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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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/article17849036/#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

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.

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.

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.

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.

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 signalled 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.

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.

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.

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.

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.

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.

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%.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

http://www.berkshirehathaway.com/letters/2013ltr.pdf

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.

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%.

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.

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.

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.

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.

http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

American Express is added to the list above rated Buy at $87.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

http://www.investorsfriend.com/Global%20ETFs.htm

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.

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.

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.

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)

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.

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.

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.

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)

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.

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.

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.

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.

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).

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.

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.

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.

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.

Monday was a negative day in the markets.

The S&P 500 was down 1.8% and Toronto was down 2.5%

Canadian Western Bank was down 5.0%.

Among the few gainers was RioCan REIT up 1.6% and Toll Brothers up 1.6%.

Is it time to scoop up bargains? Well that is never easy to know. To me, a policy of adding to positions on lower prices makes sense.

It’s my understanding that oil is like any other product or service in that the supply offered will rise at higher prices and fall at lower prices. Demand will do the opposite. The forces of demand and supply will tend to push oil prices to a logical place. I believe in economics in the absence of market power the price is supposed to reflect the marginal cost of the incremental supplier.

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.

On Friday the S&P 500 was about flat and Toronto fell 0.3%. Bank of America was up another 1.9%

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%

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.