huge stake in the company although I am not aware of any plans for that. And the Melton family is already now collecting very substantial dividends and may have little reason to sell. The company itself has certainly not been a frequent issuer of shares by any means.

Berkshire Hathaway’s A shares almost touched $200,000 each today. Buffett’s birthday is August 30 and perhaps a birthday present will be a stock price hitting $200,000. Imagine, five A shares is a million dollars. Same five shares were worth about $75 dollars ($15 each) when Buffett took control 49 years ago. The B shares are about $133 each. Each A share can be converted to 1500 B shares.

August 11, 2014

On Monday the S&P 500 rose 0.3% and Toronto rose 0.4%.

Almost all of our stock picks were up.

I sold most of the rest of my Liquor Stores N.A. shares. I retail a small amount in a tax free savings account. It has been a disappointment. They will release earnings within a week. I am not at all confident that they will have a good report. Maybe they will. I went to pick up beer and wine of Friday and headed for Superstore. I could not get myself to shop much at Liquor Stores N.A. (Liquor Depot and Liquor Barn) and that was not a good sign.

They need to cut the dividend and the refusal to do so seems irrational. There are far too many stores in Alberta and at some point they may announce some closures.

August 10, 2014

Melcor is updated and rated Buy at $25.88.

On Friday, the S&P 500 rose 1.1% and Toronto rose 0.5%.

Toll Brothers was a notable gainer, up 2.7%.

August 8, 2014 (9:30am eastern time)

On Thursday, Canadian Tire was up 2.6% as it released strong earnings. Melcor released earnings after the close that were relatively good. Melcor was set to open up slightly this morning. If RBC updates its report on Melcor that could generate some excitement. Otherwise it is a good company to continue to hang onto and to look to buy on dips.

August 6, 2014

On Wednesday. the S&P 500 and Toronto both closed at approximately the same level as the day before.

Bank of America received permission and raised its dividend from one cent per share to five cents. That is still almost nothing but it is a sign that the Bank’s health is much improved. The market reaction was quite muted because this was widely expected to happen. Meanwhile they are still dealing with payments and settlements related to the credit crisis. many of these payments are starting to look like corrupt shake-downs by the U.S. government and its agencies. It has already set aside or recognized liabilities for these settlements for the most part and so it may be that it is largely past the financial impact of settlements. I suspect it is a good investment but it is not without risk.

Agrium reported earnings. In a pattern that is not unusual the earnings were down versus last year but were still good news because they were higher than expected.

August 5, 2014

On Tuesday the S&P 500 fell 1.0% and Toronto fell 0.2%

Agrium was up 2.0% which was the highest of the stocks on our list.

This week I am looking forward to Melcor’s earnings release on Thursday (probably after the close)

August 3, 2014

On Monday, the Canadian markets were closed. New York was open and the S&P 500 rose 0.7%.

Berkshire Hathaway rose 3.1% due to its earnings release. It hit a new all-time high. The A shares traded as high as $195,000. 50 years of compounding growth within Berkshire under Buffett’s control and with all earnings reinvested (no dividend paid – save literally a single dime per A share paid in 1967) certainly adds up.

August 2, 2014

On Friday, the S&P 500 fell 0.3% and Toronto fell 0.8%. Constellation software was up 7.3%.

Berkshire Hathaway is updated and rated Buy at $125.83. On Friday I increased my position in Berkshire because the shares were down a bit and I figured the earnings release after the close on Friday would be good and it was.

July 31, 2014

On Thursday the S&P 500 was down 2.0% and Toronto was down 1.3%.

For those with an allocation in cash it now may be time to consider if one should begin buying on this dip. And if so how aggressively. Or should one wait for a larger dip. Logically, dips in the area of 2% to 5% are not much reason for buying. It might make sense to wait and see if more like a 10% dip or larger occurs at least in certain stocks. In my own case I often find myself nibbling on dips. Often I may do that too early when waiting for a bigger dip might have been better. But as long as I reserve some funds in case larger dips appear and/or I have new funds coming in, my strategy tends to do okay.

I noticed today that dividends were paid on Boston Pizza, and my Bombardier pref shares. Dividends can be used to buy shares at lower prices when markets decline.

July 30, 2014

On Wednesday, the S&P 500 was flat today while Toronto gained 0.5% and rose to a new all-time record.

Canadian Tire was up 1.5%, Canadian Western Bank was up 1.8%, FirstService was up 2.3%. Bank of America was up 1.6%.

I added to my Toll Brothers position today as it fell 1.1%. I entered an order to add to my Melcor position if it should fall as low as $24.15 in the next month.

Lots more earnings reports are coming… including Berkshire Hathaway on Friday – always ian interesting read.

July 29, 2014

The S&P 500 fell 0.5% apparently due to global tensions (particularly sanctions against Russia) while Toronto was about flat.

American Express reported (after regular hours) a 13% increase in earnings per share and rose slightly in after-hours ttrading.

FirstService Corporation reported earnings before the opening of trade and rose 5.2%.

I sold what amounted to 43% of my Liquor Stores N.A. shares today. Perhaps I should have sold it all.

July 28, 2014

On Monday, the S&P 500 and Toronto were relatively unchanged.

Liquor Stores N.A. was up 1.8% to $11.42. I probably should use the recent gains to reduce my position in this stock. I consider it speculative and my opinion of the company has deteriorated since I first looked at it. I don’t see a lot of reason to expect the Q2 report to be very good. And that could certainly push the stock price down. But perhaps they will make soothing comments about the future and the dividend that will help the stock price.

I have considered this to be a weak business but which did seem cheap. Perhaps I should have stuck with higher quality businesses.

July 27, 2014

On Friday, the S&P 500 fell 0.5% while Toronto rose 0.4%.

Melcor declined 1.9% to $25.14. It will report earnings on August 7. With this company I am certainly more inclined to buy on dips than to sell.

Canadian National Railway is updated and rated Weak Buy / Hold at $74.02. This company is exceptionally well managed. The stock is up over 800% since I first looked at it 1999. It has generally done better than expected over the years. Often I had rated it a Buy it did better than expected. The history here illustrates the fact that investors can do very well in buying and holding profitable companies. It is certainly a surprise that CN has gone up 800% in 15 years. But no one in 1999 would have doubted that it would continue to grow and be profitable.

At this time, CN looks expensive. It’s P/E is 22. It appears to be “pricing in” a continuation of very strong earnings per share growth. It would be tempting to justify paying this price. But it would not be prudent to forecast that the P/E will remain this high over the next five or ten years. Also it seems unlikely that it can grow profits are rates over 10% for the next decade.

It seems dangerous to bet against this company and I certainly would not short the stock. If I had a large position in it I would reduce that position (especially in non-taxable accounts). If I had a small position, I would probably just hold onto that.

I have not owned it for quite some years (unfortunately) and have no plans to buy.

July 24, 2014

On Thursday, the S&P 500 and Toronto were each about unchanged.

However Toll Brothers fell 4.1% as some other home builder companies reported heavy use of incentives to sell more houses. Also recent reports indicated some slowing in new home sales in the U.S. Toll Brothers will not report again for about a month. My inclination is to buy this on dips. It’s P/E is high which means it does need to continue to grow profits to justify its price. Based on analyst forecasts of earnings in 2015 it trades at 15 times those projected earnings.

Melcor fell 2.3% to $25.62. Again my inclination would be to buy  on dips. The stock is up a lot lately and so it is going to need a good Q2 report (on August 7) to maintain and grow the price. If the earnings and outlook are strong then Royal Bank will likly update its recent Buy recommendation which could generate renewed interest. Aside from that short-term possibility it is a very well managed company which should be a good long term investment. It does however tend to be cyclic and would drop in price if new home building in Alberta slows significantly.

July 23, 2014

On Wednesday, the S&P 500 crawled a little closer to 2000, up 0.2% at 1987. That right around 200% higher than its March 6, 2009 low of 667.

Toronto was up 0.5% to a new record high.

Toll Brothers was up 1.4% today.

Bombardier announced layoffs and a reorganization.

July 22, 2014

On Tuesday, the S&P 500 rose 0.5% and set a within the trading day record. It’s very close to 2000. In theory there is absolutely nothing special about 2000. In practice a bunch of traders will take that as either a buy or a sell signal and generally get all excited about it.

Toronto rose 0.4%.

Winners today included Canadian National Railway, up 2.0%, and Element Financial up 3.3%.

Activist investor Bill Ackman pretty much appeared to lose his marbles today with a tearful three hour presentation suggesting that Herbalife was a pyramid scheme. Well apparently it is a pyramid selling scheme. But there is nothing necessarily wrong with that.

I am not sure what to think about short sellers who loudly spread the word that a stock is over-valued. In some way this is no different than owning a stock and then telling everyone what a bargain it is. No one seems to have a problem with that. Probably both should be okay as  long as the view being spread is a legitimately held view. It is wrong and should be illegal to try to push a stock up or down based on no valid reason and done just for the purpose of manipulating a stock.

In my own case I have always wanted to predict which stocks will rise or fall through analysis. I never wanted to cause a stock to rise or fall by pushing the price around such as by convincing others to buy or sell. Even if doing so was based on reasons I thought were correct, the whole idea of doing that does not seem entirely ethical to me. It just smacks of pump and dump.

Anyhow Ackman apparently has a great track record with CP Rail and other investments. But he is looking like a crackpot over Herbalife. I know he is involved with Valient / Allergan and to me, that is a negative as far as Valient goes.

Ackman may be perfectly correct that  Herbalife products are basically snake oil with no redeeming features. But the same may be true of half the crap we buy. I am not sure that should be the concern of a stock analyst. Ackman contends that Herbal life basically sells an awful lot of its product to its own recruits rather than to external customers. If so, that can’t go on for ever. To a greater or lesser degree the same probably applies to Amway and Mary Kay and Avon. If so, so what? Most recruits will never  make much money in these type of multi-level (pyramid if you will) marketing “schemes”. But I know a couple people who have done very well at it. Most kids will never make money at hockey either. But that does not mean we crush the dream of every eight year old hockey player and his parents. 100% of the people who never try will never succeed. A 0.001% or whatever chance is still a lot bigger than a zero % chance.

I have no idea if Herbalife is a good investment. But I am not sure anyone should take Ackman’s biased word on the amtter.

July 21, 2014

On Monday, the S&P 500 was down 0.2% and Toronto was down 0.1%. So far, it seems that the market is only moderately concerned about recent world events.

I added modestly to my Bank of America position today. If the U.S. economy continues its slow improvement then Bank of America is likely to be a good investment at its present level.

There will be lots of Q2 earnings reports out in the next couple of weeks.

July 20, 2014

Bombardier perpetual preferred shares are updated and rated Buy for fixed income at $22.05. The dividend at just over 7% is attractive. But there are risks. The company is relatively weak financially. Perpetual shares will fall precipitously if long term interest rates rise a lot. The company has certain conversion options that are negative to investors. Still for those looking for income a modest position in these shares is worth considering. The next quarterly dividend is payable July 31 but I was unable to find the record date so I don’t know if anyone buying these early this week would get the next dividend or not. In any case, in theory the share price will drop after the ex-dividend date if it has not already passed.

July 19, 2014

Bank of America is updated and rated Speculative (higher) Buy at $15.49. I believe now may be a good time to buy these shares. Its reported earnings are predicted to rise sharply as it puts the settlements related to the mortgage issues of the financial crisis behind it. I will likely add to my position. Bank of America shares will likely do better than the average U.S. stock over the next year.

U.S. stocks are well suited to RRSP accounts because the normal 15% withholding taxes on dividends does not apply to RRSP accounts. Also, most retirees will spend some money in the U.S. and so having U.S. investments makes sense. Regarding taxable accounts, the 15% dividend withholding tax is not something that should stop investors from buying U.S. shares and especially shares of a low dividend company like this one. (For taxable high-dividend shares it does make sense to favor Canadian companies.)

Canadian Western Bank rate reset preferred shares are added to the list and rated buy for fixed income. The 4.3% yield is not exciting. But is seems a reasonable alternative to cash. I first mentioned these shares back on January 31 when I bought at the IPO at $25.00 (with no time for analysis). I mentioned on May 6 that I had sold these at $26.00. The next dividend record date is next week, Thursday July 24. If you buy on Monday (and possibly Tuesday) you will get a dividend on July 31. But, in theory, the price will then drop by the amount of the dividend.

July 18, 2014

On Friday, the S&P 500 rose 1.0% and Toronto rose 0.4%.

Most of our stock picks rose as well.

Alimentation Couche-Tard is updated and rated (lower) Buy at $29.29. It’s a fantastic company. One of the very best managed large companies in Canada. Also one of Canada’s largest companies by revenue. But at 20 times trailing earnings, it is not cheap. I don’t own it, I sadly sold it a few years ago at only a 100% or so gain and let a potential 300% slip from my grasp. It could rise if it makes another very large acquisition at a good price.

July 18, 2014 (1:30 pm eastern time)

I (very) rarely ever call and speak to company executives. I prefer the results to speak for themselves I prefer not to become friendly with management as that can make me less objective. Also executives will almost invariably paint a rosy picture.

Today, I did speak to the Liquor Stores N.A. CFO today by phone. I was concerned that emails to the company had not been answered. In fact, that was my mistake I had the wrong email address. (But I should have gotten bounce backs but did not) The CFO was quite upbeat about the future but did say it is going to take a while for recent and planned investments to show up in profits. He was also forthcoming about the challenges being faced from competitors. This company believes its expansion opportunity is in the U.S. I confirmed that the CEO does live in the U.S. which I find not at at all ideal. It may make sense longer term when they expand in the U.S.

I am not sure if their future is bright or not. I will likely hang onto my shares but am not planning to buy any more despite the lower price.

July 17, 2014

On Thursday the S&P 500 was down 1.2% and Toronto was down 0.1%. This was apparently driven by the downed air plane.

Most of our stocks were down…

My strategy is to ignore events like this.

I am tempted to buy some more Bank of America shares.

July 16, 2014

On Wednesday, the S&P 500 rose 0.4% and Toronto was up 1.0%.

Toll Brothers was up 2.3% as new home builder sentiment improved.

Bank of America fell 2.0% as it released earnings that wer a mixture of good and bad items. Overall it appears that Bank of America continues to improve.

Melcor was down 1.1% to $26.68. However, the trading volume was good. This stock is up a lot and so set backs are to be expected. There is always the risk of a decline, but overall I expect this stock to continue to be a good investment. If I was not already so heavily invested in it I would throw in a stink bid at say $25 as one never knows…

July 15, 2014

On Tuesday, the S&P 500 fell 0.2% and Toronto fell 0.6%

In part, the Toronto market has fallen with lower oil prices as oil was down under $100. Thought it is just above $100 at the moment.

Liquor Stores N.A. fell a bit more. It announced after th clo se that it had (as usual) declared its next monthly dividend of 9 cents per share. Unfortunately, the payment of a dividend is no proof that the company is actually earning the dividend. It may or may not be sustainable.

July 14, 2014

On Monday, the S&P 500 rose 0.5% and Toronto rose 0.3%.

Liquor Stores N.A. was down 1.8%. Of my own investments this is the one I worry about. Historically they had done well. I had thought their size gave them advantages over smaller players. But they seem to be struggling. In my area a somewhat newer competitor “Solo liquor stores” is more popular and more aggressive on pricing. Plus Superstore and Walmart have opened more liquor stores. On top of that when I emailed the Liquor Stores CEO and CFO I was ignored, despite several follow ups. (As an update, I have now learned the emails were not received, I did not get a bounce back so assumed I had the correct email address but I did not, that was my mistake) It will be interesting to see how their Q2 report comes in but I am not overly confident.

This week there will be many more large U.S. companies reporting earnings and that may drive the market in one direction or the other depending if expectations are exceeded or not.

July 13, 2014 

My personal portfolio composition is updated. With the rise in Melcor, I am certainly dangerously concentrated in that stock. I have an order in to begin trimming that if it hits $27.95. I expect it to release a good earnings report for Q2 and I suspect its outlook will continue to be good but one never knows for sure.

We certainly owe much of the strength in Melcor and in the market in general to low interest rates.

I no longer have any stocks rated in the Strong Buy category. That mostly reflects the fact that obvious bargains are simply less common at this time.

July 12, 2014

On Friday, the S&P 500 and Toronto were little changed, each up about 0.1%.

Wells Fargo is updated and rated Buy at $51.40. Due partly to its price rise (up 13% this year to date), I am no longer rating this a Strong Buy. It’s still considered a Buy and a good long-term investment.

I have followed this bank on the site since February of 2009 when it was very low due to the financial crisis. At that time it was looking cheap on a book value basis but also speculative given the financial crisis. It is up 372% since being added to this site as a highly speculative Buy at $10.91 on February 22, 2009. It then rose rapidly as the stock market recovered sharply in 2009. It is up 92% since being rated a Strong Buy on February 15, 2010 at $26.88. During 2010 and 2011 it was volatile, climbing to close to $35 each of those years before going back under $25. Since late 2011 it has doubled in a fairly steady climb although with some modest pull-backs along the way. Basically it has rewarded patience and fundamental investors. Its volatility has probably left those using stop loss orders wishing they had not.

At this time those who have big gains on it and especially where it may be too large a portion of an equity portfolio (which may mean over 5% or over 10% depending on risk tolerance) may wish to reduce their position. And particularly in non-taxable accounts where one does not have to worry about triggering a capital gain.

Wells Fargo represents about 13% of my portfolio and about 16% of my equities. (I have a high risk tolerance, risk capacity). Given that it is now rated Buy rather than Strong Buy it is probably prudent for me to reduce my position.

July 10, 2014

On Thursday, the S&P 500 was down 0.4% and Toronto was down 0.7%.

Melcor had a good day and was up 1.6% to a new multi-year high at $27.40. Back in 2007, this stock briefly was around $30.  But back then it did not deserve to be that high. Today it probably does.

This morning the market had opened down due to (of all things) concern about the finances of a large Portuguese bank. Really. Now Buffett might ask, if you owned the finest and busiest large restaurant in your City, would you sell it on that news? And if not, is it rational to think about selling stocks on that news? I don’t think so. Thought I do like to keep an allocation to cash in case others sell for silly reasons and drive prices down.

July 9, 2014

On Wednesday, the S&P 500 and Toronto each rose 0.5%

Most of our stocks were up. The biggest gainer was Element Financial, up 3.5%.

I plan to dedicate time for updates the full week starting July 19. Until then I won’t likely have any updates (possibly something this weekend) but definitely a number of updates in the week starting July 19.

July 8, 2014

On Tuesday, the S&P 500 fell 0.7% and Toronto was down 0.2%.

Almost all of our stock picks were down.

However, Costco was up 1.0% and Walmart rose 0.8%. Costco always seems expensive but is a great company and I would like to buy it at some point.

July 7,2014

On Monday the S&P 500 was down 0.4% and Toronto was down 0.3%.

Most of our stock picks were down. After so  many positive days this tiny decline does not seem like anything to complain about.

The market’s direction this week will likely depend on the first few Q2 earnings releases coming in from the S&P 500 companies.

In the next day or so, Warren Buffett / Berkshire Hathaway will announce that Warren has made his annual charity donation. This is the ninth donation since his big charity plan was announced in 2006. The amount will be about $3 billion. Meanwhile his friend Carol Loomis has announced that she will retire as a regular columnist at Fortune magazine – this at age 85 and after 60 years on the job at Fortune. She is rich from her Berkshire stock and probably other investments. She clearly loved her work to have delayed retirement so long. And, in fact she will still do the odd article for Fortune, edit Buffett’s annual letter for free (as she has done for about 40 years) and sit on the Board of one of a Buffett family foundation. If everyone enjoyed working as much as Buffett and Carol Loomis do, more people would be happy.

July 6, 2014

On Friday, the U.S. markets were closed. Toronto rose 0.05%.

This week, the S&P 500 companies will start to report Q3 earnings, although most will report closer to the end of July. Canadian results will not start for about two weeks.

Hopefully, the results will allow markets to remain strong. However, there is always the chance that world events and interest rate increases or just the age of this bull market could spook markets.

July 3, 2014

On Thursday the S&P 500 as well as the DOW set new records before closing early for tomorrow’s holiday. Toronto was about flat.

The Canadian dollar has risen to about 94 cents U.S. from lows of 89 and 90 cents earlier this year. And back in January as it went under 90 cents most analyst seemed to be suggesting it would go quite  a bit lower. They were wrong.

My strategy has been to try to buy more American dollars when the Cnadian dollar is higher and convert some U.S. back to Canadian as the Canadian goes lower. But is never easy to know when to do this. It probably does not make sense to be buying and selling on a 1% move in the dollar, maybe on 3% to 5% in either direction makes more sense.

Back in January as the Canadian dollars went lower and as that increased the value (in Canadian dollars) of my American investments I hedged some of the currency buy using U.S. dollars to buy a Canadian dollar fund FXC on New York. I started hedging a bit too early. Most of this year that hedge was in a loss position as the Canadian dollar was lower than where is was when I purchased my FXC (average purchase price). Right now I am thinking of selling some FXC as it has risen. But I am tempted to wait and see if the Canadian dollar goes a bit higher before I do that.

Overall, most Canadian investors probably don’t need to bother with hedging U.S. dollars. Over a long period of years hedging might not make much difference. Also most Canadians will ultimately need U.S. dollars to spend so in that sense leaving U.S. dollars un-hedged is a natural hedge against your future shopping/ vacation/ retirement spending in the U.S.

July 2, 2014

Wednesday was a positive day on the markets as the S&P 500 was up 0.1% and Toronto was up 0.4%.

Melcor was unchanged at $26.50 but had 124,000 shares traded. This included a 100,000 share traded that was likely a “block trade” between two institutional investors. In the long run, what is important is how much Melcor earns and what its true value is (hopefully higher than $26.50). But in the short term increased buying interest can push the price up. So far, it seems that the buying interest is supporting the recently higher share price. Right now it seems that those who hold the stock want to keep it and can only be convinced to sell with this recently higher price.

July 1, 2014

On Monday, the TSX was up 0.3%. The S&P 500 was flat.

On Tuesday, the Toronto market was closed and the S& P gained 0.7% and made a new record closing high.

Melcor was up 0.6% to $26.50 on Monday. It had just over 30,000 shares traded which is high for this company. Apparently there is more interest in this company than usual.

Constellation Software rose 5.6% on Monday.

The first half of the year is over and its been a good first half for investors.

June 28, 2014

On Friday the S&P 500 rose 0.2%and Toronto rose 0.4%. Most stocks on our list were up including Constellation Software, up 3.2%.

Agrium is added to the list above as a new stock pick rated Speculative Buy at CAN $98.05 and U.S. $91.89. I call it speculative because its earnings are cyclical as it products and major inputs are commodities and the earnings were recently declining. But it will likely continue to be a good investment in the long run. I find it interesting learn about the agricultural economy by studying this company. I plan to buy shares. I will not make a large investment because I want to see how its earnings progress in the next few quarters. It is expected that its earnings will decline in Q2 compared to last year and that could possibly lead to a share price decline when it reports those earnings although in theory that is already factored into the price.

June 26, 2014

On Thursday, the S&P 500 was down 0.1% while Toronto was up 0.4%.

Melcor was down 2.6% to $26.22 on good volume (by the standards of this thinly traded stock).

I finally entered an order tonight to sell about 10% of my Melcor shares if they should hit $27.95. This is my biggest position by far and so I think it makes sense to start to trim at some point.

News of Sobeys closing some stores is not much of a surprise given amount of new grocery stores that have been built in Canada in the past decade or so. Where I live in St. Albert, Alberta, I believe the were three or four grocery stores 20 years ago. Now the population is up by a third or maybe 50% but the number of grocery stores has about tripled. Possibly this is a negative sign for certain REITs but it may be more of an isolated incident. Certainly things do not appear to have slowed down in Alberta.

June 25, 2014

On Wednesday, the S&P 500 was up 0.5% and Toronto was up 0.1%.

It was a strong day for Melcor, which rose 2.0% to $26.93 on higher-than-normal volume. Melcor announced today that it would redeem some convertible bonds that it has outstanding which are now well into the money. The bonds convert at $18.51. I am not sure if this had anything to do with the price rise today. In fact I would have though it might have a small negative effect.

It’s interesting that the bond holders have until August 7 to convert at $18.51. IF they fail to instruct their broker to take the conversion at $18.51, then the bonds automatically covert on August 8th at 95% of the average trading price in the previous 20 trading days. Based on today’s price the forced conversion might be at about $25.60. In that case investors would be FAR better off to take the conversion at $18.51. I find it disappointing that Melcor has issued a press release that technically gives the facts but omits the simple observation that if the 20 day average price is higher than $19.48 (which seems all but certain) then the convertible bond holders are better off converting at $18.51 rather than taking he default conversion. Every company seems to do this sort of thing. That is, they issue a press release that meets the legal requirements but omit plain language and common sense advice. And they probably could make the default option the $18.51 but they do not appear to be doing that.

Basically the result is that if you get a “corporate action” notice about things like this you as an investor have to take the time to understand the best option.

In the case of Melcor however, the convertible bonds do not appear to trade and were issued on a private placement basis. So, perhaps everyone that owns them would be sophisticated and would know they should convert at $18.51. Perhaps the press release was not directed at the bond holders but was more so to let the public shareholders know about this. If that is the case and the private holders of the convertible bond were notified to convert then perhaps my concern about the press release wording is misplaced.

June 24, 2014

On Tuesday, the S&P 500 was down 0.6% and Toronto was down 1.0%.

However, some of our stocks did well, Canadian Western bank up 1.5%, Toll Brothers up 1.2%.

I neglected to mention that on Friday my order to buy back some of the Canadian Tire shares that I had sold at close to $110 was filled at $101.50.

June 23, 2014

On Monday, the S&P 500 and Toronto were both about flat.

There was nothing too exciting happening with our Stock Picks today.

Currently I am reading a book that traces the history of commerce back about 5000 years. According to this book trading and commerce is basically the fountain of wealth. Many or most rich people throughout history were merchants and traders. I think this is in agreement with Adam Smith in the Wealth of Nations. It is the the related combination of the division of labor and trading along with the necessary banking and enforcement of debts and contracts that is the source of wealth.

We sometimes think of retailers as mere middle men. Yet some of the richest people in the world built their fortunes in retail. The Walton family is FAR richer than Bill Gates or Carlos Slim or Warren Buffett if you combine the family. And all their wealth came form the often maligned Walmart stores.

Most of us will never start our own businesses to get rich that way. But the next best thing may be to buy shares and ride the coat tails of successful businesses. Most investors seem to focus on trying to guess which stock is going to rise or fall. But in the long run it may be best to try to figure which businesses will thrive in the long run and buy their shares (if the price if not outrageous). If the company grows its earnings per share at a high rate the stock price will tend to follow along eventually.

June 22, 2014

On Friday, the S&P 500 rose 0.2% and Toronto was about flat.

Wells Fargo rose 1.7%. Wells Fargo has been a great investment. It was first added to this site very near the bottom of the stock market in February 2009. It was rated highly speculative Buy at $10.91. Since then it is up 385%. It was first rated a Strong Buy on this site on February 15, 2010 at $26.88. Since then it is up 97%. It has also been relatively volatile and offered plenty of opportunities to buy in the 20’s in 2010 and through to the end of 2011. It is by some measures the largest bank in the U.S. Sometimes even very large companies can provide excellent returns.

I am working on the analysis of Agrium but did not finish it yet. It is currently in a period of lower earnings due to lower prices for its commodity products. It has an excellent history of profitability. I believe my analysis may settle on a (lower) Buy rating. I like the company and may buy a modest position and then see what happens after it reports Q2 results. Q2 is by far its most important quarter. It is expecting profits per share to be about 15 to 20% lower than last year. Therefore it seems unlikely that the price would rise much in the near term. It’s financial disclosure is extremely detailed and it appears to have a strong focus on return on equity which I really like. It is however subject to wide swings in the prices of its products and some of its raw materials. Therefore it will never be an easy company to predict.

June 19, 2014

On Thursday the S&P 500 rose 0.1% and Toronto was about unchanged.

Constellation Software was up 2.5% and Element Financial was up 3.4%

Melcor was down 0.9% and its volume was closer to its old normal. Almost everyone owning this has made exvellent gains recently and many may be predisposed to sell especially if they see the price rise seems to be over or headed the other way. But fundamentally it is likely still good value and so could easily go higher (perhaps after a bit of a breather now) as lomg as the Alberta economy stays strong.

I plan to add Agrium to the site by Sunday.

June 18, 2014

On Wednesday the S&P 500 was up 0.8% and Toronto was up 0.3%. Both gains wee after statements from the FED about interest rates rising relatively modestly were taken as positive.

Melcor edged up another 1.4%. Obviously it can’t rise everyday and at some point the impact of the recent RBC report is fully reflected in the price. I am thinking of trimming my large position modestly, perhaps at just under $28 if it should get that high. Obviously the stock could fall based on world, Canada, oil-patch or company-specific news. I think it remains good value but certainly recognize that stocks don’t go up in straight lines and sometimes bad things happen to good stocks.

Fedex rose 6.2% after posting strong earnings and an upbeat outlook. As of my last look at it, I thought it was too expensive. But sometimes it’s hard to keep a good company down.

June 17, 2014

On Tuesday, the S&P 500 was up 0.2% and Toronto was up 0.1%

Those who don’t own it may tire of hearing about Melcor but it managed another 1.2 % today. Volume was 25,000 shares. At that level it would trade 6.25 million shares a year.  It has 33 million shares. But over half are with the founding family and lots more are probably held by those who will never trade. So 25,000 shares per day may be at the high end of the trading we will ever expect to see here. (So, again it’s surprising that RBC would mention it to their vast client base.) In theory trading adds nothing to the true value of a company, especially one that is not looking to sell additional shares. In practice it often adds to the share price. A decent volume of trading can facilitate making a quick capital gain and then selling. And it facilitates selling out at any time. Most retail investors do not need to see a lot of volume since we tend to have 1000 shares or (much) less very often. But for those who get into owning say $50 or $100k or more in any one company a lack of trading liquidity can be a concern.

With a company like this, a good strategy might be to have a core or minimum holding intended to hold indefinitely. On top of that when it is cheap one could own another layer with the intention to sell if it no longer looks cheap. Or a layer of stock that is used to buy low and sell high and perhaps repeat that if the stock is volatile. I have tried to do that with stocks like Wells Fargo, Toll Brothers, Canadian Tire and some other over the years. Sometimes it has worked out. I have not however had firm rules so it has been ad-hoc.

Wells Fargo also did well today, up 1.2%. Bank of America was up 2.0%. I read mixed mixed messages about the U.S. economy and about home building. In general, I believe a slow recovery continues and that the big banks and Toll Brothers will do okay.

June 16, 2014

On Monday the S&P 500 was up 0.1% and Toronto was up 0.3%

Melcor rose 4.0% on the continued effect (or affect?) of the RBC report on Friday. But really the volume, although a good bit higher than normal, is still quite low and for that reason the stock price could be volatile. But overall, I agree with RBC that the company is worth more than it is trading at and I am inclined to enjoy the gains and not sell any at this time. Perhaps I am being  rather greedy in doing that (since I have such a high exposure to it) but that is my thinking at this time.

June 15, 2014

On Friday, the S&P 500 rose 0.3% and Toronto rose 0.6%.

Similarly, most of our stock picks were up.

There was an interesting development for Melcor on Friday. RBC Capital markets has initiated overage with a rating of outperform and a $35.00 price target.

I am surprised they would “cover” it given the very low trading volume. Their report alone could certainly push the price up.

I have occasionally been concerned that even my own recommendations could push up a stock price. If a stock were under-valued and any analyst said so and the stock rose as a result, there is technically nothing wrong with that. It’s fair game if the stock was truly under-valued. But the worry would be that if an analyst pushes a stock price up, then who would be there to buy when that analyst and his “followers” wanted to sell? Out of caution I never want to push a stock price up. I want to identify under-valued stocks and then ride them up. The seedy side of pushing up stock prices would be “pump and dump” where an analyst purposely pushes a stock price up and then sells ahead of his followers. That of course is highly unethical. About 10 years ago I briefly removed Melcor from this site when its price kept rising and I was afraid I was causing that. (It turned out it was a Calgary brokerage company that had recommended the stock).

So I am surprised that RBC is covering this thinly traded stock. I suspect it will push the price up. I am perfectly happy with that.

The stock initially rose about a $1.00 on Friday but closed up 44 cents. Volume was several times higher than normal but still quite low. Near the end of the day the graph shows a lot of very small trades. I am not sure what to make of that.

Part of the reason for RBC covering the stock may be that Melcor now has someone dedicated to investor relations. Also the company has grown and it makes sense that eventually the bigger brokers would take notice.

In looking into this I also found the following comment about the RBC report:

“A number of other analysts have also recently weighed in on MRD. Analysts at Laurentian raised their price target on shares of Melcor Developments from C$28.00 to C$29.50 in a research note on Monday, March 17th. They now have a “buy” rating on the stock. Analysts at LB Securities raised their price target on shares of Melcor Developments from C$28.00 to C$29.50 in a research note on Monday, March 17th.” (I think that would be just one analyst but the quote implies more than one)

This probably explains much of the recent surge in Melcor’s price. The Laurentian coverage does not seem to have had any great impact on volume however. A worry with Melcor is that if someone were to rush to sell 10,000 shares or more they could push the price down.

I would buy Melcor at this price if I did not already have such a large position in it. My thought has been to not even trim this position unless it gets closer to $30, although prudence would suggest I should be thinking about trimming now.

I will be interested to see how the price reacts this week to the RBC report.

Overall I am happy with my large investment (as a percentage of my portfolio) in Melcor and look forward to  (probable) gains ahead. If it happened to fall back to the $21 range I suspect I would buy more despite already owning what most would advise is too high a position in one company.

Today I am reading the annual report for Agrium. I really like what I see. It’s also trading at a reasonable P/E. I plan to add it to the list above when my analysis is complete and I suspect it will be rated Buy or higher.


On Friday there was news about a very large acquisition by a Canadian gaming company.

“Amaya Gaming Group (TSX:AYA.TONews) announced a jackpot of a deal Friday as the Montreal-based company said it will pay US$4.9 billion in cash to buy the world’s largest online poker company, operator of popular brands PokerStars and Full Tilt Poker.”

.. So a $4.9 billion acquisition. Looking up Amaya Gaming I see that it last reported assets of $519 million and equity of $238 million. I saw some information about how this would be financed including issuing shares through a subscription receipts method at a price of $20, some 42% above the previous days closing price. Most of the purchase price would be raised by issuing $2.9 billion in debt and $1.0 billion in convertible preferred shares at $24 per share in a private placement.

It all seems very strange indeed to me. It appears that the the new pref share holders will eventually own about 30% of the company if the conversion is exercised. (It would make more sense to me if they ended up with over 50% in which case this would be a sort of reverse takeover deal.)

It simply baffles me how the market could so quickly decide that this is a good deal and that Amaya’s shares are now worth some 42% more than they were the previous day. Usually acquisitions are viewed with skepticism.

The reason that the stock price ahs risen close to $20 appears to be that:

Amaya has entered into an agreement with a syndicate of underwriters led by Canaccord Genuity Corp. (“Canaccord Genuity”), Cormark Securities Inc. (“Cormark”) and Desjardins Capital Markets (“Desjardins”) (collectively, the “Lead Underwriters”), and Clarus Securities pursuant to which the Lead Underwriters and Clarus Securities have agreed to purchase from treasury, on a bought-deal private placement basis, 25 million subscription receipts of the Corporation (the “Subscription Receipts”) at a price of C$20 per Subscription Receipt (the “Subscription Price”), for aggregate gross proceeds to Amaya of C$500 million.

I remain quite baffled and skeptical of this deal.

June 12, 2014

On Thursday, the S&P 500 fell 0.7% and Toronto rose 0.1%.

Fedex fell 2.5%, possibly because oil prices rose.

I am pretty much holding tight, not buying and not selling though I do have an order in for some Canadian Tire at $101.50 and it got down to $101.84 today.

June 11, 2014

On Wednesday the S&P 500 was down 0.4% and Toronto was down 0.1%.

Alimentation Couche-Tard was up 2.8%. Canadian Tire was down 1.6% to $103.55. I still own some in a taxable account but had sold most of what I owned (all in registered accounts) at close to $110 (before that I sold most on the way up over the past couple of years). I have an order in to buy some back if it hits $101.50 which it could well do.

Berkshire Hathaway is now number 4 on the Fortune 500 which is ranked by revenue. It’s number 2 in terms of book value of equity. It’s number 5 in terms of market value. It has 302,000 employees in total but only 25 at head office. What Buffett has accomplished starting with a $20 million dollar textile company in 1965 is truly staggering.

June 10, 2014

On Tuesday, the S&P 500 was about unchanged and Toronto was up 0.2%

There were no particularly notable moves in our stock picks.

I am cognizant that there have been few updates lately or new companies added to the list. I plan to work to change that.

June 9, 2014

Monday was a positive day in the markets as the S&P 500 rose 0.1% and Toronto rose 0.2%

My own portfolio took a hit due to Melcor being down 2.3%. But that is not something that bothers me given the recent gains in that company. I suspect it will be higher before long and and am highly confident that it will be higher in the long run.

June 8, 2014

On Friday the S&P 500 rose 0.5% and Toronto rose 0.3%

Canadian Western Bank was up 3.1% and American Express was up 2.3%

Last week I purchased data from the TMX group (data that used to be free) so that I could check the P//E ratios and yields of the Toronto Stock index and its various segments. The TMX data provides a P/E ratio based on the published earnings numbers without adjustment. In general the P/E ratios were unattractively high. Using this data I updated two reference articles:

  1. The valuation of the TSX


  1. A list of Canadian Exchange Traded Funds with the  P/E ratio, yield and price to book ratio.

In addition to the TMX “raw” P/E ratios I also show the P/E as seen by ishares which are adjusted P/E ratios but which may be more relevant.

Due to the introduction of IFRS accounting in Canada, the reported earnings are often relatively meaningless. That’s mostly because IFRS apparently makes no distinction between a one-time gain or loss and earnings from operations.

These articles were included in the latest edition of the free newsletter which has been emailed out today.

June 5, 2014

On Thursday, the S&P 500 rose 0.6% and Toronto was about unchanged.

I did not note any dramatic moves in our stock picks.

The European central bank will charge banks 0.1% to keep money on deposit at the central back. I don’t pretend to have a great understanding of this but the idea is that the banks should lend out the money instead of keeping it at the central bank. But banks would rather pay the 0.1% than lend to bad credits. Also Amanda Lang pointed out today that most of the countries in Europe can now borrow at better rates than the U.S. That seems strange. It could be because the banks in Europe are buying up the government bonds of all the European countries rather than keeping money at the central bank or lending it out. This pushes down interest rates. Bank regulators always seem to encourage banks to hold government debt as they consider it risk free. The central bank in Europe is also buying up government bonds (and this “support” is why they are considered relatively risk free). Hopefully all of this will lead to a continued and further recovery of the economy in Europe. Stronger companies in Europe are certainly benefiting as they can borrow at ultra low rates.

Possibly, it would be a good idea to invest in some European ETFs. Some are listed in our Global ETF article. The ETF that trades as IEV on New York offers broad exposure to Europe. I don’t have a buy /s sell recommendation. I don’t think it would be a bad idea to purchase some for diversification. I don’t own any.

June 4, 2014

On Wednesday, the S&P 500 was up 0/2% and Toronto was up 0.4%.

I added to my Toll Brothers position today based on the update posted earlier today.

The reference article on the valuation of the Toronto stock index is updated. I had to purchase the P/E data from the Toronto Stock Exchange (it used to be posted free). On A GAAP basis the P/E of the Toronto index is apparently 38. However iShares puts the figure at 17.6. Reality may be somewhere in between. I am worried that iShares is too aggressive in assuming that all negative earnings can be set to zero. Nevertheless I used the iShares figure.

I will also shortly update my list of Canadian exchange traded funds and their P/E ratios.

June 4, 2014 11:45 am Mountain time

Toll Brothers is updated and rated Buy at $36.01. As the report indicates its earnings are still too low but they are recovering very rapidly. This still seems to be a reasonable play on the long-term recovery of the U.S. housing market. I first added Toll Brothers to this site on June 5, 2011 as Speculative Buy at $21.03. It subsequently soon went under $15 but then rose rapidly to the $35 range where it has been with some fluctuations for the past two years rising as high as $40. It’s been a good investment and has been a good one to play the game of selling on rallies and buying dips. I plan to add to my position.

June 3, 2014

On Tuesday, the S&P 500 was about unchanged and Toronto was up 0.4%

There as a new issue of “split shares” stocks and debt today form a company called. NewGrowth Corp. That’s interesting, a company with a name that contains absolutely no clue about what line of business it is in. From the name all we know is that it is new and intends to grow. While overall the market may not be over-valued, the existence of this company seems a little scary. I realize that one could read its prospectus to find out what it does or in tends to do. The reality is that few investors read the prospectus and in many cases there is literally no time to to do so as the issues often fill and close out very quickly. In this case, and I think it is not surprising, the issue ahs not yet sold out.

Apparently this entity already trades and appears to be a closed end ETF. It was apparently created by Scotia Bank to invest in banks and utility companies. It splits out the income from dividends versus capital gains.

I have never bothered to look into the mechanics of any of these “split” corporations. To me, they just add in a lot of complexity and some fees. If I want dividend shares I will buy dividends shares. If I want capital gains I can buy directly shares in companies that I expect to grow. Bank shares typically offer both and I don’t see any value in separating them.  Most advisors suggest having some of each in any portfolio so why separate them? I doubt that these split entities add any value to the market. And I doubt that very many investors would understand much about how these entities work.

I suppose I might consider it if the closed end fund were trading at a large discount to the underlying shares.

There might be the odd situation where someone with no other income wants a portfolio with 100% dividend income because there is very little tax in that situation. But that is a rather rare situation, I suspect. It could perhaps be arranged for a non-working spouse but seems to be an aggressive form of tax planning and revenue Canada might want a very clean paper trail on where the funds came from that are generation say $60k in dividends, in a taxable account, for someone who is not working or drawing a pension. While such cases might exist, it does not apply to me and I have no interest in this at this time. Even if I was especially hungry for dividend income I don’t think I would look to the complexity of split shares. They are derivatives. Nothing inherently wrong with that but it definitely adds complexity.

Overall I just don’t see it as useful to spend any time looking at this or any other “split share” entity.

And it is just very hard to take seriously an entity called NewGrowth Corp.

June 2, 2014

On Monday , the S&P 500 was up 0.2% and Toronto was up 0.1%

FirstService was up 3.1% on news of an acquisition it is making.

Element Financial was down 2.6% on news it is making a large acquisition. It also has a new issue out for subscription receipts at $12.75 (existing shareholders can buy more shares at $12.75). A convertible debenture at 5.125% and a five year rate reset preferred share at 6.4%. As this company makes acquisitions and issues shares and debt its balance sheet changes rapidly. I think it has to be considered speculative. I am not particularly inclined to invest in it at this time.

Melcor was up 1.6% to $25.40. I think we should not get too excited about the recent increase in Melcor. It’s been on low volumes and it would only take a few sellers of 20,000 shares or whatever to push the price down. So I am enjoying the ride and have not sold any but would certainly not be surprised if it fell back.

June 1, 2014

On Friday, the S&P 500 rose 0.2% and Toronto rose 0.1%

Melcor closed up 0.6% at $25.00 and is up 25% this year.

The next update will be for Toll Bothers. My preliminary analysis indicates it will be rated Buy at its recent price of $36.22. As its earnings grow it is looking less speculative. I am considering adding to my position.

May 29, 2014

On Thursday the S&P 500 was up 0.5% and Toronto was down 0.2%.

None of our stocks moved much. Today may have been my chance to buy back some Canadian Tire as it hit a low of $102.26 before ending the day up 0.7% at $103.97. I have now placed an order to buy some at $101.50 it it happens to fall that low in the next month.

Also I placed an order by some more Boston Pizza at $20.18

TD sent me notice of about four more stock offering today.

The five year rate reset pref shares that I mentioned yesterday fell a bit more today. Yesterday they fell despite the fact that the five -year government bond yield fell. I think they may be falling due to so many new issues coming out. But given that so many investors look for dividends these are probably good value at this time. Having sold some near $26 I am inclined to buy back in if they go back to $25 or so.

May 28, 2014

On Wednesday the S&P 500 was down 0.1% and Toronto was down 0.3%.

Toll Brothers rose 2.1% after releasing strong second quarter earnings.

Onex (which we had rated only a Speculative Weak Buy at $62.00 rose 4.3% to $67.70 after releasing earnings.

It will likely take a another day or so for the market to digest the earnings reports of both of these companies. I will plan to update these reports soon.

Canadian Tire was down 1.8% at $103.23. I plan to enter an order to buy back some of the shares I sold.

In terms of preferred shares the three five year rate reset preferred shares that I had bought earlier this year (and then sold out of two of them) all fell in price today. These were Canadian Western Bank CWB.PR.B, National Bank NA.PR.S 4.1% series 30 and Enbridge ENB.PF.A 4.4% series 9. (I also have the very similar ENB.PF.C series 11)

The Enbridge Pref. ENB.PR.A fell to $24.97. I already own this one having paid $25.00 for it. So this seems attractive given that interest rates are now lower than when it sold at $25.00.  4.4% is not a great yield but may be a reasonable substitute if one is holding excess cash. In buying these I would not do it unless prepare to hold for five years if necessary. (I don’t want to buy and then sell at a loss, so if they fell I would likely then want to hold until maturity and hope to get $25 when the rate resets.

TD Waterhouse continues to fairly bombard me with emails about various new issues. The pace of new issues seems to be some multiples of what it was for most of the past year or two. Investors should be a bit cautious to be buying shares at a time when so many companies seem eager to sell shares. Most of these new issues I ignore but these rate reset preferred shares seemed relatively safe. The yields are not great at all but I consider them to be relatively safe.

May 28, 2014 7:10 am Mountain Time

This morning it is Bank of Montreal out with an offering of five year rate reset non-cumulative preferred shares at 3.9%. It is probably a decent alternative to cash but you have to be willing to hold for five years. You could sell any time but it would drop somewhat below $25 if interest rates rise but likely (no guarantee) return close to $25 in any case when the rate resets in five years. I have never analyzed Bank of Montreal but perceive it to be a strong bank. I am not recommending or rating these shares as I have not analyzed them but they are probably a reasonable investment as part of a portfolio. For myself I had bought a few issued previously from other banks and companies at over 4% or so I decided not to buy any that are under 4% so I will not buy this one. It will likley sell out in a few hours or less. I have to wonder at what point the market gets saturated with these.

May 27, 2014

On Tuesday the S&P 500 rose 0.6% to a new closing record high. Toronto fell 0.4%.

American Express rose 2.9% to $91.39. Constellation Software rose 3.1%. and Bank of America rose 3.4%.

Wells Fargo continues to rise and was up 0.8% to $50.55.

This morning I got an alert from TD Direct (my discount Broker) that Brookfield Asset Management was issuing five year rate reset cumulative preferred shares at 4.5%. This compares to a non-cumulative issue a few days ago from Royal bank at 3.9%. I have done well with the 5 year rate rest preferred shares that I bought earlier this year, most of which I later sold for small but quick gains. So it was an easy decision to grab some of this issue. It’s more or less a substitute for holding a higher than normal cash position although I have to be prepared to hold it for up to five years.

These shares are not without risk as they could certainly trade under $25 if interest rates rise. But as long as Brookfield Asset Management remains financially strong I suspect they would ultimately return back close to $25 in five years even if they did fall in price. This is because if rates are higher in five years the yield will reset to reflect that. In the meantime I may well get a chance to sell them off at something like $26 if they prove popular in the market and if interest rates stay low

May 26, 2014

On Monday the U.S. markets were closed for the Memorial Day holiday. Toronto rose marginally (0.05%).

May 25, 2014

FirstService is updated but remains rated Weak Sell / Hold at U.S. $48.77 or Canadian $52.91.

In many ways I like the company and its management. But it has a number of accounting complexities. Also even on an adjusted earnings basis the trailing P/E of 25 is not attractive. It could be bought as a speculative pick due to its long-term growth history.

On Friday the S&P 500 rose 0.4% to close above 1900 for the first time. Toronto was about flat.

Toll Brothers was up 1.6% to $35.50 and will release earnings this week.

Canadian tire was down 2.0% to $103.44. This decline was likely in reaction to other retailers reporting difficulties. I had sold most of my shares (all in registered accounts and kept those that were in a taxable account). I may start to buy back a few shares if especially in the price keeps dropping.

Melcor closed at $24.25 but as usual the volume is thin. At some point I will likely begin to reduce my large position in this stock especially if the price keeps rising.

May 22, 2014

On Thursday the S&P 500 rose 0.2% and Toronto rose 0.4%.

Toll Brothers rose 2.0%. It will release its Q2 earnings next week.

I am considering adding to my Wells Fargo position and Boston Pizza. But I may wait and see what else turns up.

May 21, 2014

On Wednesday the S&P 500 rose 0.8% and Toronto rose 0.9%.

Element Financial rose 5.3% on some news it would make an acquisition.

Crombie REIT was raising money today by selling additional shares. It’s rather baffling to me why the market rewards the charade action of paying a large dividend only to take that money back in through share sales. Ultimately long-term gains come from earnings and cash flows, not this sort of financial engineering. It is true that the dividends are paid to existing share owners and the money is raised back from new owners but still I think owners would ultimately be better off if some earnings were simply retained for growth. Consider if if a huge investor initially owned 10% of a REIT after some years his ownership falls due to the share issuances. Or if he wants to stay at 10% he has to buy more shares (in effect give back the dividend), so what good did the dividends do in that case? In fact the dividends would trigger taxes in a taxable account whereas retaining the earnings should lead to an unrealized taxable gain and no tax. I believe REITS have benefited greatly from ever declining interest rates. At some point that will end and REITs will not look so good.

May 20, 2014

On Tuesday, the S&P 500 fell 0.7% and Toronto fell 0.8%

Most of our stock picks were down although none were down sharply other than Element Financial which was down 2.8%. Liquor Stores N. A. was up 4.8%. It seems someone must think the decline was over-done. I was just checking if perhaps insiders had bought any shares on this recent decline. Nothing has occurred or at least nothing has been reported yet.

TD Direct (Waterhouse) sent me notice of three more stock offerings today. A possible interpretation is that companies are scrambling to raise money while stock prices remain high.

It was interesting to hear today that the Target Canada CEO has been fired and replaced by a Target corporation marketing veteran.  It is clear that Target made mistakes. It is not as clear who made the mistakes. I feel some sympathy for the fired CEO (though I imagine if I saw his severance package I might not shed any tears for him.). He had a very tough job. For whatever reason Target gutted many or most of the old Zellers locations and even expanded some. So this guy has basically been managing a HUGE construction project, or really close to a 100 construction projects. He had to continue doing that even as stores opened. He no-doubt has a construction executive but still it would not have been easy to manage the merchandising and store openings at the same time as maybe 50 construction projects were going on. Overall I believe Target paid way too much to Zellers and cam at Canada too big t and too fast. Now, we will see if the U.S. marketing executive will be able to straighten things out in Canada.

May 19, 2014

On Monday, the Canadian stock market was closed but U.S. markets were trading. The S&P 500 rose 0.4%. Our U.S. stocks picks were mostly up slightly.

AT&T is buying Direct TV for $48.5 billion. I have no idea if that is a good idea for AT&T or not but it goes to show that buying and selling companies remains popular.

May 18, 2014

The composition of my own portfolio has been updated. I am running an extremely concentrated portfolio. Not everyone has the risk capacity or the risk tolerance to do that.

Melcor is updated and rated (higher) Buy at $23.52. I decided to update this again because it was one of two Strong Buys on the site and because the price had risen. It’s up 17% in 2014. I was also interested to update it because it is my largest holding. It’s thinly traded and therefore we should be cautious in placing buy orders (enter an order to buy or sell at a fixed price, not at the market price) and we should be cautious in interpreting its daily price movements. It still looks like a good investment. However, it is cyclical and certainly not without risk especially in the short term.

Liquor Stores N.A. is updated and rated Speculative (lower) Buy at $10.21. This company has been a disappointment. It was first added to this site two years ago on April 10, 2012 at $17.01.It subsequently went over $20. But then it started reporting various bits of bad news and has fairly plummeted in the last year.  (There is some offset in that it has paid out about $2.16 in dividends since April of 2012)  It seems I took too much faith in its prior success. I thought it had advantages as the largest liquor store owner in Alberta. It’s sales per share have not been the problem. But earnings have evaporated for various reasons. And lately the sales per store have declined modestly. I am reluctant to give up on it at this point. But Q2 is not likely to be a strong quarter given the weather and given increases to their cost structure, although they did mention on the conference call that the trends in Q2 were good. Management seems optimistic of improvements starting later this year but does not appear to forecast a return to the former profit levels until 2016. The dividend is too high and it seems likely it will be cut. I am holding onto my shares but I will not likely add to my position despite the lower price. I calculate that in buying these shares we are paying about $1.6 million per store fully stocked (inventory is $0.4 million per store net of accounts payable) and that is considering that we notionally paid off the debt. The stores are in rented premises.

On Friday the S&P 500 was up 0.4% and Toronto was down 0.5%. There were no particularly noteworthy moves in the prices of our stock picks.

May 15, 2014

On Thursday, the S&P 500 was down 0.9% and Toronto was down 0.6%.

Most of our stock picks were down. Walmart was down 2.4%. Bombardier was down 7.4% after Air Canada announced it would not be replacing certain jets which “the market” was thinking it would replace with Bombardier’s new C-Series jet.

Most painfully for me, Liquor Stores N.A. was down 7.4% as the market continues to react to its Q1 earnings. If this does not turn around and continues to be a loser it will be something of an unforced error on my part. I had expressed concerns about management and noted the declining earnings but I still added to my position after concluding that the stock was cheap. Buffett has always said to restrict investments to the best companies and I failed to follow that advice in this case. I plan to update the analysis within a few days. I suspect the weather is not doing the company any favors in Q2 either. We are halfway through Q2 and today felt like Fall in Edmonton.

TD Waterhouse seems to be almost bombarding me with stock issues lately. A couple more today. In contrast, early this year it seems there were more like a couple per month. Smart companies issue shares when the share prices are over-valued and certainly not when the shares are under-valued (unless they HAVE to). So, this is a red flag of caution for me.

The TD site shows two REITs offering shares this week. Now I would ask what should we call an entity that pays out a high dividend but then turns around and sells shares to bring in new money? It seems the market values a company higher if it pays out a dollar and then brings that dollar back through share sales than it does a company that merely keeps the dollar in the first place. Both would look the same in substance and so my fear is that some of these REITs are practicing financial engineering designed to raise the share price. Now that may be fine in the short term. But in the long term value is created by earnings not from paying a dividend and then grabbing the money back.

On the Enbridge preferred shares that I attempted to buy at the IPO on Monday morning I got allocated only half of what I put in for. This could be because my order was delayed when their system was not working when I first tried to buy. (I placed my order an hour later by phone).

All of this share offering actively also seems to indicate that investors are eager to buy now that markets have risen so much. This is typical, investors sense less risk when share prices are higher and they perceive great risk when share prices have fallen a lot. Just the opposite of reality.

May 14, 2014

On Wednesday, the S&P 500 was down 0.5% and Toronto was about unchanged.

Liquor Stores N.A. was down 2.7% to $11.16, Toll Brothers was down 1.5% to $34.35, Canadian Tire was down 1.3% to $107.94. Meanwhile Element Financial  was up 5.2% to $14.00.

Boston Pizza Royalties Income Fund released earnings this morning and same restaurant sales were down slightly. That can probably be fairly attributed to weather. And I suspect Q2 is also affected by the late Spring. I have not updated the analysis but I still look favorably on this company. I may add to my position, especially on a dip.

May 13, 2014

On Tuesday the S&P 500 was about unchanged and Toronto was up 0.2%.

The S&P 500 briefly went above 1900 for the first time.

The only particularly noticeable move for our stock picks was Liquor Stores N.A. which was down 3.5% to $11.47. This company released “earnings” actually a loss in Q1. Perhaps I never should have looked at this company. It retails the same products that its hundreds of competitors do. I had thought there was value in its scale and ability to buy up smaller competitors. But right now it’s not clear that this is the case. And it increasingly appears that management is not strong.

I would not be at all surprised if they cut the dividend which is too high. On a positive note they were able to increase their borrowing limit this quarter. I don’t particularly want to see more debt but it is encouraging that the lenders allowed it.

TD Waterhouse seems to be coming put with a lot of IPOs and secondary stock options. It may be that companies are eager to issue shares at the higher prices. This could be a signal that we should be more cautious.

Element Financial came out after the close today with what appear to be good earnings and strong growth.

As expected, the Enbridge pref shares did fall today as they went ex-dividend. They closed at $25.10 versus $25.35 yesterday. However it would have been easy to miss the decline. Yahoo shoes the shares down only 1 cent because they adjusted yesterday’s close for the dividend of 24 cents.  It seems one has to be careful in looking at past prices because sometimes they are adjusted.

May 12, 2014

On Monday, the S&P 500 rose 1.0% and Toronto rose 0.8%.

Notable gainers included Toll Brothers up 2.0%, Bank of America up 2.2%.

The Enbridge preferred shares that I hold were down 1.2% to $25.35. This would appear to be because Enbridge issued new shares that seem to be about identical priced at $25.00. The existing shares, I believe, pay a dividend to owners of record as of this Thursday, May 15. I believe that means that they trade ex-dividend tomorrow so we may see them pretty close to $25.00 The existing pref never got all that high, it peaked at $25.74 which would have included perhaps 18 cents for the pending dividend. Perhaps the new issue of Enbridge pref which opened (and then closed) today was no great bargain at $25.00. But it was somewhat better than the existing at a recent $25.6 or so (notwithstanding that the $25.60 included a pending first partial period dividend of around 18 cents. I don’t pretend to know the precise relative risks of these shares versus the Canadian Western Bank that paid a similar amount and that I just sold at $26. But I consider the risks to be roughly quite similar and quite low and am happy to buy these Enbridge at $25 with proceeds of selling the Canadian Western Pref at $26.

I did end up buying some of these new Enbridge shares today at $25.00 via the IPO.

Canadian Tire bounced around a bit today from $108.14 to $111.34. I decided to sell what I had inside of tax free accounts and got about $110.00. The Canadian Tire that I hold in a taxable account I have not and may not sell. In the taxable account, which is a corporate account I am up 67% on the Canadian Tire shares. I am not sure what tax rate applies, probably at least 15% and so it may not be wise to sell those unless I thought the price was going to drop at least 10%. That is certainly very possible. But I am not predicting that and I still rate these shares a (lower) Buy and so overall it likely makes no sense to sell these in my taxable account. I am really not sure it made sense to sell int eh non-taxable account either. Every time I have sold Canadian Tire in the past 18 months or more the stock has ended up going higher. In some cases the decision to Sell something will seem clear cut. In this case it was not a clear cut decision.

May 12, 2014 (7:10 am Mountain)

Enbridge just announced (I saw it on TD Direct Investing) a new issue of 4.4% five year rate reset preferred shares. I tried to grab some as they may be more attractive than the preferred I sold last week. The TD site was broken and I was unable to buy.

May 11, 2014

Melcor Developments released earnings after the close on Friday. Earnings were down but that does not mean much because Melcor’s earnings tend to be relatively lumpy. They did increase the dividend. It’s my biggest position and I am relatively  confident that it offers good value for the long term. I wills see if the market reacts to the news and will plan to update this company within the next week.

May 10, 2014

Canadian Tire is updated and rated (lower) Buy at $111.29. Our last rating before this was Buy at $99.85, and before that it was (higher) Buy at $83.78 and it was (lower) Strong Buy at $68.65 back on February 24, 2013. On August 11, 2011 we had called it a Strong Buy at $52.11.

A year ago and certainly three years ago we would not have guessed it could go this high. In some measure the strong price rise is due to strong earnings – especially at its Sports Stores. Certainly in 2011 it was artificially low due to unfounded fears about the impact of Target. It was trading right down around its book value and at under 11 times earnings although it was well known that it had real estate that was worth far more than book value. The fizzling of the Target threat is part of the reason for the strong gains.

A good portion of the gains comes from financial engineering designed to make visible the value of the real estate and the credit card portfolio. By forming a REIT but retaining 83% of the REIT people can see the market value of that real estate. Similarly we found out on Friday that the finance division was worth about $2.5 billion as Scotia Bank is buying 20% for $$500 million.

Many analysts will do a sum-of-the-parts analysis and may conclude it is still under-valued. I focus on earnings. I don’t do any sum-of-the-parts-analysis at all. It only really applies to entities which have subsidiaries that also trade (like Canadian Tire) but is fairly rare and I simply don’t do that analysis.

At a current 16 times earnings its not expensive but it is certainly not the bargain it once was. Anyone with big gains on this would likely be prudent to reduce the holding. Say you put 5% of your portfolio into this in 2011 and it is now 8% of the portfolio. Prudence might suggest bring it back to 5%.

It’s still a great company and make do well but I don’t think we can possibly expect the leaps in price we have seen in the past 18 months or so. And it could always stumble from here. If I had a small position I would hold and look to add on dips.

One ironic thing is that surfacing the value in the REIT came at he cost of some earnings now flowing to the minority owners of the REIT who now own 17%. Canadian Tire got cash for that 17% but may not be earnings much on that cash. Similarly Scotia will now get 20% of the earnings on Finance and Canadian Tire may earn little on the $500 million received for that. For these reasons earnings growth may be hard to come by in 2014 and for example earnings per share were down slightly in Q1 2014.

I still have a fairly large position and may sell the part that is in non-taxable accounts.

On Friday the S&P 500 was up 0.1% and Toronto was down 0.1%.

Canadian Tire was up 3.3% as the analysts apparently liked the news better after having more time to analyze it.

On Friday my National Bank 4.1% preferred shares that I purchased at the IPO in early February for $25.00 were sold at $25.95. I will also receive a dividend of 27.24 cents per share which will be paid on Monday. So my return was $1.22 or 4.9% in just over three months. The yield on these is now down slightly to 3.95% which is perhaps not bad and beats cash. But as with the Canadian Western preferred shares that I mentioned a few days ago, I am happy to grab the 4.9% in such a short period of time and move on. If I saw these shares retreat to $25 I would quite possibly buy them again.

To the extent I decide I want more exposure to preferred shares perhaps I should buy instead more of the Bombardier preferred shares which yield about 7.0% — although those are perpetual shares and therefore come with a great deal of risk if interest rates were to rise significantly. Or for yield, I might look to buying more of the Boston Pizza. It’s basically a perpetual as well but its distributions should rise slowly over time offsetting some of the risk there. There is always Liquor Stores N.A. but I feel I have enough exposure to that and it is far different than any of the preferred shares.

May 8, 2014

On Thursday the S&P 500 was down 0.1% and Toronto was down 0.8%.

Nothing on our list was down more than about 1%. However the oils sands ETF that I have in my own portfolio and which is on our list of Canadian ETFs was down 3.5%. That ETF has been up nicely this year but took a bit of a dive today. I have not looked into the reason. I suppose it may have been the sad news of a worker being killed by a bear at Suncor. But then Suncor was only down 2.2% so that does not really explain it.

Meanwhile Costco was up 2.5% and was the only notable gainer on our list.

Canadian Tire ended the day down 0.2%. Basically it seems that while the Scotia Bank deal is positive it was already anticipated and “priced-in”. I plan to update the Canadian Tire report in the next few days. I suspect that that the big move up in this stock is likely about done with. It should continue to do well long-term but it has about finished with the financial engineering moves that have boosted its price about 100% in under three years. Presumably the analysts will have further digested the news after close today and we could see some additional price reaction to this news before it settles out.

May 8 (7 am Mountain, 9 am eastern)

There is relatively big news at Canadian Tire this morning about partnering with Scotia Bank and a higher dividend and share buy backs. Offsetting this is a lower earnings per share. As of now shares are set to open at $109.50. I would not tend to buy or sell at that price but rather wait and see how the price settles out today and probably tomorrow as the news is digested.

May 7, 2014

Stocks were up on Wednesday as the S&P 500 rose 0.6% and Toronto rose 0.3%.

The biggest gainers on our list were Fedex and Berkshire each up 2.2% and American Express up 2.1%.

Melcor should be out with earnings in the next few days.

May 6, 2014

On Tuesday, the S&P 500 was down 0.9% and Toronto was down 0.6%. That hardly seems noteworthy given all the recent gains.

Constellation Software was down 3.8%. Toll Brothers was down 2.6%.

Recently I mentioned that I had placed orders to sell some preferred shares at about $26. These were shares I recently bought at their IPOs at $25.

My Canadian Western Bank pref. shares sold today at $26.00. They were not in the list above but I had mentioned them when I bought them and several times since. I only held these for 3 months (plus 1 week). I just collected a 1.0% dividend on April 30 and now I have sold at a 4% gain. So that’s 5% in 3 months. I could think of that as 20% annualized although I am not sure that is really a useful way to think of it because it’s not something I can repeat again in the next three months. They were to pay 4.4% annually, so I am happy to grab 5% in 3 months and move on. They still actually yield 4.2% which is not bad and so maybe I should have held. Time will tell if selling was a good move.

Most things in the market are hard to predict. So it’s fun when a prediction comes true. I said from the outset that the amount that Target was paying to come into Canada seemed very high. I said it would be a high cost operation. $1.8 billion to merely take over the leases on the Zellers stores! (which in my experience were in many cases located in tired old malls). I checked at the time with at least one real estate expert and they had no concerns about it. More like no clue. The smart play was selling off leases like Hudsons Bay / Zellers did and like Sears did. And it was smart to sell off real estate into REITs as Melcor and Canadian Tire (although only about 10%) and others did.

Now there is chatter that Target should pull out of Canada. I very much doubt that would happen, they have already spent the money now. The one-time charge to close up now would be several billion, I suspect. At this point I am fairly sure they will stick things out.

May 5, 2014

On Monday the S&P 500 was up 0.2% and Toronto was down 0.5%

Melcor was up 3.4% to $24.05. But we REALLY need to remember that this is VERY thinly traded. Just a few people keen to buy or sell can really push the price around. I believe they will issue earnings shortly, possibly at the end of this week. And they will likely announce the dividend as well. Last year there was a special dividend but that is less likely this year.

Melcor is my largest position and for that reason I could start to trim my position anytime. But if don’t particularly want to do that and may just let things ride and see what happens with the Q1 report.

May 4, 2014

The latest version of our free newsletter was sent out yesterday. You should have received it but note that it is a separate email mailing list.

On Friday the S&P 500 fell 0.1% while Toronto rose 0.7%.

Notable gainers included Constellation Software up 3.6%, Element Financial up 4.3% and Toll Brothers up 2.0%

After the close on Thursday it was announced that a unit of Berkshire Hathaway was buying AltaLink and electricity transmission company in Alberta from SNC Lavalin. SNC’s stock jumped 5.1% on the news.

It now appears that SNC was a buying opportunity at prices in the $35 to $40 range back in 2012 when major problems with bribery were identified at the company. Back on June 20, 2012 I commented on SNC and said that I would stay away from it. It seemed to me that the corruption was probably well entrenched in the company. Subsequent to that I was not very impressed how it was handling the issue. It seemed to blame it on a few bad apples as opposed to doing a major house cleaning. But perhaps in fact the problem has been well taken care of. Buying a wounded company after its price falls can be a good strategy. The difficulty is to determine how the serious the wounds are. In the case of SNC it was well known that it had two valuable assets in AltaLink and in its 407 Toll road that it could sell. I have not looked at SNC and so I really have no idea if it is still a good investment at this point.

May 1, 2014

Thursday was another decent day for our Stocks. The S&P 500 was flat and Toronto was up 0.1%.

Melcor was up 1.5% to $23.25 (on thin volume). Canadian Tire was up 1.3% to a new high at $109.02.

Constellation software was up 4.6% after posting another strong quarter of earnings.

April 30, 2014

Wednesday was another positive day in the markets with the S&P 500 up 0.3% and Toronto up 0.5% and with the DOW closing at a new record high.

Bombardier was up 5.5% to $4.41. Stantec was up 2.5%, Couche-Tard was up 2.3%. eBay was down 5.5%.

Melcor was up 0.5% on (as usual) very thin volume and at $22.90 is at a 52 week high.

The Wells Fargo Preferred shares rose 1% to $22.63 and I have now sold out of that position.

These perpetual shares pay $1.28125 per year to yield 5.66%. That is perhaps not a bad yield at all but I had bought these shares at $19.90 just a few months ago and so I am basically taking my quick profit and moving along.

The price movements in these preferred shares can be divided into two causes. 1. They tend to move up and down as the yield on long term government bonds move. Most of the reason that they got down under $20 was because the long-term U.S. bond yield had risen. 2. Additional price moves occur (or cause depending how you look at it) when the spread or the yield difference between these shares and the long term treasury yield changes. The other part of the reason for the sub-$20 price was a wider spread at that time. Just in the last two weeks these shares were as low at $21.70 (yielding 5.90%). The rise to $22.63 came despite the long-term treasury bond yield being essentially unchanged at about 3.50%. Therefore this recent price rise occurred as the spread over the Treasury bond declined from about 2.40% to about 2.16%. Wells Fargo has been a strong company all along and so it’s not clear why the spread should change that much. (There is also some impact as it gets closer to and then farther from its dividend date each quarter.)

The bottom line on these shares is that they rose a bit over 4% lately for no reason that I know of and I had a profit in them already and I don’t much like perpetual preferred shares in any case (due tot he interest rate risk) and so based on some orders that I had placed I have sold out of these shares.  With the spread now at 2.16%, it (the spread) may not get much lower and any further price increase here would likely come from long term interest rates falling, and most forecasts suggest the opposite is more likely.

April 29, 2014

Tuesday was a strong day in the markets with the S&P 500 up 0.5% and Toronto up 0.4%.

Looking at my favorite stocks, returns seemed to be bustin’ out all over.

Melcor was up 1.2%. (It’s thinly traded and so it’s gains must be taken with a grain of salt but at least the still tiny volume was a bit more than it is most days). Wells Fargo was up 1.1%. The oil sands ETF, CLO which we don’t have a rating on but which has been in my own portfolio for about a year (as disclosed on this site) was up 1.9%. FirstService was up 2.8%.

Bank of America, as I had expected, recovered some ground today and was up 1.9%.

My Wells Fargo preferred share was up 0.9% today to $22.40 and also rose yesterday and as a result my order to reduce that position at $22.25 was filled. I believe this is the first time in a while that it has been this high (The less than fabulous Yahoo Finance only shows me five days on the stock for some reason). I have entered an order to trim some more at $22.50. The yield on these is perhaps still quite good at 5.7% and maybe I should keep them but I don’t really like perpetual shares in an environment where interest rates could rise.

Yesterday the Canadian government apparently sold $1.5 billion of 50 years bonds at just a hair under 3.0%. I fail to see the logic in that for pension plans, life insurance or anyone else. Years ago Buffett wrote about people buying non-taxable bonds int eh 1940’s at around 1% which he said was clearly an abominable return. I think 3% is quite abominable too especially where the investor is taxable. It’s a P/E ratio of 33 if you want to look at it that way. And while the E, the earnings will be paid in cash (unlike the case for most of the earnings of stocks), it will also (unlike the earnings of most stocks) not grow at all over the 50 years. Well, to each his own.

April 28, 2014

On Monday, the S&P 500 bounced around considerably but when the bell rang it was up 0.3% and Toronto finished about unchanged.

Bank of America was down 6.3% to $14.95 after it had to admit to an embarrassing calculation error involving submissions it made to the FED when it applied to raise its dividend and buy back shares. Now those two things are on hold. There is speculation that the dividends hike will go ahead but perhaps not the stock buy-back.

I suppose this illustrates what I have said (see April 18 for example) that this Bank is not as well managed as Wells Fargo and is not as much on top of its game. But in its defense this was an arcane calculation that involved reversing some strange mark to market rules that apply for GAAP purposes to debt it owes but do not apply for FED purposes. The fact that the calculation lowered its ratio of investor capital by 20 basis points also points out the fact that those calculations are NEVER all that certain. Equity capital is Assets minus liabilities . And when you start marking some assets to market and some not (as banks must) and marking to market some liabilities and some not (as banks must) and when you start risk adjusting the assets (as banks must do for some purposes), it is an awful lot of arcane calculations and assumptions in the end and yet it gets presented as a calculation to two decimal places. In substance it’s not really a figure that is known to such accuracy in the first place.

In any case although highly embarrassing, this does not appear to change the Bank’s earnings power at all. And as far as being disappointed by the lack of share buy backs, I don’t really share that disappointment. The market is not disappointed because the buy backs are necessarily a good investment in substance. The market only cares that the buy backs would drive the share price up at least in the short term. If people really think the shares are such a bargain that the bank should buy them back then certainly they can buy themselves at 6.3% less than yesterday.

I added to my position in this stock today though I was a bit hasty and only got a 4% discount to yesterday’s price.

I suspect, but certainly can’t guarantee that cooler heads will prevail tomorrow and Bank of America will likely start to recover  form this little dip quite quickly. I can’t predict which way it will head but to me it looked like good value at this price although I do continue to regard it as somewhat speculative.

I mentioned on April 21 that I would sell some pref shares that I had bought this year at $25 if the price should hit $26. I mentioned Canadian Western Bank and National Bank rate reset shares. There was also Enbridge 5 year pref. shares.

I am not sure why I did not choose $25.95 instead because sometimes I figure that is a way to sort of be ahead of all the orders at the even price. National Bank got to $25.95 today which I am not sure is justified. I entered an order to sell eh Enbridge as well at $25.95. The thing is I never expected these to trade more than a few cents above $25 and if I can grab $26 or so I am happy to do so and will have made a good annualized return and can look for somewhere else for a safe alternative to cash as I felt these shares were. If these were in a taxable account I would not do this since selling for a 4% capital gain would not be worth the bother and the tax.

Regarding National bank at $25.95, that seems a bit high. The initial yield was 4.1% at $25, so now the yield would be 3.95% and I believe I would still collect a small dividend since the ex-dividend date was April 9. The yield on 5-year government bonds is not down  and appears to be up about 10 basis points since these were issued and so the decline in yield here is just due to market popularity it would seem. I would have liked to have soldl at $25.95 today because it may not get to the $26.00 sell price that I has entered.

April 27, 2014

Onex Corporation (a private equity investment fund corporation) is added to the list but is rated only Speculative Weak Buy. It’s a complex entity and I may be able to come to a more definitive buy or sell rating over time. (I have emailed the company asking for some additional information) Also there has been and there will be times when ONEX will be at a bargain price. It seems worth keeping an eye on but is not a stock I will buy at this time. I must admit that over a period of many years reports of the CEO’s very large compensation has bothered me. In addition to being worth keeping an eye on as a possible investment, it is also perhaps worth keeping an eye on it for what can be learned about its approach to investing.

April 26, 2014

Friday was a weak day on the U.S. markets as the S&P 500 fell 0.8%. Meanwhile, Toronto fell 0.1%

Most of our stocks fell including Melcor down 1.8%, Canadian Tire down 1.9%, Stantec down 2.1%, Toll Brothers down 1.5% and Bank of America down 2.4%. And Visa was down 5.0%.

I don’ think this is an unusual level of volatility in the markets.

I am working now to add Onex Corporation, a private equity investment company, to the list. Unfortunately, while I can provide substantial information about the company I don’t know if I will come up with any particular rating. It’s a complex entity and may simply be too hard to analyze, at least for me. It’s one of those well-known Canadian companies that I always wanted to know a bit more about. Lately it was in the news when its CEO Gerald Schwartz was reported to have collected biggest compensation package in Canadian corporate history. Taking a quick look I discovered that the company had actually LOST money on a GAAP basis in each of the last two years. Furthermore, it did not have a lot of retained earnings on the balance sheet.

So… I resolved to take a close look at it. I have read its annual report and am in the process of crunching numbers and filling out my standard report format. But my sense is that it may be too complicated to rate. It definitely looks way over-priced on some metrics. But much of the value is not reflected on the balance sheet, and does not seem to be reflected in recent earnings either.

Even if I can’t come up with a definitive rating, I will learn a lot about the company and its approach to investing and will document that.

April 24, 2014

On Thursday the S&P 500 was up 0.2% and Toronto was up 0.1%.

Some of my favorite stocks did well. Toll Brothers was up 3.3%, Melcor was up 1.9% (but it’s so thinly traded that it’s movements are sometimes just “noise”, nevertheless it feels good), Canadian Tire was up 1.5%.

The Wells Fargo preferred shares rose enough to hit my sell order at $21.95 and so that sold 40% of my shares in that. I have now entered an order to sell another 20%(of the original amount) if it hits $22.25 in the next month.

I should keep in mind that part of the reason that preferred shares rise in price is at times just due to value of an upcoming dividend. I now realize that for these preferred shares I should be keeping an eye on the dividend date. For example, I was pleased that the Canadian Western and National bank and Enbridge preferred shares had all moved a bit over the issue price of $25. But since these pay 25 to 27.5 cents per quarter, part of the reason for the increase is just that the next dividend record date draws closer each day. I would expect these shares to decline a full 25 cents or so every three months when they go ex-dividend and then to recover that 25 cents over the next three months. In addition to that they move around a little as interest rates move and possibly as the health of the companies change. This is all well known but really was not top of my mind because I have rarely owned preferred shares in the past.

The same applies for any stock with a material dividend – they will tend to fall in price by the value of the dividend when they go ex-dividend and then (all else equal, which it never is) they recover that ground over the next three months a the next dividend record date approaches. However most common stocks have small dividends and the price movements in the stock that are related to earnings outlook tend to far outweigh the movements associated with the approach of a dividends payment and it is really something that I have rarely considered when looking at a stock. That is, I would rarely if ever delay buying or selling a share based on an impending dividend nor would I factor in the impact of a pending dividend on whether the stock price was attractive. (I am talking about an impending single dividend) I do take the dividend yield into account and consider whether is attractive WHEN COMBINED WITH the expected growth rate.

I had an email today that asked if I put any faith in “rules”‘ like Sell in May or other seasonal patterns in stocks. The answer is, no I don’t put any faith in such rules. I basically studiously ignore all forms of “technical trading” rules. For example, I don’t use stop loss orders. I pay no attention whatsoever to “support” or “resistance” levels. Those things might work for some people but they are just not my approach to investing. All of those rules really treat investments as “squiggles” on a screen as opposed to treating them as ownership in real companies.

I do sometimes trim positions on gains and buy on dips. That is basically the opposite of what momentum and technical traders would do.

April 23, 2014

The S&P 500 was and Toronto were both down 0.2% on Wednesday.

Alimentation Couche-Tard has split its stock 3 for 1 and was up 3.6% today. I had called it only a (lower) Buy in December and it up quite a bit since then. I have to admit to being a bit choked that I sold it way (way) too early. I have long said that it one of the best managed companies in Canada. It goes to show that sometimes sticking with a great company even when it seems quite expensive (at times) can be a good strategy. Dollarama would be another example. Also Stantec and Canadian Western Bank and Constellation Software.

Toll Brothers was down 1.8%. It’s a stock that I am comfortable holding although I long said it was a more speculative pick.

I was reading yesterday that Warren Buffett’s first purchases of Berkshire Hathaway consisted of a measly 200 shares at $7.50 in 1962. ($7.60 counting a 10 cent commission paid). Buffett took control of the company in 1965 with the shares trading around $15. His average cost was $14.86. These are the exact same shares that today trade for $190,800. $200,000 would seem to be within sight before too awfully long.

As much as Buffett’s genius is recognized, I am not sure that the stunning magnitude of this accomplished is widely appreciated. The share price is up 12,720 fold since the $15 of 1965. That’s 1.22 million percent. What is perhaps equally stunning is that this is “only” a compounded annual return of 21.3% per year for 49 years. There are venture capitalists who will tell you that they expect to make 20% per year. Really?, if they can keep that up they can be the next Buffett.

Berkshire Hathaway is perhaps the greatest real life example of the power of compounded returns. I don’t believe Berkshire ever had a year when it soared 200% much less 500%. It never discovered a cure for cancer or anything of the like. I’ve never heard Buffett mention it having any patents. It had some highly profitable business but perhaps nothing in the league of Microsoft or Google or Apple. Returns on equity most years were excellent but only once exceeded 50%. A steady compounding at high but not outlandishly high levels over a period of 49 years has compounded up to a truly outlandish result.

Value investors sometimes talk of finding businesses that are “compounding machines”. If we could find one that would return something in the order of 20% for a very long time, the results would be truly spectacular. Anything that would compound in the double digits would be more than enough to get quite rich over a period of decades assuming reasonable annual investments. of new money.

It’s interesting to note that any early Berkshire shareholder following conventional diversification advice would have had to keep selling down their position to “prevent” it from becoming too large a part of their portfolio. Also Berkshire’s stock price has fallen at least 50% from peak to trough on four occasions sconce 1965. Anyone using stop losses would been sold out and it doubtful that they would ever have gotten back in. And there would have been countless declines of 10% to shake loose anyone trading on any sort of a technical basis.

It’s also interesting to contemplate what a horrible disservice to its long-term investors it would have been if Berkshire had started paying a dividend years ago. Consider, if you had a bank account compounding at 20%, the last thing you would want to do would be to pull money out of such an account. Berkshire has in effect been a somewhat lumpy version of such an account.

April 22, 2014

Tuesday, the S&P 500 and Toronto each gained 0.4%

Yesterday’s chart showed that over 30-year periods the S&P 500 total return (including reinvested dividends) had never failed to compound wealth at at least 4% on a real basis, 4% after deducting inflation. And it was only under 5% in those 30 year periods that included substantial inflation.

Unfortunately the same cannot be said for shorter time periods like tens years. The following graph shows the real return from the S&P 500 over rolling ten year periods.

The graph above shows that there have been occasions where holding stocks for ten years resulted in a negative real return. Most of these periods covered the worst of the high inflation years. The other time it happens was in the ten years ended at the end of 2008 and 2009 which was caused by investing at the top of a market bubble and then experiencing two market crashes.

The point is though, when it comes to holding stocks and especially if one holds the majority of their wealth in stocks, one should have a time frame in mind of something more than ten years.

Despite their supposed safety, the real returns from long-term bonds were negative over ten year holding periods FAR more often than was the case with stocks.

April 21, 2014

On Monday, the S&P 500 was up 0.4% while Toronto fell 0.1%

Lately, I was thinking about the fact that even if markets were to provide only say a 7% nominal return over the say the next 30 years, that might still work out to a fairly good real return if inflation is very low. So I decided to graph nominal and real returns from stocks over rolling 30 year periods. The following is the result.

It turns out that for 30-year rolling periods starting with 1926 through 1955 all the way to 1984 -2013, the nominal total returns (includes dividends) from the S&P 500 have been surprisingly stable and usually in the 10 to 12% range. After deducting inflation the real returns were more volatile. It appears that in high inflation periods, nominal returns did not rise to “hedge” away the inflation. Instead the nominal returns remained fairly steady and it was the real returns that suffered with high inflation.

Warren Buffett had observed this in 1977 and wrote an article about it in Fortune magazine.

Since inflation is quite low today, this data would suggest that real returns from stocks should be higher than average if such low inflation continues for many many years.

In terms of trading, I have made some gains on the preferred shares that I bought in the last several months. I have now entered some orders to sell some of that if the prices rise to a certain point. I will sell the Canadian Western Bank and National bank five year rate reset pref. shares which I bought at $25, if they should happen to hit $26 (which may be quite optimistic indeed). Also I will sell some of my Wells Fargo perpetual pref. shares that I bought around $19.80 if it should hit $21.95, which it is pretty close to. I am just not entirely comfortable holding perpetual preferred shares. And I may sell the rest if it gets a bit past $22.

April 20, 2014

Constellation Software is updated and rated (lower) Buy at $265. This has been a wonderful investment. It is up some 369% since we first rated it (lower) Strong Buy in February 2011. (Admittedly our analysis and following my own actions would have not have led to holding that whole time.) The price history on Yahoo finance goes back to late 2007 and shows a price just under $25. Viewed on the longer term, there were very few material price drops over the years. It’s been a relatively steady gainer. If there is such a thing in Canada as a “Buffett of the North”, it is Mark Leonard the CEO of Constellation.

Unfortunately the shares are not cheap. It could continue to be a strong investment if its abnormally high growth continues. When a more prudent level of forecast growth is applied it looks expensive. But at least anyone holding it has hitched their fate to exceptionally good management.

Regrettably, I have sold all my shares in this company, most of them far too early.

April 19, 2014

American Express is updated and rated Buy at $86.22. It seems like a decent investment. Not one that I am really excited about, but decent. I did add to my position in it very recently.

April 18, 2014

On Friday the S&P 500 was up 0.1% and Toronto was up 0.4%.

Most of our stocks were up but Toll Brothers was down 1.4%  to $34.16. It remains a speculative choice. I have added to my position recently at about this price.

Bank of America is updated and rated Speculative (higher) Buy at $16.15. It reported a loss in Q1 due to settlements related to mortgage issues from the credit crisis. These settlements will likely soon be behind it and don’t change the outlook for the bank, which is positive. This bank trades at a low valuation and will likely increase. But it’s not nearly as strong or as well run as Wells Fargo and so I look at it as a more temporary investment.

April 16, 2014

On Wednesday the S&P 500 and Toronto were both up 1.0%

Most stocks were up. Bank of America was down 1.6% on disappointing earnings. Earlier int he day it was down at least 2.5%.  I plan to update the report on Bank of America in a few days and I expect it will continue to be rated speculative (higher) buy. At some point its litigation expenses dating back to the financial crisis will be behind it and should move forward as an earnings engine much like other banks except it will be cheaper in relation to book value.

Liquor Stores N.A. announced it will spit another of its regular 9 cent monthly dividends payable in May to shareholders of record on April 30. This is as expected, they have expressed that they wish to maintain the dividend but we should realize a cut is always possible. The March dividend of 9 cents came into my account today as scheduled.

Melcor is selling two building to Melcor REIT. Melcor REIT is issuing new shares (units, that is) to pay for the buildings (will also use some debt). Melcor is allowing its ownership of the REIT to drop to about 48%. The buildings are already marked to market and therefore there is likely no material gain on the sale. But it frees up Melcor’s cash for other purposes. I suspect this is positive for both the REIT and for Melcor. It was always the plan for Meloor REIT to buy additional buildings from Melcor.

American Express posted a 12% earnings gain after the close. Perhaps about as expected, shared down slightly in the oxymoronically-named “after-hours” trading session.

April 15, 2014

On Tuesday, the S&P 500 rose 0.7% and Toronto rose 0.1%

Bank of America was up 2.4%. Toll Brothers fell 1.1%. Earlier in the day it got as low as $34 and I grabed a few more shares at $34.17.

Element Financial fell 3.7% to $13.77. Possibly the pull-back is a buying opportunity. The recent announcements I have seen (I have not read them closely) have indicated that it is still growing albeit by acquisition of loan portfolios. About a month ago I saw a couple of IPOs for new lending companies in Canada so it seems like a lot of companies are keen to lend. Who knows how that will turn out. Lending is a business which required particularly good management. It is easy to self-destruct in the lending business. The hope is that Element has good management. I have not bought any but I might. But I won’t buy a large position in it as I do consider it speculative.


April 14, 2014

On Monday, stocks rebounded based on stronger retail sales figures in the U.S.. The S&P 500 was up 0.8% and Toronto was up 0.2%

Visa was up 2.2% and American Express was up 1.1%.

If one has a decent selection of investments in good companies, then my approach to the stock market much of the time reflects a saying a long ago Toronto Mayor, who was fond of saying – Don’t just do something!, Stand there! Time is the friend of an investment is a good business.

April 13, 2014

I have added a Wells Fargo preferred share to the list above. These are the shares that have been in my personal portfolio since December.

I noted on December 19, 2013 (see below) that I had bought these shares at $19.81 to yield 6.5% and I described them in pretty good detail, and my reasons for buying, but noted that I had not done any real analysis.

They rose fairly quickly and have traded mostly fro $21.50 to $22.00.

These perpetual shares move (inversely) with the 30-year U.S. treasury yield, but also move for other reasons.

When the price changes for other reasons such as the outlook for Wells Fargo or the supply and demand for these shares then the “spread” of the yield minus the 30-year treasury changes. When issued the spread was 2.0%. When I purchased these shares they were at a spread of 2.6% (over the treasury then at 3.9%) indicating a possible bargain.

Most of the price gain on these shares since I purchased them has been due to the U.S. 30-year treasury yield falling from 3.9% to 3.5%, Also the shares rose as the spread reduced from 2.6% to 2.4% at this time.

In looking at the attractiveness of these perpetual preferred shares yielding 5.9% several thoughts come to mind.

Long-term interest rates are likely to rise. I have explained why that makes long-term treasury bonds unattractive. If long-term interest rates rise materially then these perpetual shares will definitely sink in value. And there is really no floor to that if interest rates were to rise to very high levels. On that basis perhaps these perpetual shares are a bad idea.

On the other hand, conventional portfolio management practice would suggest that we always hold some assets in many asset classes. And both long-term bonds and perpetual shares are conventional asset classes. If we wish to hold a conventionally balanced portfolio then we should probably hold some perpetual preferred shares and the Wells Fargo shares are a reasonable choice for U.S. investors and for Canadian RRSPs / RIF – and to a lesser extent RESP and TFSA accounts – where a 15% withholding tax on the dividend will apply. (Canadians should choose Canadian companies for preferred shares in taxable accounts).

There could be some up-side on the shares if the spread returns back to the 2.0% above the 30-year treasury that applied when they were issued.

Even if interest rates rise, and the shares fall in price, the 5.9% yield is not likely to be such a bad yield, on the current value, over the longer term given current tame inflation outlooks. But in that event it would be hard not to be distressed by the share price decline.

For myself, I have made a decent gain on these shares and can sell without worrying about a capital gains tax as they are in an RRSP account. I am tempted to sell these and put the funds perhaps partly into additional Wells Fargo Common shares. Basically I have thought of selling these shares ever since they rose to $22 but took no action. I had some thought that they might eventually return to $25, but after further though and analysis, that is unlikely unless long-term interest rates move back to about 3.0% on the 30-year treasury, and the spread on these would also have to narrow.

Rate re-set preferred shares.

Over the past few months I also indicated had bought some rate-reset preferred shares (Canadian Western Bank, National Bank and Enbridge). (CWB.PR.B, NA.PR.S, and ENB.PF.A) These all had to be bought on a moment’s notice, with no time for analysis, as they were bought at the IPOs. These are now trading at $25.50, 25.45 and $25.40 respectively. They were bought as $25.00 yielding 4.4%, 4.1% and 4.4% as an alternative to holding cash. The 5-year government bond rate is a bit higher since these were issued which should have pushed the price of these down. Apparently the spreads on these have narrowed. I believe that these shares, if they should drop in price, will return to about $25 on their rate reset date in five years. And given the probable return to $25 in five years I don’t think they would ever plunge much below $25 unless interest rates really go high or the companies run into financial trouble. (I consider these to be vastly different than perpetual preferred shares). I think they are a good alternative to holding cash or near-cash for several years. I also never expected them to trade much above $25 and if they get much higher and certainly at $26 I might sell.

April 12, 2014

On Friday, the S&P 500 was down 1.0% and Toronto was down 0.4%

Some weaker stocks of note included:

Visa, down 2.4% to $197. We had last rated this a Buy back in 2012 at $147 and thereafter called it a Weak Buy, most recently at $220. It might be worth nibbling on at this point.

Toll Brothers down 2.4% at $34.73. I may add to my position especially if it goes to $34 or less.

Bank of America was down 2.2% to $15.77. It is speculative but I would buy at this price.

With American Express down a little more on Friday I added to my position in that stock.

Wells Fargo is updated and rated Strong Buy at $48.08. Perhaps I am getting too exuberant, but when you look at this bank and how it is earning an ROE of 14% and trades at a price to book of 1.62 and a P/E of 12 and is growing strongly, it cerainly looks like an excellent investment. There are no guarantees but it seems reasonable to forecast that this will be a good investment if held for the longer term.

April 10, 2014

The Good Times Stop Rolling (at least for a day)

On Thursday, the S&P 500 fell 2.1% and Toronto fell 0.9%.

Most of  the stocks I watch were down. Notably Visa down 2.9% to $201.55. Possibly it’s  chance to buy but I am not keen on it. American Express was down 3.8% to $85.36. I hold a small position and am tempted to add to it t this price. Bank of America was down 3.0% to $16.12 which is attractive based on our last update. Bank of America just had another “settlement” where it had to pay out close to a billion dollars. certainly these payouts are annoying but presumably all that nonsense will soon be behind them. It will report earnings on Wednesday next week.

Wells Fargo will report earnings tomorrow.

April 9, 2014

The Good Times Roll On…

On Wednesday the S&P 500 rose 1.1% after apparently the FED minutes proved palatable to the market. Toronto rose 0.4%

Canadian Tire rose another 2.4% to $108.23. This has been a huge winner for us. Personally I sold too quickly on the way up but it’s still some 8% of my overall portfolio. At this point I think my thoughts should again turn to trimming it even though that has not been so wise to date.

Just about everything was up today…

Liquor Stores N.A. today announced that its CFO is gone for personal reasons and was replaced from within. I had sent an email to the CFO about six weeks ago and then a follow up and he never responded. I worried that meant that he was not on top of his game. Perhaps he did have personal issues to deal with and if so I wish him well. Meanwhile as far as the company is concerned a new CFO is probably a positive thing. I guess though they could use it as an excuse to re-evaluate and cut the dividend. Ultimately I think the dividend is too high and a cut might be the proper move. But the stock would go down on the news most likely. In the last report the company said it was committed to maintaining the dividend. That may be true. But it’s not a guarantee. One interpretation of recent moves is that the Board is on top of things making changes. The bottom line is the stock looks cheap but I consider it speculative.


April 8, 2014

On Tuesday, the S&P 500 was up 0.4% and Toronto was up 0.7%.

The first quarter earnings season has kicked off with Alco reporting a loss but overall the results were better than expected as was their outlook.

April 7, 2014

On Monday, the S&P 500 was down 1.1%and Toronto was down 0.9%

Not surprisingly, most of our stock picks were down as well. In particular American Express was down 2.9%. I don’t know any particular reason for this stock going down 2.9% while the market was only down 1.1%. The reality is that many times there is basically no real reason as to why stocks wiggle around in price on a particular day. Some price movements are essentially random.

Liquor Stores N.A. managed a small gain today. On the weekend there were more news stories about liquor sales in grocery stores coming to Ontario (which has a particularly backward liquor distributions system in my experience). Also we know it is coming in B.C. and there was speculation about Alberta. I rather doubt much will change in Alberta. We have about 1200 private stores and I can’t see the government cutting all these stores out of their livelihood when the licenses were purchased from the Alberta Government. Also we already have liquor stores located next to grocery stores in terms of Superstore (separate buildings) Sobeys (separate buildings and not very many locations) and Costco (same building, separate entrance. I continue to view Liquor Stores N.A. as a more speculative stock and I not sure how well managed it is. I hope that its founder, who is still on the Board will take action if needed. As the report indicates, I do not consider this to be a great company, I am attracted by the seemingly low price of the shares in relation to earnings and in relation to the dividend (though I am not convinced that the dividend can be sustained). For more thoughts see the report.

This weekend I sent out the latest edition of the free newsletter. You likely received it but note that the list for the free newsletter is separate from the list of paid customers. If you did not receive an email with the free newsletter, you can add your name to that list.

The theme of my newsletter was about the need for people to invest money and grow capital over the decades. Coincidently there as a bit of a book review in the Globe and Mail this morning regarding a brand new book that suggests that those who invest will be the rich and that the gap between rich and poor will increase in a slow growth world. In effect 7 or 8% from the market today, with low inflation, may be a far superior return to say 12% in the early 80’s accompanied by high inflation.

http://www.theglobeandmail.com/report-on-business/searching-for-heroes-in-a-world-of-economic-villains/article 17849036/#dashboard/follows/http://www.theglobeandmail.com/report-on-business/searching-for-heroes-in-a-world -of-economic-villains/article17849036/#dashboard/follows/

The author of the book thinks its a problem that owners of capital will get richer. Perhaps it is a problem. It’s also an opportunity.

April 4, 2014

Today, Friday, started out well but ended negative.

The S&P 500 was down 1.3% but Toronto was down only 0.1%

As for our stock picks, most were down.

Bank of America was down 2.5% to $16.72. While its a more speculative stock, it likely offers good value.

April 4, 2014 10:45 am eastern time

This morning markets are higher as both the Canadian and U.S. jobs reports were considered positive news.

Toll Brothers is up 1.9% and Wells Fargo has pushed above $50.

April 2, 2014

Today, the S&P 500 rose 0.3% and Toronto rose 0.5%.

Canadian Tire rose 1.1% to $106.29. Back in the middle of 2011 this stock had been hammered down by fears of what Target would do to it. I updated it on August 28, 2011 at $52.40 rated Strong Buy. It was trading at just 4% over book value and at a P/E of 10.5 based on trailing earnings. It seemed an obvious bargain. But it had also recently fallen back from prices around $63 and there was never any guarantee that it would be a great investment. I made it my largest holding. Now it has more than doubled. In an effort to be prudent I sold on the way up and reduced my position ultimately to 35%, by share count, of what it once had been. I believe I did buy some shares back on a dip but then later sold those.

Now, Melcor is my largest position. And when I think of buying stocks, buying more Melcor is near the top of my list. By my figures it trades just under book value and at a P/E of 10. But Melcor is more cyclic than Canadian Tire and its assets are mostly marked to market so it is probably not quite the bargain that Canadian Tire was in late August 2011. But it does appear to be a bargain certainly. I heard the head of Edmonton real estate on the radio today opining that house building in Alberta was continuing at a brisk pace. If so Melcor should certainly continue to do well.

I suppose my thoughts should be turning to trimming some positions given recent gains. But I don’t find myself in much of a selling mood.

Very soon we will be into Q1 earnings reports. That always has the potential of moving markets. On Friday we get jobs numbers. The bigger picture seems to be slowly improving economies and interest rates that so far have not risen. That bodes well for markets. Then again there is always the risk of world events such as the situation in the Ukraine or who knows what unexpected event.

Many such event scan have a quick impact on the price of stocks, though they rarely affect the true value of the stocks. The main risk factor that could drive stock values lower is probably a rise in interest rates.

Much investment advice focuses on managing risk. That might be wise. In the long run however it seems that learning to live with risk and volatility is the path to greater ultimate investment wealth.

April 1, 2014

On Tuesday the S&P 500 rose 0.7% to close at a new record high. Toronto rose 0.3%. Toronto remains below the peak it reached around June 2008.

Notable gainers today included Bombardier up 3.4%, Dollarama up 2.7%, and Toll Brothers up 2.2%

I thought Boston Pizza might rise on news of its automated stock buy back program but it fell marginally. I added a few more shares and it is now my fifth largest position.

March 31, 2014

On Monday, the S&P 500 rose 0.8% and Toronto rose 0.5%.

Almost all of the stocks on our list were up today.

It’s been a good start to the year and those of us who have been brave enough to be owners of corporations via the stock market have been rewarded. Those who totally shun stock markets avoid volatility but forego much in terms of long term wealth creation.

I notice Boston Pizza was one of very few (on our list) to decline today, down 1% to $19.53. We recently rated it (higher) Buy at $19.55. Boston Pizza also thinks the price is attractive and after the close today signaled that it will be buying shares on an automatic basis. I believe this will start immediately. They apparently had not bought back any shares for at least six months.

March 30, 2014

Costco is updated and rated Weak Buy / Hold at $112. It always seems expensive. But it is almost certain grow its earnings over the years. Every time it opens a store it seems to create a traffic jamb, at least in Alberta.

On Friday the S&P 500 was up 0.5% and Toronto was up 0.6%.

This year to date the S&P 500 is up 0.5% while Toronto is up 4.7%.

Our two Strong Buys from January 1 (Wells Fargo and Melcor) are up 9% and 7% while our 13 stocks rated in the buy range are up an average of 0.6% since January 1. The fall in the Canadian dollar has added to the returns for Canadians holding U.S. stocks while harming Americans holding Canadian stocks.

Berkshire Hathaway is updated and is rated Buy at $124. For this analysis I have placed more emphasis on the fact that the stock trades at a premium of only 37% over book value and on Buffett’s view that intrinsic value far exceeds book value and that the gap is widening. To me this looks like Buffett is basically telling us the shares are under valued in his opinion. And keep in mind he has always been very careful not to “tout” the stock and in the late 90’s went so far as to state that the stock was (at that time) not undervalued and was at a price where he would not buy it. In addition I have emphasized the fact that the view of adjusted earnings that Buffett provides annually is understated because it excludes all investment gains and losses, includes only the dividends and not the full earnings from the huge investments in companies like Coke, and deducts income tax at about 31% when in fact cash taxes are running closer to 20%.

I would not expect this stock to soar but it does appear to be a good solid investment.

Earlier this year I was wanting to add to my position in Berkshire but was cheaping out trying to buy at $109.10 (see comment of Feb 3) when it was trading at $112 or so. It did dip to that price and I doubled my position so that it now represents 3.2% of my portfolio. But as noted under March 13 I made the mistake of not grabbing more Berkshire at $112 when it reported excellent Q4 earnings and yet the share price did not initially move. Having done that, I find it difficult to now buy any at $124 but I may do so based on my latest analysis.

By most standards, having 3.2% in a single stock is already a full weighting. But I tend to run a much more concentrated portfolio and believe in Buffett’s philosophy of buying a meaning amount of stocks that I particularly like rather than spreading the investments more thinly, which is definitely conventional wisdom. It takes more confidence to concentrate holdings.

Those who concentrate their portfolio should be aware that most experts argue that it is impossible to consistently pick winners in the stock market and that an index fund is best. Even Buffett recommends index funds for MOST people. My understanding is that he believes that those who can picks stocks successfully (or believe they have a reliable source of such stock picks) can go ahead and concentrate on the best picks. He would also probably warn that most sources who purport to be able to pick winning stocks are not actually able to do so successfully in the long run. But he has always argued that some people can pick stocks successfully by following good logic and focusing on business fundamentals.

March 27, 2014

On Thursday, the S&P 500 was down 0.2% and Toronto was about unchanged.

After the news yesterday about most U.S. banks passing stress tests by the FED, Wells Fargo was up 1.2% to $49.10. This stock is up 83% since it was first rated a Strong buy on this site four years ago (February 10, 2010 at $26.88. More impressively it is up 350% since it was first added to this site on February 22, 2009 rated highly speculative Buy at $10.91. It has been somewhat volatile at times. I recall I sold out of it way to early but then got back in heavily and held something of a core position plus added on dips and sold on rallies and have done well that way., though most of my gains came just from the holding, not the trading. Wells has moved up in price since we last rated it (Strong Buy at $46.39). I would guess it would rate perhaps (lower) Strong Buy or at least (higher) Buy it it were to be updated at today’s price.

Bank of America did not do as well in the stress tests. It passed but apparently got its planned dividend hike shaved back a bit. It will raise it dividend from one cent to five cents per share. This is still almost a zero dividend but can be considered a positive step. Bank of America fell 1% today to $17.01. It’s up 112% since we first added it to this site rated Speculative Strong Buy at $8.05 on March 11, 2012. I believe I reported buying it myself at around $9.50 in the spring of 2011 and it subsequently fell under $6. I had bought too much at $10 and was not prepared to load up at the $6 price which was unfortunate. At this time we rate it Speculative (higher) Buy at $17.01 and I do think it is well worth considering. Not as safe as Wells Fargo but quite possibly has more potential to rise in the short term.

I expect to have some updated reports by Sunday.

March 26, 2014

On Wednesday the S&P 500 was down 0.7% and Toronto was down 0.8%.

Canadian Tire was up 2.9%. This may have been based on a presentation that Canadian Tire made this morning at a CIBC retail analyst conference.

There was news about most of the American banks passing further stress tests and getting approvals for their dividends and buy-back plans today. Bank of America also had news about big settlement payments. It’s hard to interpret but my suspicion is that U.S. bank shares will take this as positive news. Certainly I have no particular concerns about my investment in Wells Fargo or Bank of America. I am hopeful of a dividend increase at Bank of America. (Their existing dividend is extremely tiny)

I received a question from a U.S. based subscriber as follows:

I wonder if you might have any general comments for US subscribers to your service about the impact of the fall in the Canadian Dollar from it’s most recent high to it’s current level under 90 cents as it relates to US subscribers purchasing Canadian stocks.  Boston Pizza, for example, has seen it’s share price (in US dollars) fall from $22.18 (US) to the current $17.55 (US) a drop of over 20% which dwarfs the dividend yield over the same period.

My thoughts are as follows:

As the questioner went on to say in his email, there is nothing we can do about what has already happened. We can deal with where the exchange rate is today but we can’t change what has already happened.

Canadians who held U.S. stocks in 2013 benefited from a 6.6% decline in the Canadian dollar (which was unexpected by most). There has been a further 5.0% decline n 2014.

During this time American Investors in Canadian stocks were harmed by this decline.

In the five years from the start of 2008 to the end of 2012, the Canadian dollar bobbed up and down but started and ended that period at about $1.00 U.S.

In the six years from the end of 2001 to the start of 2008, the Cnadian dollar rose an unbelievable 59% from its low of 63 cents all the way to U.S. $1.00. During that time Canadians who held U.S. stocks (as they were constantly told to do for diversification) got absolutely clobbered by the exchange rate change. On the other side of that, American investors in Canadian stocks enjoyed windfall gains.

Back when the Canadian dollar was 63 cents, many observers seemed to think it was destined to stay low or go even lower.

Similarly, when it hit $1.10 briefly an awful lot of people seemed to think it was headed to $1.20.

My view is that I can’t predict where the Canadian dollar exchange rate will head. But as it rose into 90’s and especially as it got over $1.00. I commented that it seemed to me that the best way to bet was that it would fall rather than rise. I moved money into American stocks when the Canadian dollar was over $1.00 U.S. That has worked out nicely. But as it headed below 95 cents and more so as it got towards 90 cents I moved some U.S. cash back to Canadian funds to hedge my bets a little.

I believe that in the long run the fluctuation of the currency is not that important. Over the last 100 years the Canadian dollar has usually been pretty close to a U.S. dollar but it did spend a couple decades languishing well below 80 cents and had a  brief dip to 62 cents. Those were BIG moves that had a HUGE impact on the returns in certain years. But over the long term such as 50 years stocks have returned at least 10 fold (1000%) even after inflation. In that context the exchange rate movement has not been that huge.

Investing in other countries is part of a diversification strategy.

Most Canadians will want to invest in U.S. stocks for general diversification and because Canada simply lacks enough companies in certain sectors like internet based stocks and, consumer brand name companies and bio-technology. Also most Canadians who invest will eventually want to spend some of their retirement money in the U.S.

American investors may look to Canada to obtain exposure to certain resource sector stocks. However Americans rarely intend to spend much retirement money in Canada so they do not ultimately need Canadian currency in the way that Canadians need American currency. Americas probably have less need to diversify to other countries (given their own huge economy) and other than for resource stocks may not have a lot of reason to choose Canadian investments.

For Americans who bought U.S. Canadian shares for diversification, the recent decline in the Canadian dollar is unfortunate. But it could have gone the other way. Over an investment lifetime some diversification is usually a very good thing. But over any short period of time one might wish they had piled everything into the one stock or the one currency that did the best. You can’t judge whether diversification was wise by looking at just a one or two year period.

Right now with the Canadian dollar at 90 cents it really seems to have returned to a more middle of the road position. I have also often heard that on a purchasing power parity basis it should have been closer to 90 cents than $1.00. So in general I certainly don’t have much reason to expect it to move down or up. I do expect it will move. I just don’t know which direction.

My strategy is to react to Canadian dollar currency movements rather than try to anticipate. So if the Canadian dollar falls I would look to try to repatriate some U.S. dollars back to Canadian. If the Canadian dollar were to rise back towards a U.S. dollar I would be inclined to look to shift cash from Canadian to American at that point.

I would also say that most all investors should steer far clear of foreign exchange or FX trading. It’s one thing for Canadians to buy some American stocks. It’s quite another thing to make a leveraged bet on currency. I see FX trading as a great way to give yourself ulcers and to lose a lot of money.

March 25, 2014

On Tuesday the S&P 500 rose 0.4% and Toronto 0.1%.

Liquor Stores N.A. was down about 30 cents most of the day both yesterday and today before closing about unchanged. As my report indicates, this stock should be considered somewhat speculative. Of the stocks I own, this is the one I worry somewhat about. I emailed the CFO twice in the last week or so and got no response. That is not a great sign. I don’t email executives very often but when I do I usually find they respond. A CFO that does not respond to a question (I asked if they could borrow money to buy back shares) is a bit of a worry. Next time I will email the CEO. They are still generating a lot of cash compared to the share price so I am not prepared to sell my shares but I just wanted to share the fact that this is one I worry about.

March 24, 2014

On Monday the S&P 500 was down 0.5% and Toronto was down 0.4%.

Before the market opened today I entered orders to Buy additional Melcor at $21.60 and Boston Pizza at 19.60 and both were filled at the open. Later I noticed Toll Brothers was down under $35 and decided to add to that position as well at $34.81. It closed at $35.48.

March 22, 2014

Boston Pizza Royalties Income Fund is updated and rated (higher) Buy at $19.55. This entity is an ownership in the the 4% franchise fees on the food (not alcohol) sales of Boston pizza restaurants. The cash distributions essentially are almost unchanged when new restaurants open as new units are then issued to founders of Boston Pizza. The distribution rises with increased food sales on a per restaurant basis. The units have recently declined due to a 3.6% decline in distributable cash per unit in Q4 which was blamed on poor weather. On that basis Q1 could also see a decline. Another possible reason for the decline was that the founders sold units in a secondary offering at $21.10 in march. The 6.3% yield is attractive. I believe the recent price decline presents a buying opportunity. Note however, that Q1 2014 should also be expected to be a relatively weak quarter due to poor winter weather across Canada this year. I will likely increase my position.

It’s interesting to note that the units were first issued in 2002 at $10.00. The units climbed briefly over $20 in 2006 but were hammered down under $8 with the financial crisis. Those who bought at the IPO in 2002 at $10.00, and have held since,  have since collected $14 in distributions in addition to a capital gain of close to 100%. This is a nice illustration of the rewards of investing. At the start of 2009 we rated them a Strong Buy at $7.51. It is stunning to look back now and see how cheap stocks were at the start of 2009 and to remember how scared investors were.

Melcor is updated and rated Strong Buy at $21.50. It’s Q4 earnings were very strong. The stock is thinly traded and so it should be bought with an order to buy at a certain price rather than a market order. I will likely add to my position even though it is already my largest holding.

On Friday, the S&P 500 was down 0.3% and Toronto was down 0.2%. Liquor Stores N.A. was up 2.6%.

March 20, 2014

North American markets were positive today with the S&P 500 up 0.6% and Toronto up 0.2%.

U.S. bank stocks did well in anticipation of stress tests results. Which all the large banks passed. (All except for one whichh I had never heard of). I am not sure if the stress test results came out after the close or before.

We had Wells Fargo up 2.5% and Bank of America up 2.7%.

Liquor Stores N.A. was up 2.9%. Apparently this was on news that it hired four new vice presidents. I don’t really know if that that was such a wise move. Possibly it signals their confidence in growth ahead. But meanwhile it probably adds about a million dollars per year to their costs at a time when they could do with some cost cutting. Also, in general, I’d rather see a company promote from within. What does it say to current staff when people are parachuted in above them?

Once again it starts to feel like the gains have been too easy to come by. We should always be prepared for markets to go the other way. I am not suggesting that we can predict that markets will fall, or certainly when that could happen. We just should always be aware that markets and particularly individual stocks often go down as well. The trick is to react rationally when that happens. I remain in favor of a bias to trimming on rallies and buying on dips. Especially for those with larger portfolios. For those closer to the start of their investing career a strategy of buying regularly works well. When just starting out, a market “correction” is a great blessing (the bigger the better) even though it feels awful. At the other end of the time scale, for those retired people who need to spend their dividends and who have no extra money to invest, broad market corrections have no redeeming features except possibly if some rebalancing can be done such as from cash or fixed income to stocks. We all have different financial capacities for risks and different emotional tolerances for risk and need to make our investment decisions in accordance with that.

I expect to update some of the reports in the next few days. I want to take a look at Boston Pizza and also will likely update Melcor.

March 19, 2014

Wednesday was a weaker day in the markets with the S&P 500 down 0.6% and Toronto down 0.2%.

But the Canadian dollar fell 9 tenths of one percent which adds to the value of U.S. stocks in Canadian dollar terms.

Couche-Tard was up 5.4%. Melcor was up 2.3%, Bank of America was up 1.4%. Almost everything else on our list was down. Overall, with the sharply lower Canadian dollar, we had a good day.

With a concentration in some of the better performing stock picks, my portfolio is up 5.2% this year.

March 18, 2014

Tuesday was a strong day in the markets with the S&P 500 up 0.7% and Toronto up 1.0%. Also the Canadian dollar fell 6 tenths of one percent which adds to the value of U.S. stocks in Canadian dollar terms.

In terms of our stock picks, gains almost all were up and there were no significant losers.

March 17, 2014

On Monday, the market decided that so far at least it was okay with the situation in Ukraine and focused on stronger manufacturing data. The S&P 500 was up 1.0%. Toronto was flat as gold miner shares declined.

Among our stock picks notable gainers included Bombardier up 4.8%, Liquor Stores N.A. up 2.3%, and Constellation Software up 2.1%. Melcor was down 2.8% on usually high volume. This decline comes after the strong gains it made in the past few days after releasing earnings and is no cause for concern.

On average the P/E ratios of the stocks in my portfolio, particularly the larger holdings do not seem too high. A notable exception is Toll Brothers where the P/E ratio is definitely high but where the earnings were still recovering from the housing crisis, and still apparently growing rapidly.

March 16, 2014

I have updated the composition of my personal portfolio.

Indications on Sunday evening are that the market is not bothered by the situation in Russia. If the resounding support for Crimea joining Russian is viewed as accurate then it may be difficult for anyone to oppose it too strongly. The United States should probably but out. A closer vote would have been more problematic. But anyhow I have no special insight into these matters.

On Friday the S&P 500 was down 0.3% and Toronto was down 0.1%.

Liquor Stores N.A. is updated and rated Speculative Buy at $11.48. This high dividend stock is down 33% since we first added it to this site just about three years ago rating it Buy at $17.01. Even after collecting over $3.00 in dividends it is still down. We certainly did not rate it a Buy just because or even mostly because of the dividend, though that was a factor in its favor. But this decline goes to show that the presence of a good dividend is no guarantee of a good return.

At this time the stock appears to offer good value. I like the dividend. On the other hand I would not be distressed if they cut the dividend since fundamentally it appears unsustainably high. But maybe they will manage to maintain the dividend as they plan to do.

March 13, 2014

On Thursday, the S&P 500 was down 1.2% and Toronto was down 0.5%.

Most of the stocks that I keep an eye on were.

Obviously, the troubles in Ukraine could cause further market declines but I generally never sell on such fears because for one thing there is hardly a month that goes by without some such “threat” to the markets. If we sold on every such fear we would seldom own any stocks.

A notable decliner was Toll Brothers down 2.7% to $36.77.

Melcor was up 3.4% on its good earnings to $21.70. That was a good gain given the market decline. For whatever reasons Melcor remains quite thinly traded which makes it a bit more volatile. I added about 12% to my holdings at $21.50 though it was already my largest holding. I could have had it closer to $20 over the past month but such is life in the markets.

It’s always clear in hind-sight that we could have traded more astutely. For example, I was pretty sure that Berkshire would rise after its earnings release almost two weeks ago. Yet on the Monday after it did not rise and that was due to Ukraine situation. I could have added to Berkshire around $112 but I failed to do so.

I was reading more of the Liquor Store N.A. report today. They certainly seem confident that they can maintain the dividend. If so, this will be a good investment.

March 12, 2014

On Wednesday, the S&P 500 was flat while Toronto was up 0.4%.

Liquor Stores N.A. was up 4.9%

After the close Melcor reported strong earnings and a positive outlook. I may add to my position.

I would continue to rate it in the Strong Buy range.

March 11, 2014 (from the Mayan Palace, near Cancun Mexico)

On Tuesday, the S&P 500 was down 0.5% and Toronto was down 0.2%.

I grabbed a bit more Liquor Stores N.A as it fell 3.4%

I believe Melcor will release earnings tomorrow Wednesday after the close  and I believe it will likely be a strong earnings report.

Apparently, New Jersey is the third state to ban direct auto sales that don’t use a dealer. So much for that “land of the free” myth. Tesla shares fell on the news.

March 10, 2014 (from the Mayan Palace, near Cancun Mexico)

On Monday the S&P 500 and Toronto were both about flat while the Dow was down 0.2%.

I sold off my Constellation Software. Possibly a bad decision because it is really great company. But it is expensive.

Toll Brothers was down 2.5% to $38.26. It is up a lot since our last update and the market is uncertain about where house prices are headed do it does tend to be volatile.

Canadian Tire voting shares are trying to prove me wrong as they jumped another 12% to $164. This was on 2,266 shares traded. With that kind of low volume it does not take much to push the price up if there is a few irrational buyers. Possibly someone is trying to accumulate voting shares, but I fail to see why. Only 9% of the voting shares trade and the rest are closely held by the dealers association, the profit sharing plan and a branch of the founding Billes family. So with 9% could one even demand a Board seat? And its not clear that anyone has accumulated even 1% let alone anything close to 9%.

Liquor Stores N.A. was down about 6% to $11.65. I will likely add a bit to my position especially if it dips a bit more.

March 9, 2014 

On Friday the S&P 500 was flat, remaining at a record high while Toronto was up 0.2%

Constellation software released earnings and was up 12% to $265. It’s a great company and has exceptionally good management. Still, the stock is expensive. I may sell my shares with a hope to buy back later or just take the profit.

The Canadian Tire voting shares rose another 5% to $147, on a very tiny volume of 555 shares. While I can’t guarantee what will happen, I would definitely sell if I owned Canadian Tire voting shares.

Wells Fargo was up on Friday and I reduced my position a little at $39.20. (Update, I believe this should have read $49.20)

With the turmoil in The Ukraine, it would not be a surprise if markets pulled back, but I have no ability to predict that. If that happens I will look to buy on pull-backs which has always been my strategy.

This week I am at the Grand Mayan resort near Cancun Mexico.

March 6, 2014

On Thursday the S&P 500 was up 0.2% and Toronto was down 0.2%.

Our stocks picks has a reasonable good day. American Express was up 1.5% to $93.52.

The Canadian Tire voting shares, inexplicably, were up another 3.3% to $140.00. Meanwhile the non-voting shares were down 0.3% to $99.20. Only 656 voting shares traded versus 164,423 non-voting shares. With only 656 shares traded this latest rise in the voting shares cannot be taken too seriously.

Costco declined 2.8% after posting disappointing revenues and profits that “missed expectations” (which probably means the expectations were wrong). I’d love to see Costco fall further since I would like to buy but it seems too expensive. It is a powerful company (due its low cost operation) and will do well long term.

Liquor Stores N.A. released earnings after the close. The Q4 report had some bad news in terms of a write-off of intangibles or goodwill in British Columbia due to the fact that grocery stores are going to be allowed to open liquor store sections in their stores. Also sales growth was weak. They also indicated that profits will not rise until 2016 and that until then operating margins will be reduced as they implement certain plans. But overall the market was probably already expecting this and so it’s not clear to me that the stock will decline tomorrow. The company indicates it is committed to maintaining the dividend which is close to a 9% yield. If that is believed then the price could rise. The best scenario here would be if the company could borrow money at a low interest rate and buy back shares that yield 9% and thus increase EPS that way. This may not be possible. The worse case would be a share issue. I would have thought that a dividend cut would be preferable to a share issuance.

Brave investors could also borrow money and invest in the shares yielding near 9%. But that could certainly be risky.

British Columbia released news on its liquor-in-the grocery store plan just today. It’s my understanding that  grocery store may need to purchase a license from an existing store and so this could be an opportunity for salvation or partnership for Liquor Stores N.A.

Overall these shares remain speculative due to all of these matters.

The Conference call is tomorrow, Friday at noon Mountain time, 2 pm eastern and perhaps the share price will be quite volatile tomorrow morning and then may or may not be volatile during and after the conference call.

Canadian Western Bank released another excellent quarterly earnings report.

Berkshire was up 1.9% to $121.20.

The bottom of the market in the great recession occurred on March 9, 2009, five years ago. Those who either rode out the bad times or kept up their regular investing all this time have done very well.

March 5, 2014

On Wednesday, the S&P 500 was flat while Toronto was up 0.1%.

Element Financial was up 5.5%. Bank of America was up 3.2%.

Melcor will release its earnings next week, Wednesday March 12, probably after the close of trading.

I notice that Canadian Tire’s voting shares CTC rose 3.2% today to $135.50. This is a 36% premium to the non-voting shares CTC.A on Toronto. As far as I can see there is no justification for the premium. The voting shares are very thinly traded. My understanding is that for decades now there has been a provision whereby if someone were to take control of Canadian Tire by buying up the voting shares (which would have to be bought from the Billes family to get control) then the non-voting shares would become voting shares.

At last check the ownership of the voting shares was as follows: Martha Billes and her son Owen have 61.5% of the voting shares. The Dealers association owns 20.5% and the the profit sharing plan owns 12.2% of the voting shares. This left about 6% for the trading public.

There was no insider trading in these voting shares since at least 2008. Strangely the Dealers association has bought 1700 of these shares in late February. That’s a tiny amount considering that they own 702,000 such shares.

I don’t think the Dealer’s Association purchase explains the large premium which I believe has persisted for some years.

While it’s always possible that the scarcity of these voting shares will continue to cause a price premium, I would not hold the voting shares. I would be quite surprised if the premium persists in the long term. It may persist for years or it may collapse or be reduced at any time. Both the voting and the non-voting shares pay the same dividend, except it is one cent per year higher on the non-voting shares and the common share dividend is non-cumulative (it would not be made up later if it were ever skipped), while the non-voting dividend is cumulative.

The same situation existed, although to a much smaller extent, with Telus for years. It had a non-voting share that traded at a small discount. I had said buy the cheaper share the non-voting. Ultimately those were converted to voting and so buying the cheaper shares in the case of Telus was the right move. In addition to the cheaper price the trading liquidly was much better.

In Canada we have quite a few cases where both voting and non-voting shares trade. Generally the voting shares have low trading volumes and trade at only a very small premium. Each case may be company-specific. It surprises me that Canadian Tire has this large premium since its non-voting shares become voting on a take-over and since both types of shares are equal if the company is ever wound up (per note 28 of the 2013 financial statements). But, for whatever reason the difference has in fact persisted for quite some years.

“Scarcity” of the voting shares in my opinion provides absolutely no rational support for the premium. But I suspect scarcity has something to do with what appears to be an irrational premium.

March 4, 2014

I think most of us were surprised to see such a strong market on Tuesday with the S&P 500 up 1.5% to 1874 and another new record close. Toronto was up 0.5%.

Most of our Buy rated stocks were up including American express up 2.9%, Element Financial up 3.0%, Bank of America up 2.6%.

I saw a notice today from TD bank for another five year rate reset preferred share. This one at 4.4% from Enbridge. I grabbed some of that for the kids RESP account as I figure it is an alternative to holding cash.

I am basically holding tight with my positions at this time though with an order in to buy some Melcor a little under $20 and a rather unrealistic order to buy Toll Brothers if it falls to $34. I wondered today if I should trim some more Toll Brothers. Many of my moves to trim positions in the last year have not worked out that well as the prices continues to rise. Although I believe some have where there was more volatility and where I bought back later at lower prices. A strategy of trimming gains can work better when the market is  a bit more choppy, which it inevitably will be at some point. Also in some cases while I trimmed and did not buy back I may have made good investments with the funds received. I don’t track all that detail (and it might not even be possible to do so) but I do know that my account is up quite nicely (at 3.7%) in the first two months of this year and so certainly I can’t complain.

March 3, 2014

On Monday the S&P 500 was down 0.7% while Toronto was flat.

I would not have minded seeing a bigger decline today since it might have given me a chance to pick up some Berkshire at a better price.

Buffett was on CNBC’s Squawk Box for 3 hours this morning (as he always is the Monday after the annual letter comes out). He reiterated his views that we should buy companies for the long term and that we should not be bothered by stock price declines, especially when they are caused by macro economic events. He was accompanied by the two portfolio managers that he hired in the past couple of years as his eventual investment successors at Berkshire. One of these noted that Buffett had once answered that his investment “secret” was that he reads 500 pages per week. (To that I would add his ability to do math in his head and his possibly photographic memory and the fact that he been reading those 500 pages per week for about 70 years now.) People who think his special connections are his secret are wrong and fail to explain what his secret was 60 years ago when he was virtually unknown and his annual returns were higher than today. Yes, he does indeed benefit from special connections but that advantage is outweighed by his disadvantage in having to now manage about $200 billion of assets. I think he could earn far higher annual percentage returns if he was working with just $100 million and relied on no special connections. That was the situation about 55 years ago and he was stomping all over the S&P 500 returns in those days. Anyhow, any special connections he has grew out his own hard work over the years.

It seems to me that an awful lot can be learned from Buffett about how to grow the smaller amounts of investments that each of us possess.

March 2, 2014

Canadian Tire is updated and rated Buy at $99.85.

On Friday the S&P 500 was up 0.3% and Toronto was flat.

Warren Buffett came out with his annual letter yesterday. As always it is full of excellent investment advice.


I had expected Berkshire to post good earnings and the earnings were very good in Q4. I expect Berkshire’s B shares to push up to the $120 range on the news.

February 27, 2014

On Thursday the S&P 500 rose to a new closing high and finished up 0.5% at 1854. Toronto was up 0.2%. Most of the stocks we follow were up including Stantec up 2.9% and Element Financial up 2.1%.

February 26, 2014

Markets were about flat today. But Toll Brothers was up 1.7% to $38.90. I had sold about 15% of my Toll shares last week at $38.00. I still have a lot of shares and given normal volatility, I may get a chance to buy these back at $34. If it continues up, fine. If it declines I can buy back, so fine as well.

Element Financial issued five year reset preferred shares today at 6.5%. This compares to 4.4% for Canadian Western Bank, reflecting higher risk. I would have bought some but the issue closed by the time I saw it. Element common shares rose 4.3% to $13.99 on the news. I think it would still rate Speculative Buy at this price.

Target announced, among other things, that it has lost almost one billion dollars in Canada since it arrived. I take some satisfaction in this since I said from the start that they appeared to over-pay for the Zellers leases and that they would not be a low cost operation. (Search my 2012 comments if interested). Some things are more predictable than others.

February 25, 2014

On Tuesday the S&P 500 was down 0.1% and Toronto was down 0.3%.

I was not able to enter an order to buy Melcor due to system problems at TD Bank. I may enter the order tomorrow.

Reaction to Toll Brothers report was mixed (glass half full, half empty) it looked positive to me.

February 25, 2014 10:25 am eastern

Toll Brothers is out with relatively strong earnings this morning. The stock has a high P/E as it is still ramping up earnings from the lows of the housing crisis. I consider it more speculative due to that but it is worth considering.

Also, I am will put in an order for some Melcor today.

February 24, 2014

Monday was a strong day in the markets with the S&P 500 up 0.6% (and hitting a new high before dropping back a little. Toronto was up 0.1%.

Almost all of the stocks on our list were up today.

Our Stock Picks have done well and I believe my own account has reached a new high, the first new high since the market pull-back earlier in February.

Warren Buffett will publish his latest annual letter on Saturday. An excerpt on value investing has been published by Fortune Magazine.


February 23, 2014

On Friday, some of my Toll Brothers shares got sold at $38 based on an order I had in place. I then sold a little more at $38.

I am visiting just south of Tampa this week. Went to Branden Mall at noon today, Sunday. On one side of the Mall there was no parking left, people parked on the grass. It seems to indicate that the Florida economy is much improved and recovered.

February 20, 2014

On Thursday the S&P 500 was up 0.6% and Toronto was also up 0.6%.

Toronto is at a three year high. And its quite close to its all time high. The S&P 500 is just a little below its all time high reached in late December. This all seems pretty good considering the market and economic news has been fairly mixed.

Alimentation Couche-Tard jumped another 3.6% today. While it seems expensive I have been saying for a number of years that it is one of the very best managed companies in Canada. Around 2007 I was in Florida and spent some type checking out one of their run of the mill Circle-K stores in Tampa. That may seem silly but I like the idea of owning companies that I shop at and where I can check out their operations that way. This company was a real market darling in the early 2000’s. Then it suffered an earnings drop around 2007 and then of course got clobbered in 2008. Most of the analysts seemed to abandon it and missed out on an absolutely stunning performance since the lows of the 2008 debacle. Buffett is always saying if you invest in a really good company you probably stick with it instead of trying to get cute and sell when it starts to look like less of a bargain. This would be a case in point. (Nevertheless, I am not buying back in at this price).

February 19, 2014

On Wednesday the S&P 500 was down 0.7% and Toronto was up 0.3%.

Most of the stocks we follow here were down although none precipitously. Some stocks that gained included Canadian Tire, up 1.1% and FirstService up 2.2%

The Bombardier pref share was up 1.3% and has basically done surprisingly well considering the decline in the common shares.

The Canadian dollar dropped over a full cent due to weak wholesale sales data.

For the Canadian market there are still lots of Q4 earnings reports to come in which could move stocks in one direction or the other. I am looking forward to an expected good result from Melcor. Also looking forward to a the report from Liquor Stores N.A.

As investors, most of use spend far too much time looking at fluctuations in share prices. I read an article recently that said that some people and families buy Gold with no intention to sell it ever. It was said that these long-term investors don’t care so much about the price of Gold but merely want to accumulate more and more ounces of it. The same thinking certainly applies to some people who accumulate house or apartments as long term investments. They may tend to measure their progress by the quantity of real estate that they accumulate over time or its earnings power and not by its resale value. This is the way Warren Buffett looks at accumulating companies and stocks. I think he would advise us to track the number of shares in good companies we own and to accumulate more and more with possibly no intention to sell. Or to track the total earnings of the shares we own and pay less attention to the price fluctuations. For Buffett stock price fluctuations are important only to the extent they give us the opportunity to accumulate shares cheaply or to occasionally sell if the price is beyond a sensible estimate of intrinsic value.

February 18, 2014

On Tuesday the S&P 500 was up 0.1% and Toronto was up 0.1%.

I’m not sure it was a wise move but I did buy some Bombardier as a speculative pick at $3.60 today (before it fell another 2.2%). I don’t expect any quick turn around here since the next earnings will not come out for about three months. I suppose there could be good news in terms of plane orders or cost cutting, but things could also get worse before they get better. I had understood that Warren Buffett’s Net Jets had placed a very large order in the past year but this did not seem to be mentioned in the annual report. It may be a bit awkward for Bombardier to talk about that since it owned a competitor operation to Net Jets called Flexjet which it just sold and the buyer has placed a very large order and so Bombardier has to be careful not to offend either of these two.  I have said before that Buffett would like the products that Bombardier makes but I doubt he would invest in the company given its low profit margins. To the extent that Bombardier is dependent on the kindness of governments I don’t think Buffett would like that at all. And I don’t really think it has the management quality that Buffett would demand.

February 16, 2014

Bombardier is updated and rated Speculative (lower) Buy at $3.60. This stock is down 25% this year and in general the stock has done poorly for many years. The most recent decline was due to delays and higher costs on its new C-Series airplane. The question now is whether the low stock price provides a speculative opportunity for a good gain in the next couple of years. The company has already issued its 178 page annual report for 2013. I spent quite a few hours going through that but really I am unable to get a clear sense of future profits. Since the company is highly leveraged, there is certainly some risk of major share price declines if the C-Series has further problems and if they run into cash issues and have to issue shares at a low price. On the other hand it’s hard to imagine that the government would “allow” the company to go broke in any scenario. And it’s possible that a couple of years down the road there could be large profits on the C-series. Listening to the conference call the analysts seem rather frustrated with management. The analysts share my concern that the margins on planes seem very low.

I am planning to buy some shares as a more speculative position.

On Friday the S&P 500 was up 0.5% and Toronto was up 0.4%.

Most of our Stock Picks were up on Friday, Toll Brothers was up 2.2%

I made a modest purchase of American Express shares on Friday.

February 14, 2014

It was a strong day in the markets on Thursday with the S&P 500 up 0.6% and Toronto up 0.7%.

Canadian Tire was up  3.1% to $97.39 on its strong earnings. I’d still rate it a Buy (or higher). Constellation Software was up another 3.8% to $249.49. It seems too expensive but has continued to power ahead.

Our only big decliner was Bombardier which was down 9% to $3.68 on poor earnings and outlook and higher costs for its C-series plane. I don’t see a balance sheet in the press release, which is annoying. I am curious to see if the balance sheet looks better after the recent sale of its fractional jet business which I would assume had significant assets and significant debts.

Unless it is going greatly improve its profits down the road, this seems like poor business with weak profit margins. This is particularly bad considering the company is highly leveraged with debt.

It really seems like time for new management here. I am not sure why a public company thinks it is acceptable to keep the founding family member on as CEO in the face of poor performance. The Board of directors needs to be turfed here.

I plan to update this report shortly to see if it might now qualify as a speculative pick.

I don’t really follow it but I notice that Barrick Gold has lost another bundle. What a pathetic sad story of destroying invested capital this has been. Yet there are those who would laud the achievements of Peter Munk in building such a large company here. In corporate performance size should be considered to be a very distant second priority to the goal of making positive returns on capital.

February 14, 2014 8:45 am eastern (6:45 Mountain time)

Canadian Tire released excellent earnings this morning (I might even say blow-out earnings given decent growth when others are struggling). Should be a good day for the stock.

February 12, 2014

On Wednesday, markets ere basically flat with the S&P 500 down less than 0.1% and Toronto up 0.1%.

FirstService jumped 4.4% to $47.25 after releasing a good earnings report. I have consistently admired the management of this company. However it has been quite lumpy in its earnings over the years and I have not had much success in predicting when to buy or sell this one. For example our last rating was Weak Sell / Hold at $45.52. At the start of each of 2011 and 2012 it was rated Buy and it went nowhere. At the start of 2013 we had it rated it weak Buy and it soared 52%. It is well managed but its earnings have been quite volatile. Perhaps I have been too conservative in outlook when its earnings have been in a trough.

I did pick up a bit more Liquor Stores N.A. today at $12.17 and so await with great interest its Q4 earnings report around March 5 or any earlier information from the company.

February 11, 2014

It was only eight days ago that markets were (as we now know) reaching a low point markets fell most days in January and entered February with a down day. Suddenly everyone seemed to accept that we in the middle of a market correction and that it probably had a ways to go down yet. Bu then suddenly the market has risen just about every day since February 4th. It just goes to show that markets are always unpredictable, especially in the short-term.

On Tuesday we had the S&P 500 up 1.1% and Toronto up 0.6%.

Most of our stock picks were up. Liquor Stores N.A. however fell 1.8% $12.19. I attempted to grab some near the close at $12.17 but did not get a fill. Again, I do consider this speculative and it’s entirely possible that they will cut the dividend. On the other hand it certainly looks better to me at $12.20 than at recent prices of $14.00 to $14.50. It will likely announce its next monthly dividend on Friday or Monday. I suspect the dividend will be unchanged and that there will be no substantive news until they release earnings around March 5. But certainly, one never knows.

February 10, 2014

On Monday the S&P 500 rose 0.2% and Toronto rose 0.1%

Liquor Stores N.A. fell 3.8% to $12.41. There was further news on the company to my knowledge. I am mildly tempted to add to my position at this or lower prices but will likely just stick with what I have.

There should be lots more Q4 earnings reports coming in shortly and that can always move individual stocks one way or the other.

February 8, 2014

American Express is added to the list above rated Buy at $87.

February 7, 2014

On Friday, the markets ended the week strongly with the S&P 500 up 1.3% and Toronto up 0.5%.

Most of our stock picks were up. Liquor Stores N.A. recovered another 4.5% to $12.90.

February 6, 2014

On Thursday the S&P 500 was up 1.2% and Toronto was up 1.1%.

Almost all of our stock picks were up.

A notable gainer was Liquor Stores N.A., up 4.6% $12.34. I was looking into the report that recommended liquor sales be allowed by grocery stores. One thing I learned is there are over 600 private liquor stores in B.C. and they are about half the market. As I read the report it recommends that grocery stores would have to have separate areas for selling liquor and they would likely have to purchase an existing license. No new licenses were recommended. Overall the decline in the stock price at Liquor Stores N.A. seems over done. That is not to say that Liquor Stores is without risk.

On Friday morning the big news should be the jobs reports.

February 6, 2014 (11:10 am  eastern time)

The last few weeks have been a reminder that markets can certainly fall. Anyone holding stocks has to be prepared for periodic declines. With the market up today, perhaps it is appropriate to think about your risk tolerance and consider reducing your equity exposure if market declines would cause you great distress.

In theory the decision as to the percentage asset allocation in stocks is a separate matter from which stocks to own. In practice it is hard to reduce equity exposure overall if it involves selling some stocks that you like. The theoretical answer would be to reduce all positions fairly evenly if you are inclined to reduce exposure to equity.

I suspect the jobs reports tomorrow could push the market in one direction or the other.

For myself, I will likely hang on to my stocks for the most part with no material reduction to the equity exposure.

February 5, 2014

On Wednesday, the S&P 500 fell 0.2% and Toronto rose 0.4%. Most of our stock picks were up.

Liquor Stores N.A. fell another 3.8% to $11.80. I added modestly to my position in that stock today. I consider that to be a speculative purchase to some degree. I checked the insider trading on this company and there was no insider trading reported since December 31. That was as expected. Most companies prohibit their insiders from trading after the end of quarter until earnings are released. This is to prevent accusations of trading on material non-public information, which is not allowed. Several insiders were buying in December at around $14. So that is a positive sign.

I have updated the composition of my portfolio.

I am currently working on adding American Express to the list of stocks.

February 4, 2014

On Tuesday the S&P 500 rose 0.8 % and Toronto rose 0.1%.

Most of our stock picks were up. Liquor Stores was down another 4.6%. I resisted the urge to buy any more of that.

Canadian Tire was down 1.2% to $93.71. I don’t think we can know much more about either of these retailers until they release their 2013 earnings reports. Canadian Tire has been doing things to “release” value in the past year such as creating a RIET (albeit retaining over 80% of it) and buying back shares. They are also looking for a financial partner on the credit card aspect of their business. Maybe there will be positive developments there. And we don’t know how their Q4 sales went and how the weather impacted things for good or bad. There is also the impact of the lower Canadian dollar going forward. Lot’s of moving parts and I await the next earnings report, which will be a a week from Thursday.

February 3, 2014

As most of you are no doubt aware, on Monday markets were down fairly sharply. The S&P 500 was down 2.3% and Toronto was down 1.5%.

The only stocks on our list that escaped the damage were some preferred shares. Bonds had a comparatively good day as interest rates declined moderately.

One of our stocks, Liquor Stores N.A. fell 10.4% to $12.85 .This was on news that British Columbia, where about 15% of its stores are located has tabled a report recommending that grocery stores be allowed to sell liquor. Quite possibly the stock reaction is overdone, as this change could still be a ways off and it seems possible that the (I believe) relatively few private stores in B.C. would be compensated. On the other hand our report on the company was not exactly concern-free. There is some chance that buying this is chasing a faltering a business. And certainly there must a reasonable risk that the dividend will be cut. The company has saddled itself with paying out all of its earnings (and a bit more). This policy dates back to its income trust days. Still, the company does appear to be profitable and over the long haul has shown good growth.

In reaction to today’s decline I did what I always tend to do. I remained calm. Market declines are a fact of life in the markets.

I had a standing order to add to my Liquors Store N.A. position if the price dropped to $13.67. The bad news was press released only an hour before the opening of trade (It was based on a report issued by the government on Friday or Saturday). The stock opened down only 5 cents but then fell steadily. This trading pattern illustrates a poor dissipation of news. If the stock had been halted for several hours to let the news spread (which takes extra time on a thinly traded stock) it would likely have opened down more substantially which would have been more fair. In any case my order to add 25% to my relatively small position was filled at $13.67 and then I decided to buy another similar amount at $13.00.

I also had an order in to buy back some Berkshire at $109.10 (I had sold almost all of my position months ago as the price rose.) It’s not really relevant what the price was when I sold but the comments below indicate I sold most of it on July 23 so that would have been a little over $118. I would say Berkshire is known to be worth more today than it was six months ago due to its strong investment gains since then and also due to its own retained earnings.  As our report indicated, Buffett has indicated that Berkshire will buy back stock at prices up to 120% of book value, that limit was $101 as of Q3 but will likely rise several dollars after the Q4 numbers are released. So, we are not quite down to the level where Berkshire will buy back its own stock, but we are not far off.

If stock prices continue to decline there are some other stocks that I would want to buy. However I would like to take that slow. For one thing I want to wait until recent trades, including my purchase the National bank and Canadian Western Bank preferred shares settle in my account so I can better evaluate my cash position.

February 2, 2014

On Friday the S&P 500 was down 0.7% and Toronto was down 0.3%. Toll Brothers was up 1.7% to $36.75. My order to trim Toll Brothers at $37.50 was filled as Toll reached a high of $37.58 on Friday. This trimming was a minor one indeed as I only sold what amounted to 7% of my Toll Brothers shares. I have another order in to trim a bit more at $38. I have also now entered orders to trim Well Fargo at $47.90 and more at $49.90. (A typo was corrected here as I originally wrote $37.90 and $39.90)

This level of “trimming” is really not much more than tinkering and a small attempt to take advantage of price fluctuations. It does not really constitute taking much money out of equities (especially given that these orders to sell are above the market and may never get filled).

If anyone is serious about reducing their equity position (as opposed to just a bit of profit taking) they should sell at the market – ideally that would be done during the trading day so you can see the price you are getting.

January 31, 2014 11:45 am eastern

This morning the Dow had been down 225 points but then recovered and is currently down 117 points or 0.7%.

With the market gyrations this weak and with some reports of lower earnings, difficulties in retail and given that market P/E ratios are somewhat above historic averages, it is wise to be aware that markets can go down as well as up.

It’s difficult to know if one should sell down their equity position. Over the past five years there have been many market scares where it would have turned out be a mistake to sell. No one can say for sure if the market will now decline or instead will go on to new highs.

I would say that anyone in the market has to prepared for the possibility of losses. The price investors pay for getting 30% on the S&P 500 last year is that in other years it will surely decline.

My strategy this past year has to been to have some cash on hand and to be prepared to buy on dips. And if there was a major correction I would ultimately end up with an equity exposure of close to 100%. I might even use margin if stocks got cheap enough. Over time this sort of strategy has worked very well for me. But it’s not for everyone.

Certainly I have considered this week whether I should trim even stocks that I like such as Wells Fargo and Toll Brothers and Bank of America. So far I have not done so. I reserve the right to decide to do so at any time. Right now I do have an order to trim Toll Brothers by a small amount at $37.50. I have not considered trimming Canadian Tire or Melcor despite my large positions there.

Canadian Western Bank was briefly out with one of these five year rate reset preferred shares that are non-cumulative and that may be converted to common shares (by the Bank) under certain adverse conditions. These pay 4.4%. I have placed an expression of interest with TD Waterhouse for some shares for an RRSP account. (I am a bit worried I am using up my cash surplus here but I suspect I could sell these to raise cash later and am not likely to suffer much loss to do so). Very soon after I placed my order the offering closed. Some subscribers may wonder why I don’t send an email about something like this. However, that has never been my practice and also I don’t really like the idea of getting in a big hurry in the markets.  In fact my buying even preferred share IPOs seems a bit dangerous, it involves making snap decisions which has never been my approach to the markets. Also, in terms of sending an email, it turns out that the offering was about to close by the time I say it. To access these offers you have to sign up for IPO alerts with your broker.

January 30, 2014

On Thursday we had the S&P 500 up 1.1% and Toronto up 0.7%.

In something of a mirror image of yesterday, almost everything on our list was up.

Regarding the Royal Bank preferred shares that I mentioned yesterday, they started trading today. Symbol RY.PZ They traded at about $24.95. That’s interesting because at the IPO last week they were oversubscribed and the size of the issue was increased from $200 million to $500 million. Perhaps there was a perception of scarcity. They pay 4.0% and reset in five years which likely means that they can be counted on to trade around Par in five years. They are riskier than some preferred because they are non-cumulative and in certain conditions could be converted by the bank into common shares. For those happy to collect 4% yield they may be a decent choice. With interest rates having declined a little in the last week I had expected these Royal Bank preferred shares to trade a little above $25. That may yet occur. If interest rates rise they will decline in value. But I don’t think there is much risk a very significant decline due to the rest in five years.

Yesterday I had purchased similar National Bank at their IPO and purchased them in a corporate account. However I had second thoughts about that due to income tax implications. I called TD and they allowed me to shift the purchase to an RESP account. For the RESP which has just entered the spending phase these shares seem a reasonable alternative to cash. Most of my RESP will remain in common shares because I can afford the risk.

January 29. 2014

On Wednesday the S&P 500 was down 1.0% and Toronto was down 0.3%. The futures had been positive Tuesday night but turned negative by the opening on Wednesday. In part, this seems to be due to the FED continuing to taper its bond buying, though that was expected. Mostly it may be linked to weakness in emerging markets.

Almost all of our stock picks were down as well. Toll Brothers managed to close unchanged.

At some point it will be time to take advantage of lower prices. I have an order in for some Berkshire at $109.10. I should probably place an order for Canadian Tire as well. Since I already have a large position in it I don’t need to be aggressive and might set a price for a 100 shares several dollars below the current price. I’d like to have some Costco as well but since it still seems expensive I would start with about 100 shares which would not be a big position for me. Again, I want to move quite slowly in putting cash into the market just in case there is a larger “correction”.

A few months ago I signed up with my discount broker (TD) to receive notice of all IPOs. One problem with buying IPOS is that many of them tend to get sold out very quickly. There is almost no time for analysis.

Recently there was an IPO for some Royal Bank 5 year rate reset preferred shares at 4.0%. I noticed that one, thought it sounded decent. It sold out very quickly. It turned out that this one had a feature whereby it concerts into common shares if the bank runs into certain big trouble. Therefore it is riskier and pays a higher dividend. It may have been non-cumulative as well in terms of the dividend. Those risks seem remote to me.

Today there was a relatively similar offer for National Bank five year rate rest preferred shares at 4.1%. Now, 4.1% does not excite me much at all. But I figured it might be an alternative to holding cash. And I figure it won’t likely trade much below $25 due to the rate reset feature. I ended up buying some in a non-registered corporate account. I have a vague understanding that a corporation that earns dividend income pays little or no tax on it. In any case it was a chance to see how TD’s on-line IPO system works. I found that I had bought these shares with about two clicks of the mouse. I did not even have to enter a trading password which did surprise me. I was not sure that I would get the full amount I “expressed interest” in buying. Technically my purchase was called “an expression of interest”. However, for all practical purposes it was my firm offer to buy so many shares at the offered price. TD now shows that I was allocated the full amount of shares that i “expressed interest in”. The issue will close on February 7 and at that time TD will take the cash from my account and the shares will appear in my account and begin accruing the dividend and soon after they will begin to trade on the exchange.

The Royal Bank issue starts trading tomorrow and I expect it might well trade a little above $25 giving a quick capital gain for those who bought at the IPO.

January 28, 2014

On Tuesday the S&P 500 rose 0.6% and Toronto rose 0.8%

Toll Brothers was up 4.1%, Bank of America was up 2.6% and Couche-Tard was up 3.5%.

I don’t put much faith in anyone’s ability to predict the short-term direction of markets but perhaps today’s result indicates that there remains a lot of optimism among investors. For a larger decline to take hold probably requires investor fear. I suppose fear can arise quite quickly but right now it does not seem widespread.

January 28, 2014 (7:30 am mountain time, 9:30 eastern)

Markets were down somewhat on Monday with Toronto down 1.0% and the S&P 500 down a small amount. Markets were set to open higher on Tuesday.

With emerging markets down, perhaps one should consider some of the emerging market ETFs. These are speculative and I woiuld consider only a small investment.


There was news yesterday about Hudson’s Bay selling a large Toronto store and an adjacent office tower for $650 million. They would lease back the retail space. I don’t now the lease obligations that Hudson’s Bay will have but this seems like a very good deal for them. I am not sure it was a good deal for the buyer. It does show the value of real estate and perhaps add to confidence in the Value of Canadian Tire which despite spinning off a REIT still owns over 80% of that REIT as well as substantial additional real estate. Melcor also still owns substantial rental real estate including over 50% of its REIT.

January 26, 2014

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.

January 23, 2014

On Thursday the S&P 500 was down 0.9% and Toronto was down 0.4%.

The Canadian dollar had fallen another half cent on Thursday but in the end closed about unchanged.

Most of our stock picks were down with the market. A few managed gains today including Toll Brothers up 0.1% and Canadian tire up 0.6%. I was tempted to sell some Toll Brothers today but instead just restored my expired order to trim a bit at $37.50 and a put a new order to trim a bit more still at $38.50. I was also thinking about buying back some of the Berkshire that I sold earlier this year but decided not to though I think it is reasonably attractive.

In the next few weeks the market will be reacting to many earnings reports as well as the usual economic reports.

There was interesting news today about Air Canada’s large pension deficit melting away in 2013. I knew pension plans would be much improved in 2013 (and wrote about it here http://www.investorsfriend.com/pension_debacle%20too.htm ). But the improvement at Air Canada is even more than I would have expected. (Sounded a bit too good to be true, actually)

January 22, 2014

On Wednesday the S&P 500 was up 0.1% and Toronto was up 0.3%

The Canadian dollar declined approximately one cent which benefits Canadian investors how have U.S. investments (at least as measured in Canadian dollars, that is. It’s not of much consequence for Canadian that consider their U.S investments to be permanently in U.S. funds to be ultimately spent in the U.S.) Americans who own Canadian investments are hurt by the decline and must wonder why they invested in Canada or why they did not sell a while ago.

I bought a bit more of the Canadian dollar ETF under symbol FXC on New York. This basically locks in some of my gain on U.S. cash and investments. My strategy is to buy a bit more FXC with every cent the Canadian dollar drops. So far this hedge has cost me money as the Canadian dollar keeps dropping.

Lately it seems like everyone is predicting the Canadian dollar to keep going down. I find that interesting that people are so smart not to have guessed at 92 cents it would keep going down. Where were these same people when our dollar was closer to par? If they are such great forecasters they could have made a fortune on currency bets. I doubt that people can really forecast the movement of currencies. I just react to the movement, buy more Canadian dollars with my U.S. funds as they get cheaper and with the idea to buy back into U.S. funds if our dollar climbs. And I am only nibbling at it, not making any big bets.

Turning to our Stock Picks, Toll Brothers had a strong day rising 2.1% on news that it was making an acquisition of a large and attractive parcel of land in Houston. Overall it was a positive day for most Canadian investors mostly due to the lower dollar.

My order to buy some Bombardier preferred shares (mentioned yesterday) did go through today at $21.80. It’s interesting that the order sat there for a month and it just happened that the price finally fell that low on the day that order was going to expire. Sometimes (but not always) it pays to be patient or to cheap out a bit when placing orders. Of the course the shares could fall even further given Bombardiers woes or if interest rates rise. But it’s still better to have bought at $21.80 than to have paid the higher prices that prevailed all January until now.

January 21, 2014

On Tuesday the S&P 500 was up 0.3% and Toronto was down 0.3% and the Canadian dollar slipped a bit lower.

Bombardier fell 3.9% after announcing layoffs. I think this company needs new management. But it is also an inherently tough industry. Of more interest, the Bombardier perpetual pref. shares that we have on our list fell 1.8% to $21.95. I had placed a hopeful order at $21.80 almost a month ago. It got very close to that today. My order expires tomorrow, so I can only hope that a few more owners of these shares are spooked by the news at Bombardier. These shares do come with interest rate risk (all perpetual pref shares will get hammered if interest rates rise a lot. They also come with company-specific risk. But I don’t think Bombardier is at much risk of insolvency, though that cannot be completely ruled out given its weak balance sheet and tough industry. You might think that the government would never allow Bombardier to go bust. The same could be said of General Motors Corporation. But the governments did in fact allow GM to go broke and its shareholders were wiped out and a new company bought GM’s assets and changed its name to the very similar sounding General Motors Company and pretended that it “emerged” from bankruptcy. (Not that I think Bombardier is at risk of that, I just say you cannot rule it out). On the balance of probabilities I expect the pref shares are a reasonable investment.

January 20, 2014

On Monday the U.S. markets were closed for Martin Luther King day. Toronto was up 0.7%.

I notice Boston Pizza was down 2.0% to $21.00. It’s worth considering for those wanting yield (and it should grow its distribution slowly over the years).

I plan to add Element Financial to the site before too long. This is a case where new management came in and took over a small company and have been growing it aggressively. So far that has paid off quite well. But the thing is that they may be competing mostly on price. And they do not have cost advantages. (certainly not over the big banks). They do however go after a higher interest segment of the lending business. So I don’t know yet if it a good investment at all. One thing I am eager to look at is executive compensation. Also I will be interested to see what the insider trading looks like. In any case studying this company is helping me learn more about the lending business.

January 18, 2014

Bank of America is updated and rated Speculative (higher) Buy at $17.01. It’s not as well run as Wells Fargo but it should do well in 2014 as it continued to recover from the financial crisis.

On Friday the S&P 500 was down 0.4% and Toronto was up 0.4%.

A notable gainer was Visa Inc., up 4.7%. We had recently rated it as only a Weak Buy / Hold. It is a fantastic company with quasi monopoly characteristics. Still, it sometimes faces price regulation and it has become quite expensive trading at about 31 times earnings.

The Canadian dollar is down to a value of 91.2 US. cents.

Most of our stocks picks are down slightly in the first couple of weeks of 2014. However, Our higher rated U.S. stocks are mostly up (Wells Fargo up 2.2%, Bank of America up 9.2% and Toll Brothers down 2.8%). Combined with the sharp fall in the Canadian dollar (from 94.2 cents on December 31) Canadian investors have done well in these U.S. stocks. Overall our Stock Picks are up modestly this new year when priced in Canadian dollars.

Wells Fargo is updated and rated Strong Buy at $46.39. It’s been an exceptionally well run bank. Basically a wealth compounding machine (though it does have its risks in times of recession and credit crisis). I dug a little further into its economics on this update (search the report for the word economics to see that). Banks will do better if interest rise. The reason for that is that banks obtain a lot of deposit money at zero interest rates (most chequing accounts). As interest rates fell the profit spread on lending out that portion of their deposits got squeezed down. This bank was first added to this Web Site on February 22, 2009 at $10.91 and rated Highly Speculative Buy. This was at the height of the financial crisis just weeks before the market finally bottomed out on March 9, 2009. That would have been an ideal time to buy it and hold but did require courage. We first rated it in the Strong Buy range on February 15, 2010 at $26.88. The importance of buying at distressed prices when possible is illustrated by the fact that Wells Fargo is up 325% (up $35.48) since our initial rating but only 73% (up $19.51) since it was rated in the Strong Buy range in calmer times in 2010. The “penalty” for waiting to buy in calmer times does not look so dramatic in dollar per share terms but is dramatic in percentage terms.

I had been considering entering an order to trim my position in Wells Fargo especially if it rose a bit more. However , based on this update I will not do that. I’d be more inclined to add to the position given it remains one of the two highest rated stock Picks on this site. But I also have to consider that I want to keep a substantial allocation to cash in case better opportunities come along (other stocks, or lower prices in general)

January 16, 2014

Today the S&P 500 fell 0.1% while Toronto rose 0.4%

Bombardier common shares fell 7.7% to $4.17. I fist rated Bombardier on this site as a Buy at $12.80 back on November 10, 1999. It subsequently went over $25 in the year 2000 but then soon collapsed and has since struggled to remain over $5.00. It’s sad because it was such a great Canadian success story. It has a wonderful history and makes exciting products. What it struggles most to make is money. It certainly has to be considered a speculative pick if it can be considered a pick at all.

The Bombardier preferred share that I have on this site fell 1.5% to $22.35. This seems like a reasonable investment. I have had an order in for some to buy at $21.80, but that may have been an unrealistically low bid. I may up my bid to about this $22.35 price.

January 15, 2014

On Wednesday the S&P 500 was up 0.5% and was at a record high today of 1851 before closing at 1848. Toronto was up 0.6%.

Bank of America released higher-than-expected Q4 earnings this morning and rose 2.3% to $17.15. This stock is up 10% since January 1. Wells Fargo also rose today to $46.40. While I continue to like both and hold both I may enter orders just to trim a bit if they keep rising.

Another notable gainer today was CN, up 2.5%.

It was in the news today and yesterday that General Motors is reinstating its dividend for the first time in some years. This is sort of true but not really. The predecessor company General Motors Corporation went bankrupt and changed its name to liquidation Motors Inc. and has really nothing to do with the new company, General Motors Company. The new company General Motors Company, bought much of the assets from the the bankrupt General Motors Corporation but it is a new and separate company. I think this is an important distinction. GM’s web site under “company” states: “Our story starts on November 18, 2010, when we completed the world’s largest initial public offering…”  The financial press may be willing to pretend that the old GM emerged from bankruptcy and still exists, but that is not technically true. And the bankruptcy should not be forgotten.

The business news these days is mixed. Some companies are unfortunately “laying off” aka terminating employees. Other companies like Desjardins and Gold Corp are making big acquisitions. As is almost always the case, those who fear the markets will find reasons for fear and those who are optimistic will find reasons for optimism.

January 14, 2014

On Tuesday the S&P 500 was up 1.1% and Toronto was up 0.1%.

The Canadian dollar slipped about a half scent and is now at 91.1 cents. This is quite grand for Canadians holding U.S. investments and terrible for Americans owning Canadian investments. My trade that hedged some of my U.S. dollars against a rise in the Canadian dollar (see FXC mentioned under January 8) has so far cost me money. But nevertheless I have made quite a bit of gain as the Canadian dollar fell and so it seemed reasonable to hedge a part of that gain given that movements in exchange rates are not something I can predict.

Wells Fargo has released earnings for Q4. Profits per share were up but revenues were down due to a decline in mortgage refinancing (U.S. homeowners can refinance when mortgage rates fall, but in the last six months they have risen). Wells fargo’s earnings were boosted by another “release” of provisions for bad debt.. That is not sustainable but it does indicate continued improvements in the U.S. economy as delinquencies decline.

January 13, 2014

On Monday the S&P 500 was down 1.3% and Toronto was down 0.5%.

Most of our stock picks were down. The Canadian dollar however rose a third of a cent.

It’s certainly not surprising or alarming to get a down a day like this. As for the next move, I don’t think such things are predictable. We are not getting into the Q4 earnings reports and those may drive the sentiment somewhat. Or numerous other bits of news could drive markets. It’s really quite normal for markets to gyrate.

Rather than try to predict markets it may be best to simply be positioned to react to changes. I like to keep an allocation to cash in case of bargains. And with the big market returns of the last two years (excluding commodity stocks) it seems prudent to have a higher allocation to cash than normal – though each person’s normal may differ. On the other hand if stocks go higher I would like to trim positions a bit in that case.

January 12, 2014

On Friday the S&P 500 rose 0.2% while Toronto climbed 0.9%. The Canadian dollar fell another half cent and can now be purchased for 91.8 U.S. cents.

Stantec was up 3.4%, Liquor Stores N.A. was up 1.5% and Toll Brothers was up 2.0% to $36.73 (I have an order in to trim my Toll Brothers position slightly at $37.50).

I added to my Melcor position on Friday. I had entered an order on Thursday evening to buy at $20.00, it opened at $19.88 so that was the price I paid on that order.

Also on Friday an order I had entered to buy some Canadian dollars with U.S. cash was triggered and I bought some Canadian dollars in exchange-traded fund FXC on New York. This basically hedges some of my U.S. exposure. FXC will rise in price if the Canadian dollar rises.

There are also two ETFs on Toronto DLR is U.S. dollars priced in Canadian dollars, DLR.U is U.S. dollars that trades in U.S dollars on Toronto. Apparently it is possible to buy one and then have the broker “journal” it to the other to sell in the other currency. It seems that if you wanted to bet the Canadian dollar will keep falling you could buy DLR.U the U.S. dollars on Toronto. You would pay an exchange fee. Later the investment can apparently be journaled (transferred) to DLR where you could sell in Canadian dollars with no further exchange fee. This is probably not worth doing unless you have a keen desire to bet that the Canadian dollar will continue to fall.

I am currently taking a look at Element Financial an equipment finance company that has been growing rapidly. I plan to complete an analysis and add it to the site. So far my impression is that it looks expensive. If it is bought it would be a speculative situation. While its share price has risen rapidly it is not (yet?) earning a reasonable return according to its financial statements. (There can be a vast difference between shareholder returns and accounting returns).

January 9, 2014

On Thursday the S&P 500 was flat while Toronto was up 0.1%. The Canadian dollar slipped about another quarter of a cent and is at 92.19 cents U.S. per Canadian dollar.

Bank of America was up another 1.5%. Costco which always seems to look too expensive but which is a fantastic company jumped 3.9% on good sales figures in December.

Melcor is my largest position but I plan to add to my position and have entered an order to do so. There are no guarantees but as long as the Alberta economy is strong it seems like homebuilding is strong in Alberta and they should do well. And even if Melcor has some bad quarters it seems like an excellent company for the long term.

January 8, 2014

On Wednesday the S&P 500 was flat (although the DOW was down 0.4%) and Toronto was up 0.1%

The Canadian dollar was down about a half cent.

I have U.S. stocks and U.S. cash. To hedge a bit of the U.S. cash (against a rise in the Canadian dollar) I bought some FXC on Toronto (update this should read New York) which is a fund of Canadian dollars that trades in U.S. currency. This was in an RRSP account. On TD Waterhouse, I get an automated wash trade which means I am buying this in U.S. dollars (with my U.S. cash that was in a U.S. money market account TDB 166). This means I am not paying any exchange fee to get back to Canadian currency. My plan would be to sell this if the Canadian dollar rises and I would have more U.S. dollars than I started with. This sort of thing may not be worth bothering with, but anyhow I am doing this on a small scale.

As the Canadian dollar falls this helps exporters and hurts retailers who sell imported products. I considered if I should trim my Canadian Tire position. But most of that is in a taxable account and I don’t think it is wise to trigger a capital gain.

It certainly has been a good time to own (most) stocks these past few years, especially U.S. stocks. Basically most large companies make strong profits and owning these companies tend to to work out well for investors, although with lots of ups and downs.

January 7, 2014

On Tuesday the S&P 500 was up 0.6% and Toronto was up 0.7%.

Couche-Tard and First Service were each up 3.7% today, which is impressive.

The Canadian dollar was down about one cent and is now at 92.7 cents and this pushes up the value of U.S. dollar investments. At this level I might be inclined to convert some U.S. funds to Canadian.   I don’t know which way the dollar will head, but I do like to sell on rallies, buy on dips, be it stocks or the dollar.

January 6, 2014

On Monday the S&P 500 was down 0.3% and Toronto was down 0.4%

Some of stocks did okay, Liquor Stores N.A was up 1.9%. Bank of America was up another 1.5%.

Fedex is going to borrow $2 billion to buy back shares. Strange that they would do this just after the stock has jumped in price. It does not appear that they bought back many shares in the past few years when they had the chance at lower prices. Share count count has increased. This does not look intelligent at all.

One prediction I will make is that Berkshire Hathaway will report a strong Q4.

January 4. 2014

I have updated the reference article on Global Exchange Traded ETFs. These can give exposure to different regions and countries around the world. Unfortunately there were no real bargains in evidence. Possibly Russia and China could be considered as speculative picks. And others could be selected for diversification.

January 3, 2014

On Friday the S&P 500 was about flat and Toronto fell 0.3%. Bank of America was up another 1.9%

January 2, 2014

On this first trading day of 2014 the S&P 500 fell 0.9% and Toronto fell 0.2%

Bank of America however was up 3.4%

January 1, 2014

I have updated the composition of my own portfolio. It’s not the intention that anyone copy it but it is provided for the sake of transparency and disclosure.

For purposes of performance tracking for 2014, the above ratings will be used as the start of 2014 rating. In all cases the closing 2013 price will be used as the starting 2014 price.

On the last trading day of 2013 the S&P 500 rose another 0.4% closing at 1848 for a stellar rise of 29.6% in 2013. The Toronto market rose 0.3% to 13,622 posting a gain of 9.6% for 2013. In 2013 Stocks and particularly American stocks provided returns that were a lot higher than the earnings of the underlying companies. That partly reflects the fact atht there were previous years when the opposite occurred. Over long periods of time investors cannot expect to make returns that are larger than the underlying earnings.

In terms of an outlook for 2014, my guess is that the earnings on the S&P 500 will advance perhaps 5 to 10%. However the (trailing earnings) P/E ratio which is at about 19 will be hard pressed to maintain that level. It is unlikely to rise. Therefore my guess in that the return from the S&P 500 index in 2014 will not exceed 10% and is more likely to be closer to 0% or less. That does not means that certain U.S. stocks will not rise. Of course, many will. I expect the U.S. economy to continue to improve and house prices there to continue to rise.

For Canada it is much harder to guess the direction of the overall stock market due to its heavy representation from commodities and resource stocks. I won’t hazard a guess. Certainly there will be many Canadian stocks that will do well.

Our performance figures for 2013 have been updated. It was an exceptionally good year, one of our best ever. Interestingly the three stocks that were in the Buy range that declined were all high yield stocks.

In preparation for the new year I am removing a few stock picks that are older and that I am not updating. These are MicroSoft, Blackberry (Research in Motion) and Shaw Communications. I plan to make some new additions to the list before too long.

RioCan Real Estate Investment Trust is updated and rated Buy at $24.77. This is not the type of investment that is going help anyone earn something exciting like 15%. But it should be a relatively safe investment. The units would fall in price if long-term interest rates increase. However it also has modest growth potential and may have a place in the mix of many portfolios.

RioCan Preferred Shares are updated and rated lower Buy at $24.90. The yield at 5.3% is perhaps attractive. But they have little or no upside potential (due to the fact that the company can redeem at $25 in 2016). If long-term interest rates were to fall these units would fall in price and could remain permanently lower unless interest rates declined again. They may be a reasonable investment for the yield but I would choose the Trust units rather than these to get the growth potential. In a taxable account these might be the better choice due to the dividend tax credit. Unless I was dependent on spending the cash flow from a taxable account I would not want to hold these in a taxable account unless I was in a position where the tax was close to zero.

December 31 2:45 pm eastern

On Monday I bought some Boston Pizza Royalties Income Fund units based on my update of Friday. I also decided to sell the small holding I had in the Gold ETF, GLD. Gold does not fit into my investment style. Today I placed an order for Bombardier preferred shares at $20.20. The price was up a little from yesterday and I decided to price a bit below the market. On the Bombardier report I just added one sentence under Recent events about them selling the fractional jet division, I had forgotten to mention that. It may possible change the look of the balance sheet by getting rid of both the associated assets and debt.

December 30, 2013

On Monday, markets were relatively flat. Constellation Software rose 4.4%.

The Canadian dollar rose about a half. This reversed a similar decline on Friday.

Bombardier preferred shares are updated and rated Buy at $22.17.

Bombardier inc. is updated and rated Speculative Weak Buy at Canadian $4.64. Basically it appears to be in a low margin business. Due to extreme financial leverage the P/E is reasonably attractive but extreme financial leverage adds to risks. It may be well as its recent new aircraft production models become mature in several years. Overall it seems like a speculative stock.

December 29,2013

Visa Inc. is updated and rated Weak Buy / Hold at $219.67. Visa is a very unusual company. It is basically trying to insert itself as a substitute for money and to collect a toll on every transaction. And it has had great success in doing so. With its powerful “moat” (competitive advantages), it could continue to do very well as a stock. But it is quite expensive with a P/E ratio of 29 and there are risks that regulation or possibly competition will tame its monopolistic pricing habits.

December 27, 2013

On Friday the S&P 500 was basically unchanged while the Toronto Stock index gained 0.5%. I believe the Canadian dollar fell about a half cent which benefits Canadians that hold U.S. stocks and who track their portfolio in Cnadian dollars. It hurts Americans who hold Canadian stocks.

Boston Pizza Royalties Income Fund is updated and rated (higher) Buy at $20.86

This is actually a rather odd entity. A heavily financially engineered entity that collects a 4% royalty from food sales at Boston Pizza restaurants (excludes alcohol). The units unfortunately do not benefit in any meaningful way from new store openings. That is because new units are issued to basically the founders of BP in exchange for the right to the 4% from these new stores. The unit distribution will rise over time only if same store food sales rise. These units have bond-like characteristics but also offer some possible growth (and risk of shrinkage – and shrinkage is seldom or never a good thing!). Overall the 5.9% yield (and the yield should grow over time) seems attractive given today’s low interest rates. If the yield were to grow at 3% per year (as same-store restaurant sales rise) the total return would be about 8.9% per year, assuming no change in the P/E ratio and that would be quite attractive. The units would however fall in price if interest rates rise.

This entity is not the best fit for my standard template for evaluating stocks. For this update I assumed that the P/E ratio in the long term will range from 14 to 17. (Previously i assumed a more conservative terminal P/E ratio). An entity that distributed all of its earnings and which is apparently lower risk can support a higher P/E ratio at a given growth rate.

Certainly there are no guarantees but this looks like an attractive investment to put into the mix in a portfolio. I had sold my units early in 2013 but I now plan to buy back into this entity.

December 26, 2013

On Boxing day the U.S. markets were open (’cause Boxing Day does not exist in the U.S.). The S&P 500 was up another 0.5% to a record at 1842. I’d like to see 2013 slip quietly in the record books before we get any kind of correction. But chances are that some down days will arrive before long and as early as Friday. We shall see.

The latest edition of our fee newsletter has been posted and includes a new article. I have liked something called the Dupont Formula ever since I studied it about 20 years ago. And I have included the formula in my spreadsheet for many years but I don’t highlight it or mention it in the stock research reports. I plan to start doing so because it is an interesting and insightful analysis. This may be the first time I have written about it.

December 24, 2013

On Christmas Eve we had the S&P 500 up another 0.3% and Toronto up 0.5%. It would be great if the market could just coast through to the end of the year. I believe New York will be open on Thursday while Toronto will open again on Friday.

Wal-Mart is updated and rated Buy at $78.01. Growth has slowed somewhat. Not an exciting investment but I would expect it will do okay over a longer term holding period.

December 23, 2013

Bank of America is updated and rated Speculative (higher) Buy at $15.69. It looks attractive on a price to book value basis. The P/E ratio does not look attractive but that may be mostly because of various unusual losses that it is still subject to as it comes out of the crisis period. Many of its business segments are recovering rapidly.

On Monday the S&P 500 was up 0.5% to (what else is new?) another record high. Toronto was up 0.4%.

Toll Brothers was up 4.7% today.

Regarding Dollarama, which I updated yesterday I added sentence to the report today under outlook that the lower Canadian Dollar could hurt its earnings. They do hedge currency but typically hedges only go out a year or so, if that. So maybe the lower dollar won’t hurt just yet. And maybe they can pass along all the extra cost. I just point out that all else equal, a lower Canadian dollar is bad for importers like Dollarama.

December 23, 2013 (1:10 am eastern)

Having only trimmed 6% of my Toll Brothers this morning at $35.50, I entered an order to trim another similar amount at $36.50. That has now been hit and I have now entered an order to sell the same amount again at $37.50. I still like Toll Brothers. But all year I have played the volatility on this stock trimming on rallies and buying back on dips and it has worked out pretty well. Toll Brothers was at $32.70 10 days ago and there has not been any company specific news on this rally just optimism on the housing front and optimism that interest rates will stay low.

December 23, 2013 (10:10 am eastern)

Checking the markets this morning, I see the DOW is up 63 points. The thought occurs to me, has this market (or at least investors) been drinking? It just seems like a lot of gains in recent days… I certainly welcome the gains but I also know that markets don’t go up in straight lines, at least not for long.

I have had an order in for quite a while to trim Toll Brothers if it hit $35.50. That got hit this morning so I was trimmed there, but only by 6% of what I owned.

I am somewhat inclined to trim other positions except that my holdings are concentrated in stocks that I like…

December 22, 2013

Dollarama is updated and rated Weak Buy / Hold at $87.78. It’s a great company. They have built a fantastic business. But the stock price is high now and does not seem attractive to me.

On Friday the S&P 500 was up 0.5% and Toronto was up 0.1%. Most of our stock picks were up. Toll Brothers was up 2.7%.

FirstService is updated and rated Weak Sell / Hold at U.S. $42.79 or CAN $45.52. I have long admired the company. But is has been a very difficult one to value. It has risen a lot since our last update when it was also rated Weak Sell / hold. In part the Canadian dollar price has been pushed up by the lower Canadian dollar. This could be considered for a speculative pick but the achieved earnings at this time do not support a Buy rating.

December 19, 2013

On Thursday the markets basically held on to the big gains from Wednesday. The S&P 500 was down just 0.1%. Toonto was up 0.4%.

Today I bought some Wells Fargo Preferred Shares. I have not analysed these, but I do know Wells Fargo quite well.

These shares trade as WFC.PRO on New York. In Yahoo Finance the symbol is WFC-PO. Use caution as it may be hard to find the right trading symbol in your particular discount broker software. For TD Direct (Waterhouse) the symbol is WFC.PR.O. They are a perpetual share that pays U.S. $1.2812 per year on a $25 par value. They now trade at about $19.81 to yield almost 6.5%.

There shares are non-cumulative which means that if they miss a dividend it will not be made up later. That may be a large part of the reason for the discount.

Another reason for the discount is simply that long-term interest rates have risen since these shares were issued at $25.

As perpetual shares these would get absolutely hammered if long term interest rise a lot. So that may be a reason to avoid them.

But I figured the yield at close to 6.5% was attractive and I would take my chances. It seems to me that the entire decline from $25 to $19.80 is not justified by how far interest rates have gone up. If there are other temporary factors pushing the price down, then I would hope that will be in fact temporary.

I bought these in an RRSP account to avoid the 15% U.S. withholding tax that applies if Canadians buy these in most other types of accounts.

I don’t know if I will add these shares to the list above because I may not have enough information for an adequate analysis.

December 18, 2013

A P.S. to the post below, I was reading that US. mortgage applications are WAY down. I understand that is mostly due to a lack of refinancings as interest rates are no longer falling. Wells Fargo was making a lot of money on refinancings. All else equal this could be a reason to trim a position in Wells Fargo to some extent. Still, like I said it has a low P/E ratio and I know it has lots of growth areas so I don’t know if I will trim.

December 18, 2013

The outcome of the FED meeting was surprisingly positive. The FED announced hat it would moderately taper its bond buying reducing it from $85 billion per month to $75 billion. However the FED also indicated that it would be keeping interest rates low for some time to come. The market initially fell on the news but then almost immediately began to rise sharply and rose fairly steadily through to the close.

The S&P 500 was up 1.7% and Toronto was up 1.2%.

It seems that there must be a strong segment of the market that continues to buy the more it goes up.

I would be a bit surprised if this full gain holds tomorrow (Thursday) but one never knows.

Most of our stocks picks were up. Notably Toll Brothers was up 3.6%, Wells Fargo was up 3.1%. I thought about trimming some positions but did not. Lower interest rates are not good for banks but on the other hand Wells Fargo has a relatively low P/E and so I am reluctant to trim that.

Stantec, Couche-Tard and Constellation software were among the minority of stocks that were down (albeit modestly) on the day.

The Canadian dollar fell about 0.8% (down over three quarters of a cent). This is beneficial to Canadian investors with U.S. investments. (Beneficial when calculated in Canadian dollars, but of no consequence if one intends to ultimately spend their U.S. dollar investments int eh U.S.)

December 17, 2013

On Tuesday the S&P 500 was down 0.3% and Toronto was about unchanged.

Constellation Software was up another 5.2% to $217.73. on the same news that I mentioned yesterday.

I first added Constellation Software to this site back on February 4, 2011 rating it (lower) strong Buy at $51.40. It quickly went up to about $67 but then a strategic review was announced. For a long time it became very hard to value as it was trading based on being sold. I believe I sold at something like 50% gain. The Ontario Municipal Employees Pension Pension Plan was a major owner with Board representation and they wanted to cash out. They finally did so around April 2012 at something close to $90. Now these were insiders and you would think they would have a clue. Constellation was superbly run and making big profits. Yet these experts sold. I bought back in around that time as the company was one again trading on fundamentals rather than on a sale speculation. I paid more to buy back in than I had sold at. That was tough to do but turned out well.

Somewhere along the line I sold half of what I had to take profits. In recent updates it has looked expensive.

But it is a great company and sometimes it seems these great companies just keep steamrolling along. I sold half my position today at $118.50. I now hold 75 shares on which my gain is 148%. In addition there was more gain from the first time I owned it.

The total gain since it was first added to this site is 324%. Apparently someone forgot to tell it that “buy and hold is dead” (which of course, it is not.)

I mentioned that the experts at Ontario Municipal Pension plan sold way too early. Another example of experts being wrong was when Bain Capital got completely out of Dollarama at prices in the 20’s and 30’s. Now it’s in the 80’s. I guess it goes to show that investing is not so easy.

Visa had another good day up 2.6% to $213.25. It’s a powerhouse that in recent updates has looked expensive. But being a largely unregulated (as to price) monopoly has its privileges. (Sorry to say so American Express), I call it a monopoly because almost every business has no choice but to accept its cards. I made modest gains on this company but let far larger gains slip from my grasp. Still, I can’t complain.

Canadian Tire also did well today. One negative though on Canadian Tire, at some point the lower Canadian dollar could hurt earnings. Maybe not a huge factor but it is a negative for Canadian Tire (which imports most of its products).

Stantec was down 2.6% today despite announcing a modest acquisition. It’s another great company that just seemed to get too expensive.

On Wednesday afternoon I believe the FED will speak about quantitative easing and the timing of when it will be scaled back. The market seems to expect soothing words like it will be later and it will be gentle. We shall see.

December 16, 2013

It seems like 2013 has been one of the most interesting years in the market in a while (well, then again 2008 was pretty interesting). 2013 seemed to offer excitement in the market almost every week, sometimes every day.

On Monday the S&P captured some attention by rising 0.6% and Toronto was up 0.4%.

Constellation software soared 5.2% on news it was making a sizable acquisition. eBay rose 3.0%. I own some constellation but no ebay. I don’t worry much about what I don’t own. I look at what I do own. I have four large holdings and three of the four were up at least 1% today. Canadian Tire, Toll Brothers and Wells Fargo.

The next update will likely be for FirstService Inc.

December 14, 2013

Costco is updated and rated Weak Sell / Hold at $117.91. As a customer I really like Costco. And as an analyst I am a huge fan of its business model. It is a low cost leader that must strike fear into the heart of competitors. As a stock, however, it does not excite me. It traded at 25 times earnings. That is high in the absence of even higher growth. At $118, investors are basically assuming that growth in the 10% per share range will continue and that the P/E will not decline much. It is a high quality company and maybe it will turn out to be a reasonable investment. But it seems to lack much up-side at this point (absent a take-over or something radical like that) and the price could drop if it falters for a quarter or more or in a general stock market decline.

December 13, 2013

On Friday the S&P 500 was unchanged and Toronto was up 0.1%.

Toll Brothers is updated and rates Speculative Buy at $32.70. It’s speculative because it’s P/E is still very high at 34. But earnings are set to increase very significantly in the next year due to contracts already signed. This will lower the P/E. Home prices will be higher in 2014 on new sales but new sales (which will hit revenue in 2015) have started off slowly in fiscal 2014 which started on November 1. On this stock my strategy will be to trim my position on gains and buy on dips. If I did not already own this my strategy would be to initiate a modest position.

December 13, 2013 (12:30 pm mountain, 2:30 eastern)

Canadian Western Bank is updated and rated (lower) Buy at $37.77. This is probably still a good long-term investment. But I am not excited by it at the moment as it is not longer clear that it is bargain priced. For more information, as always, refer to the full report.

I have removed  the Cnadian Western Bank preferred shares from the list above. They trade at $25.60 and are likely to be redeemed in April at $25. That is exactly why I have rated those pref. shares a “sell” over he past several years. They are down almost 5% this year, largely offsetting the dividend. The net return was still positive, so they were not a horrible investment, just not a good investment in the past couple of years.

December 12, 2013

On Thursday, the S&P 500 was down 0.4% and Toronto was down 0.1%.

I will definitely have some updates to the reports in the next few days.

December 11, 2013

On Wednesday the S&P 500 was down 1.1% and Toronto was down 1.4%.

Apparently this was due to some disappointing earnings releases as well as fears that the fed would taper its bond buying.

Almost all of our stock picks were down. A notable exception was Visa, up 3.1% and Couche-Tard up 1.9%.

When stocks decline my thoughts turn to buying. But I am not in a hurry to do so.

December 11, 2013 6:50 am mountain time (8:50 eastern)

On Tuesday the S&P 500 was down 0.3% and Toronto was up 0.1%

Toll brothers initially rose on its earnings and then fell 0.7% by the end of the day. The earnings were strong but that was already expected.  Canadian Tire fell 2.1%.

Markets are set to open moderately to the up-side today.

I will have some updates by Sunday (Canadian Western Bank and Toll Brothers…)

The news of job losses at Kellogg in Ontario gets a lot of press but I would not put too much weight on a few events like that. The success of the overall economy is always hard to judge and and the impact on different stocks is often very difficult to judge. I tend to stick with analyzing individual stocks.  The idea is to hopefully find / hold a few things that are obvious bargains or good investments (long term). Buffett calls this stepping over 1 foot hurdles rather than trying to jump over 6 foot ones (he does not try to predict the market in the short term).

December 9, 2013

On Monday the S&P 500 was up 0.3% to a new high closing price of 1808. Toronto was up 0.2%

Toll Brothers was up 2.1% to $33.58. I understand that they will release Q4 earnings tomorrow morning. We might not get much news since they had already partially released the Q4 numbers a few weeks ago as they announced a big acquisition. There will likely be some news on their outlook and so hopefully their will be some good news.

December 7, 2013

On Friday the S&P 500 was up 1.1% and Toronto was up 0.6%.

Most of our stock picks were up and Canadian Western Bank was up another 3.2%.

Alimentation Couche-Tard is updated and rated (lower) Buy at $77.50. This has been an incredible and somewhat under the radar success story. The CEO and main founder opened his first convenience store in 1980. He joined with three others who became the long-term management and effectively his partners around 1984. In 1986 a predecessor company went public on the Montreal Stock exchange with 34 stores. Growth through acquisition has been relentless. The company now has 6,215 company-operated stores and an additional 2200 stores which are franchised and/or to which it provides fuel. The founder is a billionaire and the equity market value of the company is almost $15 billion. In 2012 it acquired a chain of stores in Europe paying a 52% premium to the stock price at that time. Despite the premium the price paid was apparently attractive and the acquisition has worked out brilliantly. The balance sheet indicates that the company has taken in a total of $696 million in shareholder capital (via share issues and acquisitions paid in shares over the years). By comparison it has earned more than that amount in the past year alone and the retained earnings are $2,786 million. The company had no usual advantages and I therefore attribute its great success to the drive and skills of management. Today, the share price does not look like a bargain. If I owned it (sadly I sold on the way up) I would probably trim the position. Having sold at much lower prices I personally am not inclined to buy back in. However setting emotions aside a reasonable strategy might be to take a small position and then hope for a price drop to add to the position.

Buying a small amount and hoping for a price drop may seem strange but it hedges the bet. If it rises, fine. If it falls we may regret the initial purchase but the chance to buy more shares of a great company at a better price would be ours.

December 5, 2013

On Thursday the S&P 500 fell 0.4% and Toronto was down 0.8%.

Most of our stock picks were down today. A notable exception was Canadian Western Bank, up 5.6% on strong earnings. I have had lots of good things to say about this bank over the years. I had sold my own shares this past summer when I worried that it would report losses from the Alberta floods (it has a property insurance division). It seems my fear there was unfounded. And I compounded my error when I failed to buy it back when the bank releases its earnings three months ago indicating no such losses (not material at least).  Canadian Western Bank has grown a lot over the years. Despite some major downs as well as the ups, it has been a fantastic buy and hold company over the long term.

Early this morning there was news that the U.S. GDP growth for Q3 had been revised up to a robust 3.6% per year. That is 3.6% real and would be closer to 5% when you add in the official inflation rate. There was also some good news regarding unemployment benefit claims. So, I thought, the market should rise. But it was down instead. The explanations was that the good news is taken as bad news because the FED might taper it’s bond buying. And it is true that higher interest rates could certainly cause stocks to fall despite a strong economy.

Recently I clicked the box to receive all the “new offerings” from TD Securities. I saw an interesting one today, a five year bond paying 4.14% per year from Morguard Corporation. I am not familiar with the company but have heard of it. I clicked on Yahoo and saw it pays a dividend and its share price is up a LOT lately. That gave me some comfort that the bond was safe. The thing with these type of bond issues is that they sell out quickly. There is really no time to do research. It requires a snap decision to buy or not. That’s not my style. I don’t like snap decisions. Anyhow, while 4.1% is unexciting I thought I’d go ahead and buy some as I have some idle cash. I knew that this issue might sell out quickly so there is a certain excitement in the buying process. It would be easy to spend a lot of money fast in a situation like this. In any case when I called in the issue was sold out. I had not seen the email alert until an hour after it came out and the issue sold out in 50 minutes.

If you are interested in bonds for fixed income, I think new issues can be a good idea because you don’t pay any fees to buy and the interest rates may be better than you can find elsewhere on similar risk investments. There are thousands of small bond issues like this and they don’t trade like stocks. Most may rarely trade. If you are a discount broker client (like me) you will likely find that the selection of bonds that you can buy is very limited. These new issues may be the only chance to buy. Having said that, you had better be prepared to hold until maturity because your discount broker may not be willing to buy it from you later and if they do they will charge a fat hidden fee by offering you a low price on it.

As I think about this poor liquidity it is perhaps for the best that I was not able to buy any of this bond today.

December 4, 2013

On Wednesday the S&P 500 was down 0.1% as was Toronto.

For Canadian investors who own U.S. shares the modest market losses this week have been offset to a certain degree by the lower Canadian dollar.

This morning there was news that would normally send the Canadian dollar higher. First Canada today reported a small trade surplus for the latest month, the first surplus in 22 months. Second, oil prices have climbed this week. The Canadian dollar, however continued to fall due to some indications that the Bank of Canada would not only not raise interest rates but could possibly cut interest rates.

With these few negative days, my thoughts naturally turn to potentially trimming some positions to raise my cash level and lower risks. The thought occurs to me that I could sell some Wells Fargo and although it is down a bit from its highs that is probably offset by the lower Canadian dollar and I would effectively be selling at about the recent highs in terms of Canadian dollars. Again, I don’t really want to to trim Wells Fargo since I rate in the strong Buy range but if the mood strikes me to raise my cash position I may trim that a bit, possibly Toll Brothers as well.

Canadian Western Bank came out with earnings this evening that look quite good.

December 3, 2013

On Tuesday the S&P 500 was down 0.3% and Toronto was down 0.7%. I never know where markets are headed int eh short term but after weeks of gains it is not surprising to have at least a few weak days.

Most of our stock picks were down but nothing dramatic.

I am still working on the Couche-Tard update. I want to take extra time to understand its success as best I can. I consider it to be one of the most admirable companies in Canada. For one thing, it’s a rare exception to the usual rule that Canadian companies expanding into the U.S. do poorly. It purchased the U.S. circle-K chain some years ago in huge acquisition and this has worked out extremely well. I am pondering its ROE which it says is over 20%. Warren Buffett grew Berkshire into one of the larger companies int he world and himself into one of the riches people in the world by compounding (and retaining) earnings at right around 20% average for the 48 years from 1965 to today. Now, getting 20% for decades is the holy grail of investing, but it makes sense that if you ever want to compound money at 20% a possible strategy would be to climb aboard a company that is making 20% (and expected to continue to do so) and hand on for the ride. The way most people try it is through aggressive trading and leverage and risk (options and such). I actually have never hard of a documented case where that worked out. (George Soros may be one case though I have not seen exactly how he grew all his wealth, it is known that some came from aggressive trading).

Any suggestion that 20% or even 15% is remotely possible is unconventional advice. Conventional and safer (so the conventionals tell us) is to invest in a balanced portfolio widely diversified. Conventional advisors don’t earn that much more if you earn 15% and you might leave them or try to sue if you have a bad year and so conventional financial advisers cannot and will not suggest unconventional strategies even if they happen to think they have merit and are safe in the long run.

I am not 100% sure that we can continue to beat the averages, much less continue to spank the market or to approach 15 or 20% but so far our track record is very good. Follow the advice on this web site at your own risk, however. It is for adults only. It’s for people who are ultimately willing to take responsibility for their own trade decisions. It’s been maybe a couple weeks since I mentioned… InvestorsFriend Inc. (much less myself) offer absolutely no guarantees of investment results. If that is not acceptable, then by all means cancel your subscription. (Note that refunds are not possible after 6 weeks from the date of a payment). Very few people ever ask for refunds.

I did really mean to get into that whole topic, I just write what comes to mind and sometimes the process takes off in unexpected directions. One cannot really talk about 15 and 20% returns without mentioning that such things are by no means guaranteed, nor is any return level guaranteed, but I repeat myself now.

December 2, 2013

On Monday the S&P 500 fell 0.3% while Toronto was up 0.2%.

Some of the bigger moves included CN rail up 2.9% as the stock split. Stantec up 2.8%. Constellation software was up 5.8% and I have no idea why it has been so very volatile of late. It’s still a bit below its highs reached earlier this month. Dollarrama was up 2.4%.

My own account was down slightly as Toll Brothers fell 1.7%.

I am working on the update for Couche-Tard. That company has had astounding success and growth. But I suspect the numbers will not suggest that it is a bargain at this time.

December 1, 2013

One more month to go in 2013. I would certainly be happy if we could hold onto the excellent gains achieved so far in 2013.

This month the big market driver may be whether the FED gives any hint of tapering its bond purchases or not.

On Friday the S&P 500 was down 0.1% and Toronto was up 0.2%.

FedEx is updated and rated Sell at $138.70. It’s up 51% this year. At this point it appears to be pricing in too much growth. Perhaps it will deliver the growth. It’s a strong company. But it appears too pricey at this time. As much as I like the idea the the founder Frederick Smith is in charge, he is 69 years old and maybe it is time for new management given a less than stellar track record lately. The air express business seems to offer a fantastic service at a low price but the profits seem too modest in that part of the business in particular. FedEx will report another quarter of earnings in mid-December and perhaps things will look better then.

November 29 (11:40 am eastern)

Stocks are up again this Friday morning.

Canada’s GDP grew at 2.7% annualized in the third quarter. GDP numbers are always presented in real dollars so in dollar terms it would have been a little higher than that after adding in the official rate of inflation.

In terms of the stocks I hold I am inclined to trim positions given that I have had such strong gains. But it’s hard to know what to trim. To me, Melcor and Wells Fargo still look quite attractive, so I will not trim those. With Canadian Tire I had quite a large position a year ago and it seems I trimmed a little too fast on the way up. So I am not inclined to trim more.  With Toll brothers having risen lately I may trim that. I have just now entered an order to trim that a little if it hits $35.50.

I am certainly surprised just how well the markets and our stock picks have done this year. Basically I am going to continue to “dance with the ones what brung me”. My cash position is about 34% and if the markets or any of my stocks were to suffer a large decline I am prepared to buy low.

Everyone’s risk tolerances and risk capacities differ based on many factors. These is never a one-size-fits-all answer when it comes to being in the market at all or to buying or selling any particular stock. Markets are unpredictable. But they tend to be rewarding in the long run. By attempting to buy stocks that appear to offer good value based on fundamentals and trimming or selling when they appear expensive relative to fundamentals it seems that one can do quite well over the years.

November 27, 2013

On Wednesday the S&P 500 was up 0.25% and Toronto was up 0.1%.

Most of our stocks picks were up and there were no particularly large moves in either direction.

This morning I received an email with a press release indicating that Tim Hortons was selling $450 million of ten year bonds yielding 4.52%.

I’ve generally not been interested in long term bonds. On the other hand 10 years is perhaps not so very long and the yield looked attractive compared to the ten year government bond yield which is at 2.62%. A spread of almost 2% looked tempting.

I figured maybe I could put some of my idle cash into this. The idea would be to most likely hold until maturity. Or in the spread (the premium over the government bond yield) decreased I could possibly get a capital gain on the bond.

If interest rates rise, the market value of the bond would fall but the risk of a big increase in interest rates seems to be becoming more remote and in any case I would not have to sell at the loss as I could hold until maturity.

TD Securities was listed as being involved in selling these.

But when I called TD Direct Investing, they said they had no bonds to sell to me. Now, it was a private placement so that might explain it. TD Direct Investing suggested that TD Bank was buying the bonds for its own account or for institutional investors.

I emailed Tim Hortons and they said that accredited investors were eligible to buy. But the issue was already over-subscribed (sold out) in any case.

I suspect full service brokerage clients of TD Securities may have been able to get some of these bonds but not the discount broker clients.

It was interesting to learn a little about this because at some point I will likely want to buy some bonds.

The fact that I could not buy any seems to make the bonds all the more attractive of course.

I may try to get registered as an accredited investor with TD although it may be that as a discount broker client I move not be able to access accredited-investor-only products in any case.

In other news, I note that the Canadian dollar has been falling. This increases the Canadian dollar value of our U.S. investments which is nice added boost. I have no idea how low the Canadian dollar will go but at some point (maybe 93 cents) I would move some U.S. cash back to Canadian dollars and then hope to reverse that if the Canadian dollar rose. In the longer term movements in the Canadian dollar against the American have not been that important. (Consider that a 10 cents move after ten years would only amount to 1% per year, so not that big a deal for investors.




November 26, 2013

On Tuesday the S&P 500 was flat while Toronto was down 0.9%.

On the other hand Alimentation Couche-Tard surged 3.0% to $76.17. It’s now up 56% this year having started the year at $48.19 and rated Buy. And, it’s up 338% since it was first added to this site almost nine years ago on March 31, 2005 rated (lower) Strong Buy at $17.40. That works out to an average yearly compounded gain of 18% per year for anyone who bought and held that whole time. Apparently, in the case of this company, rumors that buy-and-hold-is-dead are greatly exaggerated. I plan to update the report for this company by Sunday.

Toll Brothers was up 3.5% as the latest Case-Shiller home price index saw additional price gains for U.S. houses in September.

November 25, 2013

On Monday, the S&P 500 and Toronto both ended the day down very marginally – basically flat.

Constellation Software fell 3.6% to $186.55. Earlier in the day it got as low at $178.50. This caused me to ponder why I had not sold my shares last week (at about $200) when I said I was thinking about it. There was no immediately apparent reason for the drop, as far as I know. Possibly this stock illustrates the perils of stop loss selling. What if someone has a stop loss in at $180 and it sold there just before bouncing back to $186.55? That would not be fun. I virtually never use stop losses. I sell based on valuation, not when the crowd is selling.

November 24, 2013

On Friday the S&P 500 closed up 0.5% (and closing above 1800 for the first time ever) and the Toronto was flat. There were no particularly note-worthy moves in any of our stock picks.

eBay Inc. is updated and rated Weak Buy / Hold at $50.33. The company has strong earnings characteristics but with a P/E of 22 it is pricing in a lot of growth. It may be worth considering as a more speculative pick, but overall seems a bit expensive. I had added it back to this site on March 24, 2013 rated Weak Sell at $53.27. Given that the S&P is up over 26% this year and given that eBay’s earnings have continued to rise it’s somewhat surprising that the stock is down a bit this year. Perhaps investors fear that competitors will steal its market, particularly in regards to PayPal. There are always risks.

November 21, 2013

Well, Thursday was yet another very strong day in the markets. The S&P 500 was up 0.8%, The Dow was up 0.7% and closed above 16,000 for the first time ever. Toronto was up 0.3%.

As for our stock picks we had Bank of America up 3.0% and Toll Brothers up 2.0%.

Obviously stocks cannot and do not and will not keep going up indefinitely. They can go sideways or down at any time. If we hold some cash and we hold good companies, declines need not be that huge a concern as we can use declines to add to positions. Still, we all hate to lose ground.

When I look at what stocks I own and might trim myself it’s a bit tough. I have Wells Fargo and Melcor rated in the strong buy range and so it’s not that easy to sell any of those two. Regarding Canadian Tire I already trimmed it by about 50% from what I held about a year ago. Regarding Toll Brothers I believe I have trimmed that as well from my peak levels. I already sold all my Stantec. When I look at what I hold there are few I would want to trim. I mentioned earlier the possibility of trimming or selling Constellation Software, so that is one. There is my oil sands ETF which I don’t have a rating on but which also has not risen much. These is Liquor Stores which I rate low but which I am nevertheless not that keen to trim.

Possibly I should enter some hopeful orders to trim most positions if they rise much further…

My cash is sitting at about 37% which has been a drag on my returns but which seems prudent for risk management given I hold no fixed income.

I could decide to raise the cash to 40% or even 50% and just trim all stocks in proportion to achieve that. That might be logical. My cash level should really be set at some target rather than just be set sort of accidentally as I sell stocks and buy.

As of the moment I am not much inclined to take action on trimming but just wanted to share my thoughts on it.

November 20, 2013

On Wednesday the S&P 500 was down 0.4% and Toronto was down 0.1%. Markets were initialy positive on positive economic news regarding consumer spending but turned negative when minutes of the FED meeting disclosed discussions that tapering of the bond buying could begin soon. Among the stocks I keep an eye ion I notice Couche-Tard was up another 2.0% to $73.50. It appears that I sold that one far too early. Then again, it’s hard to say what I put the money into and given my gains these past two years I have no complaints about having sold a lot of stocks at well below today’s prices.

It seems to me that gains on higher price stocks are sort of smaller than they appear to be. A stock rising from $80 to $90 seems great and is great. But at 12.5% it is nowhere near as good as the 50% gain when a stock rises from $10 to $15, though at first glance it may look like a larger gain. We may sometimes feel regret about selling a stock at $80 that soon went to $90, when the fact is we may have put the money received on the sale into a $20 stock that rose to $22.50 or more and therefore it was not a bad thing that we sold but it may feel like it. We tend to “compartmentalize” our investments into individual stocks whereby we can regret the gain we missed out on while forgetting the gain we obtained by reinvesting the proceeds. I know that happens to me, where a sale of a stock feels regrettable but really was not regrettable.. And of course sometimes it truly was regrettable that I sold.

November 19, 2013

On Tuesday the S&P 500 was down 0.2% and Toronto was down 0.1%.

Among our stock picks there was not much excitement although Bank of America was up 1.8%.

I sold the remainder of my Stantec shares today. I was hesitant to do so because it was in a taxable account. And I am not sure I should have sold. I’d like to buy back in in future if the P/E ratio were quite a bit lower.

In 2007 and the first half of 2008 I watched P/E ratios rise higher and higher. To some extent I responded by using higher assumed P/E ratios in my valuation formula. Essentially what that did was more or less justify the higher stock prices that we saw in 2007 and the first half of 2008. As I have mentioned before , it is always possible to torture the numbers until they confess that any particular stock price is a bargain. I did not get as carried away with that as many others but to some extent I engaged in pushing up my assumption of a fair P/E ratio. I will try to avoid that this time. If markets continue to go higher it should lead me to selling out of or trimming some positions as their P/Es (and price in relation to value in general)  seem too high (like Stantec).

I am not suggesting that I am rushing for the exits. In fact some stocks still have low P/E ratios (and also that is not the only thing to consider) so I would not be reducing all positions. In general I am seeing fewer bargains now and that is to be expected as markets have risen.

November 18, 2013

On Monday, the DOW pushed over 16,000 for the first time and the S&P 500 pushed over 1800 for the first time. Bu then both fell back and we ended the day with the S&P 500 down 0.4% and Toronto was down 0.2%.

Stantec is a great company. But its price now seems to be rising on a momentum basis. It’s up 74% this year. I had earlier sold the shares that I held in non-taxable accounts. I have some shares left in a taxable account and I will likely sell those tomorrow. The P/E ratio is 21 and that’s certainly not extreme for a growth company. But it does seem a little too rich for me. On the other hand Stantec is almost certain to have a higher stock price than this in 10 years. I certainly would not short the stock but I am inclined to sell.

November 17, 2013

On Friday the S&P 500 rose 0.2% to another record high. Toronto was up 0.3%. The next update here will likely be for eBay.

November 14, 2013

On Thursday the S&P 500 index rose 0.5% to yet another record high close of 1791. Toronto rose 0.4% to 13,431 which is roughly 6% below its all-time high from 2011.

Most of our stock picks were up today. Notably Toll Brothers rose 2.6% to $33.51.

I have just updated my analysis of the valuation of the S&P 500 index. The trailing P/E on the index is 18.8. That alone suggests it is not attractively priced unless the P/E was based on a depressed earnings level. But the earnings level is not depressed. Unless we expect interest rates to remain low indefinitely (say for  decade) and therefore P/E ratios to remain elevated indefinitely the S&P 500 index seems somewhat over-valued. As a point estimate it looks perhaps 18% over-valued. That does not mean it will fall anytime soon. But it does suggest we should be cautious about committing too much of our funds to the U.S. stock index.

In the coming weeks I will update a similar analysis for the DOW (which normally looks like better value than the S&P 500) and for Toronto (which is a more volatile index due to the heavy resource sector representation).

November 13, 2013

Today the S&P 500 was up 0.8% and Toronto was up 0.3%

Canadian Tire poked its head just above $100 but closed at $99.74.

Liquor Stores N.A. fell 3.2% to $14.07. I was tempted to buy a bit more.  I have thrown in a bid at $13.51. I also threw in bids for Melcor at $18.75, Toll Brothers at $30.10. Quite possibly none of these will get filled. I used these below market bids because I already hold substantial positions in these three companies.

November 12, 2013

On Tuesday the S&P 500 and Toronto were each down 0.2%

I don’t believe markets are predictable in the short term. The strategy is to react to the market. And it is to try to calculate a reasonable value for a selected group of companies that are suitable for such a valuation process (most aren’t as they are too unpredictable) and then buy these quality companies when they are good values and trim or sell if they become over-valued. As Buffet says, simple but not easy. So I am not fixated on what the market will do, no one can predict that accurately. But if one makes rational moves in response to markets then things tend to work out.

In the next few days I may enter some orders to trim on rallies or sell on dips, whichever happens.

November 11, 2013

Stock markets were open on Monday despite Remembrance day. S&P 500 was up fractionally, up 0.1% and Toronto was down fractionally, down 0.15%.

Canadian Tire was up 2.1% to $99.22. It just about cracked over $100 and if it does (which seems likely) that may generate a bit of news, although in substance $100 is not more important than $99 was.

Constellation Software is updated and rated Weak buy / Hold at $201. It’s a great company. But it does seem rather expensive. It is pricing in a lot of continued growth. Given that other investments seem more attractive I am tempted to sell my shares. I had sold half earlier and may sell the remaining shares. Even if I sell i will keep an eye on this company. It seems to approach the growth-by-acquisition strategy from the most rational approach I have ever seen outside of Berkshire Hathaway.

November 10, 2013

Canadian National Railway Company is updated and rated Weak Buy / Hold at $116.90. This is a great company that has been growing for years and will continue to do so. Right now it just does not look like a bargain.

Here is some history. The stock up 29% this year. We had rated it a (lower) Buy at the start of 2013. In 2012 it was up 13% and we had rated it Buy at the start of that year. In 2011 it was up 21% and we had rated it Buy at the start of 2011. In 2010 it was up 16% and we had rated it Weak Buy, in 2009 it was up 28% and we had rated it (higher) Buy, in 2008 it was down 4% and we had rated it (lower) Buy. In 2007 it was down 7% and we had rated it (higher) Buy.

November 9, 2013

Melcor is updated and rated (lower) Strong Buy at $19.71. Basically it looks like a bargain but there is risk because profits would decline a lot if house building activity in Alberta was to take a sudden plunge. It’s also thinly traded, therefore be cautious in placing orders. I would place an order to buy at a certain price rather than to buy at the market price since the market price can be volatile due to the thin trading. This is my largest holding and I am thinking of adding to my position.

Liquor Stores N.A. is updated and rated Speculative (lower) Buy at $15.06. This was a disappointing stock pick for 2013. It is down 19% this year. It started the year at $18.56 and had a dividend yield of 5.8%.

Many investors seem to think that a dividend is a very important consideration in choosing stocks to invest in. I have never considered a dividend to be the main factor in investing. A dividend is usually a plus, but it is neither necessary nor a sufficient condition for a stock to be a good investment.

By some measures Liquor Stores N.A. is attractive at its current price. The dividend is attractive but may not hold, it could be cut. The opportunity to buy at 110% of book value is attractive. Book value consists mostly of purchased goodwill. Still, we are able to effectively purchase liquor stores here for only 10% more than the company has invested in those stores and that does seem attractive. But recent results are weak and it is going to take a bit of turn-around in order for the stock price to rise.

At this time, due to lower earnings and a negative trend in earnings I consider the stock to be somewhat more speculative.

November 8, 2013

Friday was another strong day on the markets with the S&P 500 up 1.3% and Toronto up 0.6%.

Toll Brothers fell 2.3%. This company’s earnings have risen sharply this year but because it started out the year with a very high P/E ratio its share price has been left out of the party this year.

The news of its strong Q4 (which was partially released on Wednesday night) would likely have caused the stock to climb but that was somewhat cut off at the knees by news that they would make a big acquisition and issue shares. The share price was revealed on Thursday night and the price is $32.00. In this case it is not surprising that the TOLL shares traded at about $32 today.

It’s seems unfortunate that the company would issue shares at $32. Luckily it appears this is not that huge an issue. It’s about $225 million while TOLL has a market cap of about $5,700 million. The acquisition is $1,600 million so it will be mostly paid by cash and debt. Hopefully a case of short-term pain for long term gain.

Canadian Tire is updated and rated Buy at $97.15. Its Q3 earnings were excellent. The impact of the REIT transaction is not in the financials statements yet as it occurred after then end of Q3. In any case it really does very little in substance since Canadian Tire still owns 83% of the REIT and since the REIT will be consolidated into the balance sheet at historical cost and not at market value. Canadian Tire seems to have suffered basically no impact from Target and that includes it Mark’s stores. The outlook appears good. I had trimmed my position approximately in half as the price rose 40% this year. However at this time I am more inclined to buy than to trim further.

November 7, 2013

This morning the good news was that U.S. GDP was strong. But the market decided that was maybe bad news since it might point to an earlier end to quantitative easing. S&P 500 was down 1.3% and Toronto was down 0.6%.

Toll Brothers managed only a 0.5% increase on its strong earnings. Canadian Tire came out with strong earnings and a dividend increase but the stock did nothing. (Maybe not so bad on a negative day, and basically a lot of good news was already baked into the price of Canadian Tire.)  Melcor fell 2.3% on its earnings, but that is on thin trading so may not mean much. Liquor Stores N.A. was also out with earnings which were I guess a bit on the weak side, although not terrible. It’s shares fell 2.7%.

I hope to update the reports for two or three of these by Sunday. Toll Brothers has not yet released it full financial results but I may be able to at least update the P/E ratio.

U.S. jobs report will come out tomorrow (Friday) morning. Perhaps it will be bad given teh government shutdown that happened in October. Never a dull moment it seems.

November 7, 2013 (6:55 Mountain time, 8:55 eastern)

There was additional news on Toll Brothers later last night and this morning. They are making a large acquisition of a luxury home builder in California. They pre-announced Q4 earnings and revenues which were stellar. Unfortunately they also announced they will sell additional shares (I could not see a price mentioned). The share counted rises by only about 4%, so not too serious. Assets are rising by approximately 15% after deducting cash they will pay. I was hoping for a big price increase here on the news but given the share sale I now don’t expect too much to happen. I might trim my position it it jumps to say $38 which is perhaps not realistic.

November 6, 2013

On Wednesday the S&P 500 was up 0.4% and Toronto was up 0.1% The Dow Jones Industrial Average was up 0.8% to another all-time record high.

Costco was up 3.3% to $124. I have said before it always looks expensive. But what a fantastic operation it is. It appears we should have grabbed some at $112 or whatever even though that did look expensive. It’s one to keep an eye on if it ever falls due to some temporary issue or a general market decline.

Melcor was down 3.1% today. But it’s really thinly traded and it had risen about the same amount in the past couple of days so I consider this to be just “noise”. Melcor released earnings after the close today Wednesday. The headline numbers show a decrease but on an adjusted basis the company indicates a small increase in earnings. The results at Melcor are lumpy by nature and so it should not be expected to smoothly increase earnings every quarter. The company indicates that the outlook remains positive. I will definitely consider buying on Thursday if the price declines but not if it rises. It’s already my largest position and so perhaps I should not be buying. I may also consider trimming if the price rises.

Toll Brothers canceled a planned appearance at an investment conference today. (They canceled today or possibly yesterday and they were to appear today.) Not sure what to make of that. Possibly it canceled pending some news. It just completed its Q4 on October 31 and most companies go into a silence mode between year-end and the release of earnings and so I don’t know why they would be at an investment conference in the first place in early November. I see now after-hours news that they are rumored to be bidding on another company. Sometimes news like that pushes a stock up, more often the buyer’s stock goes down on the news. We shall probably know on Thursday morning. Bidding on another company suggests there are other bidders, so that might suggest they won’t get any real bargain.

November 5, 2013

Markets started out quite negative on Tuesday but in the end the S&P 500 was down only 0.3% and Toronto was flat.

I neglected to mention yesterday that it was nice to see Melcor back over $20. It was up another 2.5% today to $20.70.

Melcor will report earnings this week and I expect good results. As for the outlook, things still seem to be fairly hot in Alberta as far as home building to my knowledge.

But the news that EnCana is dumping 20% of its staff is sobering. natural Gas prices are very low and while i am not tapped into what is happening “in the field” I understand it is very slow. At some point this could affect the broader economy and house prices in Alberta but so far that is not much sign of it to my knowledge. In any case Melcor looks like a good investment and if were to get hit by a weaker home building market that would most likely be temporary. There are always things to worry about but overall I like holding a good chunk of Melcor shares.

November 4, 2013

Stocks were up a bit more today… S&P 500 up 0.4% and Toronto up 0.2%.

Blackberry / Research in motion caused some entertainment and grief in the markets today with a 16% fall. I have no idea what it is worth or what its future holds. Might be worth throwing a (very) small amount on it just for the entertainment value. Presumably Prem Watsa and Fairfax financial have some clue that it is worth more than the current price. It’s probably best to focus on more predictable companies. It seems rather disgusting that this CEO Thurston Heins gets a reported $20 million exit fee. All in all he got  a nice pay cheque in return for doing apparently nothing much good and perhaps a lot of bad.

If you read the press release from the company including the title, it seems pretty apparent that the company is completely delusional. The financial press took this as “Fairfax buy-out is off” whereas the press release is titled Blackberry receives investment of a billion… Just read the press release and you can see how delusional the company is. Amazing.


On third thought. I don’t think I would touch this thing even for the entertainment value. Sure it may bounce up, but I don’t want to get involved with this kind of management.

Constellation Software was out with excellent earnings today after close. I will look to update this report soon.

November 3, 2013

Stantec is updated rated Weak Buy at CAN $65.69 and U.S. $62.81.

Stantec’s share price has risen a remarkable 65% in 2013. In part this is due to achieved earnings growth in 2013. But in part it is due to investors being willing to pay a higher multiple for its earnings. The P/E ratio started out 2013 at 14.7 and is now at 20.2.

Stantec is a great company and has a great future and will likely continue to grow earnings at a strong rate in the long term. However, it is now “pricing in” quite a bit of growth. It is not the bargain that it was before this big price increase.

It does not appear to be the best choice for an investment at the moment though it will likely due okay in the long term. I had recently sold all of the shares that I held in non-taxable accounts. I still hold some shares in a taxable account and am undecided whether to sell those. The stock is not rated Sell, but I could still decide to sell these shares to hold cash or invest in something more compelling.

While the Q3 earnings reported on Thursday morning were very strong, it is not entirely clear why the price jumped quite so much on Thursday and Friday. I did a search for analyst reports and did not see anything that seemed to explain the sharp rise.

November 2, 2013

On Friday the S&P 500 was up 0.3% and Toronto was down 0.2%.

Stantec was up another 5.7% and is now up a total of 65% this year making it the best performing stock on our list this year.

Berkshire Hathaway is updated and rated (lower) Buy at $115.27.

Berkshire is so huge that it is unlikely to provide an outstanding return. It should do okay and occasionally when it becomes more under-valued it can be a great investment. And right now it is probably a reasonable investment.

I follow Berkshire for what it (i.e. Warren Buffett) can teach me about investing in general.

An interesting point is that of Berkshire’s $458 billion in assets, and despite the fact that Berkshire is known for its huge investment portfolio, almost none is invested in U.S. Treasury BONDS. It has a large investment in U.S. Treasury bills which is where it keeps most of its cash and cash equivalents. But there is  a grand total of just $2.5 billion (0.5% of the assets) invested in U.S. Treasury bonds. This is an especially low figure when you consider that most U.S. insurance companies keep a large portion of their assets in U.S. government bonds. Berkshire has only 6% of its assets in fixed income of any kind. This compares to 23% of assets in equity securities. Most of Berkshire’s assets are invested in wholly owned businesses. Of this 6% invested in fixed maturity investments, most has a term of five years or less and very little has a term of over ten years. Buffett has said that long term bonds are a terrible investment at this time. He practices what he preaches (and also preaches what he practices).

Conventional advice is to always have a significant exposure to fixed income. However, keep in mind that not all fixed income is created equal. Most fixed income investments such as medium and especially long term bonds may be fixed income but they are not, by any means, fixed in market value. To the extent that preferred shares are considered fixed income, they often behave very much like long-term bonds, they are in no way fixed in market value. (Shorter term preferred shares with much lower yields may be relatively fixed in value).

Also keep in mind that the three main asset classes are, cash, fixed income and equities. Dividend paying stocks should be considered to be in the equity category even though they pay an income. Preferred shares are something of a hybrid but should probably be considered to be fixed income. Preffered shares are unlike bonds in that they may never mature and that makes them far different than bonds.

If Buffett is right (and it’s ALWAYS wise to assume that he is) then it would be wise to keep fixed income investments to the shorter maturity and to favor preffered shares over bonds. Personally I have been content to hold more cash than usual and in some ways that is in lieu of fixed income. Cash in my investment accounts pays up to 1.25% in accounts like TDB8150 (see list above), although most of my cash pays me nothing at all. Cash (the portion that pays nothing) gives me instant availability in case I wish to purchase stocks. Cash and deposit accounts provide complete stability since they do not decline in value if interest rates rise.  To my mind those advantages outweigh the tiny extra return I could get by holding fixed maturity investments in the two to five year range. Many preferred shares pay substantially higher interest rates but those that do (perpetual preferred shares) would fall in value if interest rates rise. I consider preferred  shares to be an alternative to equity investments and not an alternative to fixed maturity / cash investments.

At this time (of record low yields) I would avoid bonds and avoid perpetual preferred shares. For income I would favor higher dividend paying equities or simply selling down equities as cash is needed. For the portfolio stability features that bonds are often meant to provide I would prefer cash and deposit accounts. Regarding preferred shares an exception might be if the tax advantages were important, for example where they are held in a taxable account and especially if a lack of other income can result in substantial preferred share income at a low tax rate. I simply see no place at all for long-term bonds at this time.

October 31, 2013

Thursday saw the S&P 500 down 0.4% and Toronto down 0.7%.

Not a scary day for our stock picks though, not with Stantec up 6.5% to $61.96 on a good earnings release. We rated it Buy in August at $50.46. I’d be more inclined to sell or trim at this price and in fact I did trim my position as noted in the daily comments. I still have some in a taxable account where I have been following a rule of buy and hold because I don’t wish to trigger capital gains to be paid or even the work of reporting the gain on my tax return. But maybe I will decide to sell that… I will update the report before long.

Canadian Tire ended the day down very slightly. But this morning it was up a little and I decided then to trim a little of my position. The more stocks I trim the more I have to think where can I invest the money. (Given I already have big exposures to my favorite few stocks).  But it does seem prudent to trim on big gains. I’m content to sit on some cash for a while.

Stantec has been a real winner for a long term buy and hold investor. I first added to this (then brand new) web site in August of 1999 rating it Strong Buy at (split-adjusted) $2.50. And the thing is it was actually a pretty obvious bargain, then selling for 10 times earnings and 1.22 times book value. In those days everyone wanted Nortel and Cisco and their ilk and boring companies like Stantec were unloved. Also Stantec was quite small at that time and therefore was under the radar. Having been originally rated a Strong Buy at $2.50 in 1999, Stantec rose $3.81 today. TODAY!. That is the power of a strong ROE and compounding at work. Note that Stantec was volatile over the years. It was not always easy to sleep for those holding a big position in Stantec. Those who bought on major dips and sold on big rallies would have been well rewarded. But I suspect none in reality would have done as well as someone who simply bought and held. See graph.

It’s been a remarkable year for our stock picks so far. Right now it seems reasonable to be looking to trim positions with big gains and try to catch our breath and see what stocks still seem to offer good value.

Not all the stocks on the lost above have very recent report dates. But the two strong Buys do. I continue to like Wells Fargo and Melcor as the two best picks right now. Note that Melcor is thinly traded meaning you can’t really trust a price change of say 2 or 3%, that can just be noise. You can easily over-pay by at least 2 or 3% if you are careless placing an order for a thinly traded stock like Melcor. Don’t use a buy at market order or sell at market. Enter a reasonable price in an order and try to be patient. Of course there are no guarantees and if the whole market should turn down then these two stocks would be pulled down as well. And of course every company can report bad news at any time. Those are risks we must accept if we are to invest in individual stocks and especially if we run concentrated portfolios.

In investing, it’s probably fair to say that good returns usually require us to take risks. And risk means it might not be a good return, it could be a poor return. And contrary to what some say, it does not work the other way. Taking risks in no way shape or form guarantees a high return. If it did it would not be risk. And also many risks are just stupid risks and are not associated with high returns. Only the right types of risk are (usually) rewarded.

For more information on risk, see my articles on that subject.





October 30, 2013

On Wednesday the S&P 500 was down 0.5% and Toronto was up 0.1%. Apparently the FED is less optimistic about U.S. growth. I did not note anything too exciting in the news regarding the stock picks listed on this site. Visa was reported to ahve suffered an earnings decline of 28% but that was not really true in substance because it was due to last years quarter having a special gain on income taxes and this year having a normal level of income tax.

It seems likely that there will some negative economic reports in the next month due to the slow-down caused by the U.S. government “shut-down” and borrowing limit debacle.

Target is reporting slow sales in Canada. I have said before that their purchase of the Zellers leases for $1.8 billion seemed to set them up as high-cost operators.

Sears is selling the rights to five big store leases for $400 million. Good for them. This seems a smart move. If they can’t make much money at stores like Eaton Center in Toronto, why not grab that kind of cash?

October 29, 2013

Another good day for the markets on Tuesday with the S&P up 0.6% and Toronto up 0.5%.

It seems that there are times when the market goes down much further than most anyone expects (early 2000’s and 2008 into early 2009. Then there are other times like maybe now (thinking here of the U.S. markets) and like late 2002 to mid 2008 and most of the 80’s and 90’s where the market continues to rise more than most anyone expects.

Many people look for cycles or market indicators and try to guess the direction of the market in the very short term, the medium term and the long term. For short term they often speak of over-bought or over-sold, or resistance levels, for medium term they may talk of cyclic trends and cyclic bulls and bears and for longer terms it is secular bull and bear. Laughably they call a bear market AFTER the market is down 20% and a bull AFTER it is already up 20%.

I basically studiously ignore all of that. I cannot predict where the market is headed. But I can react to it. I can try to judge if the market is over-valued or under-valued. If we can buy stocks when the market is under-valued then we may lose in the short term but over the years we will tend to win.

We can also pretty much ignore the overall market and simply buy good companies at good prices. That tends to be a winning strategy over time.

In the next month or so I plan to look again at the valuation of the markets. The biggest driver may be interest rates. When the main choices are i)  long bonds at 3% o 4% (and no growth), ii) short bonds at squat but hoped for reinvestment at higher rates later or iii) a market with a P/E  of as high as 20 (5% earnings yield with growth) the market may be the best of a somewhat unexciting lot.

October 28, 2013

On Monday I did not note much of interest in the market.

S&P 500 up 0.1%, Toronto down 0.2%.

Stantec was up 2.5%.

Canadian Tire finished flat at $97.90. At one point it touched $99.51 today. There is absolutely nothing special about $100, at least in theory. Still, in practice I think a close over $100 would generate some excitement. Maybe that way all the people who ignored Canadian Tire a year ago at price under $70 can start to pile in. However unless there is news on further “release of value” initiatives such as a partial sale or partnership of the finance operation, I don’t see why we should expect much more here in the near term. The earnings release will hopefully show good same store sales. But will also show the one-time costs of the REIT transaction. And possibly there will be some hit from Target. Obviously, Canadian Tire was a better investment last year at around $70 than it is now at close to $100.

There will be some updates to the reports coming soon.

October 27, 2013

On Friday I sold what amounted to 6% of my Toll Brothers shares at $33.56. These particular shares had been purchased two weeks ago at $30.43. This is a strategy I have been using with Toll Brothers, buying on dips and selling on rallies. I do not have any strict rules about this but in this case the swing was about 10%.

Yesterday the latest edition of the free newsletter was sent out. If you did not receive that by email then you could try adding your email to the free list. The system should let you know if your email is already on the list. There is also a “validation” process for the free list. That is not critical because I send out to both validated and unvalidated emails on the list (always with a link to get removed from the list)

My own portfolio breakdown is updated. I continue to run an extremely concentrated portfolio. More concentrated than I have been historically. I have over 48% of my portfolio in just four stocks and that is 74% of the equity portion of my portfolio. That kind of concentration should generally be considered to be HIGHLY risky. I have never recommended that anyone copy my portfolio and have always indicated that it was based on MY risk tolerance and MY capacity to take risks. I happen to have a lot of faith in each of my four largest positions (Melcor, Wells Fargo, Toll Brothers and Canadian Tire). But I have said that Toll Brothers is speculative due to the high P/E ratio. And banks are highly leveraged by nature and therefore can be risky for that reason alone and property development is a cyclical industry. And I have, over time as it rose, sold about half of the Canadian Tire shares that I held around this time last year when the stock was particularly cheap looking. These four stocks could certainly cause me grief at any time. That is a risk I have been taking. I reveal my own portfolio because some people expressed an interest in it years ago and in the interest of transparency. But such a portfolio may not be suitable for others and it is up to individuals to decide that.

A certain amount of concentration should be expected in the portfolio of a stock picker such as myself. As a fellow stock picker recently said, if you can’t pick stocks you should be highly diversified (invest in index ETFs). But if you are convinced that you have a good ability to pock stocks then it makes sense to concentrate in your best ideas.

Subscribers may want to limit the allocation to an individual stock to some lower limit like 10%. Even that is considered quite high by most experts. The limit is up to you, I don’t offer advise on asset allocation or the limit in any one stock since that is highly specific to each individual.

The reality is that it is impossible for the average investor to beat the index. (Just as the average person can not be taller than average). By following a stock picking strategy subscribers to this site are implicitly or explicitly trying to do better than average. Therefore you have opted for a less diversified strategy. But the extent to which you concentrate your holdings is up to you and I wanted to remind you that my own level of concentration is very high and could be highly risky.

Running a concentrated portfolio is part of the reason I have done so well the past two years. That knife could cut the other way at some point. Hopefully these four stocks are not going to decline a lot more than the market at some point while I still own them. But it could happen. This is part of the reason that I am running with a higher-than-usual cash position. If one or more of these four take a big hit due to a company-specific reason but it is a one-time problem, then I would likely be buying on that dip.

I don’t mean to alarm subscribers. I just mean to let people know that blindly following my own portfolio could be very risky. I prefer that my subscribers take more of an a-la-carte approach and pick and choose from the stocks that are rated after reading the reports. Many and perhaps most subscribers will also hold investments not listed above.

The bottom line is that we all invest at our own risk and we should all understand that stocks do go down at times. And some of them stay down.

October 24, 2013

Another day and the markets were up again. This all seems a bit too easy… I am thinking about what positions I might trim…

S&P 500 up 0.3%, Toronto up 0.6%.

As for our Stock Picks, Toll Brothers up 2.3%, Canadian Tire up another 1.0%, Visa up 2.0% to $203.

Less than 24 months ago Visa was under $100. In early 2011 it was under $70 having fallen on some negative news and developments. Ever since I added it to this site in April 2009 at just over $58 and rated Buy I have consistently described it as virtually an unregulated monopoly and when it rose after falling I said it was “hard to keep a good monopoly down”. In May 2011 I rated it a Strong Buy at $79.41. Sadly, I sold my own shares too early. The point is there are times and there are companies where the value seems pretty darn obvious. Visa at times fit that mold. I don’t like it at $203 but it is even clearer now that it was a wonderful bargain in early 2011.

October 23, 2013

On Wednesday the S&P 500 was down 0.5% and Toronto was about unchanged.

There were a couple of big gainers today, CN up 4.4% and FirstService up 4.9% as both released strong earnings.

I’ve long considered both to be excellent companies though both (and especially FirstService) had seemed too expensive at last check.

The Canadian Tire REIT CT Real Estate Investment Trust started trading today. It rose marginally above the $10.00 IPO price. I understand that for the first few weeks the investment bankers will “support” the stock price, or attempt to, by buying shares if needed.. That sounds like some kind of “legalized” stock price manipulation and I believe that is just what it is and it done for every IPO. It’s yielding 6.5% as I understand. I don’t have an opinion on its value but I assume it will most likely stay above he $10 level (barring any increase in interest rates which is starting to look less likely)

Canadian Tire Corporation still owns about 83% of  CT REIT. The whole purpose of this exercise was to “reveal” the value of Canadian Tire’s real estate and drive up the share price. That is a form of financial engineering and it has worked. I suppose that is okay if the stock price was under-valued previously and I definitely think that was the case. I would have preferred to see at least 50% and as much of 100% of the Real Estate sold since investors are willing to pay so much for REITs.

We can now attempt some interesting math for Canadian Tire Corporation.

The REIT has a market value of $1.76 billion. (I had earlier seen reports of $3.5 billion but I calculate $1.76 billion). Canadian Tire itself has a market cap of $7.7 billion. So the rest of Canadian Tire Corporation minus the entire REIT is valued at about $6.0 billion. This may seem low when we consider that Dollarama is valued at $6.3 billion and Canadian Tire has far more locations (including its Marks and FGL sports locations) and vastly more retail space. Canadian Tire’s financial Services division is worth a great deal. (It accounts for about 41% of profits and is presumably worth at least $2 billion) Canadian Tire also still owns significant real estate outside of the REIT. This appears to leave the retail division not valued that highly.  Financial statements for Q3 and certainly by Q4 may reveal that the Canadian Tire stores (The 490 actual Canadian Tire branded stores) are not that profitable after they pay rent to the REIT. The fact that Canadian Tire owned its own real estate may have been masking relatively low profits on the store. But then again Canadian Tire “retail” is really mostly a wholesale operation since its dealers own the actual retail businesses at each Canadian Tire store.

I suspect Canadian Tire is not over-valued at $96 and may remain somewhat under valued. This is going to become more clear as it begins reporting under the new arrangement. Canadian Tire’s next step may be to sell off a portion of its finance operations in order to reveal the value of that component of the operation.

Canadian Tire’s next earnings release, which should occur with a few weeks id going to be interesting and could cause the stock price to move. I’ve taken some profits along the way but I also feel comfortable hanging on to a relatively lasrge position here.

October 22, 2013

Markets were up nicely today.

S&P 500 up 0.6%, Toronto up 0.5%.

The reason the markets were up was because the employment numbers in September int he U.S. were bad enough that the fear of FED tapering is eased. That is not exactly a sustainable reason for the market to rise.

Markets have risen a lot in the past two yeas. That cannot continue indefinitely of course. It’s anybody’s guess when markets could go the other way for a time. I am thinking of building up more cash and reducing my equity exposure. But it’s hard, after all I like the stocks I hold.

As far as our Stock picks today we had Canadian Tire up 1.7% to $96.30 and Toll Brothers up 2.5% to $32.65.

Given the rise in Canadian Tire I ended up selling what amounted to 19% of my position. As is almost always the case with me this was in a non-taxable account so I don’t have to worry about triggering a capital gains tax. I may regret this if Canadian keep rising. But considering I have made a very good return with Canadian Tire it seemed reasonable to take some profits.

October 21, 2013

The week has started out not too badly on the markets. The S&P was flat awhile Toronto was up 0.4%.

On the weekend there was a report in the Edmonton Journal about a company that owns a facility that loads oil onto trains just outside of Edmonton. Currently the oil is trucked in but soon they will be loading from a pipeline. 100,000 barrels per day capacity. (Which is a lot). It seems like that could be a good business.

The company is Canexus Corporation. They are mostly a company that manufactures Sodium Chlorate and it looks like they got into the oil loading business simply because they already had a train loading facility.  I took a quick look but there were some things I really don’t like. Recently they swung  from profits to losses on their core operations the Chlorate operations. The loss is definitely a negative but there was something else that bothered me a lot more.  The company talks about something called “Cash Operating Profit”. In Q2,  this cash operating profit was $23.0 million despite an actual profit of negative $14.8 million. It turns out that “Cash operating profit” is really EBITDA plus non-cash compensation expense. In my opinion it is outrageous and mis-leading to refer to this as a “profit”. And especially when they focus on this number as the headline number. It is not unusual to refer to EBIT as operating income, but to call EBIT, much less EBITDA profit is just not right in my opinion. I can’t trust a company that does this. I was intrigued by this oil to rail loading facility. It is a large facility and I suspect it could be quite profitable. But it comes along with a commodity chlorate business that is losing money at this time. Possibly I could take another look after the Q3 earnings, but it may just be wise to keep away from a company that takes this much liberty with the definition of the word profit. Also the sight of burning train cars just West of Edmonton this weekend is a worry for all the plans regarding shipping oil by rail. (In this case it was not oil that burned, but still the images are damaging). In addition to all that, the company appears to be trading at close to four times book value.


October 20, 2013

The U.S. markets finished the week at all time highs. Nothing surprising there, stock markets don’t reach new all time highs every week or every year, but over time all previous highs do tend to eventually get eclipsed. The major reason for taht is taht companies on the stock market are generally profitable and they generally retain a portion of earnings to fund growth each year. Economies and stock markets do tend to grow in the long term. But do remember that stock markets don’t move higher every year.

On Friday our biggest gainer was Liquor Stores N.A. up 3.2%.

This week will bring more earnings reports and who knows what other news. Seldom a dull moment.

The Canadian Tire REIT may also start trading this week. I believe the IPO closes on Wednesday. (Meaning, the money changes hands that day). If the REIT trades up then the Canadian Tire Shares may go up a little as well. I don’t really expect much further impact from the REIT on the Canadian Tire shares at this point. The Q3 earnings report will be important. Also any indications of further financial engineering such as a partial sale of the financial services operation (which has been alluded to) could be positive.

October 17, 2013

Onwards and upwards (at least for today)

The S&P 500 gained 0.7% on Thursday and Toronto was up 0.6%.

Most of our stock picks were up. The biggest gainer was Toll Brothers up 4.4%.

Canadian Tire was briefly above $95 today but closed at $94.40 up 0.5%. I had mentioned I had an order in to trim at $95 but that order apparently expired before today. I thought about trimming today but did not. (Sometimes it’s hard to pull the trigger and sell when the stock is rising and that’s why automated orders to sell at a given price can work well.).

The Canadian Tire REIT should start trading within about a week and that could possible give us another few cents on Canadian Tire depending how the REIT trades. The next big news for Canadian Tire should be the Q3 earnings which not come out for a few weeks yet. I expect they had a good Q3 except that they will have unusual expenses for the REIT launch so the headline earnings number could look negative. Also Cnadian Tire (like most stocks) will always tend to move somewhat with the overall markets and with economic news. Overall, I am not in any rush to sell but still, it may be wise to trim a little given the gains.

October 16, 2013

Well it appears that the gong show in the U.S. senate and house is about to be resolved positively.

On this news the S&P 500 rose 1.4% on Wednesday and Toronto rose 0.2%.

It’s still possible that the deal could hit a snag yet, but it appears matters are resolved for now. However I understand this thing will resurface by January. Perhaps the market will ignore it even more so the next time. The politicians can only cry Wolf effectively so many times. ‘course we might remember in the Fable the wolf eventually does come around and eat the boy up as his cries are ignored. (But in this case I don’t think the government will ever allow the U.S. to default).

So, if this deal does get done then it will appear that we have done the right thing by staying the course and by picking up some stocks on dips. Volatility is the friend of anyone who invests on fundamentals.

Seeing Liquor Stores N.A. down a bit more today I added to my position at $14.90. I checked my report to refresh my memory and while it was rated (lower) Buy at $15.98, the report also said the Value ratios indicated a Buy. So anyhow these things are never guaranteed at all but I decided to Buy some. The recent price decline could indicate bad news is coming and has leaked out. Or it could be just a fairly random drop. It’s interesting to note that Liquor Stores had about the highest dividend yield on our list. A high dividend is certainly no guarantee in and of itself of a good investment. I am familiar with their stores in Edmonton. If anyone is making money with liquor stores these guys should be able to given their scale. So my suspicion is that they will do okay. Only time will tell.

October 15, 2013

On Tuesday the S&P 500 was down 0.7% but Toronto gained 0.3%.

The big question is what will happen the rest of this week as the U.S. attempts to get past the thatrics of its debt ceiling and budget issues. Futures as of about 10 pm eastern showed the Dow up 70 points, but that could go the other way quickly if it looks like a deal will not get done.

I mentioned Gold recently. (October 1). Today I bought a bit of Gold. I figured it might be a reasonable speculation given it is under $1300. I only put 1.7% of my portfolio into Gold. I bought the ETF that trades as GLD on New York. I am prepared to double my position if Gold drops to somewhere in the 1100’s. And I would add even more if it went lower still.

Also today I added to my Toll Brothers position.

 October 14, 2013

On Monday the U.S. markets were open while the TSX was closed.

The U.S. market opened in negative territory but in the end the S&P 500 closed up 0.4%.

Until the budget and debt ceiling issue is resolved int eh U.S. we can probably expect markets to be quite volatile.

I added to my position in Wells Fargo today.

October 12, 2013

Wells Fargo is updated and rated Strong Buy. It just reported another excellent quarter of earnings. Revenues did decline in the quarter due to lower mortgage refinancings which generate fees. But overall, the business appears to be still growing. It is one of my larger holdings. And I plan to add to my position, perhaps substantially. It is not without risks and certainly if there is a general market decline it will fall in price. But overall it seems likely to be a very good investment.

On Friday the S&P rose 0.6% while Toronto was flat.

On Friday I was tempted to add to my Liquor Store N.A. position as the price fell. But given the rating was only (lower) Buy and the price is only down 4% since that rating it may be wiser to wait until the next earnings release comes out. Or I may enter some stink bid and see what happens.

October 10, 2013

In a remarkably strong day on the markets, on Thursday the S&P 500 rose 2.2% and Toronto rose 1.3%. Apparently this was due to meetings that were expected to take place after the close on Thursday. The rumor was that the Republicans would allow a six week extension to the debt ceiling. It seems remarkable that just a (lousy) six week extension could make the market so happy. Clearly the market is not very fearful of the shutdown and the debt ceiling.

Almost all of our stock picks were up, with many rising over 2%.

Early in the trading day there was news that Canadian Tire’s REIT was all set to go and they would be selling 15% of the REIT and keeping 85%. Around noon, the rumor was confirmed.

So with Canadian Tire now at $93.88, it may be a case of “what you see, is what you get”. That is , the REIT may now be fully priced into the stock. The next driver for the share price (aside from movements in the overall market) might be the Q3 earnings release. I expect that it had a strong Q3 but it likely incurred costs related to the REIT and it is not clear whether the market will essentially look through those earnings and focus on adjusted earnings.

Again, I have not looked at the REIT and am not really interested in it.

October 9, 2013

Stocks rose slightly on Wednesday with the S&P 500 up 0.1% and Toronto up 0.3%. Our stock picks seemed to do a little better than that on average. Notably, Stantec was up 3.0%. Very few of our stocks were down today.

My order to add a little to my Wells Fargo position at $40.10 got filled today as the stock dropped to $40.07. It closed at $40.36.

My buying on this dip caused by the political theatrics in the U.S. has been pretty cautious. Perhaps I should have grabbed CN, Stantec, Costco, Berkshires and others on their dips but I felt it was prudent to be more cautious. No one knows how ugly this little situation could get. I am hoping not too ugly at all and I am not expecting it to be too bad. But it’s nice to retain some cash just in case.

October 8, 2013

Another down day as the S&P 500 fell 1.2% and Toronto was down 0.8%.

Wells Fargo got down close to buy order of $40.10 but did not quite get there.

Alcoa was out with good earnings to kick off the earnings season today. But it’s probably going to take an end to the political nonsense to turn the market around at this time. Strong Q3 earnings will not likely over come the impacts of the political impasse. But that too shall pass.

October 7, 2013

The S&P 500 fell 0.9% on Monday but Toronto was up 0.2%/.

Wells Fargo closed down 1.7% to $40.62. I have an order in to add to my position in this company at $40.10. I have a few such “stink bids” in but this is the only one that is remotely close to being “hit”.

October 6, 2013

This week we should expect more nervousness due to the U.S. government shutdown and the pending debt ceiling limit. As of Sunday night the DOW was projected to open down 74 points.

We should soon hear news about the final prospectus for the Canadian Tire REIT. Presumably things are moving ahead with that. If so we might see Canadian Tire’s shares rise a little on the news. On the other hand it is always possible that Canadian Tire is finding little institutional support for the REIT in which case Canadian Tire’s shares would take a hit. But I suspect the REIT process is going reasonably well. The REIT offering closes the week of October 21, and I am not sure if we hear much news before then. Possibly the final prospectus would come out some time before that.

Also this week we should start to see the first of U.S. companies report their Q3 results.

October 4, 2013

The market and our Stock Picks have weather the first four days of the government shutdown quite well.

On Friday the S&P 500 was up 0.7% and Toronto was up 0.2%

Most of our Stock Picks were up on Friday.

Toll Brothers however was down 3.2% to $31.06 on concerns that the shutdown would slow or prevent closings on new home sales since they require government mortgage insurance (which is apparently shutdown). Also title insurance may not be possible with the government shut down. This allowed my order at $31.01 to be filled as the stock dropped slightly below $31 at one point. It was a just two weeks ago that I had sold some Toll Brothers on a pop up top $35.01. I am happy to have bought back at $31.01 half of the shares I so recently sold at $34.01. My purchase price is 11.4% lower than the recent sale price.

October 3, 2013

And so the market was sweating a bit more today…

S&P 500 down 0.9%, Toronto down 0.8%

Most of our stocks were down a bit. I have some orders in to buy on dips but none of my prices were hit yet. I don’t want to get in a big hurry and buy heavily on say a 3% dip instead it’s more like start to nibble on say 5% dips (although I don’t use any strict rules, so my bids were not precisely 5% under recent prices). I would nibble slowly if the market keeps going down since I would not want to spend all the cash too early. And I am not saying the market will go down. I treat everyday in the markets as a surprise. Anyone who thinks markets are predictable in the short term should prove it by using options and leverage to get rich fast. I don’t know of anyone who has done that.

Next week we will start to get a few Q3 earnings reports. Possibly that will take some attention of the government issues.

October 2, 2013

It seems the market started to sweat a bit today about the shutdown and the pending debt ceiling issue.

The Dow was down 0.4% although the S&P 500 and Toronto were down only very marginally. Actually a good number of out r stock picks were up today. Melcor was down to $19.06 and I believe it is quite attractive at that price.

Futures tonight are suggesting the Dow will open down 32 points. This afternoon Obama said that Wall Street should be worried. So far it is not much worried.

It is certainly possible that we will see some ugly down days ahead. Some people will have sold out of fear. If we did that every time there was something big to worry about we would never own stocks. So, while it could be a rough ride I have always found that basically riding out the storms has worked well. If stocks happen to decline materially I have cash and will be buying. I really can’t predict where the market is headed in the short term and that has never been my strategy. I react to what the market does and I try to buy bargains and do some selling high and buying low. Selling low has never been part of the strategy for me.

October 1, 2013

Well, it was another interesting day on the markets. How much more interesting does it get than a U.S. government shutdown? But actually the market just yawned and went up. I suspect the market will gyrate around now, this shutdown may be amusing and easy to ignore for a day or so but after a bit the market certainly might get nervous.

Today the S&P 500 rose 0.8% and Toronto rose 0.5%. Most of our Stock Picks were up.

It was interesting too, that the price of Gold fell. I have absolutely no ability predict the price of Gold but clearly today is a better time to buy than when it was at $1800 or whatever. I don’t have any plans to buy Gold but you never know perhaps the mood wills strike me at some point. If I were to buy I would go with one of the Gold ETFs that hold physical Gold. These are listed on my ETF article. But maybe the fact that Gold fell today is telling in that even the doomers are giving up on it.

September 30, 2013

So far the budget show-down and government shutdown theatrics have been something of a non-event for North American stock markets. The S&P 500 fell 0.6% today, so that was not much of a reaction. Toronto fell 0.4%.

Perhaps there will be more reaction on Tuesday if and when the shut-down actually begins. But it looks like there may not be any big reaction. Futures as of almost 10 pm eastern time point to the Dow opening 50 points higher however much can change by morning.

September 30, 2013 7:10 am Mountain time 9:10 eastern)

Given the antics and theatrics to the budget legislation and “government shutdown” in the U.S. the DOW was set to open 142 points down. While anything is possible this is likely to be a temporary situation. It could last most of October giving he pending debt ceiling theatrics that are pending. My strategy would be to buy on dips but slowly, and certainly keeping some funds in cash.

U.S. markets are up a lot this year and so at least a minor decline does not seem like such a big deal to me.

September 27, 2013

On Friday the S&P 500 fell 0.4% and Toronto was about unchanged. U.S. markets have fallen moderately due to concerns that the Congress will fail to pass a budget bill by Monday which would force a shutdown of many government departments. There is a also a looming debt ceiling that needs to be lifted. This all appears to be politics and theatrics and is likely to get resolved. Those positioned with some cash to spend on dips may find some bargains.

Dollarama is updated but rated only Weak Buy at $84.30. This is a great company. One of the best managed companies that I know of. But is simply seems to be too expensive. Admittedly I though the same when I added to this site in early 2012 at $43.49. So, I guess I missed this one. But the reality is that I have a system that seems to work well for me. My system is more likely to identify more obvious bargains than Dollarama. My system tends to assume that a company growing at 30% will not keep doing that. When a company does keep growing earnings per share at 30% it may well be that I will not have bought that company or rated it a Buy. (Though I did rate Dollarama a (lower) Buy in December 2012 at $58). I don’t worry much about the stocks I miss out on. There are always hundreds of stocks rising in price. We can’t own them all or hope to identify them all or anything close to that. My goal is that the stocks I do own or do rate as Buys rise acceptably in value. If that happens on average, we will do okay.

In any case I like keeping an eye on Dollarama since it helps me understand what kinds of things can lead to excellent profitability in a retail operation.

September 27, 2013 at 11:30 am eastern

The Dow is down about 100 points or 0.6% this Friday morning. Apparently this is due to concerns about the debt ceiling in the U.S. that needs to be raised. It’s basically impossible to know how much the market will decline as this situation unfolds. I have mixed feelings about it. On the one hand I never like to see my portfolio value decline. On the other hand the dip is likely (but not guaranteed) to be temporary which creates buying opportunities.

September 25, 2013

On Wednesday the S&P 500 was down 0.3% and Toronto was down 0.1%.

Most of our stock picks were down.

Canadian Tire was down 1.5% to $92.39. But earlier in the day it reached a new high of $94.93. As mentioned under September  16, I had placed an order to trim my position at $94 and a bit more at $95. So about 10% of my Canadian Tire shares were automatically sold as the price hit $94. My offer at $95 is for about 5% of my shares.

Back on September 5 I had placed an order add a little to my Melcor position at $19.17. Until today the price refused to drop that low and instead seemed to hover around $19.30. But today it dipped below $19.17 and my buy order was filled.

While I can never be sure of where prices will head, Melcor seems like a better bargain than Canadian Tire right now and so I am happy with the above trades.

It seems the market dropped in part due to fears that the U.S. government would have difficulty passing legislation to raise the debt limit and would therefore run out of cash. But I don’t think the market will react all that much this time around. After all we went through this nonsense in August 2011 and it got resolved so the market will likely assume it will get resolved. Still it could be a catalyst for a “correction” (also often know as a buying opportunity but occasionally is the start of something worse).

Apparently there was also a rumor that Wal-Mart had curtailed orders to lack of sales but Wal-Mart denied this.

September 24, 2013

Tuesday was another decent day for our stock picks.

The S&P 500 was down 0.3% and Toronto was up 0.3%

We had Toll Brothers up 2.2% after reports that house prices continue to rise in the U.S. and after a home builder reported good earnings. Canadian Tire was up another 0.5%. Stantec was up another 1.9%. I sold half of my fairly small Stantec position today. Sadly I had sold a third of my then Stantec position back on January 3 at prices quite a bit lower than today. The Stantec shares that I have left are in a corporate margin account and I don’t plan to sell that since I don’t like to needlessly trigger either income tax or even the burden of calculating the income tax. I make well end up regretting today’s sale of Stantec since it is such a great company. But as we should all be aware markets, and especially individual stocks can surprise us with losses at any time and so building cash and trimming some positions as they rise does seem prudent.

September 23, 2013

Monday was another interesting day in the markets. It seems like it’s been a few years since we have had even a week where markets were totally boring.

The S&P 500 was down 0.5%. Toronto was basically flat.

Blackberry / Research in Motion has a tentative agreement to be bought out for $9 a share. It’s apparently subject to 6 week due diligence period. Blackberry is free to accept a higher bid if one should materialize before the proposed deal closes or becomes more firm. The current bidders would receive a $150 million termination fee in that event.

The bidding group is led by Prem Watsa at Fairfax Financial. He has been called the Canadian Warren Buffett. Of course, he is nothing of the sort. Buffett generally only invests in companies where it seems reasonably certain that the company will be around and be much larger in 10 years. That hardly describes Blackberry. Also Buffett would require good management in place. That also hardly describes Blackberry. Buffett also says that turn arounds seldom do turn. Good luck Prem Watsa.

Canadian Tire was up 1.7% to $93.25 today. Not a huge jump but certainly interesting on a day taht the markets were generally weak. Canadian Tire jumped around 1% quite suddenly at noon. It’s possible that its planned REIT IPO has moved closer to reality. Or perhaps some analyst up-graded Canadian Tire today. Recent declines in interest rates (a modest decline which occurred with the Fed’s failure to taper) should help bring a higher price for the REIT. For the most part I am holding my current Canadian Tire position but I do have order in to trim slightly at $94 and $95.

Stantec was up 2.3% to $54.42. That is a gain of 37% this year on top of a 44% gain last year. While it does not look overly expensive I am nevertheless tempted to sell or trim my position. This has been a truly wonderful investment over the years. It can be volatile at times but over the years it has grown hugely.

September 21, 2013

My personal portfolio composition is updated. My four largest positions, Wells Fargo, Canadian Tire, Melcor and Toll Brothers make up a hefty 58% of my equities and 46% of my portfolio. There is no doubt that that is risky. If one or more of these take a significant drop ( a drop unrelated to the overall market) then I may come to ask myself how I let the portfolio become so concentrated. On the other hand I have followed these stocks for years and I am comfortable with them.

If I was not prepared to live with some (perhaps substantial) down-side risk I simply would not be able to hold this portfolio.

Contrary to what I said in my note of September 19, I did in fact sell 12% of my Toll Brothers shares on Thursday morning at $35. These shares closed Thursday at $33.84 and I had not realized that just after the opening on Thursday they had gone up to $35.01. I had mentioned I had put in orders (above market) to trim this position. In this case the order seems to have worked very well. I mentioned earlier that I had added to Toll Brothers as it fell. The 600 shares I sold at $35 were purchased around $31 within the last month. I don’t think this sort of thing would be worth bothering with if I held only say 300 shares in total. When I started this web site in 1999 it was normal for me to own 100 or 200 shares of something like Toll Brothers. As my portfolio has grown I can play the volatility up and down like this. (Though there is no certainty that will work out better than just selecting a good investment and then holding it until the price seems clearly too high.)

My cash position is now 37%. The rest is equities. I hold no bonds or preferred shares at this time.  While building cash has lowered my return this year (but I am still up a very satisfying 24% or so), I don’t regret the higher cash position and may try to move it even higher. Perhaps a high cash position makes good sense considering my concentrated portfolio. This way I have the cash to grab bargains if we do see a general decline in the markets or if one of my larger holdings tanks. There are no easy answers to the asset allocation question and certainly the right amount of cash and bonds versus equities varies widely according to individual circumstances.

On Friday the S&P 500 was down 0.7% and Toronto was down 0.9%. Most of our stock picks were down. Visa was up another 2.2% to almost $199. We had thought it was already too expensive. But as I have said many times before in relation to Visa, “it’s hard to keep a good monopoly down”. (See the report for our comments on the extent to which it has some monopolistic characteristics). It’s has not gone straight up by any means, but VISA is up 241% since we added it to this site in April 2009, just after the bottom of the big stock crash, at $58.24 rated Buy. And it is up 150% since we rated it in the Strong Buy category at $79.41 on May 6, 2011. But again at this price of $199 we are not fans.

September 19, 2013

Not to say that markets are predictable at all, but the fact that the market today gave back some of the previous day’s gains is certainly not surprising.

The S&P 500 was down 0.2% and but Toronto was basically unchanged.

A notable decliner was Toll Brothers, down 2.2%. I did not trim my position in that as I mentioned I might. I have an order in to trim at $35.

Boston Pizza was down 2.5% $22.25. I would have thought it should be rising like most of the other higher yield investments. However our last update was (lower) Buy at just under $20, so I am not a buyer at this point.

I am somewhat inclined to build my cash position a little higher. (I plan to update the page showing composition of my portfolio within a few days). I do have some orders in to trim Canadian Tire and Toll Brothers and it would nice if the prices would rise up and trigger those sells. But it is anyone’s guess if that will happen. We have had a lot of gains this year and certainly further gains are NEVER guaranteed (especially in the short term).

I notice that Buffett remarked today that stock prices were such that finding stocks to buy was not easy. On the other hand I am pretty certain he is not about to start selling Wells Fargo or Bank of America or Walmart. Buffett said that stocks were more or less fairly priced.

September 18, 2013

Well THAT was unexpected. Fed says slowdown in its bond buying just yet and so the markets rose. DOW and S&P 500 at record levels. Toronto apparently at a two year high.

S&P 500 up 1.2% today, Toronto up 0.8%.

It’s another example of how unpredictable markets are in the short term. That is not necessarily a bad thing at all, it just a characteristic of the markets and one that can be used to advantage as well. I had thought I had an order in to trim some more Toll Bothers at $34 but my order was at $35. I may trim that a bit tomorrow if it remains above $34.

September 17, 2013

On Tuesday the S&P 500 was up 0.4% and Toronto was up 0.1%.

Markets don’t move up in straight lines and it certainly would not surprise me to see the market turn down. But, basically the short term moves in the market are unpredictable…

I did sell half of my Constellation software today. It’s a great company but I decided to hedge my bet and take half of it off the table.

September 16, 2013

Monday was a strong day for the markets with the S&P 500 up 0.6% and Toronto up 0.7%.

Most of our stocks picks were up. Most notably Constellation software was up 4.2% to $181.63. I last rated the stock Weak Buy at $142 on May 18. At that time I indicated I might sell half or might not. I did not. Since then it has released an excellent  earnings report and I believe other good news. Still, with this rise in price I am tempted again to sell half of my position. Since it is not a huge part of my portfolio perhaps I will just let it ride. Sorry to be non-committal.

Wells Fargo was up 1.7%.

Canadian Tire was up 1.3% to $93.24. I am tempted reduce my position slightly. I had already reduced a fair amount at around $83 but still hold a large position. If I really wanted to reduce I would use a market order. But since I am not that eager to reduce I will instead place an an order to sell some at $94 and $95. If I only owned a small position in it I would not bother with this sort of thing. Since I have quite a few shares it easier for me to trim a little if and as the price rises.

September 15, 2013

As of Sunday night, markets futures were up on news that Larry Summers is out of the running for the Fed chair job. Also perhaps on confirmation that Syria will not be bombed.

The Summers news seems to illustrate that in the markets news often comes out of the blue. Most investors are better off keeping a relatively fixed percentage of their money in stocks at all times. Market timing does not seem to be a lucrative approach since predicting the future is always difficult.

It’s basically a sure bet that stock markets rise in the long term. So why bet against that?

With roughly two thirds of my funds in stocks and the rest in cash I figure I can do okay no matter what happens. If markets happen to crash I will be buying and eventually it will likely be proven that the decline was a buying opportunity. But meantime I would have to be willing to live with a decline in my investments.

September 14, 2013

On Friday the S&P 500 was up 0.3% and Toronto was up 0.2%

Walmart is updated and rated Buy at $74.36. This is certainly not a stock that is going to double anytime soon. But it’s a relatively simple (despite being huge) company that seems relatively sure to continue to grow over the years and which is trading at a decent price. I don’t own it at this time but would not be adverse to buying and would definitely look to buy if it happens to go back to the $68 range which it could do if its next quarterly report is a little weak or if the markets in general decline for any reason.

September 12, 2013

On Thursday the S&P 500 was down 0.3%. Toronto was down (again) this time down 1.0%.

Almost all of our stock picks were down but Liquor Stores N.A. was up 2.0%.

Toll Brothers was down slightly to $32.47 But earlier in the day it was as high as $33.52. This caused my order to sell a little at $33 to be filled. As noted yesterday i will sell a bit more at $34, $35 and $36. No plans to buy any but I suspect I will buy a little if it heads below $30 though with the amount I have I should probably not buy any more unless it heads to more like $28.

Yesterday I mentioned that entering orders above or below the market can take emotion out of the decision. More importantly it can make sure the sell or buy trigger is actually pulled. It’s one thing to make a mental plan to sell at $X or buy at $Y. It’s quite another thing indeed to actually do it. I mean it is not hard to buy or sell (although it can be tough to pull the trigger in real time) but I think we all make a lot more plans to buy or sell than what we actually carry out.

As of yesterday my own account is up 24% for this year, which is rather surreal (particularly on top of the 28% form last year). That kind of return is not sustainable but it does feel nice.

Yesterday, Kevin O’Leary commented on the Canadian Tire REIT and said he would not touch it because it was all one tenant and not diversified. I believe Amanda Lang even mentioned that it was possible that this REIT IPO will be a failure to launch.

I have not been much interested in REITs. I can never get very comfortable with entities that routinely distribute more than 100% of earnings (they distribute the non-cash depreciation expense). I have not given any thought to whether the Canadian Tire REIT will be a good investment. I am not interested in it.

As a Canadian Tire share owner I am interested in selling real estate to the REIT. I’d prefer if Canadian Tire would sell at least 49% of the REIT to the public, not the mere 10 to 20% that they plan.

But in order to sell any the REIT has to be attractive to REIT buyers.

In general there is no shortage of REIT investors.

But Kevin raises a valid concern about the attractiveness of this REIT. If I were into buying REITs, the single tenant would not bother me much, not when that tenant is very stable and profitable and well financed, as is the case here. What would concern me is the fact that Canadian Tire will own 80% or more of the REIT and manage it in addition to being the only tenant. In this scenario the REIT management may be always in a conflict of interest. But Canadian Tire is setting it up with long-term fixed leases so that eliminates much of the concern. (They can’t lese property to the stores at bargain rates). And I suspect the REIT management will be strongly incented to work for the REIT’s benefit, not for the the parent company’s benefit.

But the bottom line is that is some danger that this new REIT will not be well received. That would mean it fails to launch or it gets the properties at a bargain price (a high yield is required).

If the REIT failed to launch then Canadian Tire shares would fall in price. But that would be a buying opportunity.  If the REIT is is initially priced too low (yield is too high) then that is not such a big deal since only 10 to 20% of the REIT is actually being sold to new owners. In that case the Canadian Tire shares would fall a little but probably not too much.

The bottom line for me is I am pretty satisfied to have sold some of ]my Canadian Tire shares on the way up but to still be holding a very large position. The stock price may rise or fall and I can react accordingly. (Sell on rallies, buy on dips). There is never certainty, but I am comfortable with this investment.

September 11, 2013

On Wednesday the S&P 500 was up 0.3% and is just a shade under its record high of early August. Toronto was unchanged. The Toronto stock index remains noticeably below its highs of early 2011. It’s all time high was back in 2008 before the credit crisis. At last check Toronto seemed reasonable valued at this time. I would not chase the higher performance of the U.S. market at this time. I would tend to have investments in both countries. I have nothing against investment sin Europe and many other parts of the world but have simply not looked at individual stocks in those places and have not looked too closely at global ETFs, though what looking I did did not seem to turn up compelling values although some of the countries were deemed attractive.

Most of our stock picks were up today. But as far as my own portfolio goes, the most notable gainer was Toll Brothers up 2.6%.

Recently I had added to my own already large position in Toll Brothers as its price fell. I bought shares at $32.08 (July 24),   $31.21 (August 14) $30.53 (August 28)  and $30.15 (Sept 5). Roughly, this took my allocation to Toll Brothers roughly from about 9% to about 12% of my portfolio which could certainly be considered risky. (Perhaps over indulging my appetite for this stock as it fell).

Toll Brothers closed today at $32.50.

So I now ask myself if I should start to trim? I think I should and so have now placed orders to sell just these recent buys at $33, $34, $35 and $36. That is, if it happens to hit those prices in the next month. I don’t know if this sort of add on dips and trim on rallies will work out well or not. I often do  this to some degree on an ad-hoc basis, but pre-entering the orders will take any further emotion out of the picture and also allows me to sell even if the stock blips above my sell price only briefly. In any case I will still have quite a large exposure to Toll Brothers even if these sells are all hit.

Recent buy orders that I placed to buy Canadian Tire, Costco, CN, Berkshire and Canadian Western Bank below the recent market price (of a week or so ago) now seem rather unlikely to be filled. But one never knows in the markets. Movements can be sharp and unexpected. The notion that markets are ever or were ever predictable is simply a rose colored view of history.

September 10, 2013

And Tuesday was another good day for the U.S. market with the S&P 500 up 0.7%. Toronto managed to be down 0.2%. The Canadian market has seriously under-performed the U.S. market this year.

Canadian Tire released its preliminary REIT prospectus today. There was no reaction in the Canadian Tire share price. Perhaps there will be a bit more reaction tomorrow after analysts get a bit more time to digest the numbers. I thought perhaps it was showing the real estate was worth slightly more than previous estimates. In any case the REIT transaction is pretty well priced into the stock at this point and so probably we can’t expect much more from the Canadian Tire stock price when the REIT hits the market which could occur with a month I suspect. Canadian Tire is planning to sell only 10 to 20% of the REIT and retain the rest. I’d prefer to see them sell more and cash in while the REIT market is still paying a lot for real estate due to low interest rates. Selling 10% of the REIT does (and has) surfaced value but it is really just financial engineering. Selling half or more of the REIT would be more of a true substantive transaction. Canadian Tire was also looking for some kind of bank partner for its huge credit card operation and that could give us another boost to the share price.

Today I saw that Liquor Stores N.A. was down under $15.50 so I added to my position in that company. I bought at $15.35. I only had a small position so decided to add to it. It is not one of my higher rated stocks but then again it is the highest yielding selection on my list and it gives me some diversification.

September 9, 2013

Monday was a good day in the markets with the S&P 500 up 1% and Toronto up 0.3%. Most of our stock picks were up.

Toll Brothers was up a hefty 4.7% to $31.87. Therefore my recent buys of that stock may have been good timing. It certainly has its risks. Wells Fargo and Bank of America have both indicated that mortgage business will be down noticeably in Q3. Yet both rose today.

Most of the stocks I own (or at least the industries they are in) would seem to be economically sensitive. That is they do better as the economy improves. (I suppose most stocks do netter with the economy but certainly commodity stocks and many individual companies can be disconnected from the economy). One could argue that much of our success in the last 20 months in particular has been based on a certain amount of faith or a bet that the economy was doing better. But I also look at the the valuation of each company and try to avoid being in stocks that are too rich in terms of the P/E ratio (Toll brothers being an exception as it is much more cyclical and still working its way out of a huge profit slump).

The next update will be for Wal-Mart. I try to think of these as companies not just stocks and not just as ratios from financial results.

I find it interesting to try to get a grasp of the size and nacre of the business.

I have read Wal-Mart’s January 2013 annual report and based on that my summary description of Wal-Mart is as follows:

Wal-Mart operates retail stores in various formats around the world based primarily on being a low cost provider of general merchandise and groceries in (mostly) large format stores. It is the largest retailer in the world and groceries account for more than half of its sales. It is the largest grocer in the United States. The company had revenues of $469 billion in fiscal 2013. Total assets were $203 billion and total invested equity was $76 billion.

Wal-Mart’s U.S. stores accounted for 37% of the store count, 60% of the square footage, 59% of sales, 71% of operating income and 49% of assets. International revenue accounted for approximately 57% of the store count, 32% of the square footage, 29% of net sales and 22% operating income and 44% of assets. Sams warehouse clubs accounted for 6% of the store count, 12% of sales, 8% of the square footage, 7% of operating income and 7% of assets.

Operating in 27 countries including the United States with 10,700 stores, 1072 million square feet and 2.2 million employees. Outside of North America it uses about 66 different local banner names. Major Countries outside of the Unites States are (in declining order of store count) Mexico, Central America (Guatemala, Costa Rica, El Salvador, Nicaragua and Honduras) United Kingdom, Brazil, Japan, China, Canada, Africa (largely South Africa), Chile, Argentina and India. No stores in Europe (except the UK) and just twenty in India. It appears from the balance sheet that it owns the great majority of its land and buildings, although it certainly rents a significant number as well.

Wal-Mart may be a boring business and it took over a decade to get back to (and then surpass) its share price high that it set in 1999. In 1999 stupid investors drove the share price far too high. No fault of Walmart’s. I added it to this site in April of 2006 rated Buy at $46.79. It’s up 55% since then. Not spectacular in seven years but certainly not bad at all. Given the recent price increases it may not be much of a Buy at this time. I will evaluate that after I crunch the numbers in the next few days. But I think we can be pretty certain that it will continue to grow over the years. It still has a lot of the world left to conquer.

It was interesting to read today that the Canada Pension Investment plan is a major partner in buying Neiman Marcus for $6 billion. This is a luxury department store chain of some 42 large stores an outlet chain called Last Call. It’s not obvious to me that a luxury department store is a great business. I believe it would sell mostly luxury brands but those same brands would be available in other stores as well like Saks. Perhaps the luxury bands themselves are able to impose rules against discounting and therefore keep the prices up. To my mind it is the various luxury brands that are the better business and not the luxury department stores that sell the brands. I believe people have  a lot of brand loyalty but I doubt there is a lot of loyalty to a particular store. But perhaps Neiman Marcus has a lot of in-house brands as well. When it comes to retail it seems like the Dollaramas, the Costcos and the Walmarts that offer the best value to consumers may be the better businesses by far.

September 8, 2013

On Friday the S&P 500 was unchanged and Toronto was down 0.2%.

I entered some orders today to move some cash in my TD Waterhouse investment accounts into TDB 8150. I understand this account pays 1.25% per year as noted int he bottom row of the table of stocks picks above. Rooting around the TD site and also on sedar.com I was not able to find the current interest rate but I believe it is still 1.25% per year. Mostly I just leave my cash in the investment account cash category so that it is instantly available for investment. However, at this time I have relatively large cash balances and so I figured I may as well collect some interest.

In my RESP account I only had three stocks (Canadian Tire, Melcor, and Toll Brothers) and a lot of cash (having recently sold some shares in that account) and so I just placed an order to buy some Wells Fargo for that account. In this account I also have orders in to add to the Canadian Tire and to buy Canadian Western Bank – but those orders are below the market and may not be filled.

September 5, 2013

On Thursday the S&P 500 was up 0.1% while Toronto was up 0.7%

Our stock picks have done well the past few days.

Canadian Tire is at $91.65. That is a gain of 32% this year. Whenever I mentioned Canadian Tire as a good investment over the past few years I was usually met with a look of deep skepticism and confusion. When this stock was trading around 115% of book value last Fall it was pretty clear it was under-valued (see my comments of last December 8 and December 3). Good investments do not have to glamorous. Now at about $92, it’s not the bargain it was. But management is still working to “release value” with its pending listing of its real estate in a REIT. Canadian Tire is up an even 300% since it was added to this Site in February 2000. It happened under the noses of investors and shoppers but few suspected it was one of the better investments to choose in 2000 or in late 2012 and at various (but not all) times in between.

With Toll brothers touching $30 and a bit below I added a few more shares today. Also I placed an order to add to my Melcor position at $19.17.

North American auto sales are back to record levels. There is much skepticism about the U.S. economy but it seems to chugging along pretty nicely.

September 3, 2013

On Tuesday the S&P 500 was up 0.4% and Toronto was up 0.7%.

Canadian Tire was up 2.2% and Stantec jumped 4.7%.

Shaw Communications fell 5.8% probably because its wireless spectrum that it plans to sell has declined in value now that Verizon will not enter Canada.

Many investors constantly try to predict where the market is headed. Last week many were convinced stocks would fall due to Syria. Over the weekend that got at least delayed and so stocks rose on Tuesday.

I find it better to acknowledge that in the short term the markets and certainly individual stocks can move unexpectedly. I don’t don’t think I can predict short term movements. But I can take advantage of them when they occur. I can trim stocks that rise unexpectedly and buy stocks that fall. Sometimes that won’t work out but on average it seems a reasonable strategy. Another strategy I use is try to be invested in good quality companies. With good companies that seem well priced I am comfortable buying on dips. If I had no idea at all what a stock “should” be worth then I would be like most people and not comfortable buying on dips. The more familiar I am with a company and the more confident I am about its value then of course the more confident I can be in buying on dips. Market volatility can be very much the friend of the informed investor.

September 2, 2013

Melcor is updated and rated (lower) Strong Buy at $19.36.

Toll Brothers is updated and rated Speculative Buy at $30.61. It’s a good company but the share price is already pricing in a very large earnings recovery. Given the need for earnings to rise rapidly to justify the share price, it is a speculative pick. I originally added it to the site in June 2011 at $21.03 as a way to participate in the U.S. housing recovery. I have quite a large exposure to this stock, it is my third largest position. I have continued to buy as the price fell recently. Possibly I am getting too emotionally attached to this stock.

Recently longer-term interest rates have risen while short term interest rates have remained near zero. In isolation, this bodes well for banks since get higher interest rates on loans and bond investments while continuing to pay very little on deposits. Perhaps higher interest rates will slow mortgage sales. But overall the outlook for U.S. banks seems strong. Our picks there are Wells Fargo and Bank of America. I have not looked at any other U.S. banks and therefore have no opinion on any others.

August 29, 2013

Canadian Western Bank was up 4.7% as fears of insurance losses due to Alberta floods were mostly unfounded. I hope to buy back the shares I sold on that fear but it’s hard to buy back at a higher price. I entered an order to buy a bit over $28.

Markets rose today despite Syria. I don’t think it’s worth bothering to try to predict short term movements, instead I focus on trying to take advantage of random movements in individual stocks. Trim a little on gains, buy on dips, or just hold good stocks and forget about it.

August 29, 2013

On Wednesday the S&P 500 was up 0.3% and Toronto was up 0.1%.

A notable gainer was Constellation software up 2.8% to another record high. It’s a great company by seems expensive at this point. I will think about reducing my position.

After the close, Canadian Western Bank came out with earnings. Given the storm damages in Alberta (where they insure some cars and homes), the earnings seemed surprisingly good to me. I would like to buy back the shares that I sold several weeks ago.

August 28, 2013 10:40 am eastern time

With the markets down yesterday, I decided today to enter of a few trades. I bought some Toll Brothers. I also entered hopeful bids on some stocks. Canadian Tire at $83.10, Costco at $105.10, CN at $95.50 Berkshire at 105.10. I just add the 10 cents in case there are a lot of bids at even dollars in which case I will be a bit ahead of those bids.

August 27, 2013

On Tuesday the S&P 500 fell 1.6% and Toronto fell 1.3%. This was apparently due to fears of U.S. involvement in the troubles in Syria.

Such world events have never factored much if at all into my investing. I have never, to my recollection,  sold due to fears of such events. Instead I try to trim positions that seem fully or over-valued and I buy what seems to be good value. I try to keep some cash around to take advantage of lower prices when from time to time. In keeping with that I added a bit to my Wells Fargo position today. My inclination will be to slowly add to positions if markets decline further.

August 27, 2013 7:15 am

I have read the Q2 report for Melcor. It continues to do well. I am confident it will continue to be a good investment long term. Shorter term it would drop if house prices drop and especially if new house construction in Alberta slows. There is always that risk. But overall I am comfortable holding it and I am thinking of adding to my position if I can get it around $19 or a bit over.

On Monday

August 24, 2013

On Friday the S&P 500 was up 0.4% and Toronto was up 0.7%.

Toll Brothers fell 3.9% as a report showed that new home sales fell in July. Mortgage rates are still low but have increased quite a lot in recent months. Still Toll Brothers management was quite upbeat in its earnings release last week.

With the Canadian dollar down near 95 cents I transferred some U.S. dollars to Canadian. Generally I view my U.S. investments to be permanently in U.S. dollars but I ended up with more cash in U.S. dollars than Canadian and it seemed opportune to transfer some to roughly equalise the cash in each currency. I don’t really want to transfer any more but I would be tempted to do so if the Canadian dollar fell to 93 cents or especially to 90 cents.

August 23, 2013, 9:15 am eastern

On Thursday the S&P 500 was up 0.9% and Toronto was up 0.8%.

This week Target’s earnings report indicated that its new Canadian stores “contributed” a loss of 21 cents per share. There were also indications that sales were slow and customers were disappointed that prices were higher than in the U.S.

From the start I noted that Target in Canada would not have great prices because for one thing it paid so much for its leases, $1.8 billion paid to take over the Zellers leases, then $10 or $15 million to expand or completely renovate each store. After all of that there was still rent to pay. Target now reportedly expects it may not start making money in Canada until 2015. Some things in business are hard to predict but this seemed reasonably predictable. Though I don’t recall any mention, in Canada’s business news, of the high occupancy costs that Target was facing in Canada.

August 22, 2013, 7:30 am eastern time

On Wednesday the S&P 500 was down 0.6% and Toronto was down 0.8%

Market declines are not all bad news since they provide a chance to buy good companies at more reasonable prices. CN and Costco come to mind.

Toll Brothers released good earnings on Wednesday morning but the stock was about unchanged on the day. With its high P/E this stock was already pricing in good earnings growth. The company has been able raise house prices substantially this year and expresses confidence that sales growth will continue for perhaps several years.

August 20, 2013

On Tuesday, the S&P 500 rose 0.4% and Toronto rose 0.6%. Canadian Tire rose 2.6%, more than recovering yesterday’s decline.

Toll Brothers rose 3.1% ahead of its earnings release scheduled for tomorrow morning. Stantec was up 2.1%.

Seeing these fluctuations it often looks like one could make money by constantly placing sell orders for a portion of holdings 2% or so above market and buy orders 2% below. I imagine the academics have tested this and it is unlikely to be that easy… also it takes nerves of steel. And the selling on small rises might wipe out the chance to ever make much bigger gains.

I bought a small amount of shares of Liquor Stores N.A. today at $15.80.

August 20, 2013 (10:15 am eastern)

Liquor Stores N.A. Subordinated debentures are added to the list above rated (lower) Buy at $104. Yielding 4.6% to maturity in April 2018, and fully taxable these are not too exciting but may be a reasonable choice for fixed income. I note that, for example, Bombardier pref shares have a higher yield, but they also have a higher interest rate risk as they are perpetual. I am not sure I will buy any of these, if I did I might enter an order at $100 and see if I get any. I may buy the common shares instead.

August 19, 2013

Liquor Stores N.A. Ltd. is updated and rated (lower) Buy at $15.98. While the yield is quite attractive, keep in mind that a good yield is nether a sufficient nor a necessary feature of a good investment. I’d be willing to take a relatively small position in this.

I will provide some analysis of its convertible debentures tomorrow. They trade at 104% of par but I would consider placing an order at par and see what happens.

On Monday the S&P 500 was down 0.6% and Toronto was down 1.2%

Toll Brothers was down 3.4% as apparently all the home builders fell on fears that higher interest rates will slow the housing recovery. Canadian Tire was down 1.5%.

Interest rates have risen again this past week. I have no idea whether this is the start of a trend up or just another bump that may soon be retraced. I do think that ultimately interest rates will rise but I can’t guess when.

Preferred shares and all high yield investments tend to decline in price automatically with higher interest rates. Especially longer term and perpetual high yield investments.

August 18, 2013 

On Friday the S&P 500 was down 0.3% and Toronto was up 0.3%.

Our stock picks were mostly up.

I have read the reports for Liquor Stores N.A. and crunched the numbers and will plan to post the report on Monday. As of right now I would rate it (lower) Buy at $15.98. I may buy some. The convertible debentures pay 5.85% and trade at about 103 (103% of par). The conversion price is $24.90 and maturity is April 30, 2018.  These are worth considering as fixed income. I might enter a buy at 100 and see if I can get any.

August 15,2013

On Thursday the S&P 500 was down 1.4% while Toronto was up 0.5%.

Several companies including Walmart reported weak results which has the market worried about growth.

Most of our stock picks were down. A notable exception was Toll Brothers, up 3.4%.

If stocks go down I will be looking to add to positions. But I don’t want to rush to buy anything.

August 14, 2013

The S&P 500 fell 0.5% on Wednesday and Toronto was about unchanged.

Couche-Tard was down 2.9% to $58.48 and is worth considering.

I expect to have an update for Liquor Stores N.A. and Melcor by about Sunday.

I am off for a family trip early tomorrow to Moncton where I have been many times to visit relatives and then later on to my homeland in the Sydney area of Cape Breton where my family has operated a successful and well maintained Motel business for almost 50 years now. These days I don’t think anyone would be wise to open a single location independent Motel or Hotel but my family’s property has managed to fend off the challenge of the bigger chains for decades now. If you are thinking you would like to own your own small business, you might like my article that compares owning a business to owning shares through the stock market. Both are investing but there are a lot of differences too. (A publicly-traded company you own shares in won’t give you a job just because you own shares, but neither will it call you about a plugged toilet).

August 14, 2013 11:15 am eastern

Melcor released earnings this morning. At a quick look I think the earnings are good and the outlook positive. The headline numbers show a drop in earnings due to the costs of setting up the REIT. However I agree with the company that the adjusted earnings that show an increase in earnings per share are more relevant.

I added modestly to my Melcor position this morning.

With Toll Brothers down the last few days I also decided to pull the trigger and add modestly to my Toll Brothers position this morning.

A few subscribers have asked about Liquor Stores N.A. where the share price has declined noticeably after an earnings release. I have taken a preliminary look at the earnings release but have not yet ran the numbers, which I plan to do. I am inclined to Buy at this price. The earnings release did show some some negative items on an adjusted basis and seemed to indicate the next year had some headwinds. But I suspect that the company will continue to do well in the long term.

Bombardier preferred shares have declined partly due to higher interest rates and partly due to operational issues at the company. These shares do face risks if interest rates rise. Also bigger risk if the company were to really falter badly. But the yield seems attractive at this time and I would be comfortable buying these.

August 12, 2013

On Monday the S&P 500 was down 0.1% while Toronto was up 0.4%. We had Toll Brothers up 1.8%. Melcor was down 2.4% but it is so thinly traded that day to day movements are not very meaningful.

Blackberry was up 10.7% on news that it wants to look at strategic options such as going private or being bought out. It’s pretty sad because this probably means that even the company itself has given up on any real future. This sort of thing is very speculative and I would not be too interested in speculating on it. But but certainly it could see a decent return if the right buyer comes along.

August 11, 2013

On Friday the S&P 500 was down 0.4% and Toronto was down 0.1%. Our stock picks on average were down a bit more than that.

I reviewed the Canadian Tire earnings release and everything seems to be in order. While the valuation is not as compelling as previously, I am still comfortable holding these shares. The last rating was (higher) Buy at about $84. Now at about $90 the rating would likely be Buy. I don’t particularly give any extra value for the idea that they will seek a financial partner for the credit card portfolio but it is probably a positive factor. Both the REIT initiative and this finance initiative will not happen for some n=month yet. And so possibly the share price could retreat a little just for that reason as the market’s enthusiasm could want due to the wait. I would likely be looking to add to my position is the share price fell to about $83. That’s not to say I think it will go to $83 or should go there. I simply own a lot of shares as it is and would not likely buy back unless there were a pull-back to the $83 level.

I have updated the composition of my own portfolio. I am now at 41% cash and 59% equities. In many ways I would rather have less cash. But as stocks rose I have taken profits and so my cash has risen. Also I sold the Canadian Western Bank shares just to wait and see what happens with any insurance losses due to the Alberta floods and other weather events.

August 8, 2013

Canadian Tire opened for trading at $86 but then quickly rose to a high of $90.49 and closed the day at $89.45, up 7.1%. The earnings were decent but an added bump came form the fact that they will seek a strategic partner for the credit card operation. In general its seems like the company is trying to do various things push the share price up, namely the REIT and this partner for financial services. I plan to update the analysis within a few days and I suspect it is still a reasonable buy at this price. I did however sell about 25% of my shares at around $89. I may regret that later but I may get a change to buy back at $83 or so if the stock drops. Usually over time stocks do pull back and don’t advance in straight lines. I had earlier sold some shares in Canadian Tire at $83 just to be prudent since I had such a large position.

The S&P 500 rose 0.4% while Toronto rose 1.3%.

Most of our stock picks were up today. The Q2 earnings have come in fairly strong for most companies both in Canada and the U.S.

August 8, 2013 (7:19 am Mountain)

Excitement about Canadian Tire abating , open now projected at $85.28. Well these things usually take a bit of time to settle out, it looks like the headline earnings growth was 16% but was 4% on an adjusted basis, so okay, but not great as far as earnings.

August 8, 2013 (6:53 an Mountain, 8:53 eastern)

Canadian Tire earnings are out and look pretty decent. Announced intention to do something strategic with the credit card operation (they are not selling the operation). I would imagine the stock would rise on this news.

Sure enough TD is showing the open could be $87 that is the bid / ask right now.

August 7, 2013

Today the S&P 500 was down 0.4% and Toronto was down 0.5%.

Almost all of our stock picks were down as well. Constellation Software was an exception and was up 4.2%. Toll Brothers was down 3.0%.

Canadian Tire is expected to release earnings before the open tomorrow. It’s my biggest holding and I am cautiously optimistic that it had a good quarter. It was a late Spring and so possibly the quarter will not be so good. We shall soon see. I expect the credit card division will have done well.

I was just taking a look to see if Canadian Western Bank’s insurance customers at Canadian Direct are mostly in Ontario rather than western Canada. I could not see a breakdown (there may be but I did not find it). I did read however that they have reinsurance and catastrophic losses. So maybe they won’t be hurt much by the Alberta floods or Ontario floods. It’s really just not obvious to me if they will hurt much or not. The fact they have not announced any losses would seem to suggest that perhaps it was not a big deal for them. (In which case I sold my shares too hastily). On the other hand perhaps they have no obligation to report any losses until they report earnings which is probably early September. If they do have a lot of customers that were flooded by they have reinsurance then the fight will be on to see if the reinsurance is going to cover them. Overland flooding could be excluded. Alberta insurance companies are being pressured to “honor” claims for sewer backup even when technically a sewer backup associated with overland flooding was excluded from the policy. Things could get interesting. There could also be a fair amount of vehicle damage due to flooding, and that typically is covered as I understand it.

August 6, 2013

The S&P 500 fell 0.6% today and Toronto fell 1.1%.

Notably we had Toll Brothers down 2.5% to $32.20. I have consistently indicated that Toll Brothers is a speculative pick because it has a very high P/E which mostly reflects that it is still climbing back from the impacts of the housing crisis. I think the stock tends to get pushed around because it’s hard to know what it is really worth and because of various speculations about where housing prices are headed. I am not much bothered by this decline and I will buy more if it continues to fall. Since I already own a lot of it I put my Buy order at $30.10 though I don’t particularly expect it to fall that far, although it certainly could.

Visa got some bad news today as a judge ruled that the maximum fee on debit transactions should be 12 cents and not 21 cents. Although apparently this make not take affect for quite some months and could be appealed. Before 21 cents was adopted as their cap, I believe Visa was charging more like 28 cents on debit purchases. Also they had some crazy system where they (strongly) encouraged the use of a signature rather than a PIN on debit transactions and then charged the retailer something closer to 100 basis points when the signature was used. I believe retailers sued VISA over that.

Meanwhile in Canada I believe debt transactions have basically always been under about 12 cents and I recently heard they were 8 cents. And that is for the purchase of any amount on a debit card. The retailer pays about 8 to 12 cents per transaction plus I understand the debit machines cost a fixed rate of about $40 per month per machine.

Visa has been trying to expand from its credit cards roots and is now heavily involved in debit cards. Basically Visa would probably like to collect a significant toll on every debit transactions.

But it’s interesting to think about this. It seems to me that the variable cost of a giant electronic network to process payments should be close to zero. And I suspect the fixed costs could be covered if they charged something like one basis point on every transaction (1 cent per hundred dollars). Basically Visa and other payment networks would like to take electronic money transfers that should cost very little and charge very fat margins on them.

Now I am all for making a profit. But I am not in favor of very large profits when the service seems to be a monopoly. And it does look like a natural monopoly situation. One central open network could allow the transfer in either direction from any bank account to any other. We should not need multiple networks. But if its one network then the profit has to be regulated.

It seems to me that until recent years paper cheques were centrally processed for a very low costs. Banks and central banks did this (and still do) in some kind of cooperative fashion. Electronic money transfers should costs a lot less to process than paper cheques and yet the likes of VISA want to charge a lot for it. And they really want to set up as near-monopolies all the while claiming to be subject to intense competition.

In Canada Interac has operated as a non-profit entity owned by the banks. Its costs and charges are very low and it was partly as a result of that that Canada has been at least 15 years ahead of the U.S. in adopting the wide-spread use of debit cards. Visa would like to change that in Canada as well.

Regardless of whether VISA is a good investment at this time (which is not entirely clear), it is not a company whose ethics I respect. The same applies to MasterCard.

Think about it. COSTCO operates on a net profit margin of just under 2%. That is the net compensation to Costco share owners for providing the stores and all that goes with it. Meanwhile VISA and MasterCard seem to think they should earn 2% from retailers for an electronic transaction. Something is wrong here. Visa and MasterCard already charge interest to those who pay late so why do they need this fat 2% from retailers? I suspect they charge it because having established dominant positions as quasi monopolies, they can. With the advent  of electronic transactions why did merchant fees not decline? Something is really quite wrong.

Maybe I am just griping because I sold my VISA too early. But really something is wrong here.

August 5, 2013

Stantec is updated and rated Buy at $50.46. The stock has risen 13% since we rated it a (higher) Buy on May 25. It is up 27% this year. Incredibly, it is up just over 1900% since we first added it to this site as one of our first ever picks and as a Strong Buy in September 1999. Since that time Stantec has pursued the same strategy of growing both organically and by acquisition. It has been extremely well managed. The stock price has certainly faltered from time to time but the business itself has not skipped too many beats. With the recent price increase the stock is not as attractive as it was earlier this year. However it still appears to offer reasonable value. My plan is to hold the shares I have and to look to add more if it should have a pull-back to perhaps the $45 level. (I don’t have any hard and fast rules on that sort of thing but that is my thinking at this time.

August 4, 2013

Visa Inc. is updated and rated Weak Buy at $184. (essentially a hold) This is a fantastic company. However its price has already risen spectacularly over the past few years and it now appears expensive and is pricing in a lot of growth. If I still owned it I would be tempted to sell half of what I owned or not to have a huge position in it. But a small position would be okay.

We first rated Visa on this site as  Buy at $58.24 on April 15, 2009. This was near the bottom of the 2008 2009 crash when everything looked cheap but felt risky. Since then I mentioned many times that it had monopolistic characteristics. Most of the time since it was added to the site it has been rated Buy, it was rated (lower) Strong Buy in May 2011 at $79.41 and at one point prior to that was rated Weak Buy. Also at one point it was temporarily removed from the list for a time as the report had gotten very far out of date. Personally I bought on several occasions but then sold too soon.

On Friday most of our stock picks were up. Most notably Toll Brothers was up 2.8%.

I am sitting with something like a third of my portfolio in cash. I have been missing out on some recent gins because of that but that is okay. I don’t need to swing for the fences. And it seems like we seldom go a whole year without something throwing stocks into a bit (or more than a bit) of a panic so most likely there will be opportunities that way at some point. Having cash at that point will be advantageous. But I don’t advocate being out of the market altogether just because it might fall. It always might fall, but over time it rises more than it falls. And if there is not some general panic at some point, there are ALWAYS individual bargains out there to re-deploy cash at some point..

August 1, 2013

The first day of August was a strong day in the markets. The S&P 500 was up 1.2% to a new closing record of 1707. Toronto was up 0.9%.

I am feeling a bit Giddy about the performance of our stock picks this year given today’s action.

Stantec was up 5.4%. That makes 26% this year (it was rated (higher) Buy at $37.14 to start this year) and a staggering 1903% since Stantec was first added to this web site as a Strong Buy at a split adjusted $2.50 in September 1999. It was one of our earliest stock picks and has been the best overall gainer. Their business model has not changed but they have gotten a LOT bigger. Sadly, it is not one of my own bigger positions but it does represent 4.8% of my equity portfolio. By the way I just don’t go in for the idea of putting something like  1% into a stock. If I can’t put at least 3% in, what is the point? unless it is just an initial buy with a hope to add more. I have not read the latest results and so I don’t know what I would rate Stantec at today. I suspect a Buy rather than (higher) Buy, but I don’t know. I don’t think I would rate it Sell.

Another big gainer was Constellation Software up 6.8%. Based on my latest update (from May) for this stock I suspect it continues to be a great company but looks quite expensive.

Our U.S. bank stock picks were up as well today. Also the Oil sands ETF, CLO up 2.4% on news of TransCanada’s planed pipeline to the east and also the general upward push in the markets on good economic news today.

With all this good news the trick now may be not to get over-confident and too exuberant.

I ended up selling the rest of Canadian Western Bank shares today just because I suspect the next earnings release in early September will be hit hard by insurance losses due to the Alberta floods. I will buy some or all of it back if the the stock does drop several dollars. On the other hand if it does not drop the worse that has happened is I have more cash and will I miss out on some gains in CWB. Well by early September we will see if I have gotten a little too cute in trying to sidestep short-term news on CWB. My usual practice would probably be to just hold on and be prepared to buy on a dip.

And then there is Barrick Gold. I mentioned this company July 1 and July 3 when they pre-announced that they would be having (another) huge write-off for Q2.

Well the numbers are in and they now have negative retained earnings to the tune of almost $5 billion. Now to be fair they have paid about $4 billion in dividends since 1998. But it looks like the grand total of earnings in its entire history is now either negative or some tiny number. This is a company with $18 billion in share capital much of which they have had for some years. They had $13 billion of share capital as far back as 2006. Again to be fair not all of that $18 billion was cash forked over by investors, some it came from issuing shares for a large acquisition (Placer Dome) a few years ago. (it’s unknown how much real investor cash had been put into Placer by actual shareholders and how much was just market gains). Still it appears that quite a few billions (maybe $10 or so, to as much as $13) in cold hard investor cash was placed in the hands of Peter Munk and company at Barrick and their job was to make a return on that money. But with accumulated earnings over all the years since their creation of about zero, they have made no return for their investors. It takes a staggering incompetence to achieve such a record. And to do it over a period where Gold was up hundreds of percent is truly a notable feat of incompetence. (well, in my opinion at least).


July 31, 2013

Today the S&P 500 was about unchanged while Toronto was down 0.8%.

Our Stock picks had a better day than that with Toll Brothers up 3.2% and Stantec up 2.0%. Visa was spanked down 7.5% on a court case loss involving debt card fees. I hope to update the report for Visa very soon.

I sold half of my Canadian Western Bank shares today on the theory that they will announce fairly significant insurance losses due to the Alberta floods. I hedged my bets by (so far) keeping the other half.

I neglected to mention yesterday that I had sold my small Bombardier position. They make wonderful and exciting products but they seem to struggle to make a decent profit level. I held these shares in an RESP account and and had a decent gain on them and just decided to sell.

July 30, 2013

On Tuesday the S&P 500 was about unchanged while Toronto was down 0.7%

Potash corporation fell 16% on news that a huge Russian Potash producer, the world’s largest would exit a pricing cartel. I don’t own any potash stocks (or any commodities for that matter save some oils sands ETF units). My sympathies for those that own it. But as for the company itself I am not too sympathetic at all. Potash Corporation had long belonged to a price cartel called Canpotex. I can’t have much sympathy for that kind of price fixing. Especially when Canpotex probably artificially (and significantly) raised the price of fertilizer which is a nasty thing to do in a world where millions go hungry when farmers in Africa can’t afford fertilizer.

I have no idea what Potash Corporation is worth. This development also illustrates the fact that sometimes things can come out of the blue very unexpectedly.

Other news today indicated that TD Bank announced a significant insurance loss due to flooding in Alberta and Ontario. (That should hardly have been considered a surprise however) I alluded to the same happening for Canadian Western Bank in my July 23 comment. I thought I had probably mentioned it earlier but I don’t see it.

Canadian Western Bank has a home and auto insurance business and will surely have suffered significant losses due to the Alberta floods. I don’t think that is any  concern at all in the long-term but it could certainly push the price down temporarily.

I was very tempted today to sell some of my Canadian Western Bank shares. It might even be wise to sell them all and hope to buy back at a lower price when it announces its insurance losses.

Meanwhile we had Canadian Tire up 1.6%. And FirstService was up over 6%. I have long liked FirstService but it did not look like a buy at all in the last update.

July 29, 2013

The most recent of the free newsletter was sent out…


On Monday the S&P 500 was down 0.4% and Toronto was up 0.2%. I did not note anything of much interest happening with our stock picks.

It is in the news that Hudson’s Bay Company will purchase Sak’s Inc.  for some $2.9 billion. Hudson’s Bay will pay $16 per Saks share. Saks shares appear to have topped out with a needle peak at About $36 in early 1999 and then crashed to $5 and then clawed back to $20 and bumped around only to crash to just under $2 in March 2009 (just another of the sweet sweet bargains that were around in early 2009 as the market was predicting the end of the financial world or something). Then it clawed back to the $10 range and finally then on up to $15 on rumors of a sale.

Apparently Hudson’s Bay can extract some value by selling off and leasing back the real estate. Though one wonders why Sak’s could not have done that themselves.

I visited Saks on fifth avenue, Manhattan in March. As I documented in the daily comments below, I was not overly impressed.  The place was snooty. I am not sure why store clerks have earned the right to be snooty. No price tags on the first floor or two. The difficulty is that these days it is too easy to comparison shop and it’s hard to maintain huge margins even on luxury products unless they are proprietary brands. It’s the luxury brands that have the cachet and not so much the luxury retailers.

I don’t particularly see a great future for this combination, but we shall see.

July 25, 2013

S&P 500 up 0.3%, Toronto flat on the day.

Toll Brothers was down another 1.1% to $31.95 and the low for the day was $31.00.

Visa was up 4.2% to almost $195. Our ratings on this stock for the past few years (as of the start of each year, except as noted) was: 2013: Buy at $151.58, 2012: not on list at start of year but added back on March 28, 2012 rated Buy at $119.35. 2011: Buy at $70.38, 2010: Weak Buy at $87.46, 2009: Added to the site on April 15  rated Buy at $58.24. Over these years I mentioned numerous times that Visa had characteristics of an unregulated monopoly. I sold it too early myself, then bought back and again sold too early. I intend to update the report in the next week or so. I suspect it will look rather expensive at this price.

July 24, 2013

S&P 500 down 0.4%, Toronto was down 0.6%.

We had Toll Brothers down 6.2% to $32.31. This is a more speculative stock given its high P/E ratio. The market seems undecided about this one as contradictory news comes in about the housing market. I grabbed a small addition to my position at around the $32 mark and placed an order to grab a bit more at $30.10 if it goes there. Other than Toll Brothers it seems our stock picks were mixed today, some up, some down, nothing of much interest.

I notice Empire, owner of Sobeys has announced the sale of 68 Safeway stores to Crombie REIT. I am a bit confused about when this would happen because I would not have thought that the Safeway deal had closed yet. I don’t follow Empire. But I think this is impressive that Empire / Sobeys moved this fast. In contrast it is a bit bothersome that Canadian Tire planed something like none months to get its REIT off the ground. Also i prefer the Empire approach of selling off the real estate to an unrelated party. Canadian Tire in contrast is “selling” its properties to a REIT that it will own 80% or so of. In effect Canadian Tire is in substance not doing much at all but is just doing some financial engineering to “release value”. If REITs are willing to pay silly prices for real estate why not just sell to an unrelated REIT and grab a very long term lease?

July 23, 2013

Today the S&P 500 was down 0.2% and Toronto was down 0.1%.

Toll Brothers was up 2.1%. Canadian Tire was down 0.4% despite news that Canadian Retail sales were unexpectedly strong in May. CN fell 3.1% on concern about increased regulations. It’s a great company but still seems expensive. My “stink bid” is set at $90 – probably unrealistically low but you never know what strange things can happen in the markets.

Canadian Western Bank fell 3.6% and the chart shows that almost all of the decline came at the very end of the day on high volume. Possibly some news has leaked about insurance losses in Alberta due to the floods. Or maybe some large institution just needed to sell a lot of shares. This drop does not bother me at all. Canadian Western Bank appears to be a well run and reliable operation. It will almost certainly continue to grow over the years. If, in the meantime the market would like to offer up its shares at lower prices, I am fine with that.

I sold what amounted to 60% of my Berkshire Hathaway shares today and now hold 200 shares.

I was reading in this morning’s newspaper that the price for Alberta heavy oil (from oil sands) is about $90 per barrel and that this price had been as low as $50 in January. I can’t pretend to be able to predict oil prices and have not looked at the oils sands companies. Still it seems to me that the oil sands ETF symbol CLO at just under $13 has not moved much on the recent positive news. And it is well below its historical peak and the P/E ratio at 17 is not that high assuming that profits could improve quite a lot with this $90 price. (However, I am not aware what this price was as a year ago. I recollect from news stories that it was considered quite low last Fall but I am not sure about last July). I understand that certain bottlenecks in Cushing Okalahoma had caused the price differential or spread for heavy crude to be especially large. I understand that the bottleneck situation is much improved due to the reversal of flow of an Enbridge pipeline and also due to more oil being shipped by rail. The same situation was causing West Texas crude to trade far lower than Brent crude.  If the spread is now much reduced then if Brent crude stays high (and I have no prediction on that) then the western Canada heavy crude price should stay high and I would thing the CLO units would then do well. The bottom line is that I certainly don’t have all the information or all that much to go on, but with the big recovery in that heavy oil price I feel good about owning this oil sands ETF and may add more to my position.

July 22, 2013

S&P 500 was up 0.2% to yet another record close. Toronto was up 0.6%.

I may sell some or all of the rest of my Berkshire Hathaway. I have a good gain on it and it no longer looks like the bargain that a year ago or even at the start of this year. Also it’s anyone’s guess what it’s earnings will look like in Q2. Most of its businesses are probably doing well. There should be a gain on the Equity Index puts. But the insurance business is always a question mark. Maybe a mistake to sell…

Here is a graph of how the Stock Picks from January 1 have done. (They have done very well indeed). The graph has all the Buys and Sells but omits the Weak Buys and Weak Sells as those are pretty close to a hold. I have always omitted those on the graphs going back to the year 2000. The fact is that our stock picks are doing usually well this year and are unusually consistent.


July 21, 2013

Bank of America is updated and remains rated Speculative (higher) Buy at $14.75. As I read the Q22 report, it is clear that many aspects of the operation are improving greatly. I started to plan to buy some more shares. But then spending some time reading the annual report I focused on how complex this bank is. It is not the ideal type of investment because it is definitely somewhat speculative. But it is crawling out a hole and likely will be a good investment at this price. It is nowhere nearly as well managed as Wells Fargo, but it may be the better investment at this price. I may or may not add to my position.

This week we will get a number of Q2 reports for Canadian companies.

July 20, 2013

Wells Fargo is updated and remains rated (lower) strong Buy now at $44.45. It seems to be a very well run company. It should continue to do well over the years. From time to time it will likely have a bad quarter or year simply due volatility in certain gains and losses. It is my fourth largest position. I lament somewhat that I did not leave it as my largest position but instead I sold a considerable amount of shares as it rose, to be prudent. In reality that was probably a very good decision (given the facts and risks) even though in hindsight it would have been better to keep all the shares.

The S&P 500 was up 0.2% of Friday (to another record closing high) and Toronto up 0.4%.

For our stock picks, overall on average there was not much change but we did have Stantec down 2.2% and  Microsoft was down 11.4%.

July 18, 2013

Another good day in the market with the S&P 500 and Toronto each up 0.5%. We had Stantec up 2.8%, Fedex up 4.2% (although we had not rated that one highly), Wells Fargo up 2.1%, Bank of America up 3.2%. Generally most stocks on our list were up.

The next update will be for Wells Fargo which probably will remain in the Strong Buy range or possibly (higher) Buy. I may also update Bank of America which is more speculative but will probably continue to be rated fairly high.

Apparently Detroit filed for bankruptcy today. This was not unexpected. Still it could put a damper on the market’s mood.

I note that yesterday’s comment failed to upload until today apologies for that.

July 17, 2013

S&P 500 was up 0.3%. Toronto up 0.4% as Fed chair Bernanke sooths the markets.

Our stocks picks had a good day with Bank of America up 2.8%, Toll Brothers up 1.8%, and Wells Fargo up 1.1%. Most of our stock picks were up.

2013 has been a great year in the markets for our stock picks so far. It starts to feel like I should have stayed more fully invested. But one should not be too greedy. (Not that greed is any way shape or form a bad thing, let us not be hypocritical about that, but being prudent is also wise.)

July 16, 2013

The S&P 500 was down 0.4% and Toronto was down 0.1%. None of our Stock Picks moved much and most were sown slightly.

Goldman Sachs and Citigroup both “beat expectations” in earnings releases. Home Builder confidence was higher in a report today which bodes well for Toll Brothers.

Wednesday’s, markets will likely be driven by the reaction to a speech by Fed chair Ben Bernanke.

July 15, 2013

The S&P 500 was about flat today but Toronto was up 0.5% as it was boosted by the Loblaws / Shoppers Drugmart deal.

Most of our stock picks were up today but Toll Brothers fell 2.2% to $33.84. They don’t report earnings until around August 22. I expect a good report at that time.

It appears that Loblaws has bid about 20 times earnings for shoppers. And the market cheered this by pushing up Loblaws stock by 5.4%. The fact that companies are willing to pay 20 times earnings provides support for stock prices. Canadian Tire is trading at only 13 times earnings.

Much was made of the fact that the transaction will be immediately accretive to earnings for Loblaws. However adding to next year’s earnings per share is neither a necessary nor a sufficient condition to make this a wise investment for Loblaws. I have no idea if it is a wise investment for Loblaws. And knowing that it is accretive earnings does not educate me on that point. Loblaws can borrow money at low rates. Borrowing money at 4% and investing in something that earns 5% is accretive, but not necessarily wise. And it can issue shares, as it is doing in this purchase at 20 times earnings. If I can issue shares at 20 times earnings then any purchase under 20 times earnings is accretive. But 20 items earnings is still only a 5% earnings initially. Whether this works out for Loblaw investors comes down to how well Loblaws can manage the operation in the years ahead.

July 14, 2013

Alimentation Couche-Tard is updated and rated (lower) Buy at $61.88. This company has rather quietly grown int a giant. It has been a fantastic investment. Thirteen years ago the shares traded under $3.00 and they are now about $62.00. It is very well managed. It has grown by acquisition. I started following it in March 2005 at a price of $17.40 and rated it (lower) strong Buy at that time. In 2008 the share price got as low as $10. Great companies are certainly not immune to large price declines but if they are great companies, then the price recovers and grows over time.

Some companies blow their brains out on acquisitions. But it can also be a very profitable strategy. Two cases that I follow where it has worked extremely well have involved simple businesses that made acquisitions in the very same line of business. These two are Couche-Tard and Stantec. Liquor Stores N.A. may be another example. RioCan may be another.

July 13, 2013

On Friday, markets were relatively flat. Among our stocks picks most of them fell somewhat on Friday.

Our two U.S. banks stocks were strong with Wells Fargo up 1.8% and Bank of America up 2.0%.

I reduced my position in Berkshire Hathaway. Basically, I am looking at the fact that I am up 21% this year to date on top of 28% last year and therefore thinking of trying to make sure I don’t end up giving back too much of that if I can help it. Looking at what I hold and thinking about what I might trim, Berkshire has one of the lower ratings and had increased further since my last rating. So, I decided to trim.

It seems I would have done even better this year had I not ran with a fair amount of cash. But I think it was prudent to run with cash. Markets or individual companies can drop at any time for many reasons and a decent allocation of cash is useful to take advantage of bargains from time to time.

I have updated the composition of my own portfolio. My portfolio is particular susceptible to a decline by virtue of the simple fact that it is concentrated in so few stocks. Luckily it seems those have been quality stocks but certainly there is a risk to being that concentrated.

July 11, 2013

Ben Bernanke the FED chair indicated that accommodative monetary policies (probably meaning low short-term interest rates) will remain in place for the foreseeable future (even if QE 3 – the bond buying that pushes down longer term interest rates is scaled back). This pushed the S&P 500 up 1.4% to a new record high. The Toronto stock exchange was up 1.5%.

The big winner for our stock picks was Toll Brothers, up 6.6%. Also, Stantec was up 2.9%.

Very soon the attention in the U.S. will turn to the Q2 earnings releases. They will need to be pretty good to sustain recent gains.

I have enjoyed the rise in stock prices and I am confident that int he long term stocks will continue to rise. But at the same time I see the wisdom of taking some money off the table to be more prepared just in case there is a pull-back or in case better bargains are identified. The percentage on a portfolio that should be in equities is a complex personal matter. Rules of thumb based on age simply don’t cut it.

Berkshire Hathaway A shares have hit $175,644. The B shares are $116.98. We last rated it at (lower) Buy at $111.82 on May 11. I am inclined to maybe trim my position there. It seems like it has up a little too much this year. But good for Warren Buffett. I am not hearing much from all those mis-guided people who for so many years moaned that the stock was not doing well – completely oblivious to the fact that Buffett’s seeks to grow the earnings and value of the company and does not try to push the share price up. He was doing his job all along and now investors have realized it and pushed the stock price up.

July 10, 2013

Markets were about flat in the U.S. and Canada today.

We had Canadian Tire up 1.2% and Stantec up 2.7%. Couche-Tard made a big recovery up 6% and being down 5% on its earnings release yesterday. What this illustrates is that earnings should be released after the close so that there is more time to digest the news.

My order to trim Canadian Tire at $83 got filled today and that sold about 16% of my shares in that company. It’s my largest holding and so I had lots of room to trim.

I’ll plan to post an update on the composition of my portfolio this weekend. I’m not sure what my percentage cash is at the moment.

July 9, 2013

In my July 6 update just below I mentioned that I was thinking of buying some of the oils sands ETF, CLO. I did buy some of that on Monday but forgot to mention that in the update of yesterday.

The S&P 500 was up 0.7%, Yahoo is still showing Friday’s price change for Toronto so as far as Yahoo knows, the rain may have washed Toronto off the map. Google Finance Canada indicates Toronto was up 0.7%.

Toll Brothers went up 6.4% on news that foreclosures in the U.S. are way down. It seems I should have bought additional Toll Brothers shares on Friday or Monday instead of merely being tempted to do so. But I already had it as around 9% of my portfolio so I did okay today.

Alimentation Couche-Tard fell 5% on its earnings release. And that was on top of a 2.3% drop on Monday when the earnings news apparently leaked out early. This is a great company and possibly the pull-back is an opportunity. I will plan to update the report within the next week or so. Meanwhile we can let the price settle out. I suspect it will still look expensive but I need to run the numbers.

Most of our stock picks rose today. Many rose about 1%.

July 8, 2013

On Monday the S&P was up 0.5%. Off hand I am not quite sure what Toronto did because Yahoo Finance seems to think it last traded on July 5. I have mentioned before that I have used Yahoo Finance for at least 15 years. But lately it slow to load sometimes only loads half the page and in general it makes me think that Yahoo is a company that is circling the drain. I really should switch to something else. It’s pathetic when one of the original internet portals cannot even serve up a web site that loads properly.

Wells Fargo was up 1.8% to a new all-time high. You may be aware that over the past few years and especially in 2008 and 2009, it was popular to suggest that the U.S. banks were technically broke. Yet Warren Buffett was telling us that Wells Fargo was a great buy. And gee, it turns out Buffett was right again and the doomers were wrong. Wells is a great company. But I did take the opportunity to trim my position today. It did not quite hit my price of $43 that  I mentioned below under July 6 but when I saw it at $42.95, I figured, close enough and changed my order to a market order and sold what amounts to 23% of what I held.

The whole train derailment tragedy did not affect CN’s price much today. It also did not affect Berkshire Hathaway. It may not be well known that one of the Berkshire businesses in the manufacture and rental of crude oil train cars. This through its Marmon subsidiary. All those cars that we see with PROCOR on the side of them belong as I understand it to Berkshire. And of course Berkshire owns Burlington Northern which carries lots of crude oil these days. And it could possibly have an exposure in insuring or reinsuring the Montreal, Maine and Atlantic railway although I have seen no suggestion of that.  In any event Berkshire is so big that even if crude shipments are curtailed because of this it should not have a very noticeable impact on Berkshire.

I would imagine that the Montreal, Maine and Atlantic will be bankrupted by this unless it has awfully good insurance. Also early indications appear to strongly suggest negligence on the part of that railway and I would also guess that its license to operate may be in jeopardy. I guess it’s natural for the rail road company to deny negligence but it seems despicable that they have pointed fingers at the fire fighters who dealt with a fire in the locomotive hours before the derailment. I am not sure the executive of the rail road would be safe on the streets of that town after saying this.

July 7, 2013

The train derailment in Quebec is obviously very tragic. It seems clear that dozens were killed. (I find it strange that there were no reports of anyone escaping burning buildings with or without injury. It appears that anyone in the burned buildings had no chance. Hopefully most of those were commercial buildings unoccupied at night but apparently there was at least one night club.)

This will be a big deal for the rail industry. I would expect new safety requirements and possibly restrictions on shipping crude oil by rail. This would seem to bolster the arguments for the proposed pipelines.

It may be crass to mention it but I imagine that rail stocks could decline at the open tomorrow morning. The train that derailed was owned by a small private company. But I imagine that there are some negative implications for all rail companies. The only one I have analyzed is CN. Certainly if it happens to fall to $90, I would be a buyer. Perhaps its more likely to decline just a few dollars in which case I would not likely be a buyer.

Costco is updated and rated Weak Buy / Hold at $112. This is a wonderful business. It’s a simple and predictable business with strong competitive advantages that is almost certain to increase its earnings per share for many years to come. I would like to report that it is a Buy but seems somewhat too expensive. A possible strategy would be to take a small position and then hope to buy additional shares at a lower price. Or just wait and see if there comes an opportunity to buy in at a lower price.

It would be tempting and not difficult to “torture” the numbers until they confessed that this is a Buy. This could be done simply by assuming that the P/E will stay at 24. In which case the shares will rise with earnings and its seems clear the earnings will rise. But assuming the P/E will stay at 24 would be aggressive. It is reasonable to pay a higher P/E ratio for a high quality and growing company like Costco. But a P/E of 24 is difficult to justify. At this price it’s unlikely to be a terrible investment if held for five years or so but also perhaps not that likely to be a great investment.

July 6, 2013

RioCan is updated and rated Buy at $25.49. It seems like a reasonable investment choice. The biggest risk factor is further increases in interest rates.

On Friday I was thinking about the rise in oil prices and noting that the Oil Sands ETF symbol CLO has not risen much. I was prepared to buy a relatively large amount of that ETF on Friday but the market was just closing and so I will likely buy some on Monday.

On Friday we had the S&P 500 up 1.0% and Toronto down 0.3%. Wells Fargo and Berkshire Hathaway were each up 2.1%. Toll Brothers was down 3.0%. I was tempted to buy some more Toll Brothers but did not pull the trigger. I may place an order to grab some if it sinks some more.

I entered hopeful offers to trim my Canadian Tire at $84 (correction this should read $83) and Wells Fargo at $43.

The lower Canadian dollar has helped out with my returns as measured in Canadian dollars. For the most part that is sort of noise as I intend to leave those funds in U.S. dollars more or less permanently. However if we got down towards 90 cents I would likely move some U.S. cash back into Canadian dollars. I am not sure that I would sell any stocks to do so. So this is noise but nevertheless has a pleasant sound. The lower Canadian dollar will also nbe good for the economy. My understanding is that fundamentally the Canadian dollar should be more like 90 cents U.S. (purchasing power parity) and actually I was quite surprised that the rapid move from 70 and 80 cents up to the $1.00 level and above a few years ago did not do more damage to Canadian industry.

July 5, 2013 (7:00 am Mountain time (9:00 eastern)

The jobs report came in at 195,000 which is better than expected. Dow futures up 166 points, interest rates up a little. There is a delicate balancing now as the market decides if the jobs report is “too good” meaning that quantitative easing will begin to be tapered off. It’s not at all clear that the market gain will last the full day but so far the reception to the news is quite positive in the stock market. Maybe a day to consider trimming some positions especially for those of us with large positions in certain stocks.

July 4, 2013

U.S markets were closed today. Toronto was up 0.2%. No large movements among our stock picks but it was nice to see Canadian Tire up 1.1%.

On Friday morning we will get the latest jobs report. The hope is that it will be lukewarm. If it is too cool then the market will worry about a lack of growth. If it is too high then the markets will worry that quantitative easing will end earlier. Or the market may focus on announcements today that England and Europe intend to keep interest rates low for some time. Or maybe the market will instead worry about Portugal’s finances or the unrest in Egypt. As of 11 pm eastern the futures suggest the DOW will open 134 points higher. But a lot can change by the time the opening bell rings.

July 3, 2013

Today the S&P 500 was up 0.1% while Toronto was down 0.3%. Canadian Tire was down 1.1% to $80.62. At one point today it was up to $82.45. Given this is my largest holding I perhaps should have had an order in to sell some at $82 or whatever just to take advantage of volatility. There did not seem to be any really notable movements in our stock picks today just the usual bobbing up of down.

I had a bit of correspondence with Barrick Gold as I could not resist pointing out to them how abysmal it was that they had achieved so little in the way of earnings over the years. If I understand and recall their telephone response correctly it was along the lines of: yeah we were really dumb in the past and blew a lot of money but now we have a new CEO and are going to do things differently. Does not exactly inspire confidence. In my opinion, they have become a national embarrassment.

July 2, 2013

This week belatedly starts off with the S&P 500 flat on the day and Toronto up 0.4%. Canadian Tire was up 3.0% apparently for no particular reason.

July 1, 2013

The next update will likely be for RioCan. If you search back in these comments I have not been a fan of RioCan for a variety of reasons. In the last month or so the unit price declined from the $29 range to the $25 range. This was due to higher interest rates.

The next shoe to drop with the Q2 report will be that they will show negative fair market value impacts which will lower GAAP earnings. This type of mark to market accounting is not something that I am a fan of. It was nice though when it was always a positive factor since it was introduced a couple of years ago. I believe it came along with IFRS accounting. The company will focus on Funds from operations which will probably show growth. And quite possible the market will ignore the fair market value losses on the buildings and may consider that this has already been fully reflected in the lower unit prices.

RioCan reports that Target is spending about $8 to $10 million per store in renovations, at Target’s expense. If baffles me how Target could come in and pay about $10 million per store to take over leases and then pay About $10 million to renovate a store and then still have to pay the rent  and still somehow make money.  And why does it make sense to spend $10 million on a leased store without locking in the lease for many additional years beyond the existing Zellers leases? (albeit the Zellers leases had I believe 10 to 15 years left in many cases). And if they can. what in the world was Zellers excuse for not making money in those locations since they did not face the $20 million in costs that Target has. Obviously Target knew all this going in, but it would certainly not surprise me if they announce some losses in Canada. Also I have said from the start that Target is unlikely to offer any big bargains to customers. It seems to me that Target Cando is a high cost operation. I am not sure what RicCan gets out of the deal. Eventually they should get a lot higher rent when the Zellers leases run out, also the presence of Target will up the rents in the rest of the shopping center.

I have been no fan of Gold companies over the years. I took a look at Barrick Gold’s balance sheet and some history there. The company does pay a dividend. But overall it looks like their performance has been quite poor. They currently have $18 billion in equity share capital and $4 billion in retained earnings. When it reports Q2 it may have zero retained earnings. Even with some large dividend payouts (that total about $3.9 billion since 1998) that looks pretty bad to me. This company has definitely been good at raising money from investors (by share issues for cash and by buying Placer Dome for shares). The record in returning money or growing book value for investors looks relatively poor to me even with the dividends. I have asked the company for some information on that. From about 2002 through 2012 they enjoyed an amazing increase in the price of Gold. And so for this company to have a poor record of profit over this period (which I believe it has) seems inexcusable.

This Barrick Gold situation is what Warren Buffett refers to when he talks about being a wise allocator of capital. Investor capital is scarce and ought to be treated with great respect and good stewardship. Buffett would not have dumped capital into a hole like Barrick has apparently done. Society benefits when investor capital is placed in the hands of skilled allocators like Warren Buffett. As Kevin O’Learly would say, some managers basically murder dollar bills and that is not good for investors or for society as a whole.

Now, none of this is to say that Barrack would be a bad investment today. I don’t know. It may not even be knowable given the uncertainty of both gold prices and exploration costs. But it seems fair to say that management has so far been relatively poor, certainly not stellar. It apparently needs to be “cut-off” from access to additional capital lest it continue to make poor use of capital.

On a share price basis the VERY early investors in Barrick have done okay. Those few who were in the company by January 1986 have seen compounded return so 12.6%. That is very good. This is based on the U.S. stock price. Canadian returns would be worse given that the Canadian dollar was far lower over most of the period.

But those that got in 20 years ago at the start of 1993 have seen compounded average returns (with dividends) of 1.44%. An investor in January 1995 has had a slightly negative return. Investors in January 2000 have seen a an average return of 0.39%.   Those invested at the start of 2003 have seen compound gains of 1.28% (lost in share price but did receive dividends). Investors in January 2005 have lost 3.42% per year.

June 29, 2013

On Friday the S&P 500 was down 0.4% while Toronto was up 1.0%.

Interesting moves included Shaw Communications up 5.4% to $25.24 on the release of a good earnings report. I have not mentioned it much lately but our last rating was Buy at $21.06 on October 28, 2012.

Then there was Blackbury (formerly Research in Motion) down 26% to $11.08 on a poor earnings report. Our last rating was Highly Speculative Weak Sell at $10.86. I mentioned in the report that the company was difficult to predict but might be considered a highly speculative. Buy for more adventurous investors.

For the First half of 2013 our Stock Picks have done very well.

The three Strong Buy are up 14% (Canadian tire), 21% (Wells Fargo) and 19% (Melcor) for an average of 18%. My own portfolio is also up 18.0%. The 19 Buys were up an average of 11.9% each. There were only three decliners and the biggest decline was 8%.

Here is how our Stock Picks look graphically as of today. (Weak Buy and Weak Sells are considered basically Holds and are not shown in the graph (we have always done it that way) because we were basically sitting on the fence with those.

June 27, 2013

S&P 500 was up 0.6% today and Toronto was up 0.4%.

Almost all of our Stock Picks were up. Notably, Wells Fargo up 1.3%, Toll Brothers up 2.6%, Canadian Tire up 1.1% and Shaw Communications up 3.7%. It’s surprising how the equity market has bounced back from the recent dip.

Fixed income has not recovered much. I think people with any length at all to their fixed income, such as five year bonds or longer (including in mutual funds and ETFs) are going to be surprised at the losses in June.

My own portfolio is, in theory, highly risky, far too concentrated and not at all balanced. In practice it has been relatively stable and I believe dropped less than the equity market (certainly less than the Toronto market) during the recent dip and it has recovered better than the market as well. But there is no doubt that my portfolio leaves me at risk if something nasty happens to one of my six largest holding.

I don’t hold any fixed income. I do hold cash. I am increasingly thinking about the fact that not all fixed income is created equal. Money market funds, very short term bonds and short GIC or even five year GICs behave pretty much like cash (except GICs are locked in). Longer term bonds are vastly different than cash and at this time expose investors to a lot of downside risk while offering scant returns. There are some equities such as dividend stocks and REITs and preferred shares that can behave somewhat like equities and somewhat like bonds. REITs have some potential to grow since they are businesses but they also behave a lot like long-term bonds and should be viewed with a great deal of caution right now. They WILL get clobbered if interest rates rise much. Perpetual preferred shares also get hurt with higher interest rates but at least the returns are usually better than bonds, so the risk reward tradeoff is better. Some preferred shares face almost certain redemption on their reset dates and if they are trading above the redemption price then a capital loss is baked in. Canadian Western Bank preferred shares are an example.

There was news today that Rona is closing stores and taking a $220 million “charge”, of which $195 million will be “non-cash” (non-cash how comforting!). I am pretty sure the sees of demise were plantedd by Rona years ago went it opened big box stores and tried to compete head to head with Home Depot .

In other news this week Hudson’s Bay is considering buying Saks. Apparently Saks is a beleaguered chain. As I mentioned under March 28, I visited Saks 5th Avenue in New York. A very snobbish place where they did not even seem to have prices indicated for anything on the first floor. Higher floors were less snobbish. The whole concept is probably obsolete. Who wants to pay high prices for snooty service? And why would Hudson’s Bay think they could run these places? I do applaud “The Bay” for abandoning that incredibly stupid name and going back to the Hudson’s Bay name. But nothing else about the place impresses me. The outgoing CEO of Hudson’s Bay has been lauded lately. For what I wonder? Has there been any profits of note?

June 26, 2013

S&P 500 was up 1.0% today and Toronto fell 0.5%.

Most of our Stock Picks were up today. That includes long-time favorite Wells Fargo up 1.8% and relatively recent speculative pick Toll Brothers up 1.9%.

With the recent partial recovery and with some recent buying on dips and with the decline in the Canadian dollar helping out, it seems my own account is down only about 1.5% form its late May peak, which puts me up about 17% this year to date which is an excellent return (particularly given how bad the Canadian market has done).

But what of Gold? I never have any opinion on where the price of Gold is headed. I have never invested in Gold or Gold companies or Gold ETFs. (Well save for one ill-fated small investment in Bema Gold back at the time when BreEx was flying high.) From that I learned how Gold companies tended to have little or no profits and were basically priced as lottery tickets and I never touched the stuff again. And I really never regretted that, since why should I abandon a system of picking stocks of profitable companies that has worked fairly reliably for me just because some people won a small lottery prize with Gold in the 2000’s.

Possibly Gold will recover, I have no idea. It is clear that it is cheaper now than it was in about three years. Technical traders who by definition love to sell low and buy high will not consider buying now. If I were interested in Gold (which I am not) I would be more inclined to buy today than at the the former high prices.

As far as Gold Miners it’s hard to get interested in that when I see that Barrick Gold has become a national embarrassment. I wonder how much money Peter Munk ever made for investors as opposed to what he made from investors? According to its Q1 balance sheet it has $19 billion of shareholder invested capital just $4 billion in accumulated retained earnings from its total history. And I seem to recall reading that it facing a big write-off so that may wipe out the retained earnings. Unless it has paid out a LOT of earnings as dividends (and it has paid at least some) this is a very pathetic record indeed. If the purpose of Barrick was to create jobs for many people and to create big salaries and esteem for its executives it has done well. If its purpose was to create returns for its share owners, it seems to have failed pretty badly. And let’s not forget we just finished ten years of strong Gold prices. The real damage in terms of wealth destruction may lie ahead.

The efficient market hypothesis suggests that none of this can be predicted from looking at balance sheets or past history or anything else and that the ability to beat the market is purely random. Well, there is SOME truth to it but it’s certainly not 100% true and I have found some value in actually looking at fundamentals and financial statements.

Well, I suppose I should not get over confident, else the investment gods will smack me down.

June 25, 2013

The S&P 500 was up 0.9% and Toronto was up 1.4%.

Among the stocks I follow there were impressive gains from Boston Pizza, up 4.1%,  RioCan up 3.7% and Bank of America up 3.0%. Almost everything was up today.

With some good economic figures from the U.S. the market turned its attention away, at least for today, from Bernanke and the  possible tapering off of quantitative easing. Soon the market will turn attention to the Q2 earnings reports.

June 24, 2013

It was a negative day on the markets with the S&P 500 down 1.2% and Toronto down 1.3%.

For whatever reason Canadian Tire managed to gain 1.2%.

Despite some recent losses, I don’t feel bad about how our Stock Picks have done.

I think it is fair to say that I have mentioned the concept of taking profits a number of times and that I have done some of that. So I sit with a good amount of cash right now for bargain hunting and I assume that many subscribers may be similarly positioned. I think it is fair to say that I warned that long-term bonds were in a a bubble and should be avoided.

High yield entities have been very popular but I have never had a big exposure to them and was not a big fan, especially lately as yields crept lower. That has worked out well.

I mentioned on Thursday that I had placed an order to buy some Canadian Western Bank if the share price hit $27.10. That order was filled near the open today.

June 23, 2013

I have updated the article on long-term historical asset class performance for the first half of 2013. Given the weak performance of bonds and especially Gold in the first half of 2013, I thought it was worthwhile to update this article.

FirstService is updated and rated Weak Buy / Hold at U.S. $29.75 or CAN $31.10. I have followed this company since 2002 and I respect the management. Around Edmonton its Colliers International signs are ubiquitous. I currently having one of its franchise companies College Pro painters do a little exterior painting for me. So I was hoping the numbers would look good. Unfortunately the profitability does not look strong and the accounting is quite complex. Things could look a lot better going forward since it has just eliminated its preferred shares which were an expensive form of financing (They paid 7% and were not tax deductible to the company, meanwhile it si able to borrow 12 year money at 4%). On the other hand they may face a goodwill write-off their operation that looks after foreclosed houses in the U.S. Overall it looks best to give this company a pass. Any buying would have to be considered quite speculative.

June 22, 2013

The composition of my own portfolio is updated.

On Friday the S&P 500 was up 0.3% and the Toronto index was up 0.2%.

Canadian Tire was down 2.4% to $77.75. Seeing this decline I bought back (at $78.12) some more of the Canadian Tire shares that I had recently sold at $86.50 and $82.23.

The market may be predicting that Canadian Tire will decide not to sell a portion of its Real Estate into a REIT after all or that the valuation will be lower given recent declines in REIT prices. Most assuredly the valuations would be lower. As far as the ability of selling a portion of the real estate into a REIT to “surface” or make apparent the value of the real estate, that is not overly important. A transaction to “surface” value does not create value. To the extent that Canadian Tire has attractive real estate the value is going to show up either more quickly in the REIT transaction, or more slowly over time in the form of a competitive advantage and higher profits over the years. The proposed REIT transaction is supposed to make more apparent the value of Canadian Tire but it is going to have minimal impact on the consolidated profit or balance sheet because they are planning to retain about 80% of the REIT and only sell 20% to outside shareholders. My thinking was that if fools were willing to pay extraordinary values for real estate, then Canadian Tire might have been wise to lock in very long term leases and sell all of it to the fools. But they wish to maintain control of the real estate. Selling 50% to 100% of the real estate at the top of the market would have locked in value rather than merely surface value.

In any event Canadian Tire looks like good value to me.

Year to date, the S&P 500 is up 11.6% and Toronto is down 3.5%. Our Three strong buys are up an average of 16.3% year to date. Our average for all 23 stocks rated (lower) Buy or higher is 9.8% year to date. My own portfolio is up 15.8% this year to date.

June 20, 2013

The S&P 500 fell 2.5% today and Toronto fell 2.4%.

I did a bit of buying in the morning, which was early because the markets fell further in the afternoon.

I bought some Toll Brothers at $31.21, it closed at $31.70

I bought some Canadian Tire at $79.57, it closed at $79.65

So my prices on those worked out okay even though markets in general were down quite a bit more in the afternoon.

I also placed an order for Melcor if it should fall to $17.90 and for Canadian Western Bank if it should fall to $27.10.

While no one can predict markets in the short term, I don’t see any reason to expect a real dive in the markets. As documented in these daily updates I had sold some shares in recent weeks in order to reduce risk and to have cash for buying. If and as stocks fall my strategy will be to look to buy.

I think it is fair to say that in these comments and in articles updated recently I have indicated that long-term bonds were likely to be a bad investment. In the last couple of weeks long-term bonds have been falling as interest rates rise.

Stocks also fall with higher interest rates, all else equal. But while 30-year bonds were yielding 3% not long ago, stocks were never priced so high as to reflect 3% interest rates. Stock P/E ratios were a bit higher than historic averages. Bond P/Es (the reciprocal of yield) were basically at all time highs. So long-term bonds have a lot more to fear from higher interest rates than do stocks.

June 19, 2012

So, apparently the FED has signaled that the “quantitative easing” consisting of the Feds buying $85 billion per month worth of bonds and mortgage securities will taper off sometime this year and end around this time next year. And all this will occur only if the economy is strong enough. Although totally expected the S&P fell 1.4% after this news and Toronto fell 0.8%.

I am not convinced that this is anything to worry about. Markets are always unpredictable. But if interest rates rise somewhat and the economy continues to recover that does not really portend disaster for stocks. If markets decline much, my thoughts will turn more to buying.

June 18, 2013

It was another strong day on the markets with the S&P 500 up 0.8% and Toronto up 0.6%. Most of our stocks picks were up.

Yesterday I listed the 10-year compound average annual earnings per share growth rates for all the companies currently on my list for which I had 11 years of adjusted earnings data in my spreadsheet. The growth rates were very strong. Now that would not be at all impressive if these were mostly new stock picks that I had recently added to the site. (Since I could have simply added stocks with strong past growth rates). Instead many of these stocks have been on the list for over ten years. Few of them are particularly recent. The one with negative earnings “growth” Toll Brothers, however has been on the list for only two years. RioCan another low earnings grower (albeit it has a large dividend) has been on the list for less than two years. The highest grower, Couche-Tard has been on the list for eight years, it was first rated as (lower) Strong Buy. Since then it is up 239%.

If a stock grows its earnings at 15% per year (three of the stocks below were higher than that) then its earnings grow by 305% in ten years. If that stock was purchased at a reasonable P/E and if the P/E has remained stable or not declined much then the investor is going to have seen returns pretty close to that 305%, plus dividends.

When you boil it down to basics the key to big returns on stocks, is big earnings per share growth (combined with buying at a reasonable price). And the key to big earnings per share growth is (believe it or not) LOW dividends and (most importantly) a high ROE.

If a company has and maintains a 15% ROE and no dividend then its earnings per share will grow at 15% per year. (If it paid a 50% dividend it would grow at 7.5% instead.)  And if it starts out with a reasonable Price to book ratio or price to earnings ratio and if that ratio is stable then the stock price must rise at 15% per year. Now, in reality the P/E ratio and P/B ratio will bump around and it will fall went the whole market’s in a slump. But as long as the P/E eventually recovers, 15% ROE and no dividend generates 15% returns per year as long as the P/E ratio eventually is as high as it was at the start.

This is the very simple math that sent Buffett looking for companies that he figured could be relied upon to deliver growth in earnings per share of 15% or more. And he found that PREDICTABLE growth was available in some (but certainly not all) boring low-tech companies and often companies with very strong consumer brand names.

Having observed as (literally) a little boy that if one could compound money at a rate like 15% one would become very rich, Buffett soon set out to gather the seed money (from massive paper routes as a teenager and some early employment and from performance fees on a hedge fund partnership). He worked like a dog and ferreted out a few companies where he could make 15% plus on his own money and for the hedge fund. Then he kept doing that for 60 years (but stopped the hedge fund partnership when he was 39). He was very wealthy by age 30. He was beyond wealthy by age 40 and on his way to becoming for a time the wealthiest person in the world. His long term average return is around 20% per year compounded in the past 50 years and somewhat higher than that in the early years.

It seems to me that Buffet’s simple formula is worth trying to copy. Find stocks that can be predicted to grow earnings per share at relatively high rates and which sell for reasonable prices. Buy, wait, reap rewards.

To a good extent I have been doing this, but Buffett’s approach would probably suggest more focus on the the company being high quality (high ROE) and not as much focus on it being a bargain. The great company will grow to offset a somewhat (but not ridiculously) higher price paid.

This formula will tend to work. But meanwhile the stocks prices may jump all over the place and predictions of gloom and hyperinflation and all manner of calamities keep most people from staying in the market through the ugly times or buying more shares at the ugly times. But a few brave people will persevere and become rich with simple thinking like this.

June 17, 2013

It was a strong start to the week with the S&P 500 and Toronto both up 0.8%. Notably, we had Canadian Tire up 2.5%, and Toll Brothers up 2.4% and Couche-Tard was up 4.25%.

It’s worthwhile to think about what kind of stock returns to expect going forward. Firtsly the short term is alwasy unpredictable so it’s anyone’s guess. But in the longer term earnings per sgarea growth pushes up stock prices. If we start at a normal P/E level llike 15 or so then if earnings grow 10% per uyear for a decade we could expect our stock price to grow at 10% per year on average. ANd the total return would be expected to be the 10% plus the dividend yield. Which sounds pretty good.

The difficulty is project earnings growth. For individual companies earnings growth is very hard to project. But what Warren Buffett teaches is to focus on a select group of stocks for which it is more predictable (ideally almost certain) that over a decade or so the earnings will grow at an acceptable rate. This is why Buffett famously loves things like Coke and America Express and Wells Fargo and his rail road, Burlington Northern. Buffett did not “miss” any tech stocks like Apple, he simply chose to invest only in companies that he felt were relatively certain to grow earnings and which were available at decent prices. Based on his own knowledge he was just not as certain about Apple, or it was not available cheap enough buy the time he saw that it was a predictable stock.

For the stock market as a whole, we can say that logically we don’t expect earnings per share to grow much differently than the growth in the economy. And the data shows this is correct over the long run.

Unfortunately at this time the economy appears set to grow at only perhaps 3% real GDP. But that may translate to 4 to 5% nominal GDP. Not great but not too bad if we add in a 2% average dividend. (And I suspect in a low growth scenario companies will be able to increase dividends as they have less need to invest in growth). When look at the valuation of the S&P 500 I use growth in the 4 to 6% range.

But when I look at individual stocks I often use growth of more like 6% to 12% for the next five years. Perhaps I am being optimistic. (But this growth is just one input into the stock rating process, it does not determine the rating it is just one factor.)

But then again what has been the past average growth of adjusted earnings per share for the companies I am looking at? In the past ten years GDP in the U.S. has risen at an average compounded nominal rate of just 4.0%. Yet during that time here is the adjusted earnings per share of the companies on our list. These are the ones I have ten years of data for.

Canadian National 12.5% per year average

Canadian Western bank 14.4%

Stantec    17.7%

Canadian Tire 10.2%

Melcor 8.0%

Alimentation Couche-Tard 29.6%

First Service 8.7%

MicroSoft 19.1%

FedEx 11.9%

Berkshire 12.0%

Costco 10.3%

Wells Fargo 7.7%

Toll Brothers minus 10.5%

RioCan 2.8%

S&P 500 7.8%

Don’t get too hung up on the individual numbers but the point is that the stable of companies that I am following appear to have grown significantly faster, on average, than the economy did in the past ten years.

Therefore I am perhaps not out of line expecting them to continue to do so. But at the same time it is impossible for a ANY company to perpetually grow faster than the economy. That is why I am also often assuming that the P/E ratio will decline in the next five years. If I start with a P/E above average, I tend to expect that to come down to about the average P/E in five years.

June 16, 2013

Markets rose substantially on Thursday but then fell and gave back about half of that on Friday. Still the S&P 500 remains up 14.1%. But Toronto is down 2.0% year to date. With our Strong buys up 17.0% and our overall buy or Strong Buy average up 11.6% we are once again well ahead of the Toronto market. As of Sunday evening the U.S. markets are set to open to the upside (based on futures markets which trade on Sunday evening).

As you may have seen, we released the latest edition of our free newsletter on Saturday.

June 12, 2013

The S&P 500 was down 0.8% today and Toronto was down 0.9%.

Almost all of our stocks picks were down today with the Market.

I am fairly certain that Melcor went ex-dividend today meaning that if you bought yesterday you would get the 75 cent dividend on June 28 and if you bought today you don’t. So in theory, all else equal,  the stock should have declined 75 cents today. It was basically unchanged despite the down market. Possibly that is due to its being so thinly traded and not enough people realize it was ex-dividend today. Ooops ignore what is in yellow, Yahoo finance mis-led me.  Correction, it did fall 79 cents today so pretty much as the theory said it would. But this may be a buying opportunity as all else equal I expect it will creep back up. The 75 cents they are paying out does reduce the book value. But it will have only a tiny impact on earnings… But maybe this dip with the dividend just shows how dumb it is for people to always think dividends are so great. It’s our OWN money they are paying out and money paid out does not compound and grow. Which is precisely why Warren Buffett never paid out a dividend at Berkshire going back to 1965. (Actually that is a lie, ironically enough he paid out exactly one thin dime per share in 1969 and never another dime)

June 11, 2013

Canadian National Railway is updated and rated (lower) Buy at CAN $100.44 or U.S.$ 98.54. It’s an excellent company with excellent economics and well managed. It could be bought for the long term but the share price does seem somewhat high at this time.

Markets were down on Tuesday, the S&P 500 fell 1.0% and Toronto fell 1.3%. At this time I am peronally neither inclined to sell nor to buy anything. (But I reserve the right to change my mind at any time.) I’ll keep you posted each evening if anything changes. And based on the ratings above there are certainly some stocks that appear to be good choices for the long term. The short term AS ALWAYS is anyone’s guess. I have generally never let short term fears keep me out of the market. That has at times made for a bumpy ride but has worked out very well overall.

I believe that Melcor will trade ex-dividend tomorrow (25 cent regular dividend plus 50 cent special dividend payable June 28 to shareholders of record on June 14) . Therefore in theory it probably should drop about 75 cents tomorrow, all else equal. Unless the market falls in general tomorrow, I am not so sure Melcor will fall much, but we shall see.

June 10, 2013

I’ve completed and update for Canadian National railway and will upload the report tomorrow evening. The rating will be (lower) Buy at $101. It’s an excellent company. Possibly worth paying up for but in general seems a little expensive.

The S&P 500 was about unchanged today and Toronto was up a tiny 0.1%. Toll Brothers slipped 3% to $32.58 and is worthy of consideration.

June 9, 2013

On Friday the S&P 500 rose 1.3% and Toronto fell 0.3%. Given the rise on Friday I considered if I should be trimming some positions. I considered that I have a large percentage of my portfolio in Wells Fargo and Canadian Tire. I then sold what amounted to 20% of my Canadian Tire shares and 15% of my Wells Fargo. I concluded it was prudent to trim these positions and also it gives me cash to look for better investments. I definitely like these stocks long term or I would have sold all. I have no idea where they will head in the short term but there is always a risk they could fall. There is also a “risk” they will rise but if so I still own a lot of them both. I have a lot of gains in the past 18 months and despite being confident that stocks will rise long-term, I would not feel good about leaving all my money in equities at this time. I want some in cash. I won’t touch long-term bonds.

My next update will be for Canadian National Railway. It looks to me like a great company but the stock may look expensive.

June 6, 2013

It was not a bad day in the markets. The S&P 500 was up 0.8% while Toronto was down 0.3%.

Toll Brothers was up 4.5% and Wells Fargo was up 2.3%.

As always the market gyrates with each piece of good or bad news.

Apparently Friday’s market tone is expected to be set by the U.S. May jobs creation report. Markets probably should not fixate on the net jobs created (or lost) in a single month when that number is probably only a rough estimate of reality, but fixate they do.

June 5, 2013

Okay, so stocks were down two days in a row.

S&P 500 down 1.4%, Toronto down 1.2%. With the U.S. markets up so much this year the notion of a decline two days in a row seems foreign. But really it is nothing more than a small dose of reality. Stocks do not go up in straight lines and sometimes they go down. Sometimes a lot.

At this point people who have no idea what their stocks are really worth and who think of stocks as nothing but squiggles on a screen start to panic. As far as they know a stock is worth what someone will pay for it in the next two minutes and it has no intrinsic value. Wiser investors however know that stocks are shares in companies. And if they have chosen their companies with care and if they are confident that those companies are likely to continue to make growing amounts of money not every quarter or year but most quarters and years then these investors are much less likely to panic.

Personally I am not only not panicked I am barely bothered at all by this level of market decline. Sure it’s always nicer to see stocks rise. But I do have cash on hand to take advantage of dips. And I do have some sense that the stocks I own have fundamental value and are likely (but not guaranteed) to rise in price in the long term. Buying shares on dips is part of the reason I have made an average of 16% per year over the past ten years. Often I have bought too early on the way down. But I have tended to keep buying as my favorite stocks declined. And this has paid off in most (but not all) cases. And I have tended to trim positions that seemed to be fully valued or over valued. And I have tried to move money into stocks that seemed the best bargain I could find while also staying mostly with large stable companies. And I have sometimes increased my cash allocation when stock markets rose. (Like I did last week).

That has been a recipe for success for me. So no, I will not be panicking even if markets continue to fall. And I am not suggesting they will continue to fall. They might or might not.

But not everyone can take the heat and volatility of being in stocks. If you can’t take the heat then by all means sell some or all of your stocks. I don’t advise on individual asset allocation levels or risk capacity or risk tolerances. Our Stocks are mostly up a lot this year and if you sell some now you still most likely have good gains on them. There is nothing wrong with moving at least some cash to the sidelines if that is what you wish to do.

June 4, 2013

Our report on global exchanged traded funds has been updated.

Most of our stocks were down today. The S&P 500 was down 0.6%, Toronto down 0.1%.

Toll Brothers was down 2% to $32.92. We last rated it Speculative Buy at $34.13. And it is speculative given the high P/E ratios but would definitely be inclined to buy if I did not already own quite a heavy position in it. There is chatter about the housing recovery being “fake” because homes are being bough by investors or because the market is propped up by the Fed. On the other hand I read that homebuilders have a hard time finding enough workers and Toll Brothers reported it was increasing the home prices. There are ALWAYS reasons for fear and there is ALWAYS The possibility of a sharp market correction / crash. But many investors have learned that over the years accepting risks and accepting that portfolios will decline from time to time is usually quite rewarding in the end. Being too fearful and too worried about capital preservation is a mindset that can forego a lot of gains. You end up sleeping better I suppose with strategy but you seldom end up ever sleeping in real luxury with a too cautious approach.

For Canadian investors, the decline in the Canadian dollar today was beneficial to U.S. holdings.

June 3, 2013

At the end of the day the S&P 500 was up 0.6% and Toronto was down 0.3%.

We had Toll Brothers down 1.7%. But most of the stocks on our list were up.

I like to think that you the customers of InvestorsFriend Inc. are smarter than the typical investor. As do your selfers (albeit with a little help from your (Investors)Friend) I think you are more savvy then average.

Here’s what average looks like:

A bank employed senior financial advisor friend of mine was explaining to me today that he puts the vast majority of clients into pretty bland portfolios with usually a heavy allocations to bonds. He thinks they would be better off with more equity exposure in most cases. But he explained that when client accounts are up 20% in a year, no one calls to thank him. When they fall 5% they all call in to gripe and some leave. So investors have trained the advisor community to act very meekly and to travel in a herd. If you bet against the herd and win your client benefits and congratulates himself on his astuteness in choosing you. If you bet against the herd and loser, the client screams, calls you idiot, tells all his friends you are an idiot and then leaves with his money. So, investors who wish to do well on management fees and who want a sane life act meekly and follow the herd. Failing with the crowd, you still get yelled at but maybe not as loudly and the client may stay put as he sees most everyone failed.

This is not that intelligent. For one thing, long term bonds may be riskier than equities. Almost all long term bonds (except very recently issued ones) are trading above par. Some trade well above par like 30% above par. They WILL mature at only par. They WILL decline in price and market value. That is a mathematical fact. They could gain in value in the next year. But any bond that currently has a market value above par WILL suffer a capital loss eventually as it matures at par. (I set aside convertible bonds, I speak of plain bonds). And long term bond funds will be affected by this as well. Now perhaps the yield on the bonds will still make them acceptable investments but I doubt it.

Now it is possible that in say the next ten years equities will decline even more than a long term bond with 10 years left on it (Say a 30 year issued in 1983 that is trading way over par today). But I highly doubt that will be the case. For my money, equities are a safer bet than long-term bonds over say the next ten years.

And maybe rebalancing and investing new money will mean that the bond portion of the portfolio will do okay. But the math suggest to me that equities held today will almost certainly (but its not guaranteed) outperform long term bonds held today if we check back in say 10 years.

But Advisors are mostly going to recommend a hefty allocation to bonds including some long term bonds. That’s because the customers trained them to do so and when the long term bonds eventually fall in value at least the Advisors will fail with the herd and not on their own.

More intelligent investors (like most of you, I think) know that occasional losses, maybe even sizable percentage losses is just a part of the winding road up the hill to wealth. And if we are going to have losses either way (I’ll bet even balanced portfolios have some substantial losses in some years over the next ten years), then why not choose the route with the higher expected returns (more equities)?

With markets at record highs (at least in the U.S.) it’s a reasonable time to ask yourself if you can stand the heat and the volatility off equities. I am not in the business of setting asset allocations (the percentage of your portfolio in bonds, cash and equities). That is a personal decision and I don’t give personal advice. Periodically, it is good to reflect on what exposure to equities you are comfortable with. I would put the non-equity portion in cash and short-term stuff and I personally would avoid long-term bonds and most perpetual preferred shares for that matter.

June 3, 2013 1:20 pm eastern

With Toll brothers down today I decided to buy back 500 shares. As mentioned under May 29, earlier this month I sold 500 at $37. Around May 29 I placed an order to buy 500 at $32.10. But just now I decided to grab them at $33.30. Toll was down as low as $32  At the same time a headline today was “Homebuilders struggle to find workers.” With my trimming of positions last week my cash position had reached 27%, the highest in quite some time. So that also made it easier for me to grab 500 shares. I now hold 3600 shares of Toll, it’s around 9% of my total portfolio. I tend to hold a much more concentrated portfolio than most people. My approach would be considered quite risky in that respect.

June 2, 2013

On Friday the TSX fell 0.8% and the S&P 500 fell 1.4%. In the U.S. the declines came in the afternoon. For the moment the trimming of positions that I did on Friday morning and in recent days seems to be good timing.

I never claim to be able to predict short -term market moves but in general I don’t see that anything has occurred that would lead me to particularly expect a market decline.

May 31, 2013 (12:10 pm eastern)

A subscriber just emailed and asked me if I would trim Berkshire. On May 11 below I mentioned I would consider that. It was last rated here as (lower) Buy at $111.82 on May 11. Now it is at $114.75.

So perhaps being in a bit of a selling mood this morning I have now sold 400 of the 1200 shares I had. In my kids RESP account I had 200 shares and was up 57% and sold 100. In another account I had 1000 shares (B shares obviously) and was up about 32%. I sold 300. Logically having a gain or a loss on a share in a non-taxable account should not enter into the thinking about selling it at all. Selling should be based on the current price of the stock versus its perceived value and prospects. But emotionally it does always seem easier to sell something with a gain on it. Obviously I may regret selling these because Berkshire is doing very well on its various businesses. Also many Johnny come lately analysts are suddenly much more fond of the stock and Buffett now that it has risen so much. But I think trimming this after recent gains is prudent. It’s up 28% this year. It was up 18% in 2012. That is a HUGE amount of gains for such a large company.

May 31, 2013 (11:50 am eastern)

A note to our American subscribers: Are you able to easily buy stocks on the Toronto stock exchange? Canadians can buy on the major American exchanges as easily as they can on Toronto and for the same low commissions. But over the years I have understood that American investors could not easily buy on the Toronto Stock exchange. It was possible but involved higher Commissions. This was due various regulatory factors that required a Canadian broker to get involved and perhaps also a lack of interest by U.S. brokers in making the Toronto stocks available to their customers. But I wonder if anything has changed? Are those treading through American discount broker systems able to easily buy on Toronto and with low commissions? Let me know your experience at shawn@investorsfriend.com.

The reason I ask is that over the years I have been hesitant to market this site to the American audience since only about half our stock picks trade in the U.S. (that includes American stocks plus a number of Canadian companies that also trade on the big American exchanges.)

May 31, 2013 (11:15 am eastern)

I sold what amounts to 54%of my Bank of America shares this morning. It probably still has strong potential for gains because its price to book value is still low. But looking at the comments in the summary of our last rating it, we were considering it speculative and we were not impressed with management. Anyhow I have had a relatively large exposure to U.S. banking and I have made strong returns and it just seemed prudent to reduce this holding. As always it is a struggle to decide these things as one weighs the possible upside against the possible downside. It is seldom easy to decide.

May 30, 2012

Markets were relatively flat today. However, several of our Stock picks did very well.

Wells Fargo was up 1.2% to $41.25. Seeing it was up I decided to sell some just to be prudent.  I was not sure I should sell, after all Buffett was still buying fairly recently (and may still be). And it was rated (lower) Strong Buy at $37.21 as of April 13 on this Site. But I own it mostly in non-taxable accounts and I have good gains on it and I was stubbornly buying in the past when it swooned. So it seemed prudent to sell some and so I sold what amounts to 20% of what I held. I got $41.50.

Bank of America was up 2.6% to $13.83. Quite possibly I should be trimming that as well.

Berkshire Hathaway was up 1.8% to $114.84. Yet another new high for that stock. The A shares closed at $172,200. As I have mentioned before, these are the very same shares that were trading in the $14 to $18 range in 1965 as Buffett was accumulating enough to take control of the company. I don’t think it has really sunk in for most people just how remarkable that is. This stock is up over 10,000 fold! That’s over one million percent since 1965!

It would be one thing if Berkshire started out in 1965 as a penny stock with few assets and then had a moonshot through some kind of invention or gold discovery or valuable patents or the invention of an immensely popular software or product(s) or the like. Instead Berkshire was already a large company in 1965. It then had an equity book value about $20 million, $19.46 per share. Not a small amount in 1965. And Berkshire has never owned anything that really rocketed up in value in a very short period of time. Berkshire is a testament to the power of compound returns. When the time involved is 48 years, it “only” takes a return of a little over 21% per year to compound up to a 10,000 fold gain, that one million percent gain. It’s not the 21% that is particularly remarkable. It’s achieving that kind of return on a compounded basis for 48 years that is remarkable. A huge part of the success came from insisting on retaining ALL the earnings over all those years. A company that pays out a dividend when it could have kept that money invested at 21% does its investors a huge disservice.

The profitability of its various ventures has generally ranged from quite good to superb. But there was nothing the likes of Facebook or Google. A major key was the avoidance of losses. Berkshire has had a decline in its book value per share on just two occasions since 1965. And those declines were due to market value declines of its stocks. I am not sure if the company has ever had negative earnings since 1965.

In many ways what Buffett has done is merely to observe that if money is compounded at a reasonable return for a long period of time it will grow dramatically.  That truth was evident and well known when it came to bonds. What Buffett did was look for equity investments that had returns higher than bonds and where in fact this result was highly certain to occur. Buffett famously avoids the technology sector and most commodity companies because the returns are not predictable enough. He has described his stock picks as being like “equity bonds”. This is the simple and extraordinarily powerful concept that we are all free to copy from Buffett. Growth at a reasonable price is NOT enough. Buffett insists on highly predictable growth at a reasonable price.

May 29, 2013

A moderately negative day on the markets with the S&P 500 down 0.7%. But Toronto was down only 0.1%.

Toll Brothers was down 5.2% to $34.47. On May 22 I had sold 500 Toll Brothers at $38.58. With the lower price today I bought back the 500 at $34.80. On May 14 I had sold 500 at $37 I have placed an order to buy those back at $32.10 should the price go that low. Also I have placed an order to buy a few more Melcor shares at $18.51 but only until June 11 because I want to buy before the ex-dividend date.

May 28, 2013

It seems crazy just how good the U.S. market and out stock picks have done this year, especially after doing so well last year. I’d appreciate it if you could spread the word to friends and family about this web site.

It was another strong day on the markets. This was due to positive economic reports. The S&P 500 was up 0.6% and Toronto was up 0.4%.

We had Microsoft up 2.2%, Berkshire up 1.3%, Wells Fargo up 0.8% and Bank of America up 0.7%.

Toll Brothers was down 1.0% despite the strong housing price report. This is most likely due tot he fact that Toll Brothers has a very high P/E and is already pricing in a huge increase in earnings.

Melcor is set to pay a dividend of 75 cents on June 28 to shareholders of record as of June 14. 25 cents is the regular twice yearly dividend and 50 cents is a special dividend.

With the shares trading at around $19 that is a dividend of 3.9% on June 28. That seems attractive on its face. But, in theory, Melcor shares should decline about 75 cents right after June 11 (or so) when it goes ex-dividend. In theory those of us who own shares should not be at all excited by the dividend since the company is in effect giving us what we already own. But practical reality may be different than theory. I am not sure Melcor will decline much due to the dividend. I believe it is easily worth the $19 with or without the extra 50 cent dividend. I own quite a few shares. When it pays the dividend that will be the largest dividend I have ever received all at once by a factor of about three. My own money or not, it will be nice to receive it into my accounts.

May 27, 2013

U.S. markets were closed today for Memorial day. Toronto rose 0.2%.

It’s interesting that Valeant Pharmaceuticals has risen so much on the announcement it will buy Bausch and Lomb for some $8.7 billion. More typically when one company acquired another the one being bought has an increase in the share price and the one doing the buying sees its shares sink somewhat.

One explanation for the rise in Valeant’s shares was that it will be immediately accretive. Well of course it will. It’s financed mostly with debt. If you can borrow at 4% then buying any company with an earnings yield of at least 4% or a P/E under 20 will be accretive. And if you can forecast huge synergies that can make most any deal accretive.

But, a transaction being accretive to earnings per share is neither a necessary nor a sufficient condition for a wise acquisition.

The following statement seems rather ambitious (but then again I know nothing about Valeant)

Valeant expects to achieve at least $800 million in annual cost savings by end of 2014. Bausch + Lomb expects to have revenues of approximately $3.3 billion and adjusted EBITDA in 2013 of approximately $720 million .  The transaction is expected to be immediately accretive to Valeant’s cash earnings per share.  Assuming the transaction occurred on January 1, 2013 and assuming the full realization of synergies, the acquisition would have been approximately 40% accretive to Valeant’s expected 2013 Cash EPS.

However growth by acquisition can indeed be an excellent way to create value for shareholders as long as it is done properly. So perhaps the market is correct here.

May 26, 2013

FirstService Preferred is removed from the list because the company has redeemed them. Investors in the preferred shares received cash and or common shares. FirstService common shares remain on the list above. The common shares are a far different investment than the preferred shares were. I very much like the management at FirstService and it may do well long term. But the valuation did not look attractive as of our last update. Things may look better going forward as they will no longer face the expense of the preferred share dividend and I believe their balance sheet has been strengthened. However they did send some cash out of the company and the common share count has increased. It will take some time for all of this to work through the value ratios. We will start to reflect it with our next update on the company.

May 25, 2013

Stantec is updated and rated (higher) Buy at $44.50. I have now been watching this company grow steadily for fourteen years. The share price is occasionally volatile but the earnings have been marching upwards at a high and relatively steady rate. In recent updates I have added a cell to look at the economics of each company. Stantec does seem to have excellent economics. I believe its client customers are “sticky”. It would be false economy for its clients to switch to a cheaper consulting firm when the clients are undertaking very expensive projects.

Perhaps I am becoming complacent but it occurs to me that it is a good thing to own a stable of companies like the ones I own which seem to have good economics which it seems reasonably certain will grow their earnings at some reasonable rate over the next decade or so and furthermore for the most part have reasonable price to earnings ratios. Sure, their share prices would drop if the economy slows but these do seem like the type of companies that can be predicted to recover and grow their share prices over time. Of course I make no guarantees of that, but that is my thinking.

May 23, 2013

Today the U.S. markets showed some resistance to negative manufacturing data from China and worries about a slowdown in the FED’s money printing initiative. The Dow was down just 0.1%. Toronto was down 0.7%.

I thought about trimming my large positions in Canadian Tire and Wells Fargo in case they drop. But I decided not to. If stocks drop I do have some cash ready to go.

Toll Brothers was up 1.4% today. The surprising news in the U.S. is that new home prices are at record highs.

Canadian Western Bank was up 1.8% today despite the fact that TD Bank reported disappointing earnings including an increase in bad debt provisions. Most of our stocks were down somewhat.

May 22, 2013

Today started out with markets up substantially as Ben Bernanke signaled he would keep on stimulating the economy. But markets cooled significantly in the afternoon after Fed meeting minutes revealed some Fed members want start to phase down the stimulous.

Toll Brothers had excellent earnings and got as high as $39.25. It closed at $37.07 up 2.9%. I took the opportunity to sell about 16% of my Toll Brothers at $38.56.

I don’t pay too much attention to the market trends (I focus on individual stocks and valuation). But it does seem like we have had a very good run here. It may not be a bad idea to trim some positions. We should always be comfortable with the fact that  markets can and do drop. The trick is to be confident in what you hold when markets decline and to be ready to take advantage of bargains even as the crowd runs scared.

May 21, 2013

Markets did well today with Toronto up 1.0% and the Dow up 0.3%

Toll Brothers will report earnings before the open tomorrow (Wednesday morning). Toll Brothers fell 1.6% today, presumably on nervousness about the earnings.

Toll Brothers is pricing in a lot of growth and so any sign that it is not growing earnings (and especially any sign that the outlook is not rosy) could send the stock down. I show the adjusted P/E as a whopping 68, which means it has to grow earnings a lot to justify its price. I do expect it to grow earnings a lot but that’s not a certainty. And note it was last rated Speculative Buy at $34.13. As I contemplate what the stock might do tomorrow and as I recall that the stock got as low as $30 in mid-April I start to wonder if I should have sold more than I did at my $37 price where I did sell some last week on May 14. But that is the nature of markets especially if we get fixated on the short term. We second guess ourselves a little (or a lot). Anyhow if it rises tomorrow I will smile and probably sell some more and if instead it happens to drop toward the low thirties I imagine I will buy some. Toll Brothers strikes me as a well managed company. I expect it to do well, but that does depend on the rebounding housing market in the U.S.

I was reading that analysts expect 7 cents per share earnings this quarter and 28 cents per share next quarter. I find the notion of analyst earnings projections to be preposterous. In my opinion there is no way for analysts to predict earnings to that kind of implied accuracy unless it is a very predictable company (which Toll Brothers is not) or unless someone inside is whispering the number to analysts. As others have pointed out it is completely backward to suggest that a company has missed or beat analyst expectations. Instead it should be said that analysts over-estimated or under-estimated what the earnings would be.

May 20, 2013

We’ve just pretty much ended the annual season for voting our shares. I used to vote my shares years ago. Then I gave up because really it is usually a waste of time since the recommended slate usually gets in with 99% of the votes or something. Also, in Canada, we only get to withhold our vote; we don’t get to vote against a director. And rarely is there ever a competing slate of directors.

But it is easy to vote online once they send you the ballot. So sometimes I would go in and withhold my votes on someone if I had a reason to. But I was never sure if anyone really saw or cared that my few votes were withheld.

But this year there seems to be a new development. All the companies now issue press releases showing the results of the vote including the number of votes withheld for each director. Well, let’s face it you or me withholding our votes is not going to change the result. But in most cases there are few votes withheld and so even a few hundred votes withheld may add noticeably to the withheld number. It might be 14,600,000 votes for and 14376 votes withheld but that means you can almost see your contribution to that 14376 or whatever. And it seems to me that it is embarrassing for a director to get too many withheld votes. And especially when it is selective. I am seeing cases where most directors had 1% or less withheld but one or more directors are singled out and have 5% or more withheld. Everyone sees that. It sends a message.

So the bottom line is that withholding your votes (especially selectively on a few directors you don’t want) is now a bit of an interesting spectator sport. So, hopefully more people will get involved with voting.

The Canadian markets were closed today. New York was open. Wells Fargo climbed a little and is now over $40. But generally it was a quiet day in the U.S. markets.

Yahoo is paying  one billion for Tumblr which is apparently exceedingly popular but apparently has little revenue let alone profits. Well, a quick glance at the balance sheet of Yahoo suggests they can afford to throw away a billion if they wish. They have a couple billion cash and essentially no debt. But meanwhile I have used Yahoo Finance for over 15 years and these days I often have to hit refresh multiple times just to get the web page with my portfolio to load. Years ago their web pages used to load at least. I am certainly not impressed. But it seems they are profitable so perhaps they do know what they are doing.

May 19, 2013

Canadian Western Bank preferred shares are updated and rated Sell at $26.38. I believe the bank will redeem these next April 30 for $25, therefore I don’t think they are a good investment.

Bombardier Preferred shares are updated and rated Buy at $24.75. At 6.3% these seem worth considering. They could fall in price if Bombardier faces problems but I suspect the dividend would continue to be paid. I would not put a large percentage of my portfolio into these. But certainly I would consider putting in 5% or so. I don’t think Bombardier would be interested in redeeming these at $25 even if they begin to trade somewhat above $25. The reason is that Bombardier has a realtively weak balance sheet.

There are updated stock market valuation “Special Reports” articles in item 2 in the list of Links just above.

My personal portfolio breakdown is updated.

Constellation Software Inc. is updated and rated Weak Buy at $142.48. This is a great company. It is very well managed. It has great economics and it will grow. For that reason it should be a good long term investment. But the recent share price increase makes the stock somewhat expensive. This company makes up about 3% of my portfolio. I am not going to add to my position at this price but would consider adding at a lower price. I may sell half of my position or I may just hold on.

May 18, 2013

My analysis of the valuation of the Dow Jones Industial Average is updated. It suggests that the DOW is about fairly valued  (3% over-valued as a point estimate). For whatever reason the DOW valuation has generally looked more attractive than the S&P 500 for some year s now. The S&P 500 valuation paints a less benign picture.

My analysis of the S&P 500 valuation has been updated. It’s a bit scary since it suggests that the S&P 500 index may be 18% over-valued. The trailing P/E on the index is a hefty 19.0. That is troubling. However, not all U.S. stocks have such high P/E ratios. I invest in individual stocks and not in the S&P 500 index.

Friday was another strong day for the markets and our stock picks. We had Toll Brothers up 2.2%, Wells Fargo up 1.6%, Berkshire up 1.3%, The Dow and the S&P 500 are at record highs (as they probably should be – given record low interest rates, an economy that is growing, albeit slowly, and the passage of time and the retention of earnings since prior market peaks). But the Toronto index is well below record highs and lags due to its heavy weighting in the energy and commodity sectors.

May 16, 2013

Melcor is updated and rated (higher) Buy at $18.62. I may add to my position in this company.

Constellation Software rose 4.5% today. I don’t know the reasons that it is has been rising. I will plan to update the report on this company in the next few days.

I have mixed feeling about the markets. My analysis of the S&P 500 dated March 24 suggested that the S&P 500 looked about 12% over-valued at 1557. Sine then it has risen 6% to 1650. It’s trailing earnings are just a little higher than they were in March. This analysis is meant to be a long-term indicator but it does suggest that the S&P 500 is somewhat over-valued.

Meanwhile I like the U.S. stocks I hold, Wells Fargo, Bank of America and Toll Brothers. I like Berkshire as a company but its shares no longer look particularly attractive. And I like the Canadian Stocks that I own including Canadian Tire and Melcor. Also Canadian Western Bank and probably Stantec (this one not updated recently). I am not sure about Constellation until I update it. These are all the stocks I own in any meaningful amounts.

So, it’s hard to know if I should add to the stocks I like or instead take some profits since the overall S&P 500 seems somewhat overvalued. There is also the option of sitting tight and re-evaluating as time goes on.

May 15, 2013

It was yet another day where the American markets did much better than Toronto. The Dow was up 0.4%, the S&P 500 was up 0.5% but Toronto was down 0.8%.

Canadian Tire slipped 1.2%. However Wells Fargo was up 1.4% to a new high.

Our next update will likely be for Melcor. I have read its Q1 report and its very positive. I definitely like this company and will consider adding to my position. The report did not mention the outlook and that is always uncertain but over the long term this company just keeps adding to its book value per share. Earnings and the share price can be cyclical but the underlying growth trend seems strong. The new Melcor REIT seems to be trading well and will be a positive factor in keeping the Melcor share price up.

I notice a lot of positive articles about Berkshire. This seems to be a case of Johnny-come-lately. Most analysts were a lot less excited by Berkshire when it was at much lower prices.

May 14, 2013

Today was surprisingly strong on the markets. The Dow was up 0.8%, the S&P 500 was up 1.0% and Toronto was up 0.4%

Many of our favorite stocks did well, Bank of America up 2.8%, Toll Brothers up 1.7%, Wells Fargo up 1.5%, Canadian Tire up another 0.5%. Stantec up 3.0%, Melcor up 1.4% (but Melcor has tiny volumes and so tends to move somewhat randomly).

20% of my Toll Brothers shares made a quiet exit from my account today. Automatically sold at $37 based on an order I had placed about two weeks ago to trim that position if the shares hit $37. I have mixed feelings on that but it did seem the prudent thing to so.

Greece had a debt upgrade today. Fitch raised it from CCC to B-. The rating is still very much in the high risk junk category. Nevertheless if is a welcome  change in direction. Estimates of the U.S. deficit for this year fell sharply to $642 billion. That’s down from 1100 billion last year and down from a peak of 1400 billion. Slowly but surely the financial world is recovering and all those doomsday predictions are proving to be wrong. But worry the prophets of doom will continue to predict the end is nigh.

May 13, 2013

The S&P 500 ended the day about unchanged while the Dow was down 0.2% and Toronto was down 0.5%

Canadian Tire did okay, up another 0.6%.

May 12, 2013

Canadian Tire is updated and rated (higher) Buy at $83.78. It is obviously not the buy it was at my last update on February 24 at $68.65. But it is still not an expensive stock and I am not in a hurry to sell any more at this point. The sale of real estate to the REIT is maybe six months off and so meanwhile the stock may fluctuate with the market, with its earnings and with fears of competition.

May 11, 2013

Friday was another good day on the markets with Canadian Tire up another 1.7% and Melcor up 1.9% and Bombardier was up 5.4%.

Berkshire Hathaway is updated and rated (lower) Buy at $111.82. With the recent strong gains in this stock (it is up 25% this year) I am tempted to sell some of my holding. It is not going to rocket ahead and could suffer a decline. But generally anytime I have sold this stock it has been a mistake.

The story of Berkshire is well beyond remarkable. Buffett took control of the company in 1965 and he measures its growth based on the growth in its book value per share from September 1964 which was the last annual report before he took control. The share price was driven up over $19 as he took control but was apparently in the $14 range earlier that year. The same shares now trade at $167,780. The increase in the share price since 1965 is just under or somewhat over one million percent (10,000 times increase) depending what price you take as the starting point.

I have not seen this one million percent ,milestone mentioned in the financial press. It seems like the press are not quite able to comprehend this figure. Buffett very quietly mentioned in a CNBC interview that the stock was up 10,000 fold but the journalists failed to pick up on this.

Buffett has ALWAYS judged the growth of Berkshire by the increase in Book Value per share. This has grown at about 615,000% since 1964. I have it on the very best of authority that Buffett “likes that one million percent figure”. I think he would like to see that mark reached before his time as CEO ends. That could be done at the end of 2017 if the growth averages 11% per year, which is a stretch but possible. Buffett is an EXTREMELY competitive man (though he comes across as low key).

Berkshire also reached number 5 on the Fortune 500 list this year. Although Exxon and Walmart are much bigger, you can bet he has his eye on the number 1 spot, or at least on moving up another spot or two.

At the annual meting this year Buffett noted that Berkshire had reached number 5 as well on the list of most valuable companies in the world by market capitalization. Again, he will have his eye on the spots above him.

With all of this, I think I shall ride the Buffett coattails for a while yet and hang onto my shares. If the shares should drop say 10% I would then likely add to my position.

May 9, 2013

As most will have heard, Canadian Tire came out with decent earnings today but more importantly announced plans to spin off the real estate into a REIT which they would continue to own 80 to 90% of. But the existence of the REIT would make the value of the real estate more obvious. Canadian Tire shares ended the day up 11.2% on the news at $82.36. The stock opened at $86.50. I sold what worked out to 15% of my shares at the open based on an order I placed just before the open. I only heard the news a few minutes before the open. I might have sold closer to 20% but actually did not know off hand how many shares I owned across several accounts and was in a rush.

Selling some at $86.50 looks good right now, and may look even better tomorrow if the stock slips lower. Or perhaps before long I will regret selling at that price.

The actual REIT IPO will not take place until the Fall and so there is a lot of time for the market to digest the news and to worry about other things. So I don’t necessarily think the stock will rise over the summer. But really nobody knows and it depends on many things. The best that we can hope is to understand that the stock is probably still selling below a reasonable value and for that reason (and not for short term gains) I am comfortable holding it.

I have to wonder who were the buyers today especially at the open. It actually reached a high of $87.45 just after the open. Ya gotta feel like a chump if you bought near the open today and you end up losing money on this company today when 99.99% of its owners were making money on the stock today.

I had been advocating for Canadian Tire to do something like this. Still, in many ways the whole thing is strange. They plan to retain 80 to 90% of the REIT. But the 10 to 20% that trades is expected to fix a value on the real estate that is far higher than the common shareholders of Canadian Tire were apparently fixing on it until now. But the existence of the 10 to 20% that trades will effectively cause the common shareholders to now fix a higher value on the real estate as they can see its market value transparently due to the REIT. In the limit if they retained 99% of the REIT, you have a situation where basically NOTHING has changed in substance and yet the company jumps in value. It is financial engineering. In a pure efficient market this sort of thing would not increase the share price. But markets are not 100% pure and efficient. Thank goodness since if they were 100% efficient it would not be possible to find under-valued companies except by random luck).

In other news Melcor came out with earnings after the close. The earnings were good and they announced a 50 cents special dividend. I suspect that with push Melcor up tomorrow but we shall see.

May 8, 2013

Another decent day in the markets.

Thursday should be interesting as a some of our companies will report earnings. I believe Canadian Tire and Melcor will report, although Melcor will likely be after the close.

I have not looked at Tim Hortons in quite some time. They announced today that they have a new CEO coming from outside the company. To me, that is not a great sign. Tim Hortons is a unique and highly successful Canadian company that has built itself up remarkable over almost 50 years now. There should be someone in-house capable of being the CEO. An outside CEO could be some kind of prima donna (aren’t they all?) who will look to do things differently. Also it announced earnings today and everyone is disappointed same store sales are down a bit. Same Store Sales gets a bit too much attention for restaurants and retail. Imagine you own a golden goose. Do you complain because the size of the egg does not grow each year? Or do you contrate on getting the goose to reproduce itself. Tim Hortons can still grow by opening new locations. Obviously the gallons of coffee or pounds of food that can be served at one location cannot increase forever. And if same store sales are flat due to no inflation, what is the problem with that? All that Tim Horton’s needs to do is study its own history and if it has gotten off-track of historic methods then fix that. It certainly does not need any new ides form the Nestle executive that they are bringing in. That is my opinion. I would send this new CEO guy on a road trip across Canada to visit at least a 100 Tim Hortons locations and get him to read the several books that have been written about Tim Hortons and do that before he is allowed to step foot in head office. And he should seek out the advice of Ron Joyce who is the former owner who largely built the comapny.

May 7, 2013

Okay, so I know that technically we are not supposed to get excited about day to day moves in the market. In fact for those still in the early savings phase of life, lower stock prices are what you should rationally cheer for. The ideal scenario is low stock prices as you save money followed by soaring prices in retirement.

But anyhow even if it is not rational to get too excited by short term stock price increases it nevertheless always feels good.

Today we had Canadian Tire up 3.0%. I guess the negative analyst report that pushed it down 1.8% was now yesterday’s news.

Wells Fargo up 1.3%.

A little here and a little there, and no real big losers and it’s been adding up nicely so far this year.

I am considering buying some of the Claymore Oil Sands ETF , CLO on Toronto. This is listed in our Canadian ETF reference article.  I don’t try to predict oil prices but the ETF has a reasonable trailing P/E and has declined in price significantly in the past two years. Almost down tot he 2009 lows… And also I rather like the idea of having some skin in the oils sands game.

May 6, 2013

Our stocks picks did better than the market today.

Bank of America was up 5.2% after it settled a dispute with a major credit card company.

However Canadian Tire was down 1.8%. Apparently this was due to an analyst downgrade predicting that the Q1 report will be weak. Perhaps it will be weak. We had a later Spring in most of Canada and perhaps Spring sales in march were weak. And certainly in Western Canada April was still winter and so the early sales in Q2 may have started out weak. If the recent to sell is merely due to Q1 earnings, that does not seem a great reason to sell. The stock appears cheap based on trailing earnings. Possibly its earnings are going to decline material but I’m don’t see the basis to assume that is so.

Warren Buffett was on Squawk Box this morning for three hours. This followed his huge annual meeting weekend that just took place. Some of his comments illustrate how incredibly hard he works and how passionate he is about business. He reported that sales at his Nebraska Furniture Mart will likely come in at around $40 million for the weekend up from $36 million last year. And he reported that the carpet and flooring department was up 36% and drove the sales increase. It is incredible to me that as busy as he was this weekend he took time to review and memorize these figures. He will know as well the sales that took place on the meeting convention floor and at his Borcheim’s jewelry. He reported (from memory) on the number of carloads that Burlington Northern is carting today and what it carried at the peal in 2006 and how far it dropped at the bottom in 2008. The point is he is still an incredibly hard working individual who has a photographic memory and still has incredible passion to see all of his businesses succeed. I would bet that the average small business owner hardly knows his sales from last week and somehow Warren Buffett tracks such numbers for numerous businesses.

May 5, 2013

Weather is always interesting… Here in Edmonton Spring refused to arrive in April and winter hung on strongly. We got a good bit of snow this past Monday and Tuesday and freezing temperatures. Spring then arrived on Thursday and by today we moved straight to Summer (at least temporarily). I used the opportunity to sit outside on the deck and read the Berkshire Hathaway Q1 report. What could be better? I will update the report for Berkshire before long.

A word about Bonds and Bond funds.

As I updated my ETF article I noticed that under bond ETFs the cash yields were significantly higher than the yields to maturity. This could cause investors to think they are getting say 4% when it is really more like 2%. A similar situation would occur if you bought a bond at par some years ago at higher interest rates. You now have a capital gain on that bond because interest rates have declined. It is still paying you a high interest rate but really your yield to maturity is far lower. The capital gain on that bond WILL disappear by the time it matures at par.

Also if you buy such a bond today at a premium it will still give you  a cash yield that is higher than the yield to maturity. You have to have higher cash yield now to make up for the fact that it will decline in price by maturity. If you think of that cash yield as being really a return, that is wrong since part of it is in effect a return of the premium over par that you paid.

I had a question from a subscriber and I want to share the response here. This is for those interested in bond ETFs.


In your article about Bond ETFs, you didn’t mention symbol CBO.  This is a five year laddered bond ETF.  I think it is a good place to park cash.  It pays 4.5 plus interest.  I would be interested in hearing what you think. Thank you.


I think the 4.5% yield is true but is misleading.

All bond funds today hold some bonds that they bought a little (or a lot in the case of long bond funds) earlier when yields were higher. There bonds now trade above par and that tended to push the bond ETF price up as interest rates fell.  As these particular above par bonds approach maturity they will fall to par value and be redeemed at par (barring bankruptcy). So, these ETFs will fall a little in price if interest remain stable and fall further if interest rates rise. A five year laddered  fund suffers less from this issue than a longer fund.

ishares is showing a yield to maturity of 1.76%. They do show current yield of 4.41%.


I believe the 1.76% is the best guess at what you would earn over the next few years on this fund. You should expect the trading price of CBO to fall a little, offsetting your 4.5% yield.

The price of CBO has trended very slightly down over the past five years despite declining rates.

http://finance.yahoo.com/echarts?s=CBO.TO+Interactive#symbol=cbo.to;range=5y;compare=;indicator =volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

I don’t hold any fixed income and so am not a good person to have a view on whether 4.5% with expected capital loss and 1.76% net expected return is attractive. Things will work out a little better than 1.76% over the next few years if interest rates continue to decline.

Looking at their holdings, everything is showing coupons in the 4 to 6% range.

That seems odd to me as interest rates are lower now. But they don’t show yield to maturity for each bond.

For one year bonds or two year they appear to be buying the tail end of bonds that were originally much longer. These bonds boast high interest but they pay a premium above par that quickly withers away as the bonds mature in one or two years or three etc. This is the issue I mentioned above except I did not realize they are sort of manufacturing that issue by buying the tail end of long bonds rather than new one year bonds and two year etc.


However, they are following the DEX 1-5 year index so it seems the issue appears to be embedded in the index, it’s not ishares that creates the problem.

At the end of the day I find the 4.4% cash yield to be highly misleading.

End of response, but a few more thoughts…

It is disturbing that people may be buying this 5 year laddered ETF and think they are actually earning 4.4% yield. It’s not true, not unless you count return of your own money (represented by the falling ETF price) as your money.

Personally I see little or nothing to attract me to invest in bonds. I believe you can find Guaranteed Investment certificates from banks that pay more than this laddered 5 year appears to pay (more than the yield to maturity, that is). I had never looked into this but I looked just now and TD Waterhouse offers GICs from a number of banks. Unfortunately the rates are pretty low, but at least the product is very straightforward. You cannot cash these prior to maturity.

Or buy individual bonds. I just don’t see anything of interest (no pun intended) in bond ETFs.

May 4, 2013

Markets were strong on Friday. Our Stock picks have done well year to date, up 11.1% on average. My own account is up 10.6%. This compares to the Toronto market which is “up” 0.0%. In the U.S. the S&P 500 is up 13% and the DOW is up 14%.

I just updated my reference article that provides Canadian ETF symbols along with P/E ratios and dividend yields for a a selection of equity segments and also Dividend ETFs and Canadian Bond ETFs and also ETF for Gold, Silver, Oil and Natural Gas. For this update I added direct links to show the holdings of each ETF.

I consider this to be a very valuable reference article. I know of no other similar reference article for Canadian ETFs. Most lists of ETF symbols don’t even mention P/E ratios. http://ca.ishares.com does contain mucj of this information but my article includes additional ETFs and also is easier to use especially for non-experts. And I include some indication as to the attractiveness of may of these ETFs.  It takes me a full day just to update all the links and figures in this article.

Looking at the P/E ratio of the Toronto Stock Exchange it is about 19. Therefore the Toronto market does not appear to be attractive even though it has lagged the U.S. market. Some of the segments however appear to be attractive.

May 2, 2013

Markets recovered the ground lost yesterday. Our Stock Picks had a particularly good day with Toll Brothers up 3.1%. Almost all of the stocks on the list were up.

Canadian Western Bank is updated and rated Buy at $28.42. I am comfortable holding it. I did not own it I would be comfortable buying some at this price. Since I already hold it I would be more likely to add to it if the price falls.

After an extensive look at its annual report I can boil down the economics of how it makes money as follows:

The bank takes in depositors at a weighted average interest of 1.88% and lends out money at an average of 4.77%. The net interest spread was most recently 2.62%. This spread (unfortunately) is falling as market interest rates drop but 0% interest deposits cannot decline any further. The range of deposit interest paid is 0% to 2.53% with most of the deposits being in the 2.53% category. The 2.62% gross profit is then reduced by the banks operating costs. The net interest after operating costs and income taxes is about 1.0%. With such a thin margin it becomes very important to avoid defaulting loans and where defaults occur to have security so that at least some amount is recovered. CWB’s allowance for bad debt runs at about 20 basis points. The 1.0% net profit on loans is then leveraged up by the fact that the loan assets are financed with only about 8% common equity (they are mostly financed with deposits) This results in an ROE on the lending business of about 14%.Residential mortgage loans average 4.06% interest while the much larger category of all other loans averages 5.57%. Business is competitive but some of it tends to be sticky to a good degree.

(Some of the math above does not work out exactly but the above represents the economics as I understand it)

May 1, 2013

Markets were down today. They can’t rise everyday.

The Melcor Real Estate Investment Trust started trading today. It was issued at $10.

It traded all day around $9.96, $9.97.

It’s interesting… With an IPO like this the company and the IPO investors hope that it will trade vigorously and for a price higher than the IPO.  But really why should any of the IPO buyers be eager to sell today especially for under $10. They bought this for yield so why sell? And why should Melcor want the new IPO owners to abandon the REIT to be replaced by new owners? (especially if it is donmne below $10). The REIT price should tend not to fall much (if any) since the IPO buyers presumably are happy with it and can hold for the dividend rather than selling at a loss. Ideally new buyers who missed out on the IPO will come in and bid the price up to pry some shares loose from the hands of the IPO investors.

I would expect this REIT to gravitate to being quite thinly traded (like Melcor Corporation itself) . And if interest rates stay low and as the market gains comfort with this REIT and as it grows the price should rise. Today’s trading was probably orchestrated by the investment banks that sold these shares. They probably trade it back and forth to generate some liquidity in the units.

Melcor will release Q1 earnings on may 9. I would expect decent to possibly quite good results in their sales of building lots and a reasonable outlook for that. They may report modest gains on investment properties as interest rates continue to decline. They will likely report unusual expenses due to the issue of the REIT. For Q2 outlook (or as an event subsequent to Q! quarter end)  they will likely indicate that they made just a very small gain in selling properties to the REIT. The trading of the REIT could pull Melcor up a bit since Melcor trades below book value and this REIT should reveal that the investment properties are worth the full book value.

April 30,2013

Well, today seemed to be another case of another day, another few dollars gained.

S&P 500 at a record high. Most of our stocks were up…

Case Shiller home price index shows U.S. house prices rising.

Melcor had some strange trading today. About 200,000 shares in smaller lots traded over the noon hour (eastern time) and pushed the price over $18 to briefly $18.30. But then the stock fell to $17.70, albeit on just one trade and  it closed at $17.90. This trading is strange because Melcor often only has only a few thousand shares trading in a day. About half the time less than 10,000 shares trade. So, I figured maybe there was no news on the REIT front. But there was no news. So it may have just been that someone bought about 100,000 shares and had to bid up the price to get them and after that the price retreated again.

Melcor is so thinly traded that it’s price really can’t be trusted. It can move several percent just because someone is in a hurry to buy or sell 10,000 shares.

I already have a lot of Melcor but have toyed with the idea of buying more especially if I could get it under $17.50.

I believe the REIT should start trading as early as tomorrow (Wednesday May 1) and that should may have some impact on the Melcor shares one way or the other. (I suspect the impact would be positive).

April 29, 2013

It seems that the Market works in mysterious ways. We see lots of stories warning about slow growth and slowing earnings and too much debt. And yet the DOW rises over 100 points today. And the S&P 500 hits a new high.

Most of our stock picks were up today. With the markets have done so well in the past 18 months or more (at least if you had a good exposure to U.S. stocks and little exposure to commodities) the danger now is perhaps in becoming over confident.

Toll brothers at its high today was up over 50 cents but then closed down 50 cents at $34.19. I just entered an order to trim my position if it hits $37. At least that way if it rises that high some will be sold automatically. I find that if I see a stock I own has risen it’s not that easy to pull the trigger and trim the position. After all when seeing that a stock has just made you money it’s harder to get in the mood to sell it. So perhaps when it comes to trimming on rallies and buying on dips, an automated approach is best.

This weekend I studied the annual report of Canadian Western Bank closely. It’s a well run company and is very likely to be a good investment over any longer period of time.

A big issue facing banks at this time is compression of their net interest margins. Traditionally banks earn a “spread” by taking in deposits at say 3% and lending out at 6%. In that scenario a 1% drop in interest rates might change that to 2% and 5%, so no big deal. But many deposits have been paying about 0% for several years now. In that case when lending rates go down the spread has to go down since the deposit rate of o% cannot be lowered.

Banks today have many loans outstanding that were made when in interest rates were higher. As those loans are paid off new loans are made but at lower interest rates and lower spreads . That squeezes profits. At Cnadian Western Bank in 2012 they grw loans by a robust 14%. But adjusted earnings per share were only up by 6% due to interest margin compression. 6% earnings per share growth plus a 2.5% dividend is  not bad, but it would be better without the margin compression.

As examples of the margin compression that may occur at Canadian Western Bank, residential mortgages averaged 4.06% in 2012. But new five year mortgages are going out at closer to 3%, so I have to think this 4.06% figure is declining. However most of Canadian Western Bank’s loans are commercial loans where they face less competition and they may be able to hold their interest rates up better than is the case for residential mortgages.

It’s interesting to note that Canadian Western had invested in the preferred shares of other banks. These had attractive yields which were taxed at a lower rate. But bank regulators in their “wisdom” have passed new rules that effectively limit CWB from investing as much in those preferred shares.

Despite any struggles that CWB has in the short term, it seems reasonable to forecast that it will continue to grow and be a good investment in the long term.

April 27, 2013

Toll Brothers rose 2.4% on Friday which was nice to see after my recent comments about it and purchases of the stock. This builds on the bigger gain of Tuesday.

I have updated my article that compares the long-term performance of stocks, bonds, cash and Gold. It was back in the Summer of 2001 that I first was able to obtain the data to calculate for myself the after-inflation gains from the various asset classes over the long term. Since then I have updated the graphs each year. Little did I know that stocks were going to do quite so poorly in the years since the stock market bubble peak of 1999. Nevertheless the data gives me confidence that stocks do win out in the long run. Besides that with judicious stock selection some investors can make good returns in stocks even when the stock indexes do not do well.

April 25, 2013

Today was another decent day in the markets. There were no big gainers among our stocks but a little bit here and a little bit there and overall a good day.

In the short term our stocks rise because other investors bid up their prices. That always feels good. But much more importantly in the long run our stocks rise because the businesses in which those stocks represent tiny slivers of ownership increase their earnings and improve their future prospects.

I find myself increasingly drawn to the Warren Buffett style of restricting investments to good companies. If we can buy good companies at good prices we can win with that one decision. We can potentially just hold that stock thereafter. Or we can layer on some trading, trimming or selling positions when stocks rise and being a buyer on dips. And migrating to the best companies and values over time.

Buffett no longer plays the trading game with stocks at Berkshire. When it came to entire companies he decided about 40 years ago that it was just too unpleasant to buy a company and then sell it. He would be dealing with real people -managers and employees.  He decided he would only buy companies for keeps. Then he turned that into an advantage becoming the buyer of choice for anyone who had built up a large business and who wanted to sell it but who wanted it looked after properly in a permanent home. And even with stocks, Berkshire is so large and Buffett’s influence is so huge that he can’t very well buy a stock today and then turn around and quickly sell it. He would be accused of manipulating markets if he did that. And while Buffett has said that selecting stocks very wisely and trading infrequently is a good plan for most people, he has also said that more money could be made by an astute investor if some trading and arbitrage is layered onto that.

April 24, 2013

Toronto had a good day, up 1.5%, while the DOW was down 0.3%. It seemed a decent day for our stock picks with Bank of America up 2.0%. Toll Brothers gave a back 1.35% after its big gain yesterday. It seems I sold my Microsoft too early as it was up 3.8% to $31.86. Still I have nothing to complain about overall.

April 23, 2013

It was certainly a pleasant surprise to see Toll Brothers up over 9% today to $34.13. Yesterday morning it had been under $30 briefly. It seems for a day at least the market shared my enthusiasm for the company. Apparently this move was due to an “upgrade” from Barclay’s and perhaps others. That’s a bit scary. It prefer stocks to go up based on earnings rather than based on an upgrade.

The Dow was up just over 1% today.

Wal-Mart was up1.4% today to tie its recent highs at just over $79. For several years I had explained that while Wal-Mart’s stock had not done well since its peak of $60 back in late 1999 that was simply not Wal-Mart’s fault. The market had stupidly bid Wal-Mart way too high back then. The stock then fell to the $50 range and it has taken years of steady earnings growth that has now allowed the stock to set new highs. We rated it (higher) Buy in 2010 and (higher) Buy to start 2011 at $54. And also (higher) Buy at about $60 to start 2012. It was mentioned many times over that period as worthy of consideration. Many analysts considered Wal-Mart to be dead money. It seems they were dead wrong. I recently sold my Walmart to buy more Toll Brothers and to raise cash.

April 22, 2013

On Friday, Melcor‘s new Melcor Real Estate Investment Trust posted its final prospectus. The REIT will yield 6.75%. It appears that this  Initial Public Offer has successfully closed (has raised the money it was targeting). This created some transaction costs for Melcor and may mean that Melcor’s Q1 will not look that great. But Melcor has done this to benefit Melcor share owners and certainly if all goes according to plan, Melcor’s share price will benefit from this. I do not have any opinion on the REIT but I continue to like the Melcor shares.

Regarding Toll Brothers, I note a headline tonight that says: Home sales Begin to Slip as Buyer Demand Outpaces Supply. That does not exactly look like bad news for Toll Brothers.

Another headline tonight reports that News Corp will receive $139 million from its Directors and Officers insurance in regards to the phone hacking scandal. That is bizarre. It makes me wonder what companies are paying for directors insurance fees if these kind of payouts are possible. That’s not an expense item I have ever seen disclosed – with one exception. Berkshire Hathaway has disclosed that it pays zero for directors insurance because it does not provide any to its directors. If they mess up they are on their own. And I would bet that none of Berkshire Hathaway’s insurance companies are involved in paying out this money to News Corp. To be sure, they do offer that insurance but I suspect they know how to pick which companies to insure and were unlikely to have insured News Corp. And if they did they will have had the amount capped as they always do.

April 21,2013

Bombardier Inc. is updated and rated Speculative (lower) Buy at CAN $3.89. This is an interesting company that certainly makes fun stuff – It makes Lear jets, other business jets, smaller commercial jets, high-speed trains and subway cars. But the profits seem inadequate and highly unpredictable. Management has managed to destroy large amounts of invested capital in the past dozen years. However it does have a very good order book at this time and so the short-term outlook while speculative could be considered fairly strong. I have about 1% of my portfolio in these shares. I’m not planning to sell that. I would consider adding to that as a speculative bet but would not want to place a very large bet on this company due to its poor earnings history.

It has received a very large order from Warren Buffet’s Netjets subsidiary. I have wondered in the past if Buffett might be interested in the company. I think he would definitely like the idea of owning a producer of planes and high-speed rail cars. He would also like the long-history of the company and the fact that the founding family still runs the business. But I am not convinced that he would like the economics of the business at all or that he would be be at all impressed by management.

April 20, 2013

Our stocks had a good day on Friday. Overall our average Buy or higher rated stocks is up 7.4% this year to date. This beats the TSX by over 10% but trails the U.S. markets by a few percentage points.

Bank of America is updated and rated Speculative (higher) Buy at $11.66. For this update I read the front section of the annual report where the business segments are described and the President’s letter if given. I did not attempt to read the voluminous material on risks nor review all of the very numerous tables of figures. The analysis is necessarily at a high level. As always, I entered the key financial numbers for our analysis. Unfortunately, in this case the net income is relatively unreliable due to numerous adjustments and the lack of any reported adjusted earnings figure. What I read did not impress me. I listened to the Q1 conference call. The CFO read through a pile of material in a completely monotone and robotic fashion and using a copious amounts of acronyms. The CEO then came on with a discussion that sounded a lot less scripted. This bank is nowhere near as strong and well run as Wells Fargo. But it is trading cheaply. There is probably an opportunity for a good return on these shares as the bank continues to recover from the financial crisis.

April 18, 2013

Most of our stocks were down today but Canadian Tire was up 0.8%. The company has reached a new 10 year agreement with its dealers. The dealers operate each store as business owners in a manner that is similar to owning a franchise. I thought about trimming my Canadian Tire a bit today. I know I was adding to my position a while back on dips so it may make sense to trim. But I decided to just hang on. As I have mentioned before the market seems leery of the impact that Target will have on Canadian Tire and that is simply not going tobe known for some time. Meanwhile the stock looks like good value.

Toll Brothers however went down 4.0% today.

April 17, 2013

Today’s market decline seems more sensible than yesterday’s gain…

It is perhaps an encouraging sign that Toll Brothers managed a small gain today (0.5%) given the market was down. Canadian Tire was also up (0.6%) despite the TSX being down 1.4%.

Fed “beige” book came out at 2 pm eastern and indicated U.S. economy continues to grow but the market did not seem to react to that.

Bank of America was down 4.7% today on disappointing earnings. I will plan to update that report by Sunday as I now have the annual report and the Q1 report.

April 16, 2013

Well, I don’t think too many people were expecting this big rebound (or any rebound for that matter) today. It goes to show markets are very unpredictable, particularly in the short term.

One of the bigger gainers were Berkshire Hathaway up 2.5%. This was partly due to Coke being up 5.7% and Berkshire owns about 8% of Coke.

Toll Brothers was up 2.9% on larger-than-normal volume. Every stock on our list was up with the exception RioCan pref shares which were down 1.0%.

I plan to have more updates before long as the Q1 reports come in.

One trading idea would be to enter orders, for the stocks you own to trim positions at say 10% above the current price and orders to buy more at 10% below. (Or you might choose 5% or 15%…) You can leave orders like that in place for 30 days and see what happens. I have done a bit of that on occasion. It can be a way especially to trim positions without emotions getting in the way  since it would be on auto pilot. This obviously is more applicable to those of you that have larger positions. For example if you hold 1000 shares of something you might place an order to sell 100 to 200 on a 10% rise and buy 100 or 200 on a 10% dip. But there are absolutely no rules around this. And I can’t say if this tends to work better than buy and hold. It seems like it would be a good way to take advantage of volatility. But if the stock rises 10% and then keeps on going you may regret selling. It’s just an idea that you might sort of layer on top of whatever else you are doing just targeted to take advantage of volatility. And you could also decide to do it on just a few stocks.

April 15, 2013

It was a nasty day in the markets. The TSX was down 2.7%, the Dow was down 1.8% and the S&P 500 was down 2.3%.

In particular Toll Brothers was down 7.7%. Apparently this was mostly due to a report that home builder sentiment was down.

Higher costs for building materials and rising concerns about the supply of developed lots…

Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values,” said Rick Judson, National Association of Home Builders Chairman and a home builder from Charlotte, N.C.

However, Toll Brothers has said that it has an advantage in that it has its own large supply of developed building lots and has access to credit due to its strong balance sheet. Also its customers are higher end and have less difficulty obtaining mortgages. Toll Brothers is not a company that is “unable to respond to the rising demand for new homes”.

Overall I suspect Toll Brothers is  doing well. But perhaps the stock had gotten too high. I was aggressive in buying on the recent dips and should have bought slower or waited to see if this bigger dip would happen. Nevertheless I added again to my position in Toll today.

The other day I wanted to check the P/E ratio of the Toronto Stock Exchange Index. My ETF article has links to where the TSX shows the P/E ratios for the index and all the segments. But the links had changed and I can no longer find the P/E ratios. It would not surprise me if they simply stopped publishing it. Few investors are interested in such matters. I will look into this with the TSX. Possibly the data is still available on a paid subscription basis.

I suspect that the sharp drop in Gold was partly responsible for a nervousness in the market today that led to equities falling. And certainly the explosions at the Boston Marathon later in the trading day would have added to the fear.

This sort of thing is in the nature of markets and it’s why investors need to be able to handle risk and to take advantage of dips rather than fearing them.

April 13, 2013

Wells Fargo is updated and rated (lower) Strong Buy at $37.21. Although I have a large exposure to this, I may add to my position. There are many companies where it would be difficult to guess if they can continue to grow earnings over the years. But Wells Fargo seems to be a company where it seems quite safe to predict that it will continue to grow its earnings over the long term. And it appears to be under-valued. Still, earnings and particularly revenues and net interest margins could decline in the shorter term and there is certainly no guarantee that the share price will not fall. But in the long term it seems a good bet that the share price will rise. At last last report Warren Buffett was still buying it.

April 11, 2013

MicroSoft was down 4.4% today on news that PC sales have fallen. It has risen about that much in the past few days. I decided to sell my shares and move on. I had been wanting to raise cash anyhow. MicroSoft is a complicated company and basically I did not have that much conviction or emotional attachment around owning it and so is easier for me to sell that as opposed to something like Wells Fargo that I have rated higher and bought often. Also MicroSoft seems like a difficult company to predict given technological changes.

In general the U.S. market was positive today and Canada lost ground.

Tomorrow (Friday) morning Wells Fargo will release earnings. I suspect they will have done well. Interest rate spreads (net interest margin) will likely be a little lower however. Credit losses should be steady or improved. There will be some expenses to settle litigation and related matters around the whole mortgage fiasco situation of circa 2008 but much or all of that will have already been booked in previous quarters.

April 10, 2013

So far this year it has certainly been a good time to be in the U.S. market. Despite various worries and warnings the DOW and S&P 500 are up a lot this year and the DOW was up 0.9% today and the S&P 500 was up 1.2%.

Prudence would suggest trimming some positions for those of us with high exposures to equities. I thought of doing that today but ended up not selling anything. And with Toll Brothers down 2.3% today, I added to my position in that company.

Constellation Software was up 3.3% today.

In the next few weeks we will have earnings plus the usual economic reports and various world events all of which ,the reality is, can push the markets around unpredictably.

April 9, 2013

After scaring people last week, the markets have surprised with a strong start to this week. A new record for the DOW today.

Microsoft was up 3.6%.

I was reading Canadian Tire’s annual report which arrived in the mail a few days ago. Management does seem very energetic and confident regarding growth. While there are never any guarantees, I feel good about my investment in Canadian Tire.

Meanwhile in the U.S. J.C. Penny has fired the CEO it hired about a year ago. The guy was a Prima Donna who changed absolutely everything at Penny’s and rolled out the changes without bothering to test them. He had apparently been responsible for Apple’s retail stores. What he did not realize was that Apple stores worked because they were selling a unique and hot product. It was not the stores that sold the products. It was the products at Apple that made the stores successful. And even to the extent that the Apple stores were in fact hip and very well designed, it was a mistake to think that similar concepts would appeal to J. C. Penny customers, who apparently were mostly an older crowd, or that hip young people were going to rush to a fuddy duddy old brand like J.C. Pennys. It is one thing to sell a hot proprietary product that you make yourself and quite another thing to try to make it selling the same stuff as numerous competitors. The simple fact that Penney’s went outside for a new CEO last year tells me they had no confidence in themselves at that time.

April 8, 2013

Monday ended up being a decent day in the markets for our stock picks. Most notably Toll Brothers was up 2.9% and Bank of America was up 2.0%.

Canadian Western Bank was down slightly and closed at $27.63. I am tempted to add to my position at or below this level.

We are now into the Q1 earnings reporting season. First the U.S. companies start reporting this week and then in a couple of weeks the Canadian companies will start reporting.

April 6, 2013

FirstService is updated and rated Weak Sell at U.S. $33.50 or CAN $ 34.01. I like it as a company and would be interested to buy on a speculative basis at $30 or less. It announced this week that it would eliminate its preferred shares. This could cause some selling pressure as the preferred holders are likely to sell the common shares that they will receive in early May. Also the outlook for the first half of 2013 is weak. The company expects very good results after that.

I will remove the preferred shares from the table above fairly shortly. I did indicated in the report on the preferred shares that it was possible the preferred shares would be redeemed.

It was a bit odd that FirstService introduced preferred shares some years ago since the move almost eliminated its common equity. It will now have a stronger balance sheet.

Friday was a down day in the markets although a late day rally eased the losses. In keeping with my April 4th comment I sold the remainder of my Walmart at $75.73 and bought more Toll Brothers at $31.17. I honestly don’t know if that was wise though Toll Brothers did end up closing at $32.16. My portfolio is perhaps dangerously concentrated in a few stocks at this point.

The composition of my own portfolio has been updated.

I saw a story that indicates that Target’s prices at its new Cnadian stores are higher than Walmarts. That is not a surprise. I mentioned in previous comments that with the lease purchase from Zellers and the renovations they did to those stores it did not appear that they would be a low cost operation. Also the story talked about empty shelves at the newly opened stores. That seems surprising and would seem to indicate that they don’t have the supply chain in Canada figured out.

April 4, 2013

It was another day of the U.S. stock market doing better than the Cnadian market.

A notable winner was Wells Fargo, up 2.0%.

The stocks that I have the most interest in buying at this time are Toll Brothers, Melcor and Canadian Western Bank. If I sold anything, perhaps the first thing that comes to mind would be my remaining Walmart shares.

Part of the reason Toll Brothers has fallen this week appears to be an announcement that it will borrow $300 million. I did not see the borrowing as a negative since they are a growing company. This company hunkered down and sold assets as house prices declined with the real estate crash. Now with the recovery they are investing in growth.

I note that chairman Gwyn Morgan and three others will leave the SNC Lavalin Board. I had mentioned under February 11 below that I expected Gwyn to bail ASAP. And I really don’t blame him. He is a relative newcomer to SNC and Did not create the mess and did not sign up to fix a mess. He does not need the money from this gig and it is really not worth it. Plus he did not seem to have the stomach and/or talent to do much about really digging into the rot at SNC and getting this mess put behind it. Next we may see the company sell off its infrastructure investments. The new Board is independent and new enough to go after the rot more aggressively. And the new members come in knowing what they have signed up for. (Which is to clean house.)

April 4, 2013

Ouch, markets took a drubbing today. Dow down 0.8%, S&P 500 down 1.1% and Toronto down a painful 2.1%.

Our stocks did not escape and almost all were down. Boston Pizza was one of the rare exceptions as it rose a bit more.

My recent purchases of Toll brothers yesterday and today were a bit pre-mature as I bought above the current price of $32.48m down . But that is what happens when one buys on the way down. If it is a good company buying on the way down tends to work out in the end.

I notice SNC Lavalin will hire an outsider as CFO. It’s rather pathetic that a company does not have the faith in its own staff to hire from within. Or the sense to have groomed a successor. This could get interesting though as an outsider will have no vested interest in protecting past accounting. Maybe he will come in with the perspective of an auditor and find more transactions that reek. The old refrain is that where there is one or a few cock roaches, there are many.

I don’t know what to make of the threat from North Korea. If they actually could strike North America with nuclear weapons (which I understand they say they can’t but which experts dispute) then I suppose we would have bigger things to worry about than our portfolios.

I would like to have some cash or buying power in case markets decline for whatever reason. But I don’t think I am prepared to do much if any more selling.

April 3, 2013 (11:40 am eastern time)

As mentioned yesterday I wanted to raise some cash today. sitting at home after my trip I took the opportunity to so some selling this morning. I sold half my Walmart. I then sold my Shaw Communications which has risen about 18% since my last rating which was Buy at $21.06. It may have risen on faint hopes of a Rogers take-over. Certainly I may regret selling this, but I needed to sell something to raise some cash as it seems prudent to have some cash around in case better bargains emerge. I also sold the rest of my Boston Pizza. It will continue to do well as an entity and the cash flows I think are secure and will grow although only quite slowly. But it would fall if interest rates rise and I just was not sure it should be this high ($22.25) my last rating was (lower) Buy at $19.96. Also some of its price rise seems a bit financially engineered when they borrow money to buy back shares. We could all borrow at low rates and buy this stock and make money on the dividend but it is risky. Having the company do it is convenient as we don’t have to make the payments. Still it somehow smacks of risk and a bit of a free lunch. The strategy made a LOT of sense when the units were clearly under-valued but I am not sure it makes sense now. I then bough a bit more Toll Brothers as it was down 2.25%, perhaps I am being stubborn there as it is not clearly a bargain but I do think the U.S. housing recovery will continue.

I saw some figures yesterday that indicate that loan delinquencies in the U.S. are WAY down from what they were a couple of years ago – with one important exception. Mortgage delinquencies are still VERY high (30 day delinquent around 10%). But I wonder now it that is an artifact of the past. These loans may have been delinquent for a very long time and we are looking at the same loans. Banks are allowing the delinquencies under various government programs and also due to the very slow foreclosure process. I think the current mortgage delinquencies may far overstate the situation on a go forward basis.

April 2, 2013

I spent some of my travel time carefully re-reading a book called Buffett the Making of an American Capitalist. Buffett’s feats of wealth creation are truly extraordinary. And his methods are well chronicled and can be copied. Few bother to try.

A plan is starting to gel in my mind to somehow get together a pool of money to be invested in ways that copy Buffett. More details will follow although it could be a few years yet before I get this off the ground.

It was a strong day for our stocks. Berkshire up 1.6%. Not really any big gainers but certainly most of our  stocks were up.

I have little cash in my accounts. I will look tomorrow to see what I might trim to raise some cash, maybe Shaw and Walmart, not sure yet.

Final thoughts on Manhattan as we left this morning.

LaGuardia Airport is so close to downtown, it is great. The airport is old and crumbling. Yet it was very functional and we fairly whizzed through security. The flight left a bit early! And this was Air Canada.

As far as businesses in Manhattan and especially Times Square. Well known brand names are what people flock to. Many independents are there but the brand names are gaining ground. That applies to just about everything. Hotels, drugstores, candy stores, jewelry, restaurants, clothing. Both brand name stores (Macys, Saks, Levies..) and brands themselves do very well.

April 1, 2013

A  moderately weak day in the markets. Most of our stocks were down. Melcor, Boston Pizza and Walmart were among the winners.

Day 7 in Manhattan

Walked up to see the Touraine a luxury condo building owned by Toll Brothers (units range from $3 million to $20 million with only the $20 million penthouse as yet unsold. A nice building in a great neighborhood. Several blocks off south end of central a

I am thinking of placing an order to buy more Toll Brothers but I may try to get cute and go a bit below the market price.

Also today, shopped at Macy’s. Much of it is very price but they also some deals. With the traffic they get through the store they must be selling a lot. Then shopping on Fifth avenue including FAO Schwartz (toys) which is worth a visit, some unique and quality items there and finished with Dinner at Bubba Gump’s Shrimp Company.

March 31, 2013

Day 6 in Manhattan:

NBC studios tour, SOHO, Chinatown and a show (The Book of Mormon).

One disappointment the green hop-on-hop-off bus service had very poor service. Buy the red hop-on-hop-off by Gray Line or just take taxies and subway.

Another minor disappointment, the McDonalds next to our hotel is the slowest ever. Tonight they were horribly slow and also out of Coke and out of chicken snack wraps. It goes to show that businesses have to work to stay on their game.

But overall Manhattan is great. Well worth a visit.

In terms of Canadian businesses, TD Bank has a huge presence in Manhattan. Tim Hortons is here but nearly invesible. ALDO shoes has a good presence. Did not notice any other Canadian companies here.

In regards to Melcor, as I mentioned, market interest in the Real Estate Trust spin-off may not be that high. In any case the real estate was already marked to market (unlike their development lands) and therefore there may not be any material value gain when the REIT starts to trade. So, perhaps the January pop in Melcor’s price to $21 and higher was overdone. But anyhow I think Melcor is still good value at around $18 or $19 and will be a good long term investment. There is always the risk of a housing slow down in Alberta but in any case that would be temporary.

Day 5 in Manhattan (March 30)

Museum of Natural History, Central Park and Ground Zero. We continue to find everyone to be very friendly to and patient with tourists.

March 29, 2013

The stock markets were closed today, but Manhattan was certainly open.

Day 4 in Manhattan:

Short bus tour of downtown… water taxi tour of Statue of Liberty (view only) and several stops of interest. Excellent tour guides. Did some shopping. Grimaldi’s pizza at Brooklyn bridge Visited Wall Street (and met Grimaldi himself who actually sold the original pizza store and opened a new one next door (presumably after a non-compete ran out)). Walked the Brooklyn bridge. Visited Wall Street and the nearby famous Bull. Rode the subway for the first time. (The rest of the time we just walked since so much was so close).

P.S. Goodbye to Ralph Klein.

March 28, 2013

S&P 500 reached an all time closing high today. And will reach many more in the years to come.

Canadian Tire was up 2.0% and that is on top of recent gains. This seems to be fairly random. Why investors would ignore it for a while and now bid it up is a mystery — though not unusual. To me, it looks like good value. Canadian National Railway was also up 2%.

Melcor was down 2.9% today and had been down over 4%. Possibly the market knows that Melcor may be having trouble marketing the units in its proposed new Real Estate Investment Trust. Or it could be just normal volatility on this thinly traded company. I grabbed 600 shares at good prices on this decline.

Day 3 in Manhattan included the following:

Saks 5th Avenue – worth touring through and has great brand names. But outrageously over-priced. It’s probably coasting on its history and brand value. Rather snooty and pretentious.

Then off to the Museum of Modern Art. This place is the very definition of pretentious. Some of the art was literally garbage. But to each his own.

Went through Grand Central Station (Grand Central Terminal) which is truly grand.

Also the Waldorf Astoria on Park Avenue which was grand and would be a nice place to stay.

Finished with an off Broadway Show “Avenue Q.”

March 27, 2013

Markets were a little negative today. My American Banks and Berkshire were down. No big losses overall though.

Day Two in Manhattan… Rockefeller tour, skating rink, buildings, history and art work. Observation deck is better than Empire State but one HAS to do both. Staff were great. We had New York pass book which includes both. Lunch at a little Chinese restaurant $8.75 lunch special included soup, very generous beef and vegetables (lot’s of other choices) and rice. Excellent value. Lots of staff on hand they do a huge phone order business. Excellent service they knew how to maximize revenue over that lunch period.

New York Knicks game tonight… sold out… almost bought fake scalper tickets but were warned against it. Bought from Tickets Now affiliated with Madison Square Gardens and ticket master. Everything about Madison Square Garden was first class.

March 26, 2013 

A strong day for the markets. Right now I am just holding and enjoying gains.

As far as my trip to New York I have the following notes.

United Airlines rep in Edmonton was exceptionally good. United Airlines flights were smooth and even arrived erarly.

United Airlines terminal in Houston was a bit gross, not that clean, even the service at a Wendy’s there was strangely slow and confused.

New York LaGuardia is in a run down area. American Airlines buildings looked circa 1940. Lots of crumbling infrastructure.

Taxi was low cost and traffic was light, cheaper to get downtown NYC from LaGuardia than downtown Edmonton from the Edmonton (actually in Leduc) airport.

Empire State Building staff were very effective at ushering people in. Very friendly and good at what they do. It’s a slow process because they do such a booming business. Down town New York seems great. Holiday Inn Express has been great. Visited M&M world store (part of the Mars empire) in Times Square, friendly and busy. Tony’s Italian restaurant in Times Square was excellent.

March 25, 2013

I leave tonight for a family vacation in New York City. I hope to visit the New York stock Exchange among many other attractions. It’s my first trip to New York City unless I count visiting Coney Island and the Bronx Zoo in 1972 when I was twelve years ago.  I expect to be able to update the daily comments from New York. But if I am not able to, I am back on April 3.

It should be no surprise that markets were down on Monday. This business of depositor “haircuts” for Cyprus bank depositors may not be any big deal at all for North America but it certainly is not a positive development.

I think there will be some ripples from this. Depositors in any weak bank especially those with deposits above the insured levels should be looking to move their deposits to more solid banks.

Banks hit with large deposit withdrawals may have problems unless central banks lend them enough money to cover all withdrawals. Most banks will have their assets tied up in loans.

These weak banks facing deposit withdrawals will call call in all the loans they can. Corporations and individuals who have borrowed from weak banks may find themselves scrambling to get new loans and new lines of credit.

All of this should mean that short-term interest rates on treasury bills of the strongest countries will go down and even go negative. The bond interest rate for these countries may go down as well. Tresury bill interest rates for and bond interest for weak countries will rise.

Costs for corporations to borrow should rise as many banks will not have money to lend.

Weaker banks will face nationalization or a forced takeover or in some cases even failure. Virtually none of this will affect the big banks in Canada. Smaller banks or weaker banks in Canada could face some deposit withdrawals.

Deposit insurance and implicit government guarantees have made people largely indifferent to which bank they had deposits with. These latest developments should make people, especially very large depositors including large corporate deposits more selective in choosing a bank.  And that is a good thing. We may see the emergence of small banks with much higher equity ratios. Possibly the higher equity will be invested in equities but it would still be there to provide security to depositors while also earning decent returns for bank shareholders.

It is sad indeed that Warren and Buffett, Berkshire Hathaway is not allowed in the banking business in the U.S. Berkshire owned a small bank in the 70’s and was forced by regulators to sell it.  If it were it would be showing how banks should be run.

I considered reducing some of my positions today but in the end decided rather than do something, I would just stand there.

Meanwhile Walmart and Canadian Tire did well today.

Visa was up 2.4% today. It has looked quite expensive for a long time but as I have said before it is hard to keep a good monopoly down. It is not on our list at this time.

March 24, 2012

My article on the valuation of the S&P 500 is updated and now suggests that as a point estimate the S&P 500 is about 12% over-valued. Basically the as reported earnings on the S&P 500 have remained stable over the past six months (since the last update) while the index has risen significantly. Although the particular stocks that I hold seem to offer good value this analysis may cause me to consider taking some profits and reduce my equity exposure somewhat.

I have added eBay back to the list of stocks in the table above. It is rated Weak Sell at $53.27. The company has many strengths. It is expensive but possibly the growth will take care of that. I am troubled by its excessive executive compensation and by an irrational insistence that stock options are not real expenses.

I had last rated this only a Weak Buy/ Hold at the start of 2012 at $30.33. So it seems I missed an opportunity to invest in a winning stock in 2012. That really does not bother me at all. I made excellent returns in other stocks in 2012. And even though my return would have been better had I invested in eBay, I don’t regret it. If I have developed a method of stock investing that works well on average that is all I need. Investors who would insist on never missing out on any stock that moves up strongly are simply being unrealistic and really showing a lack of knowledge and/or an immaturity.

Some subscribers may wonder why I would return a stock to the list that is rated Weak Sell. The main reason is that I did not know what rating it would have until AFTER I completed my analysis these past two days. The alternative of only adding stocks that are Buys would cause me to bias my ratings toward Buy. Also some of you may read the report I have compiled and conclude that you would in fact like to buy based on the strong growth and notwithstanding a high valuation and the executive pay.

March 22, 2013

Friday was another strong day on the markets with the DOW up 0.6%. Most of our stock picks were up.

Overall, my own account is up 8.5% since January 1. Our average stock that was rated in the Buy or Strong Buy range (everything above Weak Buy) has risen 6.8% since January 1. The Toronto Stock Exchange index is up 2.6%. The DOW is up 10.7%.

I sold 900 of my 1900 Boston Pizza Royalties Income Fund units. I am not sure it was wise to sell. But is was only last month that I rated these units a (lower) Buy at just under $20 and they went up another 7.5% since then. I believe they raised the distribution 4% since then and also resumed borrowing money to buy back shares. There is probably no reason to think the units will not continue to do well. But they were starting to look expensive and so I pulled the trigger and sold half. I am up 45% on these units (which I believe I have held for several years). That is in addition to the distributions received. These units briefly went under $8.00 in the despair of December 2008. We rated it Strong Buy at that time.

With Walmart now above $74, it is probably still a good investment. Still, it is one that I may consider trimming to raise cash.

For the most part I am inclined to remain near fully invested. But I do recognize that markets can always decline at any time. I focus on owning businesses. I like owning shares in profitable companies that I frequent like Canadian Tire, Walmart, Boston Pizza and Shaw Communications. I also enjoy owning shares in well known companies like Berkshire, Wells Fargo, Bank of America, Stantec, Melcor, Canadian Western Bank and Toll Brothers. Even if the market declines I will still own the same number of shares in these great companies. And I will have the opportunity to buy additional shares at lower prices. I’m confident that these will be good investments over the long term.

March 21, 2013

Melcor Developments reported today that it has filed a preliminary prospectus for the proposed partial spin-off of its rental properties into a REIT. This will not likely lead to an accounting gain for Melcor since the real estate is already marked to market. But if the REIT trades above book value then that could push the Melcor stock up. When I saw the press release today it looked like good news to me and I was able to buy more Melcor before its price rose much today. Melcor was up 4.0% on the news today. Possibly it will rise further as this news gets reflected in the stock price. It’s thinly traded and so does not instantly reflect news.

Boston Pizza was up 2.4% to $21.40. I find it expensive at this price. It recently announced it will borrow money to buy back shares. That is accretive to the yield. But it feels a bit forced. Also since our recent update they raised the distribution by 4%. It has done very well indeed but it does seem expensive at this point. I am more inclined to sell some as opposed to buy more at this point.

Canadian National Railway was down 2.5% today. It does not look cheap but possibly the decline is a buying opportunity. CN should do well long term.

March 20, 2013

Toll Brothers was up an impressive 5.8% today. I added a bit to my Melcor position today based on an order that I had placed a week or so ago.

March 19, 2013

Our stock picks did okay today. Canadian Tire was up 1.1%. I did not sell any of my Shaw at least not yet and it rose 1.3%.

The whole business with Cyprus is not something that would cause me to sell any stocks but it was a very stupid situation.

Cyprus, for whatever reasons, had a huge banking industry with substantial foreign deposits. Those banks lost a lot of money when Greece defaulted. Banking regulators in their “wisdom” encourage banks to hold government bonds and usually consider them to be risk free. Left on their own these banks even if they were short capital would almost certainly have recovered. Now the IMF and European Union or whomever have basically waved a huge red flag that tells everyone to pull their money out of the Cyprus banks. If the banks and Cyprus got into trouble die to the banks losing money on Greek bonds then destroying the reputation and business of these banks is hardly going to help matters. What must be done in the event of weak banks is for government officials to to either nationalize the banks or profess great confidence and financial support for the banks. What was done here (or attempted to be done) just seems idiotic.

March 18, 2013

As expected, markets were weak today due to the Cyprus bail-out situation. But overall the reaction was modest and not as bad as many feared. I have not seen any good analysis of exactly what was being proposed there or why the banks were involved. What was the financial health of the banks? How did the banks relate to the government which was being bailed out? I understand that the terms of the deal may change… The idea of “taxing” bank deposits does seem like a singularly stupid idea. Just how broke was Cyprus what were the consequences if it defaulted on its debt? Surely some $12 billion is not really that much money, surely the government had some kind of assets it could sell instead? Why not issue a series of Cyprus patriot bonds to be sold to Cypriots at home and abroad who would buy the bonds as a show of patriotism?

I’m tempted to take some profits on Shaw Communications which has done very well as far as the stock price in past six months. Profits and free cash were strong in Q1 (our last update was Q4). It appears that the company was not predicting much growth in 2013 overall and so subsequent quarters may not look as strong as Q1.

March 17, 2013

As of late Sunday, it appears that the markets will open down 1% or so due to events in Cyprus whereby depositors in apparently insolvent banks will have to give up about 7 to 10% of their savings deposits in exchange for shares in the banks. (Which shares might or might not be worth anything.). Shock and anger is apparently the reaction from financial commentators. But really, banks have historically been known to be risky ventures. It’s precisely because of that high risk that they generally have some amount of deposit insurance. Bank depositors, especially those in Canada and to a lesser degree the U.S. have forgotten that banks are highly leveraged and therefore risky. There is a ton of misconceptions about events like this. It seems likely that Cypress simply did not have the money to make good on the guarantees (They use the euro and therefore can not simply print money). Presumably the banks were very weak and this was about the best that could be made of a bad situation. Also, apparently much of the money was deposits from outside the country. Do we really need to have all that much sympathy for people who put their money into foreign banks on tiny island countries to earn the extra return or to avoid taxation or whatever?

This could indeed have unintended consequences as bank depositors in other countries may rush to remove cash.

I think this is only a big deal if the financial commentators and traders make it out to be such.

I certainly would not be selling my stocks on this news. Others likely will which could push markets down further.

I will mention though that I had occasion in late November to need about $7000 in cash to make a large purchase (of a shiny object) from Costco. Costco, being the crafty devils they are, would not take a cheque that large. And debit cards only go to $1000 it seems. And I don’t carry American Express. And Costco does not take Visa. I went to TD and tried to withdraw $7000 from my account. They said sure, it will be ready first thing in the morning and the maximum allowed today was $3500. But interestingly I could get $3500 from each of two branches on the dame day, which I did and I made the purchase. It was an interesting learning though. We do trust our money to the banking system and it may not be as accessible as we think. (The fine print states they can require notice to withdraw cash from most accounts).

And early this year I was moving a large amount of money around and I found that about $25,000 was the limit for an electronic transaction. If you had the idea you could instantly scoot a few hundred grand to the Caribbean or someplace on a whim you might find it is not that easy.

I don’t think any of that really needs to be something to worry about. But it was an eye-opener.

March 16, 13

Toll Brothers is updated and is rated Speculative Buy at $34.13. As the report indicates, this luxury home builder is not an obvious bargain. But as it roars back (in terms of sales) from the depths of the U.S. housing crisis it appears set to show much larger earnings over the next couple of years. The issue becomes whether or not the growth is already priced in. Personally I plan to add to my position but not go overboard. I will be prepared to add to my position if the share price should happen to decline by say 10%.

On Friday our stocks had a particularly good day. Bank of America was up 3.8% and Wells Fargo was up 3.3%. The banks were up after having passed the Fed’s Stress Tests and having announced stock buy backs. Canadian Tire was up 2.2%. While some of the stocks were down, it was a strong day overall.

March 14, 2015

Today, Thursday saw another good day in the markets.

Most of our stock picks were up nicely although nothing spectacular. Boston Pizza certainly had a good gain up 1.9%to  $20.99.

It is amusing watching the stock market television channels attempt to analyst the market. Is there a stock market bubble they ask? Really? since when does an S&P 500 trailing P/E ratio of 16.2 constitute a bubble? And especially when interest rates are at record lows. Yes, the stock market can always fall hard on bad news but it’s clearly not in a bubble. And the notion that the market should fall because it has reached a new high would defy a couple hundred years of history whereby the market always eventually surpasses its old highs and moves on. Though sometimes that takes a long time. And sometimes there are gut wrenching declines. But by what logic would we expect the market to necessarily fail to move past its 2000 and 2008 highs at this point? Maybe the market will fall but it won’t be because of a triple top or any such nonsense.

It seems like for years we listened to many commentators on television tell us we were in a long-term bear market. Now that the market has already risen and left these geniuses behind, now many of them are suggesting we are in a bull market. I have no use for such concepts. In fact bear market and bull market theories are just another form of sell low and buy high which does not make a lot of sense to me.

I am pretty sure that there is a strong negative correlation to watching stock market television channels and investment performance. They are just far too fixated on short-term matters.

I am often asked if one needs to watch their stocks very closely after buying. My reply is not at all. Firstly watching will not usually provide any clear signal. Secondly the effort should be on buying carefully in the first place.

I seldom ever watch BNN, although I am sure they have some good segments. Same for Bloomberg and CNBC.

I do record and watch Lang and O’leary almost every day. They have a good variety, great guests and are not fixated on micro movements in the stock market. And I always find Kevin O’Leary to be entertaining. I certainly don’t agree with everything he says but I do agree with a lot it. And I marvel at his quick wit. He is very sharp.

March 13, 2013

The Dow and the S&P 500 were both about unchanged today but the Toronto Stock Exchange Index was down 134 points or 1.0%. For many years I have found that my stock picks tend to move more with the broad U.S. market indexes and not Toronto. I pay little to no attention to the Toronto index. Except I do use it as a benchmarked to compare my performance each year. I have not paid a lot of attention to the components of the Toronto Index. My understanding is that it is heavily weighted to resources (oil & gas, minerals, forests…) also a heavy weighting to financials. Many other sectors are not well represented in that index.

It was a mixed to slightly down day for our stock picks.

If anyone knows of any seminars on stock picking and investing using fundaments I would be interested in knowing. I’d like to find one where I could participate as a presenter. The type of seminar or course I am thinking of is probably two full days or more and charges a fee to participants. (Free courses would likely be trying to see something rather than provide education). Obviously, I am totally not interested at all in anything to do with technical analysis, charting, or foreign exchange trading. Also I am not interested in options or derivatives (not as a presenter anyhow). My interest is to participate in a seminar that focuses on fundamental analysis and also asset allocation. If you know of anything, let me know at Shawn@investorsfriend.com

March 12, 2013

Our banks stocks lost some ground today as did Toll Brothers and Canadian Tire. The noise to signal ratio from this as far as I am cornered is a great deal of noise and no signal. I take signal from earnings reports not stock price blips.

As far as Canadian Tire goes, I like it because (among all the other reasons mentioned in the report) it appears to have decent earnings with a P/E of just under 11. And it trades at just 1.2 times book value. And I suspect some of the assets are quite a bit under-valued. Overall it looks like good value to me with some safety margin that should mean it is quite unlikely (but always possible)  I would take a loss if I held it several years. However there may not be any catalyst to push the price up any time soon. It could take a year or more before the impact from Target is known. On the other hand it has said it will be buying back shares. (none yet reported since the Q1 report came out). There are also possible catalysts in terms of acquisitions and divestitures. Overall I think it has good value and I plan to ride along with it. Around 2002 my feat was that Walmart was then moving out of the Woolco stores into much larger stores. Canadian Tire did not seem to miss a beat on that. Canadian Tire has its large auto service operation. Target is not competing there. (I keep waiting for Canadian Tire to start selling a line if Indian or Chinese cars, low priced ones. They are ideally positioned to do it.)

Speaking of the auto service, I took our 2005 Volvo cross country wagon there last Thursday night because my wife had complained it was making unhealthy noises after starting. They diagnosed the problem in about 30 minutes and explained it was the starter failing to fully retract but did advise replacing the (volvo= expensive) starter yet as the situation was harmless. In fact we then realized it mostly happened when we used the auto starter and we are soon out of that season. My point is, I got excellent very speedy service and no up selling. And I like shopping where I own shares. They charged me the agreed upon diagnosis fee, and I was perfectly happy with that. (Car problem diagnosed = happy wife = happy Shawn)

Retailing can be a tough business. So it’s interesting to observe that the single greatest family fortune in existence is that of the Walton heirs. On billionaire lists they rank as high as number 11 as individuals. Christy Walton $28 billion, Jim Walton $27 billion, Alice Walton $26 billion, Robson Walton $26 billion. All told for the Walton family that is $107 billion and WAY ahead of the ostensible number one, Carlos Slim Helu who scrapes by with $73 billion. Naysayers will complain that the Waltons were retailers who did not add value to the products and who destroyed the Mom and Pop shops. The other side of that argument is that they brought huge economies of scale to retail and have improved the lives of millions upon millions by lowering the cost of everyday goods. I certainly make no apologies for owning some Walmart shares and I hope the Walton’s don’t either. Anyhow, it’s not like that family is ever going claim the $107 billion dollars of goods and services that they could buy and go waste that money. Most of it will go to benefit society one way or the other. Anyhow my intertest in Walmart and its history is to study how retail makes money and how I can apply that in buying shares of other retailers.


March 11, 2013

Of note today was Wells Fargo up 1.7%. I like the prospects for this bank and also for Bank of America.

I added a small amount to my Canadian Western Bank position today after it fell 1.4%.

March 10, 2013

Melcor Developments is updated and rated (higher) Buy at $18.61. This is a very well-managed Edmonton-based company that has traded on the stock exchange since 1968 and which traces its roots back 89 years under the ownership of the same founding family. Earnings are cyclical and the stock price can be highly volatile. I first added it to this site in late 2002 rated Strong Buy at $3.60 (Actually at $36.00 but it later split its stock 10 for one). Since 2002 the assets on the balance sheet have increased from $209 million to $1447 million (boosted somewhat by mark-to-market valuations on rental properties). This company illustrates how owning shares in companies can work. The company does pay a dividend. But it retains most of its earnings to grow the business. And those retained earnings have greatly benefited share owners. Anyone who argues that companies should always dividend out as much of their earnings as possible (or even pay any dividend) is dead wrong in the case of companies like Melcor.

By simply hitching a ride at a time when the share price is reasonable investors who bought and hold did very well indeed.

However, Melcor’s shares did soar to the unreasonably high price of just over $30 in the Spring of 2007. The shares rose about 500% in just over two years. The shares were over-valued at that point.  In late 2008 through early 2009, Melcor shares traded as low as under $4.00. This was during the financial crisis (which turns out to have been the financial opportunity of a lifetime). At $4.00 Melcor shares were extremely cheap and far cheaper in relation to book value than at any time since I began following the company in late 2002. This illustrates the fact that both the quality of a company and its price are very important factors.

With a company like a Melcor a reasonable strategy is to have a default position of buying and holding. But also be prepared to buy on dips and be prepared to sell if the market exhibits irrational exuberance about the stock.

I am comfortable holding this stock although I realize it can fall significantly in times of recession in the home building industry in Alberta.

March 7, 2013

Two of our Stock Picks were down noticeably today. Canadian Western Bank was down 4.8% and Constellation Software was down 4.4%. On the other hand, Bank of America was up 2.8%.

Canadian Western Bank released earnings this morning and the stock fell 4.8%. At a quick look, the earnings were not bad. Adjusted earnings per share were up 2%. Not great but not awful. The market does not like that the net interest margin is lower. But the lower margin should not be a surprise with interest rates so low. I believe that the shares offer reasonable value at this price and that a Buy rating remains applicable. I don’t think a person would go too far wrong in buying and holding these shares.

Constellation Software released earnings this morning and the stock fell 4.4%. At a quick look, the earnings were quite good. I am comfortable holding this stock.

U.S. banks stocks may do well in the wake of the Fed’s stress tests taht were released today. Apparently further results are due next week and by the end of next week there may be indications of increased dividends at some U.S. banks.

Melcor showed little reaction to its earnings report. It is thinly traded and not followed by many analysts and so that may explain the lack of reaction.

March 6, 2013

Well, it was yet another strong day for our stock picks. But we should not get over confident. There will be down days as well and down months and even down years. But right now, all the painful down days (like 2008) seem like a distant memory.

Bank of America was up 3.2%. Toll Brothers was up 1.8 %, Canadian Tire, which is my largest holding was up 0.8%.

The down-side is that many of our stocks have risen substantially since the last updates, and so the bargains are less obvious now, and so I am eager to get more updates done. But it’s a nice problem to have.

Melcor Developments came out with earnings after the close today. The earnings and the report looked quite strong to me. At this point I would wait and see how the market reacts. (Although I will probably trim my position if it rises). I will update that report by Sunday after first seeing where the price settles on the earnings news. However it does trade quite thinly and so the price may take some time to react to the earnings news. They also have a new CEO promoted from within but that does not appear to be a disruptive event at all. (The best run companies usually do promote from within. If a company’s  board of directors can’t find a new CEO from within it means they don’t respect their employees and they don’t think the company has much proprietary knowledge or culture to build on.)

March 5, 2013

So the Dow Jones Industrial Average reached a new all-time high today. Not a big deal, but it does seem an encouraging sign.

I have a very heavy weighting in equities (around 90%). For that reasons I may look to see what positions I should trim a little as prices rise. But for the most part I am content to let things ride.

Warren Buffett was on CNBC’s Squawk Box for three hours on Monday before the market opened. He said that equities remain good investments compared to other assets. He never makes predictions about the stock market except that he thinks it will rise in the long term. He said a long-term government bond was the dumbest investment around. He encourages Americans who need a house to buy ad to take a 30-year locked in mortgage rate. He does think that at some point the FED will begin to reverse its easy money policy. When that happens he believes most institutional stock investors w will be looking to sell some stocks. (Basically he is saying stock prices will fall then, perhaps a lot). Berkshire will not be looking to sell stocks at that point.

I notice that lower mortgage rates in Canada are in the news. In some ways it is surprising that banks have not always been more competitive. People say the industry is an oligopoly with only five major competitors. Actually five is plenty to promote competition. Consider, three airlines in a market will usually beat each other to death. Banking should be very competitive in that their products are the ultimate commodity. And with the internet the old convenience of the local branch is not much of a factor. But there remains an inconvenience and a high a=switching cost (in time and effort) to se=witch banks. Big banks are very silly to offer mortgages through brokers. That is a low profit business. Smart banks will try to capture you as a customer and have you using five or more of their products. When they do that they don’t have to be as aggressive on prices.

Speaking of airlines/ I saw an ad today where Air Canada will match prices and give you an extra $50 off if you find a cheaper flight within 24 hours of booking. This is a really stupid strategy for Air Canada. It’s seldom a good idea to compete on price. And I don’ think it is ever a good idea to price match since that means you are agreeing to match whatever stupid price your competitor offers. And it’s really dumb to compete on price when you are not the low cost operator. Air Canada should try to compete some other way like convenience, comfort, safety service and on-time travel. On top of an already stupid idea, this will create  a customer service nightmare when people start trying to phone in and prove they saw a cheaper flight. As Buffett also said yesterday, Airlines have all the characteristics of a really bad industry. Encouraging customers to shop even harder for the lowest price every time is not going be a money making strategy.

March 4, 2013

It was a decent day at least in the American markets with the DOW up 0.3%.

Walmart was up 2.2%.

Some people figure that stocks are expensive simply because the DOW is near its record high. But that is totally normal. The last high was five years ago. S&P 500 as well as DOW earnings are somewhat higher than they were five years ago. The U.S. GDP is higher than it was five years ago. Interest rates are lower. So we should fully expect the markets to surpass their old highs. That’s what markets do.

On the other had growth expectations are low and that does act as a gravitational force on the markets. And if interest rise that is also a gravitational force. Investors may be wise to keep some cash ready to buy bargains should they appear. Or be ready to use new savings to do so.

Overall the fact that markets are at record highs is far from any clear danger signal. Markets are unpredictable. In the short term, they will rise and they will fall unpredictably. Over long periods of time they will rise due to profitable businesses retaining earnings and growing.


March 3, 2013

Berkshire Hathaway is updated and rated (lower) Buy at $102.05. For the reasons given in the report this rating may be conservative. By my reading, Buffett has hinted (but not stated) that the intrinsic value is closer to the $130 range.

Buffett’s much anticipated annual letter came out after the close on Friday. As always it was chock full of investment wisdom.

Berkshire had an excellent year although Buffett, in typical fashion called it a sub-par year because it slightly trailed the S&P 500 this year in terms of the increase in book value per share.

The entire annual report runs to 109 pages (not excessively large by the standards of large companies and considering it includes the 24 page letter form Buffett). I read the entire thing. Years ago I had assumed that Buffett himself was not much involved in the writing the official parts of the annual report. I was wrong. Buffett’s fingerprints are all over the report including even the notes to the financial statements. He has a particular succinct style of presenting information. No words are wasted. No doubt, his CFO and controller write much of it, but they follow the Buffett format and it seems clear that he edits it.

Over the years I have read a huge amount of negative comments about Buffett. The indisputable fact is however that he is one of the greatest investors and CEOs in history. People would be wise to spend their time learning from him and not bashing him.

A subscriber asked about whether U.S. stocks should be purchased in a U.S. dollar investment account. The answer is yes. Unregistered accounts (taxable accounts) usually offer the ability to set up a U.S. dollar account. The strategy then would be to move some money to that account and then buy the U.S. shares. You will incure a currency conversion fee. But thereafter the money can be left in that U.S. dollar account even if you later sell the stock or dividends are received. This avoids further currency conversion costs. In registered accounts, TD Waterhouse offers the ability to automatically do “wash trades” whereby U.S. stocks are funded from a U.S. dollar money market account and no further currency conversion costs apply. If the U.S. stock is sold the money goes automatically back to teh U.S. money market account. Other discount brokers may require you to call in each time to request the wash trade (as TD used to require) or may not offer this.

February 28, 2013

Strong gainers today included Canadian National Railway up 3.0%, Couche-Tard up 2.7% and Melcor up 2.4% (but it is thinly traded and tends to jump around a bit). Also RioCan up 2.8% although that is similar to its price at our last update.

Canadian Western Bank was down 2.1%. It will likely release earnings soon. I certainly like it longer term.

Warren Buffett will release his annual letter tomorrow at about 4 pm eastern time. Also the Berkshire Hathaway annual results will be released. Berkshire will have had a good year.

February 27, 2013

Markets were very strong on Wednesday with the DOW up 1.25% and Toronto up 0.6%.

Berkshire Hathaway was up 2.5%. Toll Brothers was up 2.0%.

At lunch time on Monday I bought additional Berkshire Hathaway shares paying $99.54. It ended Monday at $98.58. On Tuesday it opened at $99.05, got as low as $98.25 and closed at $98.72. Today, Wednesday it opened at $98.58, but closed at $101.21. So I did not get the best price this week and certainly I should have been buying quite some weeks ago. But nevertheless I am happy I bought some on Monday.

Target indicates it will spend $1.5 billion in capital in Canada in 2013. (possibly that was meant to include the 2012 spending). That would be on top of the $1.8 million they paid to acquire the leases (though some was recouped selling some leases to Walmart. They presumably also spent a lot in 2012. They say the stores they acquired “were in very poor physical condition”. I know the Zellers near me was stripped to the bare steel and concrete. Even the exterior walls were torn out for an expansion. They will open 124 stores. It sounds like they will have spent at least $3.3 billion on the 124 stores. That’s a remarkable $27 million per store — and they will still be paying rent. That strikes me as expensive. I don’t know how that fits in with expectations that Target will offer low prices. Consumers should not expect anything close to the U.S. prices. For may reasons they will face higher costs in Canada.

Perhaps it is a great deal for the landlords like RioCan. Target apparently pays for all these capital costs. It will be quite some years before the leases come up, but at that time the landlord would have the benefit of the renovations and be able to charge a high rent to Target.

February 26, 2013

Markets were generally strong today.

Toll Brothers was up 3.3% on strong reports regarding U.S. housing prices and new home sales. It should really be no surprise that U.S. house prices are rebounding given record low interest rates and given that houses were often selling below replacement cost less an allowance for depreciation and obsolescence. Stories of shadow inventories had many convinced that U.S. house prices would not rebound. But last Spring, Warren Buffett was saying that houses were among the best investments possible for U.S. citizens due to their low prices. When Warren speaks, smart investors listen. Uniformed people disparage him despite his 60 year record of exceptionally astute investment moves.

Melcor has fallen to $18.25, down 2.7% today and down from recent highs of over $20 on news it will spin off some investment properties into a REIT. I suspect there are fears that the Alberta market is cooling. And fears that the REIT plans could fall through. I am holding this stock with excellent gains on it and will re-evaluate after it releases earnings around March 7.

I have been thinking of adding Proctor and Gamble to the site. I like their brands and I don’t think the stock will look overly expensive. But a fortune magazine article has painted a disturbing picture of the CEO. Apparently several years ago he was involved with some 18 outside organizations and commitments including sitting on various boards. Now he has culled that back to about six. I guess I would have thought that being CEO of a huge company would be a full time job. It would seem to take a special kind of idiocy to be involved in 18 outside organizations. I would seriously question his judgment on that. I would think that about 2 outside commitments would be enough.

There was an interesting story today about the Ontario Teachers Pension Plan. Indexing of the pension for inflation, for service earned after 2013,  will only occur if the plan is fully funded. Past service will apparently remain fully indexed. Even though it is being made on a go-forward basis this change apparently entirely eliminates the pension’s deficit calculation as at January 1, 2012. The plan had a relatively modest deficit of 8.2%.

I believe this is a wise and fair move. It’s not that pensioners do not “deserve” inflation protection. They do. But from now on it will be paid only if investment returns are such that there is no pension deficit. Currently all the pension investment performance risk has been with the still-employed teachers and the employer. There has been zero risk for the retired teachers. This change puts some of the risks on the retired teachers but only on a go-forward basis. In fact it appears to have no impact on current retirees and will only affect those that retire after 2013. For retires in the next five years or so the impact should be very minimal. But those retiring in (say) 20 years will only receive inflation indexing if the fund is fully funded. In hind-sight the plan has been too rich and the contributions were too low. Contributions have already been increased about as much as feasible and there was really no choice but to deal with the benefits. This change appears to be a good one although it might be described as the lesser of the possible evils.

February 25, 2013

A graph of today’s markets shows that they started out strong, but reversed to losses by mid-day and then fell heavily at the end of the day.

Apparently part of the reason was election results in Italy.

As an investor I pay little attention to things like elections in Italy. I figure if I own stocks at reasonable prices I will do okay long term. The shore-term is anyone’s guess.

With the market down today, I decided to add to my position in Berkshire Hathaway. I should have been buying it before Christmas…

I’m tempted to add to my positions in Wells Fargo and Bank of America but I may not given I already have a relatively large allocation to each of these.

February 24, 2013

Canadian Tire is updated and rated (lower) Strong Buy at $68.65. There are risks with any investment and I would urge subscribers to read the report. Subscribers may wish to place more emphasis on the risk posed by Target and a more competitive retail market. For a wide variety of reasons I conclude that it is likely, but certainly not guaranteed, to be a good investment.

My personal portfolio is updated. My cash component is lower than the last update due to some buying and due to withdrawing some cash from my non-registered account.

Markets were up strongly on Friday.

It’s been interesting to see the Canadian dollar fall to 98 cents. Ever since the Canadian dollar soared some years ago I have felt that the risk had been more to the downside than the up side. At this point I have no strong feeling at all as to whether it will rise or fall. There is actually no reason why our currency should trade at par with the American dollar although it does make it easier to compare prices across the border. My approach has been to move a certain amount of money into U.S. dollars and leave it there.

February 21, 2013

I plan to update a couple of the reports this weekend based on earnings reports. I also plan to update the composition of my own portfolio. It has not changed a lot since the last update and I don’t recall any new stocks being added, just additions to existing positions. I see little need to hunger for new picks if the existing ones seem good. Some subscribers have asked for more guidance on what to buy. At the end of the day I provide information and opinion here. Each company has a report. My opinion of the company is not totally captured in just the rating. Subscribers should, ideally, read the report on any stock they are interested in. There are never any guarantees in the investing world. Many investors become comfortable with volatility. If you own shares in good companies they usual recover but once in a while a company can really collapse. And occasionally the overall stock market takes a dive. I don’t pretend to be able to predict those things. I simply try to buy some good stocks at good prices. I then sell some if I need to raise cash for better opportunities or if the overall market is seems too high in relation to earnings and interest rates.

After posting the note on Canadian Tire this morning I went into TD Webroker and the stock was set to open down modestly somewhere under $68. So I placed an order for a small additional amount at $68 which meant I would get the opening price to a maximum of $68. (If it opened and stayed above $68 my order would not be filled). It ended up opening at $67.30. It closed at $68.91 so, with one day down and forever to go, it looks like a good buy so far. I am happy to hold this stock but as mentioned just below I don’t expect any sudden surge in the price. Maybe a little positive move due to the share buy back and that assumes all else is equal like the overall market remains pretty stable.

Bank of America was down 3.2% to $11.42. I still think of this stock as being a good investment but somewhat speculative.

Walmart was up 1.5% to $70.26 after it reported earnings. I mentioned under February 16 that I added to my position on a price dip that day at $69.29. I am comfortable buying or owning this stock at this price.

February 21, 2013 (approx. 8:45 am eastern, 6:45 Mountain time)

Canadian Tire earnings came out prior to the opening of trade. The fourth quarter was okay, at best, not terrible, certainly not great. The full year was pretty good. They are doing a modest stock buy back and emphasized that. If the share price drops on this news I would be a buyer.

February 20, 2013

Markets fell today on fears that the FED would stop buying back bonds and interest rates would rise.

Well, maybe that is a legitimate reason for the market to fall but I am not so sure. Interest rates are at record lows and I don’t think the P/E ratio on the market indexes is too high for thee low rates or even somewhat higher rates. The end of FED bond buying would also signal some return to a more normal state of affairs. Personally, I just can’t see panicking and selling overtime the market might fall. It always might. But long term good companies rise in price.

Toll Brothers fell 9.1% after lower-than-expected earnings and lower-than-expected home deliveries. Both were above last year but lower than expected. I have been saying that Toll Brothers looked expensive though I did hang onto my shares. I expect to update the report by Sunday.

Constellation Software is down to $115. It has fallen in recent days and weeks from the $124 level. When I look at is recent press releases I don’t see any bad news. It will releaase earnings March 7. It is always possible that the market has detected a negative report coming. But I do not see cause for alarm. I don’t particularly plan to buy at this point but I would be more inclined to buy than sell.

I expect Canadian Tire to release earnings before the open tomorrow (or at least by end of trading tomorrow). This my largest holding. I own it because it looked like it was bargain priced to me. But earnings reports are always unpredictable. I certainly have no idea of what might be in the works. Generally I expect that they had a decent Q4. The credit card portfolio should have done well. The stores, I can’t predict but see no big reason to be worried. The wild card might be if they announce some cost-cutting efforts (unfortunately these are usually associated with costs for severance) and how the market might react to that. By the time most of you read this, we will likely know how things turned out. The conference call is scheduled for 4:30 pm so that may mean the release is after hours instead of pre-opening. I find it rather bizarre that they would issue a press release about the conference call and not indicate the time of the earnings release. This seems to be standard but dumb practice.

If the stock happened to drop several dollars or more on bad news I would be inclined to buy but I would also want to first be aware of the news.

On the positive side if they happen to announce any strategic moves like selling real estate or the credit card operation or a heavy share buy back then it could rise in price.

If there are no surprises in the earnings news then I expect the stock might rise a bit but not much as the market is going to be waiting to see the impact from Target though that won’t really be apparent for up to a year.

February 19, 2013 (these comments did not upload until the 20th)

Well, a pleasant start to the markets this week. ‘course we’re supposed to be thinking longer term but still a gain always feels good. Stantec up 3.3%, Shaw Communications up 2.5%, almost everything was up, but Constellation software was down 3.1%.

And a good day for Buffett, Berkshire A shares were up 1.6% to $152,498, a new record high. The B shares were up 1.25% to $101.02. These are basically the same shares except one A share is convertible into 1500 B shares (but not vice versa).

I have not seen much mention of the fact that Berkshire closed at a new record today, nor that it is up over one million percent since Buffett took over the company. His average cost of acquisition was $14.86. His first buys were at $7.60 per share in 1962. These are the same shares that are now worth $152,498. I don’t know what the shares traded at on May 10, 1965 when Buffett took control, perhaps it was a bit over $15. But most assuredly the shares were under $15 in early 1965. Buffett tracks his performance back to the start of fiscal 1965 which was October 1, 1964. I believe he was already influencing, if not controlling the company by then.

It seems to me that this kind of gain (one million percent or more) is worthy of a bit of recognition.

February 17, 2013

As many of you saw, I sent out an email today intended only for former (not current) customers. The email went to everyone on the free and paid lists by mistake. There was a link there to subscribe at a special price. If anyone who was not a current customer used the link that is completely fine.

It does create a bit of an issue where any existing paid customers used the link as they may end up with two subscriptions in PayPal. That can cause login problems as well as double billing. If you did that it’s fine except please understand we may have some issues to get through in regards to any billing or login problems.

If anyone has a big issue with some other people getting a special price, email and tell me what you would like done. I think the service is great value at the regular price and so I am hoping not too many people will be upset that someone else got a discount. But if you are just tell me what remedy you would like to see.

My apologies for the confusion created by the mis-directed email.

As you will see just below, one company on the list has been updated. And accordingly it is highlighted in yellow on the list. It will remain in yellow for about one month.

There had been a total lack of new updated reports in 2013 to date and that was related to the fact that basically everything had been freshly updated near the end of 2012. There have of course been comments about five days per week.

There has been a flurry of new subscribers due to some newspaper media coverage of my self and this site in Edmonton.

New subscribers should read the short article (the link to this article is also near the top of this page and many of you will have already reviewed it) with some information about using research page.

Occasionally people email to ask if I can review their portfolios. No, that is not a service we offer. InvestorsFriend Inc. and myself as its editor owner cannot give any personal advice. All of the advice here is generic. It’s not tied to anyone’s particular circumstances. Also, I also cannot comment on any stock or company not on the list here. My approach has always been that analysis must precede opinion. Unless I have analyzed a company in at least some detail I try to refrain from forming much less sharing an opinion. Analysis, of the sort that I undertake, cannot always prevent mistakes but it certainly helps.

Updates to the stocks on the list will come. I believe that over the course of several months or a year there will always be sufficient updates. Occasionally a new company will be added.

Boston Pizza Royalties Income Trust is updated and rated (lower) Buy at $19.96. In this case notice that it is not a corporation. This is actually a rather odd entity. A heavily financially engineered entity that collects a 4% royalty from food sales at Boston Pizza restaurants (excluded alcohol). The units unfortunately do not benefit in any meaningful way from new store openings. That is because new units are issued to basically the founders of BP in exchange for the right to the 4% from these new stores. The unit distribution will rise over time only if same store food sales rise. These units have bond-like characteristics but also offer some possible growth (and risk of shrinkage – and shrinkage is seldom or never a good thing!). Overall the 5.9% yield seems attractive given today’s low interest rates.

I own units and sometimes toy with the idea of selling as the price has risen. I have excellent gains on these units and so I worry about losing that gain. But overall it seems a good investment. If the unit price should fall due to perhaps a weak quarter or just lack of buying interest then I might buy more. If an investor is truly looking for yield and truly would not be bothered by a unit price decline as long as the cash distribution was unaffected then this might be good choice. But it is very hard to not be bothered by price declines. Those are always a risk.

Subscribers tell me they value me giving my though process. I probably should have bought more Boston Pizza even as the price rose. I believe I probably got (back) into this stock in the $11 something range. When I buy at $11 it simply becomes hard to buy later at say $13 or $15, much less $18 or $20. This is especially the case given that the share price did not rise because of any great earnings or dividend surge at all. To acknowledge that these units are still a (lower) Buy today  at $20 is to admit that they were probably a steal at under $12 in 2010 rather than the Speculative Buy we rated it at. Even there we had to contend with our own history that called it a Strong Buy on December 13, 2008 at just $7.15. That was after it fell hard in the financial crisis, like everything. It would have been hard to keep calling it a Strong Buy after a swift rise the the $12 range. (I do try to make the ratings independent of past history but one can’t simply erase their memory of prior prices).

Although these units seem to be a reasonable investment, if one needs cash for other investments or purposes I certainly don’t see an issue with selling this one.

Our ratings history is:

Today (lower) Buy at $19.96

December 12, 2012 (lower) Buy at $19.05

May 13, 2012 Buy at $17.87

December 24, 2011 (higher) Buy at $14.18

November 28, 2010 Speculative (lower) Buy at $13.78.

May 16, 2010 Speculative Buy at $11.45

The difficulty in 2010 was that we knew the distribution would be sharply cut when it became taxable at the start of 2011. We also knew that the lower dividend would then be eligible for the dividend tax credit. But it certainly seemed a more risky situation given the then pending distribution cut.

November 28, 2009, Buy at (about) $11.40

August 15, 2009 (higher) Buy at $10.20

February 9, 2009 (higher) Buy at $8.65

December 13, 2008 Strong Buy at $7.15 (financial crisis, err… financial opportunity days)

Our initial rating was (lower) Buy at $14.47 on January 9, 2005.

We dropped it from the list in 2006 after our report got outdated and the price rose very steeply and I sold my units at a gain. It briefly soared to $20 in 2006 but we were not rating it  at that time.

All this detail I got just from looking back at the links to my old comments. Anyone industrious can check it out if they wish. Just do searches for comments on Boston Pizza. For past years scroll to the bottom of this page for a link to past years’ comments. Of course there is always the risk that I backdated the old comments and ratings. Anyone who has the slightest suspicion of that should shop elsewhere for advice.

February 16, 2013

Berkshire Hathaway A shares closed Friday at a record closing price of $150,141.

This exceeds the previous high close of $149,200 on December 10, 2010. It did however reach $151,650 on December 11, 2007.

Regaining a high from five years ago is nothing to brag about. But still Berkshire has certainly done well of late. There will likely be some news about it reaching the all time high.

What I find fascinating it consider that these shares were in the $15 range as Buffett took over the company in 1965. He paid an average $14.86 for his controlling stake. The shares have since risen  a staggering 10,104 fold. That is just over one million percent. And yes, the math is correct. What is equally remarkable is that it “only” took a compounded gain of 21.2% per year to achieve that. This illustrates that absolutely stunning results can occur if you compound money at 21% for say 50 years. (Even at 10% your gain is 117 fold in 50 years. Each extra tiny bit of return after 10% adds a staggering amount over 50 years. A 1000 fold gain in 50 years (100,000% gain) requires 14.8% per year compounded. It also suggests that getting much over 10% for 50 years is no easy feat. Only a few people can possibly accumulate huge wealth otherwise there would be nothing left for others. But don’t begrudge Buffett. His fortune represents “claim checks” on the goods and services produced by society (including produced by Berkshire) But he is never going to cash these claim checks he is giving it ALL away. He lives on the modest half billion or so that he has accumulated outside of Berkshire, and he will apparently give much of that away as well.

Walmart fell 2.2% to $69.30 on Friday on news about an internal email describing February month to date sales as a total disaster. And the executive wrote “The worst start to a month I have seen in my ~7 years with the company”.

When I saw the price down My reaction was to think about buying and certainly not selling. This was an internal email and no doubt was at least a bit exaggerated. Anyhow, I don’t think one should change their outlook on Walmart based on an email about sales over a two week period.

I don’t know if I honestly say I would have preferred a 5% or larger decline (I own some Walmart) but given the decline had already happened I figured the thing to do was to consider buying. I looked at my last rating which was (higher) Buy at $68.03. I had also been wanting to perhaps deploy more cash into the market. So I ended up adding 50% to my Wal-Mart position. Wal-Mart at 2.9% of my portfolio (prior to the add) was only my 12th biggest holding and so I also considered that. It had been a much larger share of my portfolio but I had sold some at about $72 and so this was also just in some way restoring the position. There are always lots of complex reasons to buy or not and in the end one just pulls the trigger or not. But those were some of my thoughts as I bought on Friday. I bought on my lunch time at $69.29. It had gotten as low as $68.13 earlier.

I have looked it up in the comments below and I note I had sold all my Walmart on October 3 at $73.63. (And I would have had good gains on that). I had previously some some on July 10 at $72 based on an order placed some days earlier to sell at that price. Also I sold some on June 12 at $67.70. The notes below indicate I bought some Walmart on April 12 at around $58. At that time it was one of my five largest holdings. I don’t know what my average price on Walmart was. TD Waterhouse shows my my average price paid for stocks I hold but it does not show me a history for a stock like Walmart that I owned and then did not own and then own again.

I also bought some Walmart back on November 19 at $68.09.

One way to pick up possible bargains without having to monitor the market at all is to enter “stink bids” below the current price. The discount that you apply in the stink bid strategy would depend on many factors. It might be just 2% low in one case and 20% in another case. Anyone who had a buy order in on Walmart at say $68.50 or $69 (which can be left as an open order for a maximum of 30 days) would have been filled at that price while being blissfully unaware of any news or price decline. That works well if the decline is temporary and rather sucks if the decline is larger and the stock falls well below your buy price. If the bad news happens when the market is closed and it opens at a price lower than your buy order you will get that lower price.

In general stink bids can be a decent way to buy and to take advantage of volatility. I have done this on occasion. If you really want to buy a stock then you probably should just buy. If you kind of want to buy but are a bit ambivalent this can be a good strategy.


February 14, 2013

In today’s news, Warren Buffett’s Berkshire Hathaway is partnering with another outfit to buy Heinz. This is not a huge surprise considering it fits much of the profile Buffett likes. It’s sells branded consumable products that are not likely to change much in the next two decades or longer. It’s simple, stable and predictable. It has a very long history. Buffett likes his history. It was a family company though I am not sure there is any family involvement left. I have no idea about the valuation. I do know that the fact that he is paying some 20% more than the market place is no indication that he is paying too much. He has always held that he can calculate the value of a company like this better than the market can.

I usually don’t have any short term predictions about share prices. But I did mention in my January 20 note below that I expected Berkshire to hit a record price this quarter. It’s just about there. It’s up 4.2% since then. Not huge put the thing is the upside seemed predictable and there did not seem to be a lot of downside risk over a reasonable holding period. I own Berkshire but I should have bought more. I was cheaping out hoping it might fall a bit.

February 13, 2013

Today we had a number of stocks falling in price. But that is nothing unusual.

Boston Pizza was up 2.5% to $20.40. It just released earnings last week which at a quick glance were pretty good. I’ve toyed with the idea of selling some of what I have (It’s in RRSP so no capital gains tax to worry about). But then again I see no reason for it not to hold up pretty decently and so I just hold it. (Of course it always COULD fall).  When it was at $14 about 16 months ago I never expected it to jump so fast or to anything close to this $20. From here I really see also no reason for it to increase much if at all. The yield already seems a bit low for an entity that will not grow dividends per unit fast at all (for the reasons indicated in the report). Longer term if interest ever finally rise its yield will rise meaning the price would drop.

With Canadian Tire down, I bought a bit more. This may in fact be sheer stubbornness on my part. The stock just looks cheap to me. If in fact earnings do stumble than I am hoping for some kind of action like a change of management to release value. I think the value is there (in the credit card portfolio, and the real estate in addition to the actual retail business)  so that provides some downside protection. But hopefully earnings do not in fact stumble. In December the company started buying back its own shares for the first time in a while (outside of smaller buys to offset stock option grants). They did not buy any since year-end but often companies are not allowed to buy shares between the end of a quarter and when they release earnings. The share buy back gave me some hope that management as of December saw the stock as cheap and therefore were not likely expecting to report bad news. We shall see around February 21 when they report earnings. But even if earnings are good, the market may not push the stock up until and unless the company proves it can maintain earnings after Target gets in operation.

Mortgage rates:

About 14 months ago I did a lot of digging into why Americans can lock in mortgages for 30 years (30 years!) at really low rates while in Canada the normal maximum lock-in was five years, although seven and ten years were available at rather exorbitant interest rate premiums. A 25 year lock in was available at a huge premium. I never did get any satisfactory answer to the mystery.

The interest rates I saw at that time were:

5-year fixed 5.29% but 4.09% special deal (so similar to U.S. 30-year fixed rate)

10-year fixed 6.75% but 5.45% special deal (39% higher than U.S. 30-year fixed)

25-year fixed 8.75% (call for special deal) I called and the mortgage specialist was not aware what the special deal might be and had never heard of anyone locking in for 30 years. The posted rate is more than double the U.S. 30-year fixed rate.

Well some things have changed.

Today a number of banks are offering very competitive 10 year locked in mortgage rates:

Scotia Bank has the lowest at 3.69% locked in for 10 years.

For the Canadian market, that is phenomenally low. Many people with large mortgages who cannot afford it if rates rise should consider locking in. The lowest posted rates are around 2.4% locked in for one year. So it is tempting to take that lower rate.

Maybe you can get even lower than 2.4% through a mortgage broker. But there are certainly people who might want to consider that 10-year lock-in.

Interest rates have gone lower than almost anyone thought they could and they have stayed low. But things can happen fast in the finance markets. Rates can rise. Rate are at record lows and they will rise at some point.

At 3.69% I almost tempted to take a few hundred thousand out as a mortgage and invest that. I would be very surprised if I could not make more than that 3.69% on average over the the next ten years by investing. But in the end, I don’t need the stress. Markets can fall and one way to add a lot of stress to your life is to be in the markets with borrowed money during a major market decline.

I suspect banks are able to do this because they have in turn found investors willing to lend money to the bank for ten years at something like 2.5%. If they can securitize these mortgages and fund them from investors locked in at say 2.5% then that is okay for the banks. (A 1.19% spread for the banks is not great but not horrible). 10-year Canada bonds pay investors 2.0% so I can’t see any sane investor offering ten year money to the banks at less than about 2.5%.)  If on  the other hand the banks are funding these mortgages with non-locked in deposits (on which they pay approximately nothing) then the banks are playing a very dangerous game. Higher spreads now but massive risk if deposit rates rise in the market.

Then there are the American banks who manage to offer 30-years locked in at 3.5%. The 30-year treasury in the U.S. pays 3.23%. So we have homeowners somehow borrowing at nearly the same low rate as the U,S, government. This is only possible due to a phenomena that I would call “stupid investor tricks”. In order for a bank to lend at 3.5% for 30 years it needs someone (investors) willing to lend it money at less than that. (And, no, despite what you heard about fractional reserve banking, they don’t get to print up the money in the basement of the bank)

Part of the game here is that mortgage investors expect a lot of the mortgages to be paid out early and so they don’t expect their money to really be tied up for the full 30 years. These investors will be sorry if rates rise, as their money will be locked up for a long time at low rates.

Warren Buffett has advised that it is wise idea for American’s to buy houses and to lock in at these ultra low 30-year rates. What is smart for the borrower will not ultimately be smart for the investor who funds that mortgage . (The banks tend to be in the middle hopefully collecting a spread and fees and not taking the risk).

February 12, 2013

Markets were higher today… In particular we had Toll Brothers up 4.4%. It looks expensive at this point but I continue to hold it. Also we had Bank of America up 3.2%.

February 11, 2013

Stocks were generally down a bit today. The Q4 earnings for many Canadian companies should be rolling in shortly.

I note today that the former CEO of SNC-Lavalin has been charged.


Wow, that is certainly a fall from grace. From rich and powerful CEO to looking at possible jail time and certain large legal bills, stress and embarrassment.

I don’t know much about SNC. But my understanding is that huge bribes were paid in Libya  (and possibly elsewhere including even possibly Canada). And it seems that the top people knew about this. In the case Libya it may have been sort of excused as a cost of doing business, a case of “when in Rome”. They may have felt they were doing this for the good of shareholders. But it is illegal under Canadian law for Canadian companies or Canadians to offer bribes anyplace in the world.

While not knowing anything except the few news stories I have read, I think SNC faces a lot more trouble over this yet. I think they had some connection to that Canadian woman who is in a Mexican Jail accused of helping to try to smuggle out Saadi Gadhafi. From all appearances the company (or at least some former executives) were involved but now they have abandoned her. Nice. With several men now charged someone will sing in turn for a lower sentence and perhaps many more will be implicated. Possibly the company could be given a large fine. That would punish innocent shareholders but still it could happen I suppose. There is even the ridiculous possibility that some shareholders who bought more recently will win a class action suit and the company (i.e. indirectly other quite innocent long-term shareholders) would have to pay that.

I am not impressed with chairman Gywn Morgan’s handling of the whole affair and I expect him to try to jump ship as soon as he can. He is newer at the company and he never signed on for this crap. He seems to be too optimistic that the rot has now been removed. I would doubt that. To me, it seems more likely that rot had invaded quite deeply. We shall see.

I don’t know if SNC is a reasonable investment or not. I understand it has good assets and a good break-up value. But I tend to think its future is very unpredictable. I would not be comfortable investing in it. (Though it turns out that one would have been wise to got in at the lows a few months ago and yet I felt the same way then, too uncertain.)

February 10, 2013

Greetings and welcome to a new group of subscribers who joined this weekend after seeing an article in the Edmonton Journal.

For the benefit of the new subscribers I will mention that I usually post some comments here five times per week. Usually it is Monday through Thursday evenings and then sometime on the weekend, often Sunday evening. Sometimes I don’t have much to say, other times I will comment on one or more of the stock picks or comment on something that has been in the business news or something related to investments. I rarely have anything to say about where I expect the markets to head in the short term since I don’t believe I have any ability to predict that. Markets tend to rise in the long term and be unpredictable in the short term. It’s better to focus on trying to identify and buy some companies that are likely to do well in the future (in terms of earnings), that are well managed and that are available at good prices. With this type of company purchased at a reasonable price the future stock price may vary but will ultimately tend to reflect the growth in earnings.

Dividends are nice but are neither a necessary nor a sufficient condition. Berkshire Hathaway has made a return of literally one million percent for its investors since 1965 and without any dividend (well ironically enough it did pay a single dime out in 1967 but nothing since then). Of course many investments do pay excellent dividends. And there are examples of companies that were paying good dividends until suddenly suspending the dividends and then plunging in value. Sustainable earnings drive returns for investors over the long run. If the earnings are not growing then the only way the return is going to be acceptable is with a good dividend yield.

Subscribers often ask which stocks to purchase from the list above. I can’t make that decision for investors. I hope that subscribers will pick and choose from the list  based not only on the rating (and noting if the current stock price has changed since it was rated) but also based on reading and contemplating the reports on each company.

Of the companies on the list I tend to like all of those in my own investment portfolio but certainly can’t make any guarantees. In particular I like the prospects for Wells Fargo, Bank of America and Canadian Tire. Canadian Tire is facing increased competition and so maybe it will suffer. But my expectation is that it will report reasonable good earnings for Q4. It reports on February 21, I believe. It basically seems to be priced as if the outlook is somewhat pessimistic.

Almost all of the stocks in the list were updated near the end of 2012. The ratings were our opinion as of the date and price indicated. Some of them have subsequently risen quite nicely in price which makes it more likely that if we were to update today, then the rating might be a bit lower. In particular, Melcor is up significantly and while we still hold it we would not likely consider it to be a Strong Buy at the current price. Similarly Toll Brothers is up significantly compared to the price at which it was rated in early December. Some others have had fairly strong increases and in some cases the increase has been quite modest (making it more likely that the rating would still apply).

There will be some updated ratings over the coming weeks and months. In some cases I will update for the Q4 earnings reports. I tend to focus first on the higher rated companies in terms of doing updates. I will also keep you informed of any trades in my own account.

Patience is a virtue in investing. New subscribers should not necessarily be in any powerful hurry to make trades based on the information on this site. It makes sense to get familiar and comfortable with our approach.

February 7, 2013

I’m featured in the business section of the Edmonton Journal tomorrow.


Our stock picks have ended out the week in decent shape.

As always the signals from the economy are mixed. The U.S. economy continues to recover.

Canadian multi-family housing starts dropped a lot in December. Single family housing starts were also a bit lower I understand. In general house prices in Canada appear to be slipping a bit.

In Alberta things seem strong. But we do have the issue of a low oil and gas prices and eventually that couold cool the economy in Alberta. So Melcor faces that risk. On the other hand I expect Melcor to release good Q4 earnings (around March 6) although it may report a weaker outlook. Melcor had of course risen about 20% last month when it announced it would spin off its office and retail rental properties into a REIT (which is would continue to own a majority of that REIT). If that plan were to fall through then presumably Melcor would decline. And if the plan goes ahead perhaps it would rise a a bit more on that news. It is tempting to sell or lighten up on Melcor. On the other hand it’s probably going to be a good long-term hold. My strategy at the moment is to hold and I would probably buy if there was a significant pullback.

February 6, 2013

A notable winner among our Stock Picks today was Alimentation Couche-Tard, up 4.7% to $52.60.  I did not see the news that prompted this. This company is an incredible (and under-reported) Canadian success story. I am not eager to buy at this price but it has been a good stock pick for us over the years. It has certainly not gone up in a straight line. But is has done very well indeed over the years. It was under $20 at the start of 2010.

February 5, 2013

Most of the stocks that declined yesterday recovered today. There does not seem to be much sign of fear in the markets.

For the moment my strategy might be described as “Don’t just do something, stand there!”

February 4, 2013

Markets were negative today. It’s certainly not something that worries me. I think any pull-backs right now might prove to be more of a buying opportunity than anything.

February 1, 2013

So, we got a surprise 150 point, 1.2% jump in the DOW today. Which goes to show that in investing half the battle (actually 100% on average) is just showing up. The market tends to rise over the years. A buy and hold index investor can get the average return just by showing up and staying put. These are the passive investors. All other investors try to beat the index by stock selection and various forms of timing strategies. The passive investor grabs every 150 point day just by showing up, but also gets the down days but does make the average return over time, which works out okay. The markets timers try to side-step the down days but more often than not also miss too many of the big up days.

This web site is dedicated to beating the market by superior stock selection. In order for some people to do that others must trail the market. (That is harsh but it is the math of the matter.) Luckily there is a large pool of people who can be expected to trail the market because they follow non-sensical methods and jump in and out of the market at the worse times.

When you think about it, value based investors ended up experiencing more of a “financial opportunity” than a financial crisis. It felt ugly a the time but the financial crisis allowed the smart money to scoop up stocks at very attractive prices from the panicked dumb money. (Again, harsh but true). Or perhaps more kindly it allowed those willing and able to take risks at the bottom of the market to scoop up bargain stocks from those who would not or could not bear the risk.

Most of our stock picks gained today. About the only notable loser was Toll Brothers down 3.1%. I have said that Toll Brothers does not look like any real bargain to me. Still, in it could do okay with the recovery in house prices. And I do hold some Toll Brothers.

January 31, 2013

Markets were generally down on Thursday. This hardly seems surprising after all the recent gains.

There was unfortunate news for employees at Best Buy / Future Shop and Sears Canada with layoffs announced.

Sears Canada was smart in 2012 to have sold off some leases for huge gains. If they have any long-term leases at good rates on large stores they would likely be best to try to sell the lease holds if they can.

I don’t have any good opinion of Sears Canada. At West Edmonton mall a week after Christmas, I walked through one of their stores at 3 p.m on A Saturday and the floors were full of mud that appeared to be left there from previous days. If they can’t even bother to clean the floors they are toast. Simons of Quebec has opened in West Edmonton Mall. I had seen their store on St. Catherine’s Street in Montreal several years ago and liked the prices and merchandise (like Canada Goose jackets). The new Simons in Edmonton is carved up into boutique areas within the store and in general seems to be a good shopping experience. In retail I think you either have to be a low cost operation (Costco) or go for higher end brands and service. Trying to compete on price while not having low costs is a losing strategy.

I suspect Best  Buy / Future Shop can survive but Sears is probably circling the drain.

January 30, 2013

Markets were moderately down today. Notably (especially to me, since it is my largest position) Canadian Tire was down 1.8%. But I consider that to be basically just normal volatility on a negative day.

U.S. GDP was down 0.1%. I don’t know how that is measured. But I feel safe in saying that the accuracy of measuring the output of the entire U.S. economy is not likely more accurate than a half percent or so. So I don’t put a lot of faith in numbers showing quarterly growth to the nearest tenth a percentage point. In addition there were apparently temporary factors including Super Storm sandy at work. I understand military spending was down quite a bit. That may have been more a case of deferring expenses rather than real cutbacks. But, who knows? it is certainly possible that the U.s. will cut back quite substantially on military spending. But overall I think the slow but steady growth pattern in the U.S. is well established.

We continue to be in the middle of the Q4 earnings release season with many reports yet to come in, especially for Canadian companies.

January 29, 2013

Today was another decent day in the markets with modest gains in most of our stock picks.

Dow up a half percent. Doomers are still waiting for end of financial world and have missed relatively massive gains since the bottom in March of 2009. I think you subscribers are on average much more intelligent than the average investor. Sure we all have our moments of fear when listening to doomers and talk of currency collapse but for the most part I suspect few or none of you are certified doomers who want to sit close to 100% in Gold and want to avoid all “paper” assets. (Actually I would argue that many “paper” assets are in fact quite real and that some so called real assets are just as much paper as are stocks that represent ownership of real companies with real asset and real earnings power. Ownership of my house is indicated by papers. Gold coins in my safe would admittedly be quite real if I had any. Gold kept by a custodian may be evidenced by paper.

On January 27 I mentioned the topic of unconventional wisdom.

Warren Buffett has pointed out that it is very dangerous to fail with an unconventional strategy. You can be fired or sued often. Filing conventionally or with the crowd is not as dangerous. Because of this not many people will succeed unconventionally because they don’t like the risk of unconventional failure. This is true in all aspects of life.

Buffett said in his 1984 letter:

(Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press.)

Buffett went on to say that he was willing to risk unconventional failure.

The risk of failing unconventionally is why advisors seldom or never encourage a client to go in too heavily on any given stock or to go all equities. I also try to avoid giving any personal advice to do that. I reveal that I am not running a diversified portfolio but I will not accept the risk of advising any individual to do what I do. My advice is generic. I rate stocks. I show evidence of what running 100% equities has resulted in the past (basically higher returns over the long run but gut-wrenching losses from time to time). You subscribers decide your own asset allocation and exposure to each stock and indeed whether to buy any particular stock. I do not know your particular individual circumstances nor would I want to be responsible for your decisions.

And I should hasten to add that you subscribers as a group have been very mature over the years and with extremely rare exception (like about three people in thirteen years) have never even hinted at blaming InvestorsFriend for any bad outcomes in the market. (There were some additional subscribers who expressed concern about the results from time to time but without hinting that they considered InvestorsFriend or myself in any way responsible for their trade outcomes, much less financially responsible). You subscribers (with the three or so exceptions in thirteen years) have been grown ups and have accepted the risk of your own trades. The requirement to do that is posted on this Site in several places (including the login screen) and you have agreed to that and I am grateful for it. I (technically InvestorsFriend Inc.) could not provide this analysis on any other basis. Our disclaimer of course disclaims any financial responsibility for trades made on the basis of the information provided). There is no possible way that advice purchased for $15 per month or less could come with guarantees even in the event of errors or omission. If anyone happens to disagree with that, please unsubscribe.

I did not intend to get into all of that, it just sort of popped out of my brain as I wrote tonight, but perhaps it is good to point this out from time to time.

For any comments about this, email me at shawn@investorsfriend.com

January 28, 2013

Our stock picks lost a modest amount of ground on Monday. Following up on yesterday’s comment I added somewhat to my Wells Fargo holdings today.

Moody’s debt rating service downgraded six Canadian banks today. I doubt that this is anything to worry about at all. These banks are still very highly rated.

As I troll around several financial sites on the internet it is scary to see the number of comments posted online from people who mis-guidedly believe that “the end is nigh”. That gold is only real money. That paper currency will be worthless. That fractional reserve banking is evil. That central banks will print their way to hyperinflation. These people often gravitate to hard assets especially gold. They usually seem to forget that owning shares in, for example, Canadian national is also a fairly hard asset in itself.

In my 52 years of life the Canadian dollar has lost somewhere close to 90% of its value. That would be a big problem for me and my parents if we had kept our money under our mattresses. We did not. Myself and my parents before me invested in businesses both as direct owners and through the stock market. Our wages, dividends and retirement cheques, as the case may be, have on average far more than kept up with inflation.

We were seldom much bothered by the fact that the dollars in which we were paid did not have a fixed value in relation to gold, or to gasoline, or anything else. Sure, we wished we our wage increases were not partly offset by inflation but as long as we were running ahead of inflation we were okay with it.

I can’t guarantee it but I suspect that inflation is not going to be any great concern in the next several decades. I figure if I focus on accumulating higher amounts of wealth as measured in dollars, I will do okay.

There is, by the way, a vast difference between financial wealth and money. Financial Wealth consists of real goods and services and the ability to buy same. Financial Wealth is measured in money, but is in basically independent of money. Money may be slowly declining in value in terms of the wealth each dollar will buy. But wealth can nevertheless grow, in real terms, as long as wealth grows faster than inflation when measured in dollars. If a new currency were adopted tomorrow, the wealth of our nation would not necessarily change much less evaporate even if all the old currency was burned. Some financial wealth is held as money or the equivalent (cash, term deposits, bonds), but much financial wealth is not invested in money as such but is merely measured in money (houses, clothing, stored food, vehicles, shares of companies, and even gold are examples).

January 27, 2013

Friday was another decent day in the markets. Toll Brothers was up 2.4% to $37.98. That’s a 23% increase since we rated it a Speculative Buy on December 8 at $30.77. With a 23% increase our report has effectively become out of date. I have a position in it and would be more inclined to trim that position than to buy at this price.

Based on the ratings above, and current prices, I think the best buy would be Wells Fargo and Canadian Tire. Also to a lesser degree Bank of America. Both banks reported Q4 results and our analysis is not updated for that but I don’t think the ratings would have changed. I don’t offer any advice on what any investors exposure should be to the banking, retail, or any other sector since that is very much dependent on a host of personal factors.

Conventional wisdom might suggest never getting too high of an exposure to any one sector and certainly to any one stock. On the other hand I can point to some individuals, including myself, who have long ignored conventional investment wisdom and things have worked out nicely. Perhaps there is something to be said for unconventional wisdom. Often being unconventional may be very unwise. But there are times when one can be both unconventional and very wise.

January 24, 2013

Not surprisingly, Constellation Software recovered from the little dip it took yesterday, rising 3.7%. Canadian Tire did well, up 2.1%. The lower Canadian dollar has also helped out the value of American stocks when measured in Canadian dollars.

January 23, 2013

Constellation Software was down 3.3% today. This occurred in the last hour of trading and was on relatively small volume. It could well be that someone was just a bit impatient in selling and wanted to sell today and that could have pushed the price down. I don’t see this as reason for concern. Those with a trader mentality however, might.

Couche-Tard was down a modest 1.1% after Metro Inc decided to sell half of its very large stake in Couche-Tard and did so by way of a secondary offering of the shares tot he public. This naturally tends to push the price down at least temporarily. This also does not appear to be any cause for concern.

Toll Brothers was up 2.1% on continued strength in the U.S. housing market. There were many doomers who were calling, over the past six months to a year or more  for U.S. house prices to keep falling (oh the debt, oh the unemployment, oh the shadow inventory). Meanwhile Warren Buffett was calling houses the best bet around (household formations were much higher than home construction and the excess inventory was being whittled away, he said, and oh he mentioned too that people could and should borrow at the dirt cheap rates for 30 years locked in). That was about nine months ago, I believe. One bets against Mr. Buffett at one’s peril.

Overall it was not a very eventful day for our Stock Picks.

January 22, 2013

Today we had Bank of America up 1.9%, Melcor up 1.6% to $19.75.

CN fell about 1% despite a dividend increase and good earnings released today. I am tempted to buy some CN. It does not look particularly cheap but I am attracted to the quality of its business.

Wells Fargo announced, after the close, that it was increasing its dividend by 14%. And apparently is is hoping to increase the dividend again in 2013 pending permission of the Fed. This bodes well for Wells Fargo and for other banks as well.

January 21, 2013

U.S. markets were closed today for the Martin Luther King holiday. The Toronto stock exchange index rose 0.5%.

With Canadian Tire down 1.3% I added a small amount to my position.

Research in Motion was up another 11% to $17.41. Regrettably I had sold my shares on December 26. (It looks like I “cleverly” sold in the U.S. market since Toronto would have been closed that day). In any case, I cant worry about what I don’t own. There will always be many rising stocks that we miss out on. As long as we can make a good return overall, that is what counts.

Canadian National Railway is scheduled to release earnings at 9:00 am tomorrow (Tuesday). I don’t know why it would release only 30 minutes ahead of the opening of trading. That does not give sufficient time for the market to digest the news before the start of trading. It could indicate that there will be no big surprises in the numbers. I think it should have a good report. One area of possible concern would be its increased pension liability, but that will not likely flow into earnings. (I believe it will be reported in comprehensive earnings). The pension expense in 2013 will also likely rise. Overall CN will probably continue to do well.

January 20, 2013

On Friday we had an okay day in the markets with the Dow and Toronto each up about 50 points. Research in Motion continues as a surprise winner this new year, up another 7% on Friday.

I’ve been reading a few annual reports and hope to have a new company to add to the list before too long.

Warren Buffett in an interview on Sunday morning once again expressed his optimism for the the U.S. and its prosperity over the long run. Those who have dismissed Buffett and his optimism over the past few years (or over the past 60 years for that matter) have generally lived to regret it.

Berkshire Hathaway has had a good year in 2012. I expect it will have had a strong Q4 although Super Storm Sandy may have put some dent in the results. I expect Berkshire shares to hit an all time high this quarter. But that is nothing to brag about. The best companies reach all time highs on a relatively frequent basis. They retain a portion (or even all of ) of their earnings and grow their book values per share and earnings per share and so it is logical that the share price should march higher.

January 17, 2013

Toll Brothers was up 3.6% to $36.16.

Bank of America was down 4.3% after a disappointing earnings report. Given the price drop I decided to by back (in a registered account) the 1500 shares I had sold at a slightly higher price when I cleared out my margin account a couple of weeks ago. Bank of America is a huge and complex business and I consider it to be more speculative than most of the stocks I own. However, I am hopeful that it will increase its dividend sometime in the Spring and that it will continue to slowly recover from its various wounds (from the financial crisis).

January 16, 2013

Although the Dow was down we had Bank of America up 2.0%.

We are now entering a period where many U.S. companies are releasing their December 31, 2012 results. Obviously the market will react to those depending if they are better than expected or lower than expected. The other thing driving the markets will be the usual political madness in the U.S. and whatever unpredictable random events happen around the world. As always, seldom a dull moment.

January 15, 2013

Today ended up being another good day for our stock picks. Notably, Toll Brothers up 3.8%, Canadian Tire up 1.6%.

I’ve been thinking about adding to some positions. But overall I am already heavily invested in equities and I am just going along for the ride with the companies I own for now.

January 14, 2013

Shaw Communications announced after the close that it had sold its Mountain Cable franchise in Hamilton to Rogers for $400 million. Also Rogers bought for $50 million an option to buy Shaw’s wireless spectrum. Shaw bought the one third of TVtropolis from Rogers for $59 million (possibly Shaw already owned the rest of it?). The total deal was indicated to be $700 million after deducting the $59, so that seems to leave $300 million unexplained by the press release.

There was no indication if there was a loss or gain on the transaction. In any event whether it is a gain or loss, positive or negative, the share price should adjust for this at the open tomorow and there will likely be no opportunity to trade based on this information even if we knew if this was positive or negative. I would guess that it is at least slightly positive.

Shaw also announced the results of its election of directors. The main trading shares of Shaw are non-voting. I would have liked to vote and I would not have voted for Sheila Weatherill as a director. She is the former CEO of of the capital region health authority in Alberta who got a rather obscene severance package severalk years ago and then soon got a job on the Board of directors of Alberta Health.  And under her CEO watch (and signature) it was recently revealed that totally obscene expense claims were routinely approved and she was recently forced (that is my interpretation of her “resignation”) to resign from the Alberta Health Board. And oh yes she has just finished testifying before an inquiry that as health CEO she routinely informed hospital staff when VIPs were in their care but insisted unconvincingly that this was not preferential care. So she seems a rather tainted board candidate for Shaw Communications. And all this was in the news just in the past few weeks. So how did the vote turn out? Well, 12 of the board members received 100% approval with zero votes withheld. Four others including the (in my opinion) rather tainted Ms. Weatherill received over 99.99% approval with just 785 of 20,888,380 votes withheld. That kind of support sounds like something out of the Russian elections of the 1970’s. False democracies everywhere would be proud of such a farcical result. Some of the voting shares do trade and so it is incredible that only 785 shares were withheld from such a relatively notorious candidate. With online voting it is getting easier to vote our shares (when they carry a vote) and I have recently been voting my shares and typically withholding my vote from some candidates. Realistically it’s a total waste of time but maybe it will send a message in a few cases.

January 12, 2013

My popular article on the valuation of the Dow Jones Industrial Average is updated. I see the Dow as about fairly valued.

On Friday we had Constellation Software up 3.7%.

I no longer have Research in Motion on the list, but it was up 13%, again indicating that rumors of its death may have been premature.

Wells Fargo came out with excellent earnings although just a hair above expectations) and dropped 0.9%. Apparently bank analysts were disappointed that its net interest margin fell to 3.56% from 3.66% last quarter. So let’s examine that. The average 30-year mortgage rate in the U.S. is 3.4%.

Now, if Wells pays nothing on deposits it still can’t make 3.56% on a mortgage sold at 3.4%. Wells Fargo has about the highest net interest margin in the business. Part of the reason its margin fell is that it took in a lot of new deposits on which it is paying nothing or next to nothing (that’s the good news for the bank) but it has parked those deposits at the Fed earning 0.25% because it can’t find suitable people and businesses to lend all that money to (that’s the bad news, but keeping cash on hand is better than lending it to those who can’t pay it back).

And remember Wells is not making this 3.56% on its own equity. It is making a gross margin of 3.56% on lending out depositors money. It’s own ROE is MUCH higher due to leverage.

I am no expert on bank finances, but I do know a little bit. And I think these analysts get too focused on particular ratios. In this case it is net interest margin. In other cases it is same store sales for retailers. I may be naive but when I see a 25% increase in profits like Wells has posted here, I tend to think that is pretty good. I am a happy Wells Fargo owner.

January 10, 2013

It was another strong day for stocks…

Melcor continues to bounce around.

Yesterday I mentioned that having seen Tuesday’s closing price of over $20 most of us would be reluctant now to sell much below that. Of course another option is just to keep the shares indefinitely. After all at $20 the shares would certainly not seem over valued. The company is well managed and even by the is REIT action demonstrates an interest in making sure the share price does not languish below a reasonable value if they can help it. Sure, there is always a risk that Melcor shares will dip with a slow-down in housing construction in Alberta if that occurs  and may dip if the REIT plans fall through. But long-term there is no reason at all to think that this will not continue to be a good buy and hold company.

Speaking of buy and hold, in a 2009 newsletter I explained why any suggestion that “buy and hold is dead” is a mathematically challenged view. i.e it’s demonstrably and mathematically wrong.

I read today that Warren Buffett had explained how U.S. banks wee now in better shape financially than they had been in years. That is in contrast to thousands upon thousands of articles and comments on the internet about how the banks are technically insolvent. So who are you going to believe? Those comments usually based on old articles from 2009 and parroted by financially illiterate doomers or will you believe Warren Buffett?

Of course the doomers and doubters then say that Warren is talking up his own book since he owns banks shares, oh and he is also a tax evader, they gripe. It it all so tiring to read such drivel. Any fair minded person who has actually studied what Buffett has said and done over his 60 year investing career has to conclude he is a man of the highest intelligence and integrity. But you know each to his own. Frankly if it were not for mis-informed people using poor strategies to invest and using twisted thinking there might be no one for us to “beat” in the stock market. Those who still believe that most U.S. banks are near insolvency are easy prey for more intelligent or more informed investors.

I understand that Wells Fargo will report earnings on Friday morning.

Canadian Tire confirmed to me today that they are buying some shares based on the price. They did so in December. I don’t see any buys yet in December (correction, January) however which is disappointing.

January 9, 2013

Melcor gave back 8.2% today closing at $18.70 But it is still up about 19% this brand new year. As I mentioned yesterday the trading is thin and it was not cleat that yesterday’s close of $20.37 was where the stock really ought to settle out after the news about the REIT plans. Today only 36,000 shares traded so again it may continue to be volatile. Today at least will have benefited from at least some time for those few analysts that watch this stock to have done some calculations. They will probably try to estimate what the REIT will trade at and what Melcor will trade at after the planned spin-off. (That is not an approach that I use).

Perhaps the best move was those who sold yesterday. Time will tell.

It’s interesting that having seen the $20.37 price yesterday that tends to put price in our minds and we may tend to be reluctant to sell much below that. It’s mostly an irrational feeling. After all the $20.37 price (and the high yesterday of $21.25) were reached in a moment of excitement on thin trading and with a lack of much information or time for analysis. And maybe it is wise to hang on for that $20+ price/ Melcor would not likely have looked into doing this REIT business if they thought that the price was not going to go up significantly. And I am not sure that a 20% rise really would have been enough for them to do this. So certainly it is very possible indeed that before long we could see that $20+ price again.

But keep in mind there are other factors that can drive the stock higher or lower including interest rates, the outlook for home building in Alberta and its Q4 earnings report and outlook for 2013.

Overall, I inclined to hold on at this point though I also see nothing wrong with selling a portion to grab some gains.

In other developments… Bank of America was down 4.6% apparently after being “downgraded” by Credit Suisse analysts. Perhaps it is ironic but I tend to pay zero attention to what other analysts think about any stock. It may be a sign of over confidence but I very rarely even read much less pay attention to any stock research reports other than my own (I make an exception for anything Warren Buffett says). If I do happen to pick up a hint from some analyst that I respect, I first run the numbers myself before deciding if a stock is a buy.

It’s somewhat bizarre that yesterday there was MAJOR news about the big banks in terms of settlements of litigation and a favorable change in the amount of cash or “liquidity” that banks have to keep on hand and yet bank shares barely budged. I would have thought that all that news would be either positive or negative overall but not neutral. And then today the stock sinks simply based on the opinion of some analyst.

Bank of America had risen quite a bit lately. It is a volatile stock and in this context I don’t think a 4.6% price drop is any particular big deal.

Shaw Communications came out with earnings that were apparently a bit better than expected. Also I believe there was a dividend increase. I have not looked at that report yet. I tend to have a slower approach to analysis and trading. It’s just not in my temperament to make a snap decision by glancing at earnings news. There are many people who would argue that success in trading comes only from keeping an eagle eye out and fingers on the trading keys. It’s been my experience that old fashioned buying good stocks (that is, companies) at what appears, after thoughtful analysis, to be good prices and then simply going along for the ride as earnings (hopefully) rise or (hopefully) the P/E multiple rises, can be a good way to invest.

January 9, 2013

Today would have been a mildly negative day for our stock picks except for one stock.

Several alert subscri9bers emailed me this afternoon to report that Melcor shares were up sharply (almost 20%) this afternoon (closed at $20.37) after announcing that it would look into the idea of spinning off its commercial rental income properties into a Real Estate Investment Trust that it would retain significant ownership of. This sounds similar to a plan that Loblaw recently announced.

There are several points to consider here:

  1. This is not a done deal. Then again there is little reason to think it can’t or won’t be done.
  2. These properties represent about 43% of Melcor’s assets, the raw land and developed land is not included here.
  3. We can’t be too sure where the share price ought to settle out on this news. Melcor is a quite thinly traded, most days less than 10,00 shares trade, some days there are no trades. Only 93,000 sga=hares traded today. Many Melcor investors were likely unaware of this news. The share price could easily slip back as people take profits in the coming days. Or maybe it will rise.
  4. I certainly have no idea where the price should be in terms of fundamentals. The REIT structure saves income taxes and that alone does add some real value (even considering REIT distributions will be not qualify for the dividend tax credit).
  5. Fundamentally the value of Melcor should in theory not be changed by this excect for the income tax savings. But practically speaking it’s value is increased in the market.
  6. Melcor was under valued before this announcement.
  7. Having bought Melcor at an attractive price it is not surprising that an event has happened to release value. In some ways the REIT does not so much create value as release value that was already there.
  8. I had not thought of Melcor doing this, but now that it is announced it seems almost obvious that this is something that they might have looked at.
  9. I don’t think there is much reason to think that this in isolation would increase Melcor’s dividend much. The partially spun off REIT will trade independently and will have a high yield. But Melcor itself will not see its cashflow per share rise much from this. Melcor would get a cash infusion from the partial spin-off but may use that for new investment or debt repayment rather than dividend increases.
  10. It’s really anyone’s guess whether an investor should take profit at this time either fully or partially. I am inclined to sell half or so especially if the price stays over $20. I doubt that we have to worry about it falling back to say $17 anytime soon.
  11. I am not sure why they don’t consider selling off the entirety of this into a REIT and not retaining any. After all if the market offers really high (stupid high?) prices for real estate why not sell? And it if makes sense to sell some, why not all? Perhaps the market would not take up all the shares if all were offered. If they sold all they could do a special dividend. But companies are usually reluctant to do things that materially reduce their asset base since that diminishes the domain of mangement.

By the way ,I emailed Canadian Tire several times over the past months suggesting they do something like this. I wonder though if the moment has passed for Canadian Tire given it seems so many others are doing this. Loblaw and I believe the Bay might be doing this as well. I can’t recall them all but I believe there has been a relative flurry of this type of announcement just in the past month or so.

January 7, 2012

Markets gave back a little today after the recent gains. However Melcor was up about 2% on decent volume and Toll Brothers was up 2%. Based on the rating above I would not be an enthusiastic  buyer of Toll at today’s $34.35 given it was rated only Speculative Buy at $30.77 on December 8, though it is certainly possible that our rating was too conservative. Certainly it’s a bit more speculative at $34.35.

As I have tried to make clear many times the ratings above apply at the date and price indicated (and certainly there are no guarantees). Whether the rating still applies some days, weeks or months later as the price changes and as earnings and other events unfold at the company is unavoidably a matter for your judgment since I don’t/can’t update the ratings any more frequently than I do.

Also, as you can appreciate, each report provides numerous facts, figures, and observations that are ultimately distilled into a rating. What is provided is both the rating AND the report with all the reasons for the rating. Some of you may read the report and conclude that a different rating should apply. Or you may just see some factor in the report (or from your other sources of information and general knowledge) that causes you to avoid a certain stock for whatever reason.

At the end of the day if the stock ratings here have helped you pick winners it was in large measure because you ultimately agreed with or trusted the rating and pulled the trigger on certain trades, knowing that it was at your own risk. Congratulations to all those subscribers who have done well with these stock picks.

The big U.S. banks made some settlements regarding foreclosure and mortgage issues stemming from the financial crisis of several years ago. Their stocks did not seem to react much indicating that the news was about as expected. But in general it should (all else being equal) pave the way for continued gains in Wells Fargo and Bank of America. There was also a  favorable development that delayed a planed increase in the amount of cash they have to keep on reserve. Such cash tends to earn very little or no interest for the banks and so they like to hold minimal reserved of cash on hand. In this case cash does include deposits at the Federal reserve bank (hence the name I guess) which these days does pay 0.25% – I believe it historically may have paid nothing.

The earnings season will kick off this week with Alcoa which somehow manages to get its December 31 year-end numbers out extremely quickly after year-end. In Canada Shaw Communications reports its Q1 results on Wednesday.

January 6, 2013

I have updated the table showing the percentage of my portfolio that is is invested in each stock I own and in cash.

January 5, 2012 (from Lloydminster)

Friday was another positive day in the markets.

I finished selling out everything in my margin account. 200 shares of Canadian Tire were sold but were replaced with an equal buy in an RRSP account. 3000 shares of Melcor were sold. 500  shares of Shaw Communication were sold. Again, this selling was to clear out the margin account. I would have preferred to keep these stocks.

I mentioned I had a problem accessing TD Waterhouse when I updated to Windows 8. That was resolved by added TD to a short list of sites that are to be opened in compatibility mode. This is available under tools on internet explorer.

At the moment I am down to about 75% equity (and 25% cash).

My next step is to withdraw some of that cash in the margin account and to use it also for contributions to RRSP and TSFA. Also will move some more business cash into the business investment account. I plan to update my portfolio break down (percent I have invested in each stock) in the next day or so. I will be looking to buy a few of the higher rated stocks that I don’t already own and perhaps replace some of what was sold from the margin account.

It would not upset me to see a pull-back in the market to facilitate some buying. On the other hand if stocks continue to rise in value I can certainly live with that.

January 3, 2013

The TSX finished down 0.6% today. The Dow had been up but finished down 0.2% after the market began near the the end of the day to fear that the FED was going to stop buying bonds. (FED minutes revealed a worry about all this bond buying).

The markets never seem to focus on any one thing for long. So the euphoria over the fiscal cliff deal was unlikely to last too long and now we are moving on to the next worry or opportunity. None of this is predictable. Markets tend to move higher in the long term and are unpredictable in the short term.

Canadian Tire was down about 1.4% today. It’s always possible that my assessment of the value of Canadian Tire is too optimistic. Time will tell. But the fact that the share price declines is in no way convincing evidence that it is not a good investment. Some of the best opportunities in the markets (and perhaps some of the worse) will always be found among unloved stocks.

Dollarama was down 2.1% to $57.65. Possibly that had to do with poor results at a U.S. Dollar Store. It may be an opportunity to nibble at Dollarama.

My thoughts today again turned to selling. In particular I want to get rid of the margin I have been using in my margin account and may also end up withdrawing some money from the margin account for other purposes and so I may end up selling most or all of the stocks in my margin account. This will reduce my equity exposure and give me cash to be ready in case the market does dip. However, since I like the stocks I hold I will try to replace some of what I sell in the margin account by buying the same in the RRSP accounts.

I sold some Berkshire in the margin account today. Also I sold 500 shares of Stantec in the margin account. I still hold 1000 shares in other accounts. My gain on those 500 shares was 107% and so that made it easier to pull the trigger and also it has jumped quite a bit in the past six weeks.

I would like to update my personal portfolio breakdown but am having a technical problem even seeing my portfolio details in TD Waterhouse. I updated to Windows 8 because Microsoft had a special $40 deal on the Windows 8 update (for Windows 7 customers) until January 31 and now it seems some sites I visit are not yet compatible with Windows 8.

It may not have been wise to update to Windows 8 so soon. There was a promise that my machine would be faster. Yeah, not so much. Also my machine was trying to to add some newer Windows 8 updates tonight and then reported that it failed and was reverting and then it almost looked like it was not going to boot up at all and so overall I would caution people not to update to Windows 8 just yet. Possibly you could buy the update for the $40 but not install it yet.

January 2, 2013

I don’t think too many people expected today’s big market rally. After all we already got a big rally on Monday when it looked like this fiscal deal would go through.

Today we had the DOW up 2.3%, Toronto up 0.9%. We had Berkshire up 3.9%, Toll Brothers up 3.6%, Melcor up 3.7%, Stantec up a scorching 4.9% and loads of other nice gains. Canadian Tire was among the few that managed to go down a bit today.

Our Stock Picks have done very well lately. But it’s starting to feel a bit like manna from heaven. And it seems wise to remember that stocks don’t go up in straight lines. We will have our down periods as well. And it would be nice to have some spare buying capacity when that happens.

So on that note I forced my mind to think about trimming some positions today. I have a margin account where I have been making some modest use of margin and had some Wells Fargo and Bank of America sitting there and it was bought with margin (borrowed money). I was waiting until this new tax year and with the arrival of a new tax year and with all the pleasant gains of late I decided to get rid of those stocks in the margin account (I have plenty left in the RRSP accounts and in a cash account). While I was in a selling mood I decided to reduce my Toll Brothers position as well. It’s about the highest P/E ratio stock I own and also one of the lower rated ones. But I still have some. I sold 700 and have 1050 shares left.

None of this means I have turned negative on these stocks. I added heavily to Wells Fargo and Bank of America when they fell and so I became rather over-weighted in them and it just seems prudent to trim as they rise. And more importantly it seemed prudent to find something to trim given the recent market gains. I chose Wells Fargo and Bank of America mostly because they were in that margin account and I really don’t need to be using any borrowed money.

(Before anyone emails me about this “revelation” that I had a bit of margin, it has been disclosed before and only very briefly did it ever get the the point where I was more than 100% in equities. I think I got to 102% or something very briefly. Almost always my net cash has still been positive (I was using margin in the margin account but there was more than offsetting cash in the RRSP accounts).

January 1, 2013

Well, the 2012 year is now over. Our Stock Picks this year had an excellent performance. Click to see the detailed performance by company for 2012. The six Strong Buys were up an average of 19.6% each. The 17 Buys were up an average of 14% each. Only 3 of the 23 Stocks rated in the Buy or Strong Buy range at the start of the year fell in price. Meanwhile, the the TSX was up only 4.0%. The Dow was up 7.3% and the S&P 500 was up 13.4.

My own portfolio benefited from being concentrated in some of the better performing stocks and from buying on dips and a certain amount of selling on rallies and in general a certain amount of trading during the year. I managed a 27.6% gain (subject to the final numbers on my December statements which tend to differ very slightly from the online figures).

All the Performance figures are updated for 2012.

There is really no such thing as a typical gain in the stock markets. Some years will assuredly be negative. But overall stocks do tend to rise in the long term. Add overall our approach has beaten the market. But we make no guarantees or promises about the future.

Every year at this time I make a special effort to update as many of the reports as possible. This has now been completed.

It is also appropriate at this time to remove a few companies. The Brick is deleted from the list because it was taken over by Leons.

I am removing E-Bay because it is out of date. It rose a surprising 68% in 2012. I do not have an interest in updating it at this time.

I am removing Walgreen because it is out of date. I may update it and add it back at a later time.

Omni-light industries is removed because it is out of date. This was our only micro cap company last year. It did not work out well. It may be a good company but I am not too interested in updating it.

Costco is updated and rated Weak Buy at $98.73. It always seems expensive as a stock. As a company it is a fantastic business. It has co0st advantages over stores like Walmart, Target and all specialty retailers. It has the ability to open new stores that will instantly draw traffic and be profitable.

It has recently paid a special dividend and also has been buying back shares. It is not the case that buying back shares or even paying dividends is automatically a good thing. It may be that Costco has excess cash and/or has made too little use of debt. It borrowed the money to pay the special dividend. Cost co shares trade at 3.4 times book value. If it came down to a choice between building a new store at 1.0 times book value or buying back shares at 3.4 times book value, then shareholders would clearly be better off with the new store. If it is the case that Costco can build all the new stores that it can comfortably manage in a year and still buy back shares and pay special dividends then it does make sense to do so.

As a customer I am increasingly a fan of Costco. I know they mark up products by  maximum of 15% over their cost for the goods. Therefore I am confident that I am getting a good price on anything I buy there.