Daily Updates 2006 – 2007

December 31, 2007


As indicated yesterday, I did buy some some IGM shares today.


The Kingsway CFO and a couple of other insiders have bought shares around Dec
20 at about $12. Kingsway is hosting a conference call on Wednesday after the
markets close.  expect the purpose of this is to try to sooth the analysts
about recent increases in their estimated liability for insurance claims
(reserve increases at Lincoln General). Despite its problems, the stock does
look cheap and given the insider buying, I bought additional shares today.
Clearly this is risky given I already have a high exposure to this troubled


Stantec was last rated Weak Buy at $32. Now it
has risen to $38.89. It is a great company but seems expensive. We would not be
buyers at this price.


Home Capital was last rated
Speculative (lower) Buy at $40. The same rating would apply at today’s close of
$41.90. However, we do think it is speculative because it could suffer a large
increase in bad debt expense in any recession. Also it has relied on
securitization for some of its profits and we are not entirely clear if it can
continue to securitize mortgages given the difficulties in the asset backed
commercial paper markets. Due to risks, it might be better to wait for its year
end report before investing in this one.


Canadian Western Bank
updated and rated Buy at $31.45. This has been a great stock year after year. It
is up 535% since we first added it to this Site as a Strong Buy back in 1999 at
$4.94 (adjusted for stock splits). In recent years it has not been cheap and
therefore was not rated Strong Buy but has managed to perform beyond
expectations. It is not cheap but has been a proven winner and will likely
continue to be a good investment for the long term. It is occasionally volatile
in price.


December 30, 2007


IGM Financial is updated and rated
Strong Buy at $49.82. This company has had a history of growing its earnings
relentlessly over the years, getting larger like a snowball rolling down hill.
It may have trouble growing earnings in 2008 if markets decline. But over the
long term it seems highly likely that it can continue to grow. And it is
available at what seems to be an attractive price. It also pays a reasonable
dividend at 3.7%. While no stock is without risk, I suspect it could add some
stability to a portfolio in the next 24 month period. I intend to buy shares


December 29, 2007


FedEx is updated and rated Weak Buy / Hold at
$94.91(this was our analysis price from Dec 21, but it closed Friday at $90.62).
This is a great company but the current outlook appears to be weak.


Canadian Tire is updated and rated Buy at
$71.62 (This was our analysis price, but it jumped to $73.53) as of Friday’s


Melcor Developments
is rated Speculative
(lower) Buy at $18.77 and is returned to the list above. I had removed it a few
years ago due to low trading liquidity. It now has better trading liquidity.
This stock is a way to participate in land values in Alberta and Western Canada.
It is also a way to participate in owning a land developer that in the long run
can make money even when land prices are stable.  The stock price has
retreated significantly from its $30.47 high. But I consider it to be
unpredictable at this time since lot sale volumes could decline significantly in
2008. The best approach may be to buy a small amount and then monitor through
2008. In the long run it will likely continue to do well, but the short-term
seems particularly uncertain.


I had an order in to sell a small portion of my Western Financial if the
price reached $5.49. That trade went through on Friday. I like WES long term.
It’s model of acquiring privately held insurance brokers and folding them into
WES is a winning strategy. But I worry about its banking operation. That can be
a risky area. At this time I decided to reduce my exposure to the company.


December 27, 2007


I took advantage of a dip in the price of
Shaw communications today to add
to my position. As of their August year-end they were still growing. With some
slowing in western Canada they will not likely add the same number of new cable
subscribers in the current fiscal year. But they may be able to grow profits
through switching more customers to digital television. And their digital phone
business is still growing rapidly. The stock is not cheap but given the past
growth and the monopoly aspects of their cable service, I believe it will
continue to do well. They will likely release Q1 earnings in the second week of


I had placed an order to add a small amount to my Tim Hortons if the price
fell. It did fall today and I picked up 100 shares. The stock is not cheap and
so that causes some risk that it could fall to a more sustainable P/E ratio.
Still, given the quality of the company and the continued obvious success I am
happy to add to my position if or as the stock drops. In terms of same-store
revenue growth, it does face a tough comparable in Q4 but overall I see no
reason that Q4 will not be a good quarter. The U.S. operations are a possible
are of concern but I believe that ultimately with time and advertising they
should do well in the U.S.


I took a look at Melcor Developments today. This is a land developer and real
estate company that operates mostly in Alberta. This was a stock that we first
introduced on this Site as a Strong Buy at $3.60 exactly five years ago. It
subsequently got as high as $30.47 but has dropped back and closed today at
$18.20. We no longer have this company rated on the Site. Nevertheless, I can
make a few comments about it.


Melcor is a very well-managed company. If history is any guide it will
continue to grow earnings in the long term. But in the short term earnings will
likely fall. In the past few years its profits soared as land and house building
lot prices soared. Now lot prices are flat or falling. And lot sales are
expected to slow significantly because of an existing supply of new homes on the


On a P/E basis Melcor looks very attractive with a trailing P/E of 8.1. But
that P/E reflects high earnings not likely to be repeated in 2008. The price to
book ratio is 2.2. This may be moderately high given the outlook. The next
earnings report will likely be strong based on a gain on an asset sale, but lot
sales could be quite weak.


Overall, this is a very difficult company to predict at the moment. I hold a
few shares and will likely keep those. However I am not confident that right now
is a good time to buy this.


December 26, 2007


Berkshire Hathaway rated (lower) Buy at
$4570 is added to the Site. Berkshire of course is Warren Buffett’s investment
holding company. He took control of the company as a textile operation in 1965
and turned into an investment holding company. The share price since then has
risen from under $20 to a present level of $138,500. (But you can buy a B share
which is 1/30th of an A share for a recent price of $4570). Amazingly, over 42
years it “only” takes a return of 23.4% compounded annually to turn $20 into


As a huge conglomerate, Berkshire is not really the type of company that is
best suited to the analysis template used on this Site. But I have added it to
the Site because it is a stock that is of interest to many and I do hold a few
of the B shares.


Regarding Kingsway, it is possible that the next piece of bad news will be
that some investors will sue them for late/improper disclosure of their earnings
troubles at Lincoln General. Much of that risk may already be “priced in”.
Still, on such news the stock would likely drop. Certainly based on its own
accounting, Kingsway is now a bargain. However, any recovery is probably going
to be many months and will require patience and a tolerance for volatility.


Note that we will have more updates prior to the start of trading for 2008.


December 23, 2007


The Thomson Corporation is removed from our list above for two main reasons.
Firstly, it is basically just too complex. It is a huge company that operates in
a number of different business segments. This has resulted in it being very
complex, partly due to the way the accounting for its numerous acquisitions and
divestitures must be done. Currently it is in the midst of attempting to acquire
Reuters and this would increase its size by about 50%. A full valuation of
Thomson should therefore include a valuation of Reuters. Secondly, when I look
at its valuation based on managements view of the past 12 months adjusted
earnings from continuing operations (and I add back 70% of the amortization of
intangibles on the basis that intangibles are like goodwill and should not be
amortized) it has a P/E of around 21 and so does not appear to be a bargain. (A
third reason to remove this is to free up time to look at other stocks)


We originally added Thomson to this Site because we really like its business
model of selling information electronically. It seems to have the potential for
high returns and growing profit margins. But to date it appears that this is not
showing up in the reported earnings to the extent we had hoped. I suspect there
is hidden value here and that it would be a reasonable long-term investment. But
the complexity is too great to have confidence in that.


I consider Thomson to be more of a U.S. company than a Canadian one because
most of the revenues and operations are in the U.S. But for some reason it
trades mostly in Toronto. Perhaps due to its history with Canadian investors.


One ‘knock” against Thomson is that for Canadian investors the shares have
really not gone anywhere for years. But that’s not really the company’s fault/
Investors bid these shares up to unrealistic levels with a P/E well into the
30’s around the year 2000. As the P/E has now regressed back to more reasonable
(but still high) levels the stock price was unable to grow despite higher
earnings. Also given that most of the earnings are in the U.S., it really should
be judged based on its New York stock price growth. It amazes me when Canadian
stock analysts comment on the stock price in Toronto without mentioning the
obvious boat-anchor-like affect of the huge climb in the Canadian dollar since
2002 and in 2007 in particular. The stock price has risen somewhat since 2002 in
New York, although again the stock price was hurt by the fact that the P/E had
simply been pushed too high around that time. In my view the company has done
quite well since 2000 (adjusted earnings per share up about 90% in 2006 versus


I have a modest position in Thomson. I am inclined to hold onto it except I
may sell simply to raise cash.


December 22, 2007


Property insurance companies have certainly proven to be an unpredictable
bunch. By their nature, their reported earnings really cannot be trusted. They
really don’t know their own profitability for a given year until several years
later when all the claims for that year have been settled. One thing I have
observed is that a low price to value ratio is probably the most reliable
indicator of value.  If that is the case then Kingsway Financial probably
will turn out to be a good investment after its recent plunge. It is now at a
price to book value of under 70%. Despite recent problems it has reported
profits every year since ’96 (or earlier) and it will likely still have at a
positive profit (although small) in 2007. Over the longer term it has produced a
reasonable return on book value. Therefore the opportunity to buy at 70% of book
value may prove to be a good opportunity. However, I do acknowledge that its
management appears to be far less than competent and so it does remain risky.
The bizarre and embarrassing way that the founder has now retired from the CEO
chair just after mis-speaking about their claims reserves on a recent conference
call and coincident with a large surprise increase to reserves could possibly be
cause for law suits. It is a good thing that the CEO or CFO have not been active
sellers of the stock prior to the recent plunges in price.


E-L Financial
is updated and rated
(lower) Buy at $565. This will likely be the last update for this company and
then it will be removed from the Site. It was originally added to this Site
because it owns Dominion General Insurance company and a few years ago it seemed
apparent that Canadian auto insurance companies were set to make a lot of money.
The stock is up 64% since it was added to this Site in March of ’04. But lately
its earnings and its share price have been falling. 


The company trades at only 90% of book value and for that reason it may turn
out to be a good investment. But other than that I am not very interested in
this company. It is rather strange company that is majority owned by the Jackman
family. They really don’t seem all that serious about being a public company.
(It is thinly traded, they do not hold analyst calls, it appears they do not
even have an a web page for investor relations, the stock price is too high to
be of interest to most investors). They describe it as an investment holding
company. In general I prefer to focus on single-line-of-business type of
companies rather than holding companies. I do hold some shares in this but
intend to sell those shares particularly if the stock price goes back to about
the $620 range or above.


Performance figures for 2007 as well as the
model tracking portfolio and my own
portfolio composition are all updated. This
past week was not kind at all… particularly the plunge in Kingsway.


I few stocks that we are no longer following are removed from the list above.
These are Cognos (it was bought out). Burlington Northern Santa Fe (We added
that because Buffett was buying it., we may add it back at some point…)
Canada Bread (it seems expensive at this time and we are not following it).
There may be a a couple more removed by year end. It makes sense to remove some
stocks to concentrate on the higher rated stocks and to make room for new picks.


December 21, 2007


FirstService is updated and rated Buy
at U.S. $30.11 or CAN $29.90. This is a Toronto headquartered company, but
should really be considered to be a U.S. investment given that most of the
operations are in the U.S. The stock has tended to be volatile but the company
itself has been consistently growing on a per share basis. We could have rated
it (higher) Buy but we are somewhat concerned about any slow-down related to the
slowness in the U.S. property markets. Currently I don’t own it but I plan to
buy some probably on Monday and I would look to add to the position on weakness.
This really seems to be the type of simple company with strong management that
Warren Buffett suggests we invest in.


Regarding Kingsway Financial, I note that while TD Securities has cut its
target price to $12, Scotia has a target of $17, BMO $15 and Desjardins $19 (all
of these issued after the recent bad news from the company). So… there is
certainly a variety of opinion. Fundamentally this is simply a difficult company
to predict.


Alimentation Couche-Tard is updated and
rated (lower) Strong Buy at $17.25. The price has dropped lately. Partly this
was due to the higher Canadian dollar, given that 80% of sales are in the U.S.
Also earnings per share were down but the company claims that if gasoline
margins were the same the earnings would have risen. The longer term trend to
growth appears to be intact. This may be an opportunity to buy a good quality
company at a reasonable price. There is always risk in the shorter term given
the recession risk in the U.S. I am attracted to owning this simple type of
business that caters to consumers and where an investor has the opportunity to
see the stores personally. I am adding to my position in this company.


December 20, 2007


An insider (Board member James Reeve) at Kingsway bought 20,000 shares today
at $11.39 to hold 40,000 shares. At $228,000 dollars this is a very nice vote of
confidence. Hopefully Kingsway itself is also buying. I am also pleased that
they reported this the same day to the SEDI system. It is definitely scary to
buy Kingsway at this time. But with the stock trading around 70% of book value
it seems like a bargain. But there are certainly no guarantees with this one.


There continues to be bad news in the financial sector… I took the
opportunity to add to my Tim Hortons position today. Also I had placed an order
to buy additional Western Financial Group
if it fell and that order got filled today. Although I have done some buying
lately, I am still quite cautious on the markets and I would like to make sure I
have a reasonable cash position in case certain stocks fall. Western Financial
Group may have fallen due to a slowing in Alberta. Also there was their recent
convertible debt issue. I like the company but the stock price has not been
cheap. I like their insurance brokerage operation. But their banking operation
could be risky.


Watts Water Technologies
is added as a
new company rated (lower) Buy at U.S. $30. (It closed today at $28.68). This
company is a market leader in selling water-related hardware to plumbers and
contractors. Note that the share price has been trending down, presumably due
tot he construction slow-down in the U.S. We selected this company after
screening for lower P/E type stocks. It looks like a good long-term bet. But we
do worry it could suffer further from the construction slow-down. It may be best
to wait for its earnings trend to turn back upward. Or take a small position now
with a view to adding to it at lower prices.


December 19, 2007


Kingsway fell about 22% today and that is on top of already huge declines
this year. I always said it was an unpredictable company. But I thought the book
value, (still around $16.50, even after the announced large increase in
estimated claims liabilities) would provide support for the stock price. I added
to my position at this lower price today. This stock could fall further and in
the best scenario is going to take quite a while to recover. It will only rise
much if it can announce good earnings results each quarter in 2008. At the
moment management has basically lost all credibility and investors wonder what
the next bit of bad news will be. Although, Possibly we will get some bounce
back from today’s lows…


With this happening and with the overall outlook for stocks being rather
gloomy, I am definitely inclined to look for positions to sell and raise my cash
position. (I sold a small portion of my ING Canada today). But I did buy some
Tim Hortons on weakness today. I really would like to see Tim Hortons drop
another dollar at least and then I would buy more. It’s a company that seems
relatively predictable and is highly profitable and so any further decline in
its price to my mind are buying opportunities. (Though in this market I would
average in because if the overall market drops it tends to pull everything down
and so it is wise not to buy too aggressively at this time).


December 18, 2007


Kingsway Financial is out with bad news
and is likely to fall sharply tomorrow. Yesterday they announced that their
founder/CEO/chairman, would retire as CEO but stay on as chairman. Today they
announced that once again they have to sharply increase their estimate of claims
liabilities at their biggest subsidiary. Given a history of this sort of thing,
this is very annoying. It was only 5 weeks ago that they came out with earnings
and basically gave assurances that the claims liabilities were sufficient. In
the Nov. 11 update I suggested that this might be a case of a mediocre company.
It was apparently attractively priced, but perhaps this is a lesson that
mediocre companies should be avoided, even at bargain prices. Personally I have
been analyzing the company for a long time and perhaps I have become more
attached to it than I should have.


It is possible that it will recover because it does make good returns on its
investments. I don’t particularly think that it makes much sense to sell at this
point. Unfortunately, it remains a risky and unpredictable company.


I ended up adding slightly to my position in Kingsway today because I had an
oder in below the market price and it dipped down at the end of the day.


On a brighter note, Berkshire Hathaway also dipped down today and I bought
back some shares I had sold a couple weeks ago. The buy price was 10% below the
recent sale price.


I also placed order to buy Tim Hortons and Western Financial Group at lower


Given this latest hit to Kingsway, I will be in a defensive move and may look
to reduce some poistions.


December 17, 2007


A bad day in the markets. But certainly not any big surprise. I sold my
Canadian Western Bank shares to take the profit there. I reviewed my own
holdings again with a view to wanting to sell because I remain quite cautious in
my outlook (i.e. I am scared that stocks could fall – that is not such a bad
thing as long as one then has cash to buy). I have a large exposure to Tim
Hortons but had already trimmed there and also I am very confident that it will
be a good investment long term and so I was not inclined to sell more of it.
Much of the rest of what I hold seems to be reasonably valued and/or I just like
the outlook for the stock and therefore am not inclined to sell. I believe I am
now around 40% in cash.  EL-Financial fell about 9% today, but it tends to
be quite volatile and so I am not sure that the price on a given day is all that
meaningful there. FirstService fell quite noticeably today and I am not aware
why. It does have exposure to apartment management and that may be a slowing
industry. I plan to update the analysis of FirstService soon.


December 16, 2007


Manulife Financial
 is updated and rated
Speculative Buy at $41.01. Based on its earnings, this stock could be rated
higher. But this this a hugely complex company. I may delete it from this Site
because it is simply too complex. It has a history of steady earnings growth. In
some of its product lines it has displayed amazing growth. But I see it as risky
due to the complexity. It may not be immune to some of the write-offs that we
have recently seen from big financial companies. I would be prepared to hold a
reasonable amount of it, but I would not want to get over-exposed to it.


In terms of the general markets, my outlook remains cautious. I am thinking
of taking at least profit in Canadian Western Bank since it is at a high, at a
time when many large bank stocks are at risk of falling due to sub-prime related


The weird effort to interfere in the market for Asset Backed Commercial Paper
in Canada has failed to be resolved and the artificial freeze on the market is
extended to the end of January. This could lead to some investors finally
selling out of this paper at fire-sale prices. The law-suits will soon begin.
Expect to see more write-offs and lots of law suits. This could push the
Canadian market down tomorrow Monday.


December 12, 2007


The markets at first rose today on news of an agreement for central banks to
help banks (oh joy more interference in the markets). But the gains were later
retraced and I think this shows justifiable nervousness of investors.


I am tempted to add to my position in Kingsway. Perhaps this is a case of
clinging to a stock that has not done what I had expected. It looks bargain
priced. On the other hand since I think that market could easily fall, I am more
inclined to sit on my cash.


December 11, 2007


Reitman’s (a Canadian women’s clothing
chain) is updated and rated Buy at $19.19 (it closed today at $19.36). Based on
its achieved numbers it should be rated higher than Buy. But it did have an
earnings drop in each of Q1 and Q2 before recovering strongly in Q3. Therefore
we are a bit cautious on the outlook. It is not entirely clear how the Canadian
dollar is affecting it. The higher dollar lowers its costs of goods, which could
lead to higher profits (unless it was forced to lower prices to compete with
other retailers and cross-border shopping). It is is up nicely since my note of
December 4.


The Fed lowered interest rates today and yet stocks fell. The reason is that
the the 25 basis point cut was already fully “priced in” to the market. It
appears that a hope of a 50 basis point cut was also partially priced in. When
the cut was only 25 basis points then stocks fell as the extra hoped for rate
cut did not materialize. In addition I understand that the press release
accompany the interest cut was not as suggestive of further rate cuts as had
been hoped for.


In addition now that the rate cut has been made there is little reason now to
expect stocks to rise in the very short term. Investors may have also concluded
that tax-loss selling would be a negative in the nest two weeks. And then there
is our old friend the sub-prime crisis.


The American bail out plan for certain sub-prime borrowers is a colossal
mistake. One of the absolute key requirements for a functioning free market is
the “rule of law”. Here the U.S. government has decided to help out
irresponsible borrowers by allowing them to change the terms of their mortgages
at the expense of the banks and investors who are owed the money. If the banks
wanted to give a break, to avoid the cost of foreclosure, fine, that is their
right. But the government should not have the right to break those contracts. It
is a slippery slope. Where will it lead? I suppose the U.S. government’s word is
still usually pretty good but ultimately how can they be trusted to pay their
own debts if they are willing to break contracts like this? Directionally the
financial trustworthiness of the United States has taken a turn for the worse.
The government should have paid for the bail out from tax dollars not from the
pockets of banks and mortgage investors. It is a black moment for capitalism. If
the stock market figures this out (as the corporate bond market, and certainly
the debt derivatives market already has) then the market could take a sharp dip.
For these and other reasons I remain with a bias to increasing cash.


For that reason I sold some Tim Horton shares this morning to take some
profits off the table. It remains my largest position. I love the company but
that does not mean I can’t take some money off the table.


December 10, 2007


Canadian National Railway is updated and rated
(lower) Buy at $51.49. This has been an excellent company and continues to have
a strong long-term outlook. However, the earnings trend has now flattened and
this seems likely to continue inQ4 and well into 2008.


tomorrow the Fed is expected to lower interest rates. Stocks may rise on that
news. However, I believe the markets are vulnerable now to to the next wave of
worry over sub-primes issues and possible recession.


Tim Hortons has done very well lately.
It is an exceptional company and one which I am very comfortable holding. But I
may trim position since I have a large exposure to it. (Like almost all
investors I reserve the right to worry about my money and therefore to sometimes
trim positions. This is especially the case right now because I still have a
bias to increasing my cash position to hedge against the risk of a general
market decline).


December 9, 2007


is updated and rated (higher) Buy
at $48.24 (it closed Friday at $49.02. The stock price has done well lately but
has been volatile this year due to recession worries. The investment thesis here
is the opportunity to buy an exceptional world-class company that appears to be
still growing earnings at low double digit rates at a P/E multiple that is below
the market average. While the stock price has been disappointing for some years,
the earnings per share have pushed steadily higher. There is some risk of slower
or lower earnings in the short-term but based on the achievements to date this
looks like a good investment for the long term.


December 8, 2007


Performance figures for 2007 are updated.
Also my own portfolio and the
model tracking portfolio are updated.


Yesterday I noticed Berkshire Hathaway had leapt to $150,000 per share. The B
shares were at $4991. That’s up about 36% from the $110,000 / $3,666 range at
the start of the year. This is not a stock that we rate on the site for a
variety of reasons that have been mentioned before. I had mentioned under
January 2 below that Berkshire was probably a good bet at $3666 and I indicated
I had bought some on January 3 and added more on August 28 (at about $4,000).
I had fully intended to hold that “forever”. But on Friday as I looked at the
price and with my cautious outlook for the markets I sold half my small
Berkshire position. I can only hope and pray that it will fall back
substantially so that I can buy more.


December 6, 2007


The market was up due to the rate freeze for some sub-prime borrowers. I
don’t really “get” this plan. Apparently no Federal money goes in. If Banks are
better off doing this (as claimed) then they could do it themselves. Sounds to
me like some borrowers will get a free ride and some of these would have paid
the high rate. It sounds like it totally tramples on the rights of banks and
investors who bough the mortgages to foreclose if they want. That is the
definition of a mortgage. You pay it or the bank gets to sell your home. If the
Feds wanted to interfere they should at least pay for it (although that would be
with taxpayer money). The market needs to take it course here.


The market may continue up due to interest rate cuts. But overall there seems
to be a ton of “rot” in the financial system. Also, home prices are still
falling. The recession in the U.S. has probably already started. Markets look
reasonably priced on a P/E basis but given that earnings are headed down
(possibly a lot) it is hard to imagine that stocks can stay level much less rise
in the next year. But there will always be individual stocks that will do well.


December 5, 2007


A strong day in the markets as we continue to see rather wild fluctuations.
Berkshire Hathaway was up 1.7% today and so Mr. Buffett was up just over $1
billion to $64 billion. Life just is not fair. But rather than pout about that,
my strategy is to try to learn from him. I will be updating some articles about
his methods soon.


The Americans apparently will freeze certain sub-prime mortgage payments for
five years. Apparently this will only be for those who were making current
payments at somewhat lower rates. This will not protect those who defaulted even
on the initial rates on their mortgage (and there are plenty of those).
Conspicuous by its absence was any hint in the story I saw of who would pay for
this. I don’t know if the federal government will pay or they expect banks to
pay or will the amounts be simply tacked onto the mortgages for later. Overall I
am skeptical that this will prevent house prices from falling. There are still
going to be probaly literally millions of foreclosures in the U.S.


Kingsway was down noticeably again today. Still no reports posted of any
share buy backs which they promised to do. Reitman’s has shown us that sometimes
the market is wrong it sends stocks down too much and they become bargains.
Kingsway continues to look like a bargain but is a very unpredictable company.
I’m certainly not a seller at this price. But I have a large exposure to it and
so I am not too inclined to buy more, particularly until I see that the company
is at least buying back shares. If management believes its own story, they
should be backing up the truck to buy. We shall see.


December 4, 2007


The Bank of Canada did lower its interest rate by 0.25% today. This led the
Canadian dollar a little lower. Stocks did not react. It seem that there is a
good chance that more rate reductions are on the way in both Canada and the U.S.
All else equal this is good for stocks. Problem is, all else is not equal. The
rates are being lowered due to the housing price “correction” and probable
recession, these things are decidedly bad for stocks. I remain quite cautious on
markets overall. I expect continued relatively wild swings in the market.


Reitman’s released earnings during the middle of trading day today. Many
(maybe most) companies do that, releasing earnings during to day. I consider it
to be unfair to small investors but there is not much you can do about it.
Warren Buffett’s Berkshire Hathaway as usual is the model in this regard. He
likes to release earnings on Saturday mornings if possible to give the most
amount of people the most amount of time to digest the news. By the way
Berkshire has galloped higher this year and Buffett may have surpassed Bill
Gates as the richest American. Berkshire is up over 50% in the last 18 months. I
have not analysed Berkshire.


Reitman’s had a pretty reasonable quarter and I suspect exceeded
expectations. Same store sales were down about 3%. Retail analysts seem to focus
huge attention on same store sales. But if the decline was driven mostly by
deflation associated with cheaper cost of goods (due to the higher Canadian
dollar) then that is not a problem. Earnings per share on a comparable basis
were apparently up about 18%, which sounds very good. They also increased the
dividend. Same store sales were up about 1% in November and that may be pretty
good performance in the face of a surge in cross-border shopping and a probable
deflation in prices in the month. We have not yet analyzed the results but on
the face of it, they look good. Reitmans was up on the news today and I suspect
it could go higher tomorrow. I will place an order to buy some.


Back to Warren Buffett. I am wondering if Buffett will one of these days buy
a big retailer. If he could find a retailer that had a huge amount of sales of
gift cards, he might like that. Gift cards (like insurance companies) give him
interest free money. And he absolutely loves interest free money, because he can
invest it. Making 15% on his own money is nice. But making 15% on someone else’s
money (which they have voluntarily loaned to him at 0%) and pocketing it is his
idea of heaven.


December 3, 2007


There is a possibility that the Bank of Canada will lower interest rates
tomorrow, Tuesday, if so that could send stocks up and the dollar down. If it
does not happen we may see stocks down and the Canadian dollar might go up
(though with the lower oil price, I am not sure the Canadian dollar can rise


Telus has certainly been disappointing
lately. The market seems to be expecting that its earnings growth will be much
weaker than in the recent past. Also Telus announced last week that it acquiring
Emergis for $763 million for the equity share .


“Emergis (TSX: EME –
News) develops and manages
solutions that automate transactions and the secure exchange of information to
increase the process efficiency and quality of service of its customers. Emergis
generated $170 million in revenues in 2006 and currently employs approximately
1,100 people in offices across Canada including: the Longueuil, Québec
headquarters and offices in Mont-Saint-Hilaire, Ottawa, Toronto, and Calgary.
Emergis has expertise in electronic health-related claims processing, health
records systems, pharmacy management solutions, cash management and loan
document processing and registration. In Canada, Emergis delivers solutions to
major insurance companies, top financial institutions, government agencies,
hospitals, large corporations, real estate lawyers and notaries, and 3,100
pharmacies. Emergis’ shares are included in the S&P/TSX Composite Index.”


I have never understood why Telus would be involved in software for
healthcare. This initiative does not really seem to fit with the mandate of a
telco. The market seems disappointed with it. I don’t really like it but at $763
million for the equity it is not a huge acquisition for Telus.


Some investors might wonder if it would have been smarter to sell Telus when
the share priced turned down. In hindsight (which as they say is always 20/20,
that is true). On this Site we are fundamental analysts, we take our cue from
the earnings and the fundamentals, not from what other investors are doing.
Sometimes we will be wrong. But on average we have a good track record using a
fundamental approach.


December 2, 2007


Recent market events once again illustrate how very unpredictable the market
is in the short term. At the start of last week it was looking like a number of
huge U.S. banks were facing severe problems related to sub-prime loans. And it
looked like this would take a natural course that would get worse. House prices
would fall causing more and more people to default on loans. It was also not
clear that the Fed could lower rates given the low U.S. dollar. But later in the
week there was a firm expectation that the U.S. government will have some kind
of bail-out for mortgage borrowers facing sharp increases in interest rates
(their initial rates were below-market teaser rates). Apparently the Fed is also
prepared to lower rates.


This has helped and may continue to help markets. But it all seems very
dangerous. The U.S. government seems to be supporting a system where a housing
price bubble is allowed to form, but they try to prevent the bursting. It is
unrealistic to think that house prices and stock prices must only be allowed to
ratchet upward and never down. Attempts to delay natural corrections will likely
end badly. It may be okay to ride stocks higher for a while but most investors
may want to consider having cash available to take advantage of an eventual
deeper correction in stocks (probably linked to a fall in U.S. house prices /


December 1, 2007


Walgreens is updated and rated Buy at $38.74.
Based on its achieved earnings and growth and valuation, it looks like a
definite Buy. This company is well respected as a long-term strong performer.
However, it has announced that earnings growth is expected to slow somewhat.
Consequently the share price did drop significantly. It appears to be a good
investment but patience could be required as the share price has been trending
down. We analyzed it at $38.4 but it dropped to $36.59 as of Friday.


November 28, 2007


Don’t Just Do Something! Stand There! 


This usual strategy would have worked out well as a way to react to Monday’s
sell off. Those who did nothing saw Monday’s losses reversed and then some. It
seems the rebound is mostly based on the expectation of lower U.S. interest
rates. This continued wild action illustrates the fact hat no one ever knows
where markets are headed in the short term. But I remain cautious on markets
given the huge write-offs related to sub-prime loans and given U.S. housing
prices that continue to fall. As always as strategy of “just standing there”
will likely work out well in the long run, but at the expense of significant
declines from time to time. With a weaker economy my belief is that there is
significant risk of market declines in the next six months or so.


Telus may fall tomorrow on the news that some spectrum will be auctioned to
new players. But overall this is still an industry largely protected from
competition (U.S. telcos, banned from Canada). It’s not clear that any new
competitor would have much impact. Perhaps of more risk to Telus is its ability
sustain its historic growth. Telus will likely forecast its outlook in December
and that may be the next possible catalyst for the stock to rise, if that
forecast is strong.


Nov. 27, 2007


It has been some time since we updated TSX Group. We lat rated it a
wspeculative Buy at $43.74. We mentioned under Aug. 14 that it is facing more
competition. Recently a small competitor called Pure Trading has gotten up an
running. TSX Group closed at $49.10 today. I hold some and I am planning to sell
it tomorrow. It has continued to report strong profits and volume as competition
so far has been minimal. For the purposes of the Model Portfolio Iwill
notionally sell half the TSX at the opening price tomorrow..


It was yet another “interesting” day in the markets. My sense is that markets
are more likely headed down than up, givemn more bad news from the banking


It seems this may be the time when we all realize that the phrase “off
balance sheet liability” should have been an obvious red flag. By definition,
liabilities belong ON balance sheets.


The one pattern that seem s to keep repeating this year whether for huge
banks or for the companies on this Site is that almost every small sign of lower
profits, lower sales or other bad news somehow seems to get worse rather than


Regarding Kingsway, they had promised on
the conference call that they would be buying back stock in the period before
year end (i.e. now) having been blacked out of that previously due to pending
earnings release or due to other inside information. But checking today I see
one insider sold about 15,000 shares in the last week at about $16 to hold about
7,000 (and he may not be done selling yet).  Another insider bought 260
also at about $16 to hold 5,660. There was no report of any share buy-backs,
although I believe that their habit in the past was to report those only
monthly. The insider sale here is a worry. The shares do look cheap and are
under book value so it is distressing that an insider would sell.  But then
again it is only one insider selling so it may just be that the person needed
money. Still it is a negative factor to consider.


A lot of stocks tend to look like bargains now. However, given he overall
trend of market to the downside, I would be inclined to hold on to any cash for
now and wait for possible better bargains ahead.


I f I did buy stocks now I would want to average in buying some now and then
waiting perhaps a month or two to consider buying more.


The problem is that some of the events in the credit markets are quite scary.
Credit truly has been the grease of the economy for decades and without that
grease it could slow considerably.


In a slowdown it might be the discretionary purchases that get hit first and
hardest. A person can put off buying a car, house furniture and new cloths. Also
restaurant meals are discretionary. But insurance bills, cable and telco bills
tend to get paid without cutting back unless things get really bad. If in fact
the general markets slide back noticeably however, it will tend to pull just
about everything down somewhat.


The one possible salvation is more interest rate cuts, that could help at
least temporarily. I tend to expect interest rate cuts in both the U.S. and
Canada by year end.


November 26, 2007


Stock markets continue to be highly volatile. It looks as if the sub-prime
problems could continue to get worse. And related to this, lower house prices in
the U.S. could lead to a recession there. Investors should always remember that
stock markets (i.e TSX index, DOW index) can at times decline in the range of
30% and very occasionally more than that. Most individual stocks can drop by
huge amounts on unexpected bad news. Investors accept this risk in return for
returns that are expected to be attractive in the long term. These situations
create stress but also create bargains. Investors who cannot accept the
volatility of stocks should reduce their exposure to stocks.


Stantec is updated and we rate it weak Buy at
$32.00 (We analysed it at $32 but it closed at 34.09 today). It has definitely
been  a great company.  If you believe in betting on a winner, it may
be a reasonable bet. However, at this time it appears that its growth could be
slower which would hurt the stock price.


November 24, 2007


Quebec has announced aid for manufacturers due to the high dollar. That
should help Bombardier (which we do not have on this Site) it may also help
Dalsa and Clemex (a company we used to have on this Site). If you hold these,
this might be a reason to continue holding. But with no figures announced for
any given company, this is not a reason to buy.


Reitmans (now $16.95) has not performed as
we expected since we rated it a Buy September 9 at $20.18. We did highlight in
our last update the unexplained 6% drop in August same store sales. Since then
we have had a massive increase in the value of the Canadian dollar. As mentioned
under September 20, we had thought that might help them as they would save on
inventory purchases given much of their product comes from the U.S. On the other
hand when prices in Canada started to come down they may have suffered due to
older high-cost inventory. Also the dramatic rise in the loonie above $1.00 U.S.
caused a wave of cross-border shopping that may have hurt Reitmans. In addition
we understand that the weather was unseasonably warm this Fall and that could
have hurt sales. On the other hand Stats Canada reported inflation in women’s
cloths in September and we though that might indicate that they were doing well.


Looking at insider trading, 3 insiders did exercise options and sell shares
in September and a fourth also sold shares. One insider bought shares in early
October at $19.15. This would not seem to particularly set off any alarm bells.
The company itself was buying back shares in September. For whatever reason, the
company did not buy back any shares in October. The recent stock price drop took
place in November and insiders would likely have been prevented from buying
then, because the end of the quarter had been reached, but the earnings not


The company will release earnings soon and we will know then how the weather
and the dollar has impacted it.


EGI Financial (property insurance) is
updated and rated Weak Sell at $14.00. Based on its reported earnings it looks
cheap. But a large portion of its earnings in the past two years came from
retroactive recognition of profiuts from prior years (reserve releases) and that
is not sustainable. For this year without the retroactive gains it is still
reasonably attractive. However, earnings in the property insurance segment have
been trending down. Overall we are inclined to sell this at this time. This
stock was rated Speculative (lower) Strong Buy at $9.90 the start of this year
and is up 41%. It is up 81% since being added to this Site as a Speculative
(higher) Buy in September 2006 at $7.75. So, the stock has done better than we
expected but it is probably time to move on.


For purposes of the Model Portfolio we had sold half the EGI on Aug 21 at
$11.75. And I sold muy own position September 7 at $12.49 as mentioned on those
dates. At this time we will notionally sell the rest of the EGI from the Model
Portfolio at he opening price on Monday. Note that these shares are thinly
traded. Therefore I would not use a market order. One possibility is to place an
order now to sell at say $13.75 and you would then get the higher of $13.75 or
the opening price on Monday. But if the opening price is lower than $13.75 your
shares would not sell, so you could consider placing the order somewhat lower
than $13.75. If placing an order during the trading day you probably would want
to take the offered price rather than trying to get cute and trying to get say
the last price traded at.


November 23, 2007


Our Performance for 2007 is updated. In 2007
it looks like our performance may, for the first time, trail the market.


In my own portfolio I have a large exposure to Tim Hortons. I sold some of
that today and hope to buy back in if it drops to about $36.


Loblaw Companies Limited is updated and rated
Weak Sell at $33.30. Our last update called it Weak Sell/ hold at $45.15 so we
were on the right track but not pessimistic enough. We wanted to keep an eye on
this because it could show a big rebound in share price if it can get back on
track. It’s really quite shocking what has happened to Loblaw. For over 20 years
prior to 2005, this company reported amazing and steady earnings growth. It had
a premium P/E multiple. The ROE was high. It was considered to be perhaps the
best managed grocer in North America. At that time it was thriving despite the
competition from Costco, Sobeys and others.


But since 2005 it has had special charge after special charge. A major
project to consolidate distribution centers was totally botched and left the
shelves short of stock! (for a couple of years it seems!). The 30-something son
of the controlling owner was installed as president. What was left of the
talented senior management group that had done so well historically, decamped.
Junior has decided on a low price strategy and seems bent on forcing costs down
accordingly one thousand people are being let go in head office (which seems a
strange step in a company that is apparently flailing operationally). In the
last 12 months its profits have been about 1% of sales. To me it would seem
logical to simply raise prices by a measly 2 or 3% which would at least double
the profit, even after tax. I would have thought a focus on quality and perhaps
offering Aeroplan points to gain loyalty would be in order. To me low prices
gain no loyalty since you only get customers only at the expense of too-low
profits. Also if not already in place they need to insure an entrepreneurial
structure where store managers share in profits.


Maybe they are simply the victims of too much competition, but then again
their competitors I believe are still doing very well.


At this point the share price will likely languish unless junior is ousted,
the real estate is sold and leased back, or the whole company is sold. We will
continue to keep an eye on it for signs of life.


Western Financial Group is updated
and rated Speculative Buy at $5.54. It appears that this company will continue
to grow solidly over the years. However, there is certainly a risk of a
pull-back in the share price due to loan losses, a slow down in the economy or
even just because financials in general are viewed as more risky at this time.


I have done some edits on our
Special Report on Asset
Allocation in Retirement  (This report is listed in the links for
members above).  After listening for many years to claims that a balanced
asset allocation was best (which was hard to believe given that over the long
run stocks tend to way outperform bonds and cash) I obtained actual past data
and did graphs to show the result of different exposures to stocks versus bonds
and cash. I believe that these are very important articles. They do show that
going 100% in stocks exposes one to occasion huge losses of capital but that it
tends to be worth it in the end. I find that looking at this article and the
graphs therein can cause me to be more comfortable with taking the risk of
losses. It adds to my confidence that equity markets do tend to come back and
outperform in the end.


November 22, 2006


When markets decline it is easy to doubt the wisdom of being in stocks. If an
investor cannot handle significant losses on the equity portion of their
portfolio then that investor should not be in equities. Past data suggest that
the investor who learns to tolerate the occasional large losses that are on
average associated with equities will be rewarded in the long run. Our
Special Report on
Asset Allocation During the Savings Phase may help to calm some nerves. This
article is in the list above.


November 21, 2007


Obviously stocks are not doing well lately. It is always very difficult to
guess where markets will go in the short term. At the moment the trend appears
to be to continue down and this is driven largely by the increasing concern over
sub-prime mortgages and related banking issues, by concerns over lower house
prices and concerns about a U.S. recession. It’s always difficult to say to what
extent this is already “priced in” to the market. At any time there could be
good news such as particularly an interest rate cut that could drive markets.


This has been a tough year with an awful lot happening in the markets. A
subscriber emailed me indicated some frustration in being able to follow this


This is a good time to remind all subscribers to review the short
article on how to use this Site.
There is also a link to that article at the top of this page.


Subscriber feedback is welcome at


For most of this year I have indicated that I am defensive and cautious on
the overall markets markets. Several times this year the market seemed to defy
gravity by coming back to about its previous high and at that point it looked
like being cautious was not the right strategy. But after each rally, we have
again see a market dip. Therefore as of right now, the cautious strategy seems
to be vindicated.


The level of cautiousness is another word for how much risk to take. This is
a very individual decision because it varies greatly by age and a host of other
factors as discussed in the articles section of this Site.


Clearly stocks are better bargains now than they were a few weeks ago. It may
be time to do some bargain hunting. An investor with cash could go into the
market gradually, perhaps planning to invest an equal amount over each of the
next six months.


A number of stocks on this Site have declined and may be attractive. I prefer
to buy those that have been updated more recently including Kingsway, Telus, and
ING Canada. Although not updated very recently I believe that Canadian Western
Bank  Canadian Tire, Shaw and Western Financial Group are attractive.
However, with stocks generally trending down, and with financial stocks coming
under particular pressure, there certainly are no guarantees.


I am tempted to do some bargain shopping but I will be hanging on to most of
my cash in order to have cash avaialble if the markets decline further.


A subscriber asked me to comment on the
Model Portfolio and I have made an updated comment there.


November 20, 2007


Alimentation Couche-Tard came out with earnings today around noon. Earnings
were down from last year but they indicated that this was because gasoline
margins were abnormally high last year and they claim that on an adjusted basis
earnings were actually up. Certainly the higher Canadian dollar hurts the value
of the earnings once translated back to Canadian dollars. We intend to have this
report updated by Sunday.


News about sub-prime loans continues to be a threat to markets especially
since it tends to feed into predictions of a recession in the U.S. This
continues to be a reason to be cautious in the markets at this time. The percent
of a portfolio allocated to stocks is a very personal decision depending on
numerous factors. Personally I am 35% in cash, 65% in stocks whereas
historically I have been close to 100% in stocks.


Shaw communications looks more attractive now after declining back under $24.
The P/E on it does not look cheap but its earnings have grown steadily as its
revenues grow and its costs do not grow as fast as the revenue. If this can keep
up as more people switch to digital cable then Shaw should do well. In this
market environment it seems best to average in, buying stocks gradually rather
than all at once if possible.


November 19. 2007


A bad day on the markets. But on the bright side for those with cash stocks
are cheaper now. Markets could certainly go lower, no one really knows. If we
can own good profitable companies at reasonable price/earnings or price/book
ratios we will do well in the end.


I added to my Kingsway and my Western Financial positions today.


As the Canadian dollar backs off, my strategy that I followed of buying
gradually on the way up is looking good. As it hit $1.10 it felt like I should
have waited and not bought at 95 cents and 98 and $1.02 and $1.05 etc. But now
that strategy looks okay. I probably should have bought more U.S. dollars as the
Canadian dollar fell back to $1.08 then $1.06. But it is just hard to do that.
Logically I see nothing wrong (and a lot right) with buying U.S. dollars at
$1.01 or 99 cents etc, since barring the last couple of weeks that is still a
30-year bargain. Emotionally though I guess I now prefer to wait and see if we
get back to $1.05 or higher. In any event I also have already converted a
reasonable amount of cash to U.S. dollars.


November 18, 2007


I have entered the data for the Western Financial Group Q3 report but not yet
completed the report. It had a good quarter with good internal growth.  And
it continues to have a good strategy of growth by acquisition. It’s not clearly
bargain priced, but with all the trends moving favorably, it will likely be a
good investment over the medium to longer term. I may add modestly to my
position in this. I do worry that eventually it could face some credit losses in
its banking operation but there appears to be no sign of that yet. One
interesting fact is that it reports EPS unchanged year over year at 4 cents
diluted and 5 cents basic. But is proper significant digits are used the growth
was 19% in diluted EPS and 15% in basic EPS and that is a lot better than the
zero that they show. ROE has also increased and is now 10.6%, not high but the
trend is very good. If it were not for share issues the growth in earnings per
share would be a LOT more. If it ever gets to the point where it does not need
to keep issuing shares, we may see accelerated growth. In some ways it is
following a similar path as Canadian Western Bank which started out with low ROE
and it eventually grew quite nicely and also CWB at one time was increasing its
share count very quickly but that has stopped increasing so fast and I am hoping
WES is on the same path.


I took a quick look at Loblaw Q3 report. At this lower price of around $35
it might be worth sticking a speculative toe into it but overall it looks like
the any turn-around in profits is not imminent.


Home Capital
is updated and rated
Speculative (lower) Buy at $40. We last rated this Speculative (lower) Strong
Buy on August 28 at $34.30 and it has risen nicely since then. We had first
introduced this stock to the site as a Buy on April 26, 2002 at $7.43. Right now
it is a tough one to call. The value ratios would indicate a Strong Buy. But we
are worried about a possible recession in Ontario with the high dollar and we
worry that the sub-prime mortgage issues could have some impact on the company.
Although we are cautious with our rating at this time, it could certainly be
bought as a speculative pick.


November 17, 2007


Performance figures for 2007 are updated.
The model portfolio’s performance is
also updated. My own portfolio is updated. It
can be seen that I am personally way over-weight in “dollars and donuts”. (cash,
financials and Tim Hortons)


I added to my Kingsway position on
Friday. It has been quite disappointing. However, it is now trading at just 88%
of book value. Book value is determined by the estimated actuarial value of the
claims liabilities. In theory book value is under-stated somewhat (making it
even more attractive) because management chooses not to discount the liability
for the time value of money. Lately it has had a history of having to restate
upwards its liabilities for past periods related to its largest U.S. subsidiary,
and that is bad. But it had a similar problem in Canada a few years ago and that
was eventually solved. It’s earnings in any one quarter or year are highly
unpredictable and almost meaningless by nature. What matters is the earnings
over long periods of time. It has a reasonable record in that regard. For
property insurance stocks the most reliable indicator may be price to book value
(Fairfax financial turned out to be a great investment when it was looking ugly
and traded under book value, ING Canada turned out to be a bad investment when
it was reporting exceptionally strong ROEs over 25% and was trading at about
250% of book value). Kingsway at the moment has not proven itself to be a great
company at all and in fact appears mediocre.  Also the company basically
promised on the conference call that it was going to start to buy back
meaningful amounts of its shares before year-end. Overall it it does look like a
good bargain here but is not for the faint of heart or the risk averse


November 15, 2007


Markets were down today, but our Picks are holding up better than average.
Tim Hortons has been particularly kind to me as my largest holding. For those
not holding it, I think it is still okay to average in at this price. Sure, it
could dip, but it’s a keeper for the long run.


Loblaws reported and it was ugly. The stock got hammered today. It’s stunning
how this star has fallen from grace. It traditionally did sport a very high P/E
and so there was room to stumble, but they seem to be falling down drunk! Can we
bring back Richard Currie?


I still think at some point this will be a bargain and that time may be now.
(I will take a look at the financials in the next few days). . At some point the
buy-out funds will pressure them because this could be bought and then the real
estate sold and leased back. The Weston family may not want to sell, especially
at this price, but a take-over offer, might at least spark some action. I guess
jr. Weston was not kidding when he said the turn-around would take a couple


November 14, 2007


If you looking at a rating in the table above please remember that the
ratings are as at the particular point in time as stated above the table. Prices
change fast in the market and so if the price has moved much you should consider
whether the rating still applies. It’s not possible for us to keep updating the
rating for each price movement or new information.  It’s hard to give
guidance here, but for most stocks if the price has moved 10% then that could
easily affect the rating if we were to update. Also occasionally things in the
market change. Recently the sharp jump in the Canadian dollar has had impacts on
various stocks and I have posted comments below.


 I think the best way to use this Site would be to consider making use
of our ratings soon after our report date. Unlike many people I don’t
particularly believe in rushing when it comes to stocks. There is always another
buying opportunity to come. If you want to follow our Buys and Strong Buys
(always at your own risk, and after reading and agreeing with the detailed
report,  and always with you considering your own risk tolerance) it
probably makes sense to do so close to the time of new ratings or when we make
an updated comment in the daily comments or we indicate we have traded the


You can search the daily comments using the search capabilities of your
internet browser (control-F for most computers). It may make sense to search
back for comments made after the date of each rating above.


A subscriber questioned whether the Couche-Tard rating of (lower) Strong Buy
at $21.70 as of September 3 is still valid, given that I personally just reduced
my position and the stock is around $19. It’s a fair question. I have been
mentioning below that this company will be hurt by our higher Canadian dollar as
most of the operations are in the U.S. The dollar is up a lot since September 3
(95 cents at that time). Then again the stock price is down a similar amount.
The two may offset and maybe the rating would still apply today, but I think I
would quite possibly rate it a little lower due to the currency.


I was thinking that the when earnings come out, they may look good in U.S.
currency but then when translated back into Canadian dollars it might look bad.
I just decided to sell some but not all. Another reason I sold is my general
bias right now to raise cash. I had bought several stocks on Monday as reported
below and was looking to raise a bit of cash.


It’s unavoidable that in my own trading , emotion and fear tends to come into
the picture, whereas in a  stock rating I can be more logical and
unemotional. A stock may be rated Strong Buy, but every stock has a certain
amount of risk and at times I may sell a Buy rated stock to reduce risk.


Today’s rise in ING Canada may be
indicative that it was at bargain levels which our rating suggests.
Kingsway is supposed to be starting a
buy-back program and this could lift the stock, though in the past they have
said they would buy and then ended up not but they say that was because they
were in a black out period such as when they are looking at an acquisition. I am
tempted to add to my Shaw
Communications position given its price drop.


The Canadian dollar is sinking now. It now starts to seem like it would have
been a good bet to load up on U.S. dollars when the Canadian dollar was up above
$1.08. I wonder how many people caught the very top? I am comfortable with my
own strategy which was to buy gradually as the dollar rose. I switched some
money to U.S. funds and I  consider that money to be permanently in U.S.
dollars. There are a lot of investments and other things to buy with U.S.
dollars. I probably should have switched even more, but I am comfortable to go
slow. We may see another chance to get  above $1.05 and perhaps even above
$1.10 but I don’t think we can count on that.


November 13, 2007


There is never a dull day in the markets lately. On some glimmers of good
news today the market fairly soared in the U.S.


Regarding the insurance stocks that I follow, I guess I have good news and
bad news (depending how you look at it) which is that they are cheaper yet again
today. With these stocks if you are buying, it seems best to average in.


I did trim my Couche-Tard position today. That may not have been a wise move
since we had rated in very highly on September 3, and the stock is down since
then. (So normally I would look to add rather than trim) But most of its
earnings are from the U.S. and the price drop since early September does not
match the dramatic increase in the Canadian dollar since that time. When it
reports earnings next week it may look good since it reports in U.S. dollars,
but the translation back to Canadian dollars will look disappointing I think. So
I just thought I would sell some and hope to buy back in after the earnings
release and as the market digests the harm that the high Canadian dollar has
caused. Normally I would not be jumping in and out but I find these $10 dollar
trades make it so easy to jump in and out particularly in an RRSP account.


Nov 12 2007 (the following was sent to subscribers via email)


You may have heard that the Canadian dollar fell back to $1.03 today. It goes
to show just when everyone is convinced a market can only move in one direction,
it turns around and surprises most people. Most investors I think should be
taking the opportunity to move some Canadian funds into U.S. dollars. No ones if
we now slip back under $1.00 or instead it goes back to $1.10


Cognos, which we last called a Speculative Buy at CAN $42.48 is being taken
over at U.S. $58. Over the years this stock has often looked expensive, though
we have long stated that its accounting may be conservative and that there might
be hidden value in all that R&D expensed over the years.


Cognos was one of the first stocks ever rated on this Site when we called it
a Strong Speculative Buy at $15.83 in June 1999.


Nov 12, 2007


Based on the recent updated ratings, I added modestly to my positions in
Telus, Kingsway, ING Canada and Northbridge. I still have a bias to keeping cash
for possible bargains ahead but still wanted to nibble at what looked like good


I am tempted to trim my positions in Western Financial Group on fears of a
slow-down in Western Canada and in Couche-Tard on fears of how hard the high
Canadian dollar will hurt it as it translates back earnings from the U.S. But so
far I have not taken any action on these. I have basically no exposures above
about 4.5% of my portfolio (most are blow 4%). Therefore I am less nervous about
dips in any individual name. I do have 14% of my portfolio in Tim Hortons.
Certainly I am vulnerable to volatility there, but I am comfortable to accept
the volatility because I am confident it will do well in the long run. (In fact
I had been hoping for a dip to below $35 to add to my position, but it does not
look like that is going to happen).


November 11, 2007


Note that in many of the recent updates the cell that is supposed to give the
summary of the rating and a summary of the reasons for the rating was missing.
This has been corrected.


Kingsway Financial (trucking and
high-risk driver insurance) is updated and rated Speculative (lower) Strong Buy
at $16.69. This stock has not been a happy story for us. It has now fallen back
precisely to the price it was at on June 17, 2003 when we first added it to this
Site as a Speculative (lower) Strong Buy. Subsequently the price has ranged all
the way from about $11 to as high as about $26. The recent fall is caused by
three main reasons. 1. After several years of very high insurance industry
profits. the industry in general is now displaying lower profits. 2. About 70%
of the business in in the U.S. (although it is head-quartered in Canada) and the
high Canadian dollar hurts the Canadian share price. and 3. It has a nasty habit
of reporting retroactive losses from other years. Even though reported profits
have still been good despite the retroactive losses, the market HATES this and
figures more bad news could be coming. 


So, it’s hard to now get excited about investing in Kingsway. But the fact is
that the stock looks very cheap right now. It is rare to see profitable
companies trade below book value. However, this may be a case of buying a
mediocre company at an attractive price (maybe even very attractive price). But
Warren Buffett has said he prefers a great company at a fair price, rather than
a mediocre one at a great price. Overall based on the valuation, I will likely
add to my position in this stock.


ING Canada (Home, auto and commercial
insurance) is updated and rated (higher) Buy at $38.60. Over the past few years
when we analysed ING Canada it has always been extremely profitable on reported
earnings. Although we rated it in the Buy range we had expected earnings to
decline from recent extraordinary levels. And we had noted that the high price
to book value was a risk. Now the earnings have come down and the market seems
to be “spooked” by this which is surprising given that the company predicted
profits would come down. At recent prices ING looks like a good long term
investment. The short-term as always is much more difficult to judge. I am
inclined to add to my position in this company.


GAAP earnings for insurance companies are best looked at over the long term.
Quarter by quarter and year by year the earnings by nature tend to be extremely
lumpy and therefore difficult to interpret.


A point of interest in the Q3 report for ING Canada is that they wrote off
$40 million of a $70 million exposure to Asset Backed Commercial Paper. That is
a much higher percentage write-off than others have taken. The difference here
is that they did not invest in Asset Backed Commercial Paper. Instead they
actually invested in (I believe the subordinated debt of) two of the “conduits”
that sell the commercial paper. Those conduits are clearly at risk of being
worthless. The conduits will have to make good on any losses in ABCP suffered by
the note buyers. That could use up all the equity in the conduit and next the
subordinated debt is at risk of being used up (made worthless) and then the
senior dent of the conduit. After that the conduit would be worthless and the
ABCP note holders will suffer the loss. I will go on record here as predicting
that the remaining $30 million of their investment could be written off. Overall
though this is not a big deal for ING Canada which has over $7 billion in
investments and $3.2 billion in shareholder equity.


The Asset Backed Commercial Paper situation in Canada is really quite
remarkable. Many conduits are in default on repaying 90-day term investments.
They normally repay these by issuing new 90 day notes. (The equivalent of paying
off a floating interest mortgage every 90 days by taking out a brand new
floating rate mortgage). Recently the conduits found no one wanted to buy their
90 day notes and they are in default. In normal circumstances they should be
forced into liquidation. Bizarrely some big institutional investors have agreed
to hold off on forcing the conduits into liquidation and instead may accept
longer term notes. (If you loan someone money for 90 days and they can’t pay,
why should you then agree that they don’t have to pay for say two years?). It
seems possible that small investors could also force the conduits into
liquidation. Perhaps the current approach is best because in liquidation, the
conduits will have to sell off assets perhaps a fire sale prices and ABCP
investors may lose money. This is a strange situation and not how markets should


If you hold any Asset Backed Commercial Paper investments that are stuck in
this mess then you probably had help and advise from a broker or financial
advisor. You may want to suggest to your broker or Advisor  that you want
your money NOW. I predict advisors are going to have make clients whole in some
cases. That may then lead to liability insurance claims by the brokers. It may
or may not be fair for brokers and advisors to face any liability. Investors are
supposed to know all investments are risky. It seems the entire market mis-judged
the risks on these ABCP notes.


If you bought ABCP (the kind that is now frozen) completely on your own in a
discount account then you may ultimately face a loss. And I can’t think of much
you can do about that. You may want to harass the entity that issued the notes
and try to be first in line for  any redemptions. A discount broker almost
certainly has no liability to you in this case.


Another category would be mutual funds that invested in these notes. In this
case the mutual fund company may pay money in to offset investor losses. But
that would only work where the losses were small compared to the value of the
mutual fund company. If a mutual fund has a lot of these notes then the
investors in the mutual fund could face losses.


November 10, 2007


Telus is updated and remains rated
(lower) Strong Buy at Canadian $50.98, for the non-voting shares. The price has
fallen lately while earnings remain strong. The market seems concerned about
higher competition and lower growth. Based on the achieved numbers Telus looks
like a good investment. I am not sure if I will add to my own position because
overall I am inclined to hold onto cash in casee the overall market declines


Markets took a hit this week. No one should claim to be surprised by that.
The bigger surprise all year was the strength in markets in spite of the risks
from sub-prime loans, falling American home prices, potential U.S. recession,
the sheer five year length of the current bull market, and the inescapable fact
that markets have always been known to be volatile. They seldom go up in
straight lines.


Most of this year it was tempting to be bearish or at least defensive.
However, that seemed a losing strategy most of the year as the markets regained
ground time and again after each decline.


My own strategy (as chronicled on this Site was to move towards cash on
several occasions this year. Most recently I have been at about 37% cash for a
number of weeks. I also indicated I was still in more of a selling mood than a
buying mood. But I tended to ‘like” the individual stocks I was holding and so I
stopped selling. At the moment it feels like I should have gone to a higher cash
position. But sentiment can turn quickly. Over the long run it pays to have
exposure to stocks. I am not too fussed about declines in stocks that I think
are good bets to be higher in the medium to long term.


In the short term the declines of this week could certainly continue. I don’t
see much reason for a rally. As I mentioned previously earnings on the S&P 500
declined on a year-over-year basis in Q3 and this is the first such decline in
several years.


In fact on a GAAP basis the S&P 500 earnings declined a frightful 27% in Q3
year-over-year (Thanks to GM’s huge write-off and the huge write-offs at big
U.S. financial institutions). Even on an “operating earnings” basis which
excludes some one-time items these earnings dropped 5%.  In general, it is
expectations of profit growth that drives stocks higher. If the market starts to
sense that earnings will decline in 2008, then certainly the U.S. market will


The Canadian market is always much harder to predict due to its high
weighting in commodity stocks.


So, certainly investors should be cautious at this time. In any market
bargains will appear and I will be watching to find some of those.


In my recent new article on the Canadian
Economy I expressed surprise at finding that the energy industry accounted
for only 4.7% of Canada’s GDP in 2006 despite accounting for 36% of the TSX
market value. I came across an article by CIBC’s Jeffery Rubin that confirms
this. He said oil and gas is ten times more important to the TSX than it is to
the GDP figure.


The reason for this is that almost all of the oil and gas industry is listed
on the TSX. Even where U.S. and world companies own oil and as operations in
Canada they have tended to so so through Canadian subsidiaries that do trade on
the TSX. Meanwhile, huge swaths of the Canadian economy such as government and
all private businesses do not trade on the TSX. Canada’s auto industry is mostly
ran by foreign companies that do not trade on the TSX.


Manufacturing is a big part of GDP, and a huge component of exports,
but a tiny component of the TSX. This may be one reason why manufacturing
company woes (due to the high dollar) are not getting that much attention. When
the oil and gas industry was hurt by the Income Trust taxation decision the
wailing that was heard was not that of the employees in these companies but was
that of investors. Manufacturing has few investors to wail for it, therefore the
sector may be half dead from the high dollar before it gets any attention.
(Long-time readers know I am generally in favor of free markets, let the chips
fall where they may. But I just want to point out that a Canadian dollar above
the U.S. dollar will almost surely decimate the manufacturing industry in this
Country and therefore I think government is likely to take action to reduce the
dollar’s level at some point).


In my article and recent newsletter I also indicated Canadian exports would
drop and imports rise. Figures just out for September confirm this. Perhaps
within a couple of months Canada will be into a trade deficit after years and
years of surplus.


November 8, 2007


A couple of days ago, I mentioned you are now able to subscribe for three
years, five years or even a lifetime. The lifetime option is rather unusual,
although some other newsletters do offer it. So far there has not been much
interest and I may remove the lifetime option very shortly. I’m certainly more
than happy to have you as a monthly or annual subscriber, but I wanted to offer
these other options to anyone interested.


New Longer term subscription Offer. Some subscribers have asked me
about longer term subscriptions. The following link will allow you to subscribe
for three years, five years or even a lifetime. If you take any of these options
I will refund the unexpired part of your current subscription.


Click to see how these longer term
subscription options work.


The market ended okay today after being down a noticeable amount earlier in
the day. There is some fear around and it seems sure that more bad news is
coming in regard to sub-prime loans and related matters.


Banks with their thin equity ratios are finely tuned instruments. When they
do occasionally lose money it can get ugly because of the leverage. Overall I am
not inclined to go bargain hunting just yet.


In the midst of all this market uncertainty, the incomparable Warren Buffett
is having a magnificent year. His Berkshire stock is up a tidy 22.3% this year
to date. Now Buffett still held about $50 billion in shares at the start of this
year after having given away about $2 billion in 2006, the first year of his
20-year mega-donation to charity plan. So clever, Warren often described as
yesterday’s man is up 22% on about $50 billion, which is over a $10 billion
gain, which is beyond eye-popping. After giving away about $4 billion to charity
in the past two years, his wealth in Berkshire shares has gone from about $44
billion to now $59 billion, and he may possibly have passed Bill Gates as the
richest American. (Berkshire share are up an incredible 46% since he announced
his donation in June 2006).


I plan to soon update and edit some of the articles on this Site regarding
how Buffett does things.


November 7, 2007


I can’t say I was surprised at the tumble in the markets today. I have been
defensive to somewhat bearish most of this year which was why I took my cash
position from near-zero to 37%. I am not ready to start buying yet and will wait
to see if further bargains emerge.


ING Canada took a big hit today. I think this is over-done .The company is
still very profitable. Given the current market I am not ready to buy yet, but
if I was starting fresh with a portfolio to invest then this is one I would
likely buy.


The Canadian dollar finally took a breather today. A report by the conference
Board indicates the auto parts industry profits will be hurt by the high dollar.
I suppose they know a lot more about the industry than I do, but margins on
parts sent to the U.S. would presumably have been crushed by the rise from 85
cents to $1.08, not to mention the earlier rise from the 70 cent level. Margins
on parts sold in Canada would be largely unaffected, unless there are competing
parts available from the U.S. and unless the car plants shut down. I don’t claim
to know much about the auto industry but if a Canadian plant was not obscenely
profitable at an 80 cents dollar, it’s hard to imagine it is making any money at
a $1.07 dollar. Basically the more Canadian labor and material content in a car
the less competitive that car is right now compared to where it was at a lower


I suspect the cross border traffic this coming Holiday weekend will be a
to behold.


I am all in favor of free markets, and cross border shopping, but I do see
this as very devastating for the Canadian economy. Canada gets certain benefits
out of having a currency that floats against the U.S. But it certainly gets
certain ill effects as well. Europe adopted a single currency and Canada really
needs to think about first pegging the Canadian dollar to the U.S. and then
probably eventually adopting the U.S. dollar. Apologies to anyone who thinks
that is unpatriotic, but I think this would be best for the Country. Many will
say, why chain ourselves to a sinking stone like the U.S. dollar? I just think
we are already chained to the U.S. and may as well admit it. I don’t think this
country can afford a currency that rises 50% plus compared to the U.S. given we
trade so massively with the U.S.


And, how much has a lower dollar hurt the average U.S. resident? Somewhat
less than the impact the average Canadian felt when the Canadian dollar dropped
to 62 cents, which is to say not much at all. A change in currency value matters
little to an American. The biggest impact is higher gasoline prices.


November 6, 2007


The Canadian dollar continued to “gap” upwards today at unprecedented rates.
The Bank of Canada apparently is not ready yet to step in to halt the rise. I
really don’t think the Canadian economy can sustain this sharp rise without
literally hundreds of thousands of job losses.


Last night CBC National news showed that there was gridlock at the Peace
Bridge crossing back into Canada on Sunday as hordes of Canadian cross-border
shoppers tried to return home. They mentioned 65 tour busses full of shoppers.
An awful lot of Canadians live within driving distance of the U.S. and I suspect
a lot will do their Christmas shopping across the border. I welcome your
thoughts and observations on this at



To date, I think Canadian retailers or wholesalers have been scooping higher
profits on imported products. Now they may be forced to sell at U.S. prices due
to so many shoppers going to the U.S.


I have continued to move some funds slowly into U.S. dollars. So far it has
been a losing strategy. But at some point when the Canadian dollar starts to
slide back, I will have U.S. dollars. If I tried to wait for the peak, I might
miss it.


The low U.S. dollar is not hurting the average resident of the U.S. because
the U.S. mostly trades within its own borders. It does hurt a bit in terms of
oil and gasoline prices, but overall the impact is small. Inflation remains low
in the U.S. There is no sign that the U.S. will move to halt the slide in its


Manulife came out with earnings today. I have only glanced at the report but
I did see that their sales increases were eye-popping. The high Canadian dollar
continues not to hurt them very much (which surprises me). I plan to update the
Manulife report by Sunday.


New Longer term subscription Offer. Some subscribers have asked me
about longer term subscriptions. The following link will allow you to subscribe
for three years, five years or even a lifetime. If you take this option and
I will refund the unexpired part of your current subscription. If you
take one of the longer term options I will also cancel your existing
subscription in PayPal where applicable.


Click to see how these longer term
subscription options work. I plan to offer this longer term option for only
a limited time depending on response.


November 5, 2007


Today’s news regarding CitiGroup reinforces my perception that it continues
to be a time for caution.


If anyone has basically first-hand knowledge of Canadian companies that are
being hurt by the high dollar I am interested in hearing about it at



November 4, 2007


Northbridge Financial (commercial
property and casualty insurer) is updated and rate Buy at $36.52. It released
what appeared to be very strong earnings for Q3. However insurance company
earnings are typically affected by unusual gains (so frequently that unusual
items are in fact usual). It seems well managed and with a Price to Book ratio
of 1.38 combined with a longer term ROE historically above 15% it is probably a
good long term buy.


The share price can be moderately volatile. The shares are up nicely since we
rated it a (higher) Buy August 4 at $33.52. And it is up 82% since we introduced
it to this Site almost four years ago on December 5, 2003 rated (higher) Strong
Buy at $20.10.


November 3, 2007


I have really been surprised to see the Canadian dollar jump so high. as of
Friday it was gapping higher at an extreme rate. Some observers claim that
Canada’s economy can handle this, that manufacturing is no longer that


I looked up figures at Statistics Canada and it sure looks to me like
manufacturing is still very important. See our new article summarizing the
Canadian economy.


Based on how important manufacturing is, I believe a dollar above par
constitutes an economic emergency. You should have received our
emergency newsletter on this topic.


On the plus side, we are all a LOT richer in terms of what we can buy in the
United States. On the negative side “would the last one out of the Canadian
factory, please turn off the lights”. Lord knows they probably can’t afford the
power bill to keep any extra lights on!


November 2, 2007


MicroSoft is updated for its latest
earnings release and rated Buy at $37.16. It has jumped 25% since we last
updated it only 3 weeks ago when we rated it Buy at $29.77. It is a complex
company.  Given recent earnings performance  it is still rated Buy.


FedEx is updated and rated Weak Buy / Hold at
$102.43. The company has had some weaker earnings and has not been a good
investment over the past couple of years. It is down 9% since we added it this
Site about 1 year ago rated Buy.


Historically it has provided excellent returns over the longer term. Warren
Buffett suggests we invest in relatively simple companies with good or great
long term prospects, with competent trustworthy management and when available at
reasonable prices. FedEx may fit the bill in the long term going forward. But it
is forecasting little to no earnings growth this fiscal year (on an adjusted
basis). I am not going to buy a this time. If I held it I might sell to move
into something higher rated.


On a positive note they have said they expect this current quarter to be a
record in terms of volume moved and they have raised priced.


November 1, 2007


Today’s market dip reinforces my thought that it is a time to be cautious.


Northbridge Financial released earnings after the close today. At first
glance the earnings look very good. I do note that some of the earnings were
related to one-time events and no-doubt analysts will find a cloud around this
apparent silver lining.


I continued to move some cash into U.S. dollars.


Yesterday it was reported that there is so much on-line shopping going on
that Canada Post is falling behind in processing the parcels coming in from the
U.S. Chrysler has announced price cuts on its cars to compete with U.S. prices.
Wal-Mart is selling books and magazines at U.S. prices, as are some private book
stores and Chapter/Indigo I understand has cut prices a minimum 10%.  So,
some of the higher dollar benefits are flowing to consumers. Retailers who are
bringing in new inventory from the States and who are not sitting on old
high-cost inventory should do well. Retailers with older high-cost inventory may
have to sell at cost. Bombardier Recreational Products has been in the news
because it is becoming well know that “quads” and probably “sleds” are thousands
cheaper in the U.S. Also most of us have noticed that Canadian Tire was selling
a medium size “quad” for $4500 last summer and in fact had it on sale in June
for $3500. Good luck competing with that. (And next year the price will likely
be lower still). Bombardier Recreational Products is probably going to have to
help their dealers out by giving rebates on their inventory to get it sold.


At a 95 cent Canadian dollar I wondered how an auto plant in Canada made any
sense given that the car companies were not exactly reporting big profits even
when the dollar was 80 cents. At $1.05 it’s getting really hard to imagine how
it makes sense to make cars or parts in Ontario. Sorry, but I think the math is
clear there. (And the corporate income tax cuts will not help that situation
because they will no doubt be losing money and so income tax is not a problem).


October 31, 2007


A big day on the markets with the TSX up 313 points and the Dow up 138


The market is always hungry for good news. In Canada the market has now been
fed by announces tax reductions, higher oil prices and probably some spill over
from the U.S. interest rate cut. All this good news allows the market to forget
for the moment about lower earnings for some companies and the risks posed by
the high dollar and a possible U.S. recession/sub-prime/housing slump.


In the U.S. the market has been fed by lower interest rates and this allowed
it to forget about lower earnings for some companies and the risks posed by the
high dollar and a possible recession/sub-prime/housing slump.


So it’s nice to have all these gains but I have to think caution is still
warranted. I have to wonder what the markets can feed on next. Taking some
profits and positioning for any market correction is probably a good idea,
especially for those with very high equity exposures. Admittedly a 100% equity
strategy will do well in the long term, but except for younger investors just
starting out, that just does not feel like the right strategy right now.


Possibly in Canada the next feeding will consist of an interest rate cut to
stem the rise in the Canadian dollar. With that in mind I will likely move a
little more of my cash to U.S. dollars tomorrow. So far, hindsite says I
transferred money too early. But at some point if the dollar falls I will
already have some funds in the U.S. Those who wait for the very top could miss


I’m going to think again about the stocks I hold and that I have identifies
(below) as being hurt by a higher Canadian dollar. I may trim a bit more there.
For example with Kingsway I have liked the company but I was not factoring in a
25% increase in the Canadian dollar this year. (Kingsway reports in U.S. dollars
so on a reported earnings basis a higher Canadian dollar actually helps it. But
when converted back to a Canadian stock price. a higher Canadian dollar is
definitely negative for Kingsway. As I have said before, currency exposure
depends on where a company has its revenues and expenses. It does not depend on
where the stock is listed.


Ya can’t keep a good monopoly down?


The TSX Group which still has basically a monopoly on the Canadian stock
exchange business had yet another big earnings increase released today. The
stock had fallen on threats of a competitor to come in 2008. But now the market
has forgotten that threat for the moment and is focused on the good earnings
news. It’s really hard to say if there is any serious threat of competition


Heard about any hurricanes this year? I have not. This could be why Berkshire
Hathaway is doing so well.


October 30, 2007


Today’s tax reduction announcement should be good for stocks due to lower
corporate taxes (though in a competitive market the tax savings may get based on
the customers eventually) and due to higher consumer spending.


The big news tomorrow should be regarding the expected FED interest rate cut
of 25 basis points.


That and the tax cuts could drive the Canadian dollar still higher. I
transferred a little more cash to U.S. today and intend to transfer a little
more this week, no matter if the dollar is up or down.


The Case-Shiller index of home prices in the U.S. released today shows U.S.
house prices fell about 1% in August. More importantly U.S. consumer confidence
slipped about 4% in the latest survey.


An article in the current issue of Fortune magazine tells the story of how
bad some of the sub-prime mortgages are. Someone is going to lose a lot of money
on those mortgages and I suspect most of those losses have yet to be announced.


October 29, 2007


U.S. markets are maintaining a bullish trend driven mostly by the expectation
of an interest rate cut at the FED meeting on Wednesday. If interest rates are
not cut then I expect stocks would fall.


According to figures on the Standards and Poors Web Site at

http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS the S&P 500
earnings in Q3 are down slightly from Q2 and down compare to Q3 last year, but
so far this slightly negative earnings growth has not bothered the market.


I notice that Canadian Pacific took about a 15% write-down on some Asset
Backed Commercial Paper investments. Those investments are in default but the
big investors have agreed not to push the entities that issues these into
insolvency. This is a very strange situation. In some cases the under-lying
long-term assets are good, in others they are not good. I suspect that if this
is not resolved by year-end then the write-downs will have to be bigger.


My own results have been hurt by my somewhat cautious stance this year. But
with an equity exposure of just over 60% I have not been overly cautious and I
think it was a good decision to be somewhat cautious. We have seen a lot of
turmoil this year and may see more yet. It is now five full years since the
Canadian stock index bottomed out and markets simply do not tend to go up every
single year.


October 28, 2007


eBay is updated and rated Speculative Buy at
$36.72. This company is very complex, generally we prefer more simple


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figures for


This coming week on Tuesday October 30, the FED is expected to lower interest
rates yet again. To a large extent this may already be factored into stock
prices. But it could drive stocks up a little further. It could also drive the
Canadian dollar higher. But if that happens I would think that Canada might
decide to lower the dollar by cutting interest rates (which is good for stocks).
Meanwhile, I fear that certain Canadian companies (see comments below,
particularly September 20) will report lower earnings due to the high dollar, if
not in Q3 then in Q4 (where the dollar at and above par may apply for the full
quarter). I also fear that at any time further bad news will result from loan
losses in the U.S. and from lower house prices in the U.S.


Shaw Communications is updated
and rated Speculative Buy at $26.03. This company has been increasing its
revenues at strong rate. Earnings have been increasing at a very rapid rate but
from low levels. The company has some accounting complexities that may it
difficult to evaluate. On a P/E basis it looks expensive. But with earnings
recently rising very sharply and with a very strong insider buying signal, I
feel good about holding this stock. I intend to place an order to add to my
position if the price should fall to the $24.50 range. The reason I hesitate to
add at the current price is that I still wish to maintain a high cash balance in
case the stock market in general drops.


We also rated this stock Speculative Buy as at the start of 2007 and it is up
41% since then.


October 26, 2007


Tim Hortons
is updated and rated Buy at
CAN $36.05 or U.S. $37.35. This is clearly a great company. But it certainly is
not particularly cheap. To buy this is a case of paying up for quality. It may
be best to average in. It is possible that earnings will show strong growth in
the next 12 months as earnings growth has lagged revenue growth. After that I
believe it has a strong probability of growing at about 10% to 12% over the
years as it grows into the United States. It is also possible that it could move
into other countries. In Canada it is the largest “fast food” chain and has
easily competed with all the American chains. I see no reason that it cannot
compete successfully in the U.S. and even other countries. But I do think it
will take some years to establish itself in new markets.


If Tim Hortons happens to fall in price, that will not bother me much and I
would use the opportunity to add to my position.


In 1995, Wendy’s had bought the then-private Tim Hortons for about $600
million. Wendy’s wisely left Tim Hortons to grow and left the Tim’s management
in place. Today Tim Hortons has an equity value of $7.0 billion U.S. while
Wendy’s is only at $3.0 billion.  Ironically, Tim Hortons could now
probably buy Wendy’s if it wanted to.


October 25, 2007


Tim Hortons
will release earnings tomorrow
morning. (That’s unfair because the retail investor has no time to react, they
should release earnings after the Friday close – like Warren Buffett does –
which gives everyone a fair shot at reacting to the numbers. At least they don’t
commit the ultimate sin of releasing earnings during the trading day – as many
companies do – which surely should be illegal).


I expect the headline Tim Hortons earnings to be an increase because Q3 last
year was weak. But the important thing may be how it compares to expectations
which I understand are around 35 cents per share. I do expect some bad news from
the American operations since the high Canadian dollar will hurt that investment
– possibly even some write-down of the U.S. investment. But operationally in the
U.S. as far as sales I expect it to be okay and to improve slowly.


Alberta came out with the Royalty increase today. It seems the consensus is
that oil stocks, especially oil sands and especially those linked to Suncor and
Snycrude will decline tomorrow morning. My sense is that royalties did need to
increase for oil sands. I don’t know about the other sectors (conventional oil
and gas). The biggest concern is that the Premier seemed to be threatening to
take action unless they “agree” to “renegotiate” the favorable contracts that
run to 2016. That seems extremely bad and sends the message that the Alberta
government’s signature on a contract cannot be trusted. Sure, taxes and
royalties can increaser that is always a risk, but here they seem to be in
effect ripping up a contract. Some of the Premier’s answers displayed either a
deep mis-understanding of economics or that he is not being truthful.


It seems some of these stocks already went down (although Suncor was “only”
down 6%)  in after-hours trading. By the way what is this after hours crap?
If you and I can’t trade after hours why should others be allowed? This sounds
like legalized insider trading on a grand scale.


There may be some bargain opportunities in Canada tomorrow but I am not sure
that I will want to wade in until things settle down a bit.


In the U.S. markets we have the continuing worry about sub-prime related woes
that are pulling down on markets, while expectations of Fed rate cuts push it
up. This week the upward pressure seems to be at least equal to the down-ward
pull even in the face of some big financial write-downs. Lower interest rates
certainly are good for stocks (all else being equal). But if the financial loan
defaults get big enough then no amount of rate cutting can fix that. Possibly
wild actions such as the giovernement stepping in to guarantee loans would help.
But overall I remain cautious. The U.S. markets are probaly due for a pull-back
related to the financial issues and home prices.


In Canada CMHC (a government creature that surely should not exist in a free
market) has – with amazingly bad timing – now stepped in and said investors can
buy investment properties with nothing down and the banks will be protected by
adding the 7.5% fee to the mortgage. At least the banks are protected but in
that scenario maybe the banks are then incented to give out risky loans. If the
buyer defaults then the CMHC will pay the bank. Who would pay a 7.5% insurance
fee except those who cannot otherwise afford the property – and therefore are
bad credit risks. Even with a 7.5% fee CMHC could lose on this deal. CMHC now
has a number of viable private sector competitors. It should be getting out of
the mortgage insurance business and sticking to setting housing policies and
regulations for mortgage insurance and such. It should not be competing with the
private sector.


October 24, 2007


I had the following question today:


you ever looked at Norbord (NBD on TSX)?

Would it be a good investment at today’s depressed price?


The answer is no I had not looked. I did have Ainsworth lumber on the site
for a while and I think it did okay. But I really shook my head when Ainsworth
loaded up on debt
a few years. I even emailed them about it thinking it was
risky in a down-turn. They did do very well for a while. Now that debt chicken
is home to roost.


As for Norbord. I have not looked closely enough to have a strong opinion at
all. It has a number of really great years but right now it is losing money. And
it has some debt. I would worry about the debt with the panel board prices being
low and with the American housing recession. We would need to understand if it
is cash flow positive even though earnings are negative. If cashflow is negative
then that is ugly…   In fact the balance sheet on their site does
show negative cash from operations this quarter and year to date. Debt has gone
up a lot in the last year, I am not familiar with why, other than if it was
borrowing to cover negative cash flow and dividend and some cap ex. Certainly
the Norbord dividend is a positive but it was cut once and could be again. Sorry
I can’t be more definitive. The high dollar is hurting it as most sales are into
the U.S. and if it hurt in Q3 watch out for Q4 with the dollar over par. This is
just my quick look. To really form an opinion would take me at least 4 to 6
hours effort and even then how can I predict panel board prices. Overall I am
not too excited to look at it.


This is why I prefer the more predictable companies. A company like Norbord
faces very volatile product prices. In contrast look at Tim Hortons, they
control their prices, that is easier to deal with.


Another interesting day, as the DOW was down 200 points at one point today (a
noticeable dip but really not a huge dip). It was down due the Merrill Lynch
announcement of a bigger write-off on sub-prime. But by end of trading the Dow
recovered and was almost unchanged on the day. The recovery was linked to the
thought the FED will cut interest rates. As I said in a recent newsletter, it
feels like you can’t beat this market down with a stick. I remain cautious,
although i suppose a “pop” is possible on an interest rate cut.


In Alberta, the Premier in a speech tonight seemed to indicate pretty
strongly that the energy royalties will be increased but also said in effect
that he wanted to be fair to business. The actual royalty rate increase will be
announced tomorrow after the market closes, I believe. That could make for some
dips in the energy stocks tomorrow.


October 23, 2007


Discount Trading Fees


I mentioned under Nov. 17, that TD Waterhouse has reduced trading charges to
about $10 (for those with at least $100,000 in accounts which on request can
include all accounts in a household) and best of all it seems that the $10
applies to an unlimited number of shares. TD’s fee used to be $30 with a 1000
share limit. I never really minded paying $30 because I did not trade that much
and seldom traded over 1000 shares. But I was not happy when I sold 4000 shares
of a $3.00 stock and got dinged $120 for a $12,000 share sale. It did not seem
fair to me that the percentage charge should be different just because the share
count was higher. It’s all electronic and I don’t see much difference between
1000 shares at $12 and 4000 shares at $3.


TD started offering the $10 fee about a year ago for accounts over $500,000
(on a household consolidated basis). This new $10 fee is much better. Except I
must admit it may be leading me to trade far too frequently.


A subscriber emailed today that National Bank had charged him $780 to trade
26000 shares prices at about $6.00 each. (About a $156,000 trade so nice to have
that “problem” in a way!). This was in a discount trading account. This was $780
to do a completely electronic trade. On a percentage basis the $780 does not
look that bad (about 1/2 of one percent). This was a large trade. But TD is now
allowing this trade to be done at $10. And E-Trade I believe has been at $10 for
a long time. It seem to me that if you are paying $30 and especially if that
includes a limit of 1000 shares, it is time to really start complaining. It’s a
hassle to change discount brokers but there are limits to what you should put up


If you have a full-service broker and are relying on the broker for advice,
that is a different story and you would expect to pay much higher fees.


Mortgage Issues in the U.S.


One story today was that Countrywide Financial would offer to renegotiate
mortgages and lower the payments for homeowners that are in difficulty. They
have a partner Neighborhood Assistance Corporation of America that is involved
and that may be taking some of the risk.


This is probably a good thing and probably what should be done. But I suspect
that bank regulators will still want these loans marked as non-performing. You
just can’t make a bad loan good, by agreeing to stretch out the payments.


It seems to me that banking statistics are soon going to show sky-rocketing
numbers on non-performing loans. That is, unless policy makers and government
somehow work together to throw out normal banking regulations and try to
sugarcoat what is happening.


I maintain a cautious stance, particularly on the lending sector in the face
of this.


However,  Canadian Western
Bank has dipped a bit. I would think it will not be exposed to any loan loss
issues at least not soon. So this dip may be a buying opportunity.


Our last update on Home Capital was
very positive but we mentioned it had some speculative aspects. Now with this
surge in the dollar I fear for the Ontario economy. I am under the impression
that Ontario has a large number of manufacturing jobs and I believe many of
those jobs are at risk due to the high dollar. In that scenario, if it comes to
pass, I would expect Ontario house prices to fall or at least stall and I would
expect Home Capital to have some loan loss issues. So far, so good, but I would
not get over-exposed to the company. On the other hand it has an exceptional
track record so there is no need to panic.


Nice to see Tim Hortons doing well, although
I was almost hoping for a dip to $34 and might have added to my position.
Earnings are out on Friday, I believe.


We should have a few companies updated by Sunday at latest as earnings
reports come in.


October 21, 2007


The latest edition of the free
newsletter was sent out today.


Given my cautious stance of late, I was not surprised by Friday’s
pull-back…  I have not ever had much luck forecasting short-term market
moves, but my bet is that markets move down further this week.


October 18, 2007


Google is out with amazing profit growth. This is definitely a great company.
Most of the earnings come from the ads we see when do searches. Google has a
huge market share and since we don’t pay to search, it is extremely difficult
for competitors to get us to use other search engines. I’m not sure at all that
Google is worth its price but I do know that as a company it is a great company.
It will earn very high returns on equity for the foreseeable future.


I have been a paying customer of Google in that I have paid them to place
advertisements to this Web Site. In my experience two years ago, the Google ads
were a great investment for me. They were able to send me lots of new visitors
every day for a modest cost. And a reasonable percentage of these  visitors
signed up for my free newsletter and eventually this paid stock service. But
lately Google sends me a lot less visitors and it costs a lot more (like four
times more!) to attract a visitor. But much worse than that a much lower
percentage of the visitors Google sends are joining my free newsletter list or
taking this paid service.


It even looked like Google had figured out better ways to send traffic to me
to get the fees from me but the traffic was increasingly of little or no value
to me.


My experience has been in the early days, Google advertisements were very
cost effective for me. However for the last 6 to nine months they seem to
have been a waste of money. I have stopped using them.


Possibly this is because stock markets are not as attractive at this time.
But I suspect it has more to do with email fatigue. More and more people are
reluctant to sign up for a newsletter when they get so many emails
already. If this is true then we may start to see Google’s growth slow.


I am now relying more on free organic traffic from Google, which I attract a
lot of based on the articles on this Site.


As I watch the volatility in the markets I am tempted to buy some stocks on
dips. But overall, I am still interested in maybe trimming some positions. I
have a large exposure to financials and that area is vulnerable to the sub-prime
issues and possible recession in the U.S. Also before buying I will see how the
Canadian Q3 earnings reports come in. These will start arriving next week.


Meanwhile, let me know your thoughts on this Web Site or on investments in
general. What can I do to make this Site more valuable for you? (I may not be
able to accommodate your requests, but if enough people ask for the same thing,
then perhaps I can). email me at



October 17, 2006


If you are still paying $30 per trade, call your discount broker and
complain. TD Waterhouse is now charging $9.99 per trade (and I believe there is
no limit on the number of shares) for all accounts with more than $100,000
(previously it was $500,000). And they allow you to count all your household
accounts in reaching the $100,000 level. This is a remarkable cut in fees. Only
about 1 year ago I had to pay TD $120 ($30 times 4) to trade 4,000 shares of at
$4.00 so $120 on a $16,000 trade. Now it’s $9.99.


These lower fees prove that competition can lower prices when you are dealing
with a commodity product and when the price charges is very visible. It’s really
rather shocking because it is a hassle to move brokers and so I would have
thought that they would keep the fees higher and instead try to use incentives
to get new customers. Like cell phones, give something free but then lock the
customer into high monthly charges.


These lower trading costs are leading to lots more trading. I don’t do penny
stocks but I suspect the trading of those is way up. I’m not sure that the lower
fees have saved me any money though. I have been trading WAY more. I am spending
about the same amount in trading fees as ever. And I am also paying hidden costs
in the buy/sell spread (scooped by the market maker).


I moved some more cash into a TD U.S. money market fund today. I may try to
be patient and wait for $1.04 or $1.05 to move more, but then again I may just
decide to move it sooner. The dollar can go in either direction from here. I
feel good about getting U.S. dollars for 98 cents and I don’t want to get too
greedy waiting for 95 cents.


Berkshire Hathaway was up another 2% today. I wish I had done the full
analysis and recommended it on this Site. I did give it some very solid plugs
especially in the last year most notably on January 2 and I reported when I was
buying it. Unfortunately I did not buy enough. Buffett may have just overtaken
Bill Gates again as the richest American. If so, you heard it here first. (He
was up over $1 billion on his personal stake in Berkshire today alone!).


This credit mess in the U.S. is likely to get a lot worse.


How could it not when these idiots were loaning out money on “stated income”
(liar loans). And lending money on the basis of a 2% interest rate for the first
year or three which then resets to maybe 7% or more. Loan companies we must
remember operate on a sliver of equity. I have always said that all banks were
potentially quite risky. Normally they operate as finely tuned machines. But
when things go wrong they can go wrong in a big way. For example Banks usually
set aside only 1% to 2% of loans as a contingency for bad debt. Then they have
something less than 10% in owners equity. So what happens if house prices plunge
and they get into 3 or 4% loan loses? This chews into their equity in a big way.
And it only takes maybe 10% loan losses to bankrupt them typically. Of course a
bank does not lose 100% on a bad loan. But if 20% of their loans are bad and
they recover only 75% on foreclosing on the homes. That would work out to a 5%
loss of assets or maybe half their equity. However some banks may be protected
by mortgage insurance. we will probably find that many banks do okay but some
U.S. financial institutions are likely to go bankrupt.


House prices are falling in the U.S. not too sharply yet but falling.
Meanwhile millions of people have mortgages that they never really could afford.
They may walk away. Then the banks will need to foreclose but they will be lucky
to recover in may cases 75% of the loan after costs as they sell into a down


One solution might be to offer lower payments to the homeowners. But under
banking regulations I believe they still have to mark that as a bad loan. You
can’t make a bad loan a good one by agreeing to make a concession on the
payments or extending the term of the loan.


Then there is the Asset Backed Commercial Paper situation. This “paper” is
backed up by sometimes suspect loans. Ameritrade of all companies today
apparently wrote off $200 million of what they thought was a cash equivalent.
Watch for more of this.


Almost any company with cash on the balance sheet could be holding some of
the Asset Backed Commercial Paper. Not a huge deal for most profitable
companies, but it would be a one-time hit.


If financial companies in the U.S. start to suffer it may drag down the
Canadian financials at least somewhat. I am hopeful that the property insurance
stocks that I rate will not be much affected, but that remains to be seen. There
could be a few surprises in the Q3 financials. And even more when we get to
audited year-end financials next February.


October 16, 2007


A story in today’s paper talked about how United States Bombardier
recreational products dealers are now not allowed to see snowmobiles to
Canadians coming across the border for bargains. Apparently they rationally
applied a 7.5% surcharge to cross-border shoppers. Then they raised that to a
minimum of $1250. Then they changed the policy two weeks ago and applied a $3000
surcharge. And finally now they have banned the U.S. dealers from selling to
Canadians. This is to protect the Canadian dealers.  The article did not
address the reason that a Canadian-made product is cheaper in the U.S.


This is just an example of the pressure that is exerted by cross-border
shopping. Bombardier will I think be forced to lower the prices dramatically in
Canada. Canadians will shop in the U.S. and if Bombardier won’t sell their
snowmobiles to Canadians then I suspect maybe Yamaha or Artic Cat will.


I moved $20,000 into U.S. funds today at about CAN $1.02. I probably should
have moved more, but so far I have under-estimated how high our dollar went.
Still, few people are suggesting it can go much higher. I continue to think it
is a good idea to move some funds into U.S. dollars, especially if you have any
plans to buy U.S. stocks, or to travel to the U.S. I would be comfortable moving
about half my cash into U.S. funds. The dollar has already backed off from the
recent $1.03 level. It’s anybody’s guess which direction it will go now. With
high oil prices, there is little reason for it to drop unless the Canadian
government signals that it could lower interest rates. They did not do so today,
but I believe they signaled they are no longer thinking of raising interest


October 15, 2007


I sold my BCE shares today for the reasons mentioned in yesterday’s note.
Tomorrow, the Bank of Canada is expected to leave interest rates unchanged. My
view is that they probably need to lower interest rates to push the Canadian
dollar down. What ever harm the high dollar is doing will not show up in the
statistics for some time, but I definitely think the damage is happening now.
Stephen Jarislowsky, one of this country’s most successful investors has stated
that there is no way our manufacturing and forestry industry can withstand what
amounts to a 50% increase in labour costs when measured in U.S. dollars. (and
that was before this last push up from 96 cents to $1.02). Inflation numbers
will come out later in the week. I expect the high dollar to curtail inflation
but again it may take a number of months before the price cuts show up in the
stores and a another month after that before the statistics reports show it.


My cash position is now at about 38%, this leaves me pretty well positioned
if stock prices fall but also leaves me with a reasonable exposure to stocks in
case they keep rising based on interest rate cuts.


Many investors simply take a  balanced approach to stocks, bonds and
cash and don’t attempt to ever try to time the market. Nothing wrong with that
approach. Younger investors who are still very much in savings years can afford
to go 100% equities and they will do all right because any losses in a
market correction would be more than recovered as they continue to invest at
lower prices. Retirees with substantial exposures to equities (higher than say
40 to 50% should probably be concerned since if you are living off a portfolio
and not investing new money, than a market correction is only bad news, it has
no silver lining in that scenario. But these asset allocation decisions are all
very personal and generalizations based on age often do not apply well to any
particular individual.


October 14, 2007


I have been predicting price reductions in Canada as a result of the higher
dollar. It’s worth considering, how fast should price reductions occur?
Retailers would like to wait until they sell their inventory of U.S. goods
purchased when it cost maybe CAN $1.10 or more to buy a U.S. dollar.
Retailers that I talked to said that they tend to order product up to one year
in advance and that the price drops are a long way off. But consider if one
retailer had no inventory of such goods and brings in fresh new product now when
it costs CAN $0.97 to buy a U.S. dollar, that retailer could drop prices
immediately. In competitive markets we should expect price drops to be fairly
fast. But retailers will want to drag their feet. It will be interesting to see
just how fast the prices drop. My advice to individuals is to really shop
around, to ask retailers when the price will drop, to delay major purchases and
to look at ordering in products from the U.S.


I believe the big retailers like Canadian Tire and certainly Wal-Mart will be
faster to drop prices. Small independent retailers are going to be hurt because
it is much harder for them to drop prices and “eat” the exchange rate change on
their inventory.


I have some shares in BCE (last traded at $40.66) that I am holding as
an arbitrage against the agreed purchase price of $42.75. Ontario Teachers
Pension plan is apparently firmly committed to proceeding with the deal. I do
worry though what the American partners are thinking as the Canadian dollar
soars. Possibly they have already locked in the financing and the currency. But
it cannot be denied that BCE at CAN $42.75 looks a lot more expensive now to an
American than it did at the time of the deal.  I may sell some or all of my
position to get rid of the deal risk.


We are hoping to add some new companies to the Site. We would like to do some
pre-screening and target the type of companies that Warren Buffett might suggest
we consider.


The following is the result of some preliminary screening.


Freight Car America (symbol RAIL, price $39.75)


RAIL turned up on a list of low P/E high return on capital companies. The
company manufactures repairs, sells and leases rail cars. S&P shows an ROE of
87% and a P/E and a trailing P/E of 5. On the surface that looks like a
screaming Buy. But sales in the latest quarter dropped by 47% year over year.
That is a HUGE drop in sales. Amazingly they still had a profit in Q2. In fact
if the Q2 profits were annualised the P/E would still be an attractive 11. And
maybe the sales drop was just the result of lumpy order from rail roads. But the
past few years shows no other dips. Luckily the company appears to have
substantial cash and almost no debt. This should allow it to survive even if it
loses money for a period of time.


Overall this is not a company I want to look further at. The recent 47% drop
in sales tells me that this is a very unpredictable company.  In order to
understand its sales outlook I would have to understand how many rail cars are
likely to be needed in North America. I suspect that rail cars are a commodity
product and that profits are low except in times when there is huge demand and a
shortage of available rail cars. I suspect its costs have increased tremendously
due to the fact that steel prices rose by (I believe) hundreds of percent in the
past few years. Warren Buffett and Charlie Munger talk about having three
baskets “in”, “out” and “too hard”. I put this company into the “too hard”
category. It may turn out to be a good investment but for me it is too hard and
too unpredictable.


McGraw-Hill Companies (symbol MHP, price $52.77)


I am interested in this company because it owns Standard and Poors (S&P).
S&P strikes me as possibly being a wonderful business because it shares a
dominant position  in credit rating reports with competitor Moody’s. I
suspect that their costs have been going down due to electronic delivery of
their products. In addition this company turned up on a list of companies with a
good combination of high returns on capital and lower P/E ratios.


MHP consists of S&P 44% of revenues, Education 40% and other information and
media 16%. The P/E is about 19. The ROE is reported by S&P to be only 12.8% in
2006 but in past years was usually over 20%. Another source (Argus) reports the
ROE at 55%. The share price dropped recently from about $70 and went under $50.
This was due to the criticism that S&P took over the sub-prime and Asset Backed
Commercial Paper situations. The stock has now recovered somewhat.


With a P/E of 19 this may not be a  screaming Buy but I believe it is a
high quality company that is likely to continue to be highly profitable and to
continue growing in the long term.  It is worthy of further analysis.


Moody’s Corporation (symbol MCO, price $49.40)


I have log been interested in looking at Moody’s because it shares something
of an oligopoly in credit ratings with S&P. Also Berkshire Hathaway owns about
17% of Moody’s. MCO has a P/E ratio of 17 and an ROE which is well over 100%.
Similar to McGraw Hill the price of Moody’s fell substantially over the Summer
due to the sub-prime and asset backed commercial paper problems. On the surface
Moody’s looks more attractive than McGraw Hill. I also like that Mooy’s is more
of a pure play. I intend to further analyze Moody’s.


Costco Wholesale Corp (symbol COST, price $68)


I chose to take a look at Costco simply because it is well known as a highly
successful big box retailer. Warren Buffett has often favored companies that
sell directly to consumers (rather than to businesses) because they tend to be
easier to understand.


Costco has a trailing P/E of 30 and its ROE has been around 12% for several
years. On the face of it, that looks somewhat expensive – even for a
high-quality company. Given that I am screening for bargains, I will choose not
to analyze this company further at this time.


Amazon.com Inc.


I decided to take a look at Amazon because of its dominant position as an
internet retailer. Also in the past Buffett has spoken favorably about it.
However, it has a P/E of around 82 based on 2007 projected earnings. Even though
its profits may grow very strongly, the valuation is far to rich for me. I will
not analyse it further at this time.


Speaking of Warren Buffett…


He was in Toronto on Thursday and exerts of his speech were reported. He
views the U.S. market as expensive even with a modest P/E of around 17. The
reason is that he thinks that corporate earnings may be unsustainably high. He
indicated that corporate earnings as a percent of GDP are much higher than
normal (I believe he said TWICE as high). If earnings regress back to a more
normal percentage of GDP then corporate earnings would drop markedly and
therefore today’s reasonable P/E levels could be mis-leading.


Buffett, by the way, has also seen his wealth absolutely leaping in the past
weeks and months. The Berkshire shares are up a LOT lately. In fact I calculate
that he held about $43 billion in Berkshire shares in June 2006 when he
announced his big charity give away. He has now given the first two
installments, some $4 billion. But instead of now holding $39 billion in
Berkshire shares, his remaining shares are now actually worth about $55 billion.
He has been written off many times as “yesterday’s man”. Once again he is
proving his critics wrong. (He may even pass Bill Gates to regain his spot as
the richest American at this rate – But presumably won’t catch Carlos Slim of
Mexico given the plummeting U.S. dollar).


October 13, 2007


My personal portfolio composition is
updated. My most recent sales are a reduction in the Thomson position and the I
sold the few shares that I had in Canadian Pacific. This was to raise the cash


October 11, 2007


Yesterday, I left off saying I was feeling cautious and might raise my cash
position. This mornings paper had a story about a real slow-down in gas drilling
in Alberta. So I did go ahead and trim some positions (sold some of my Kingsway
Couche-Tard and Canadian Western Bank and TSX Group). The first two on concerns
that this rocketing Canadian dollar will be a drag on earnings (in Canadian
dollar terms). The second two just to take profit.


The market then rose sharply today but then fell sharply and was down at the
end of the day.


No one can predict the market direction in the short term. But we can make
reasonable decisions such as lightening the exposure to stocks when predictions
call for earnings to be about flat in Q3 and when we have all the worries about
housing prices, sub-prime and possible recession. History shows that in the very
long run you can always just ride these things out. But personally I just feel
better to move more into cash and then eventually re-group and I hope to buy
back into a more concentrated portfolio if markets happen to fall. The danger of
course is that if the market keeps rising then I will be sitting with cash and
missing the up-side.


Also even if I think the market in general will dip, I also think the Stock
Picks on this site will do better than the market.


In Canada we may get an interest rate drop next week to combat the dollar.
That would be good for stock prices.


October 10, 2007


Greetings to all new subscribers. Actually things have been quiet over the
Summer and into Fall, not a lot of new subscribers. I always appreciate any
referrals for new subscribers. I know many of you have referred people and I
thank you. I also know in many cases people are just not receptive to the
suggestion. You tell them you have a good source for stock investment ideas and
education but they ignore you. Such is life.


I read a scary little story today. Apparently the Thomson First Call earnings
estimates are suggesting that the Q3 earnings will be a little under last year’s
Q3 on average. If that happens it would be the first earnings drop since early


Stock markets NEED expectations of earnings growth in order to go up. The
market at any given time is usually pricing in average earnings growth of at
least 5% per year. Combined with a 2% dividend that gives 7% return. The market
in today’s low interest rate environment is probably priced to give an
of 7% to (at most) 9% return or 5% to 7% growth. If earnings
start to fall it will be tough for markets to continue to expect that kind of
growth. In fact earnings growth has far outpaced nominal dollar GDP growth for
the last five years. That cannot continue. Either earnings were clawing out a of
a deep hole since about 2001 (which is partly tue) or earnings have over-shot
the sustainable mark (likely partly true). In any case the earnings cannot and
will not exceed the growth in the economy in the long-term. If earnings decline
Stock prices would drop on average. Lately it seems like low interest rate and
the hope for more rate cuts is all that holds/pushes the market up. But interest
rates can’t go down forever. And if earnings growth turns to earnings declines,
the market would definitely decline.


I’m not trying to scare anyone. In fact a  market drop will provide
investment opportunities. (For those with cash) But I am definitely cautious. I
have been cautious most of this year and so far it has cost me money. But when I
see a forecast for earnings to decline I have to think stocks will drop. I may
try to get my cash position up more towards 40%.


Here is a thought – Just because you expect a stock to go up does not mean
you have to own it. For example maybe you have a better stock to put the money
in. Or you may expect a stock to go up, but you are not sure. In that case if
you don’t like the risk regard ratio, then don’t buy the stock even though you
fully expect it to go up. I often have trouble selling a stock just because it
would then cause me pain if in fact it went up. But that’s not very rational
thinking. If I have a better use for the money (even to sit in cash) that’s
okay, it’s okay to sell even if you think (but are not sure) a stock will go up,
or you just have a better use for the money.



October 9, 2007


A subscriber had the following question:


Hello — I see
that Reitmans is still listed as a “buy” although it seems to be steadily going
down (all the more reason to buy?)  I bought some at a higher price and am
thinking of averaging down.  Do you still consider this a good buy?  I read the
article some weeks ago about their apparent miscalculation of their market but
think they might recover–what do you think?  I guess the downside is a general
recession and lack of consumer confidence.


Our Reitman’s report was dated September 9. Since then we
are not aware of any new info and so with the price down somewhat since then, we
still consider it a Buy. We mentioned in the report that its current quarter had
started out with an unexplained 7.2% decline in same store sales in August. We
have not seen that figure reported for September. The company seems well managed
and should do well in the future as it has in the past. The high Canadian dollar
should be good for profits given it sources much of its cloths from outside of
Canada. Possibly it could even show negative sales growth due to price cuts and
still make good profits. If clothing prices fall due to the higher Canadian
dollar, it would be possible that Reitman’s would have to write down the value
of inventory but we see no sign of such precipitous price drops, most
competitors would likely try to sell off stock before dropping price. We continue to think it is a reasonable to stock to


On the overall markets, Q3 earnings seasons kicked off today. We may see some
volatility the next couple week as major headline companies report either strong
or weak earnings. Many U.S. companies have substantial earnings from outside the
U.S. and the low U.S. dollar could help their earnings.


I plan to move some cash into a U.S. money market tomorrow. Perhaps I should
wait for an even higher Canadian dollar, but my view is that I should take
advantage of the high dollar now rather than getting too greedy (especially
given the unpredicatble nature of exchange rates).


An analyst on BNN yesterday made the comment that the Manulife stock price
has not risen much in the last year or so. In my view you cannot talk about a
company like Manulife without talking about the Canadian dollar. Manulife is
headquartered in Canada and is very much a Canadian managed company. But the bulk
of its its profits are earned in the U.S. and outside of Canada. It seems to me
that the performance of Manulife has to be judged in U.S. dollars. The price is
up quite steadily in U.S. dollars. Earnings could continue to rise in U.S.
dollars. But I would think it will have difficulty reporting much of an increase
in earnings in Canadian dollars. If it can grow earnings in Canadian dollars then
in U.S. dollars it will show huge growth.


I believe that any Canadian company that earnings most of its profits in U.S.
dollars (Kingsway, Thomson, Couche-Tard, and Cognos, should really be judged on
its U.S. stock performance rather than Canadian. (I can’t hold management
responsible for changes in currency rates). But even if it not management’s
“fault” a drop in earnings due to a currency movement still leads to a drop in
stock value.


October 8, 2007


Target is updated and rated Buy at $66.31.
This stock is up 35% since we added it to this site on June 2, 2006, rated Buy.
It’s another example of a high quality company available at a price that is
reasonable although not particularly cheap.


Microsoft is updated and rated Buy at
$29.77. The company is still growing is earnings and profits quite rapidly. But
the P/E ratio has come down under 20. Therefore the overall thesis here the
ability to buy a dominant company with strong growth at a reasonable price.
Canadian investors in all U.S. stocks will be hurt if the Canadian dollar
continues to rise. But they will benefit if the dollar sinks. And in the long
run movements in currency tend to be small relative to returns.


Cognos rose 13.6% on New York today because a competitor received a takeover
bid. Cognos is a great company but usually looks too expensive. Sadly, I have
very recently sold my Cognos shares to raise my cash position. I don’t think I
would buy on this jump given that no take-over offer is on the table.


The composition of my personal portfolio is
updated. I keep this updated for my own information as well as for the interest
of subscribers. It can be hard to remember to overall number of shares held,
when they are held in a few different accounts.


I had sold most of my Clemex shares but still have a few. I hope to sell
those tomorrow. In some ways I would like to hold some shares in case it ever
finally produces meaningful sales and profits. That is much more of an emotional
reason than a logical reason. But it is another company that will be hurt badly
by the high dollar.


I don’t mean to be fixated on the high dollar. Certainly the high dollar is
not the only factor in the market. But it is one factor where we can with some
reliability predict that an impact on earnings for a number of companies. Often
earnings hits are a totsl surprise, but in this case certain predictions can be


October 7, 2007


I sent out the latest issue of the free
newsletter today, if you did not receive it check that you are on the list by
simply joining the list “again” and the
system will indicate if your email is already on the list.


October 6, 2007


Another very strong week in the markets. Our
2007 performance is updated.


October 4, 2007


I sold my double bear position today. I said before that I don’t really like
holding the bears. I prefer to just raise my cash position when I am cautious
about the market. But the beta pro bear ETFs are a way to quickly hedge against
a drop in the market. Tomorrow certain jobs data will be released in the U.S.
that could drive the market up or down. I just did not want to hold the bear in
case the market keeps going up due to anticipation of lower interest rates.


It is quite possible the market will fall, but I personally find that holding
both stocks and a bear position means that I am in effect betting on both a
market rise and a market fall, and I just don’t like taking both positions at
once. Again. I will try to raise my cash position by taking profits. Most of the
stocks I own I am confident that even if they decline in a market down-turn,
they will tend to come back before too long.


October 3, 2007


I mentioned in recent posts that I had placed some orders to sell portions of
my positions if the price happened to rise say 5 or 10%. This would hopefully
take advantage of temporary volatility. I placed such an order on
Shaw Communications. However, in retrospect it
was not the best candidate. The reason is that it is about to release earnings.
In that case any jump on an earnings release would not be volatility but would
be based on the news. However, I did have such an order in and sold 1/3rd of my
position today at $25.90. So far it looks like a good move because Shaw closed
at $25.47. (But if Shaw comes out very shortly with strong earnings, I will
likely regret having sold at $25.90). Normally I would rather just hold the
Shaw, but right now I am still feeling cautious and this is one way to increase
my cash position.


Overall, my account and I think our stock picks on average were up today,
despite the market being down…


Couche-Tard has fallen about 10% since we
rated it (lower) Strong Buy on September 2 at $21.70. Reasons for the fall
include the surge in the Canadian dollar in the past month. As a company with
substantial operations in the U.S. It actually report in U.S. dollars. So, on a
headline basis the rise in the Canadian dollar will actually help reported
earnings due to the higher value of Canadian earnings. But the shares trade in
Canadian dollars and when we translate the American dollar earnings back to
Canadian dollars to calculate a P/E ratio, the rise in the Canadian dollar does
hurt the earnings in Canadian dollars and does hurt the share price. It will not
be hurt nearly as much as a Canadian exporter but it will be hurt. We won’t know
how much it is hurt until after it reports a full quarter with the dollar at say
about the $1.00 U.S. level. I still think this is a strong company and I am
happy to hold it. But there are always risks in any stock, that is the nature of


October 2, 2007


A strong day for a number of our Stock picks today including Canadian Western
Bank, Couche-Tard and Shaw Communications…


A subscriber emailed me today and asked:


Just curious about your thoughts on US ETFs.  I read
your article on CDN ETFs, however, I’m
more interested in exploring US ETFs right now with the dollar being on par.
Any reputable companies you suggest looking at?


The first source that comes to mind for me is
www.ishares.com Go tot hat site and then
roll your curser over the menu items at the left and menus appear for different
ETFs. Click on thse and you can see various ETFs. If you click to the page for
each ETF you can get the trading symbol and also see fundamentals including the
P/E and Price to Book ratio. And you can closely approximate the ROE by
calculating it as ROE = Price/book divided by P/E. In fact this gives you last
12 months earnings divided by current (ending) equity (A standard ROE
calculation is earnings divided by mid-year equity).


Anyhow… that page and calculation gives you some idea of
the valuation of the ETF. There are now apparently thousands of ETFs most not
based on traditional indexes but rather most new ones are based on made up brand
new indexes. A Canadian investor looking for exposure to certain sectors in the
U.S. should probably stick to ETFs that are based on traditional segments and
indexes rather than some very narrow index that was cooked up last week.


If there is a sufficient demand for it I will do an article
that lists the ETF trading symbols for the U.S. segments from ishares and maybe
one other ETF provider and also I will comment on the P/E level. If you are
interested in such an article email
me to let me know. If you are emailing me, I would be interested to know a
little about what kind of stocks you own, what your percentage allocation to
stocks (as opposed to bonds and cash) is and how this Site has helped you or
what your other sources for stock ideas are or any other thoughts you have. (I’m
not trying to track that information by individual subscriber at all, but just
trying to gget a sense of what subscribers in general are up to).


Yahoo Finance has an ETF center that may be of some use.



There is also an article on our Site regarding

global ETFs.


October 1, 2007


A very strong day on the markets. Personally I would have done better if I
had not hedged by buying some of the double bear funds as described in earlier
postings. That is the nature of the hedge there, it protects on the downside but
it cost me upside today. As I said in earlier posts, rather than the double bear
type of hedge I would be more comfortable simply being in a higher cash
position. I will continue to review my portfolio to see what I might sell or
trim. I hate to sell the two bear positions now at a loss, but it is no fun
holding them right now…


I entered an order to trim my Shaw at $25.90 and to trim the Couche-Tard at
$21.  Previously had orders in to sell my BCE if it reaches $41.29 and my
EL- Financial if it reaches $674. Despite it being already my largest position I
placed a low bid to buy more Tim Hortons if it falls to $33.10


The strength of the market continues to surprise me. Once again it goes to
show that while it is risky to be in the market, it is also risky to be out.
Markets certainly trend up in the long term and therefore anytime we are out of
the market we may miss out on gains.


It seems that the market is going up in anticipation of interest rate cuts.
Paradoxically, those cuts would be in response to weakness in the American
economy. So certainly this rally seems tenuous when it is based on expected


It really does seem like a particularly uncertain time in the markets.
Dangerous to be fully in the market due to expected economic weakness, but
dangerous to bet against the market due to possible interest rate cuts. And in
Canada I believe that the high dollar could be a reason to cut interest rates.


Walgreen reported disappointing results
today and took a big fall. It made money and its earnings were just 1 cent per
share less than last year but the market was expecting a gain of 6 cents. My
sense its that this could be a buying opportunity. We’ll update our report soon.


EBay reported a big write-off on its Skype business. This may not be such a
big deal because Skype was not contributing to earnings anyhow (and was most
likely a big drain on earnings). eBay has two exceptional businesses, being
firstly its auction business where it enjoys close to monopoly status and
secondly the PayPal business where it also does not face that much competition.
I understand those two businesses and I have been a long-time use of PayPal.
Call me a ludite, but I never understood Skype. I personally have zero desire to
make a telephone call over the internet and anyhow there are tons of competitors
to Skype. And for the most part, I understand Skype was free. eBay may
eventually sell it off and that would be a good thing, I believe.


September 30, 2007


My personal portfolio composition is
updated. (I don’t know of any other “newsletter” editors who keep their
subscribers up to take on the editors personal portfolio holdings and
performance.) Perhaps most of those editors would not want to disclose that
information. Also I have a vague understanding that regulators, in their
“wisdom”? actually discourage such disclosure.


Our three Strong Buys from January 1 are now up an average of 14.4% (Manulife
4%, EGI Financial 31%, Telus 8%). The average Buy or higher rated stock is up
6.7%. The Model Portfolio is up 3.0% and my own Portfolio is up 3.1%. The TSX
market is up 9.2%, the DOW is up 11.5% and the S&P 500 is up 7.7%.


I have mentioned a number of times that is seems rather surprising to see the
American markets up significantly for the year and near record highs given
worries about the U.S. economy (particularly housing prices) and the subprime
mortgage situation. (The TSX is up mostly due to high oil and commodity prices
so that is not perplexing).


So far, my cautious stance this year (if reducing my equity position but
still remaining mostly invested in equities can exactly be called cautious) has
cost me return. Moving some funds into U.S. investments to take advantage of the
high Canadian dollar has also cost me as the Canadian dollar continues upward.
But I don’t really regret those decisions. I think my cautious stance was


I tend to stick with certain investments for the long-term. At the same time
when the situation changes I need to be prepared to abandon even old favorites.
For example, Dalsa is a Canadian manufacturer that sells mostly to U.S. and
international markets and has been hurt significantly by the higher Canadian
dollar. I think the company has great technology and it has a very low price to
book value and probably has hidden assets due to “investments” in R&D that has
been expensed over the years. Still, it seems like there is a great risk that
profits will be further damaged and that losses could be reported due to the
extreme rise in the Canadian dollar. Therefore I reluctantly abandoned this
company for now.


 I also took a look at other stocks and considered if it was reasonably
predictable that some of these could be hurt by the higher Canadian dollar. I
sold my Cognos shares last week for that reason and notionally sold half of the
Manulife in the Model Portfolio. See recent comments for other stocks likely to
be hurt or helped by the high Canadian dollar.


One strategy that I may employ now is to enter some bids to sell a portion of
any stock that I own if the price should rise say 5% and to buy additional
shares on dips of 5 to 10%. This strategy of putting in optimistic offers to
sell and optimistic bids could help me benefit from simple volatility.


September 26, 2007


It seems clear that we are in a more risky stock market environment than
usual. That’s because the U.S. is fairly widely thought to be headed into a
recession brought on by lower home prices, a hang-over from excess borrowing,
and simply the end of a low economic growth cycle. So those who are unprepared
for short-term losses should be reducing their exposures to stocks (unless they
are already in a well-balanced position).


On the other hand young investors may be better served by staying and in
continuing to invest new savings though-out any market down-turn. And maybe a
recession will not materialize. Maybe governments will succeed in stimulating
the markets through interest rate cuts.


In my own case, at age 47, I can afford to take some risks but I am not so
young that I can ignore the risk of a market down-turn. At this point I am
willing to give up some potential returns by moving into a higher cash position
which will protect me if the market does correct. But I certainly want to keep a
good portion of my funds in stocks and I want those to be quality stocks.


So what to do in this uncertain market?


One idea is to move out of any stocks where the company can reliably be
predicted to have an earnings decline in the next quarter to year.


Consider the impact of the higher Canadian dollar. The Canadian dollar
averaged roughly 85 cents U.S. in Q1 2007, and  close to 90 cents in Q2. It
looks like it might average 95 cents in Q3 and end the quarter at $1.00. The
dollar had been over 80 cents since late 2004, and so the 85 cents in Q1 was not
too much of a shock. But 90 cents in Q2 was a shock and 95 cents in Q3 is a huge
shock. And certainly $1.00 in Q4 would be a huge jump from the 85 cent level.


So, this is one of those cases where we know something has happened and we
can make reasobanle predictions about which companies will be hurt and which


And this move in the dollar will be a huge impact for some companies.
Consider a Canadian manufacturer that sells all its product in U.S. dollars.
With a total cost of 1.00s Canadian and revenue of $1.00 U.S, that was $1.18
Canadian in revenue and a very healthy profit of 18%. Now with a U.S. dollar
worth just $1.00 Canadian, the profit margin has totally evaporated!.


Some of these Canadian companies may have hedged their currencies, but hedges
don’t tend to last forever. So in general it seems like a good idea to sell or
reduce positions in companies that will be materially hurt by the higher dollar.


There is a lag in that we will not see the damage in Q3 until it is reported
around November 1. And even the damage from Q2 could have been reduced by
hedges, but those hedges eventually run out. So, the opportunity right now is to
try to guess which companies are hurt. I have addressed the specific companies
in industries in recent posts below.


On that note, I decided today to sell my Dalsa shares. That is a logical step
given the weak rating we have on it. I had earlier sold over half my position in Dalsa but wanted to hang on to some since it seemed like such a smart and
company and has great technology. But I just think their earnings are continuing
to be crushed by this high dollar, so I am moving on for now at least.


I also sold today 40% of my Northbridge shares. Thos shares look quite cheap
and I hated to sell. But I did not want to be over-exposed given the risk that
it may be exposed to investments in Asset Backed commercial paper.


The other though I have is that I want to raise cash by selling anything
questionable, trying to keep my higher quality stocks. Then after moving into
more cash I may move that back into the higher quality stocks (and those will
low exposure to the high Canadian dollar). This may also be an opportunity for
me to increase my U.S. and foreign stock positions.


In terms of the Model Portfolio, it
is meant to be a  100% equity portfolio, but based on the above I will
notionally sell half of the Manulife. I did sell my own position in CN, over
worries about lower revenues and the higher dollar but will leave it as is in
the model portfolio for now. Also I considered selling Northbridge in the model
over worries about possible asset backed security exposure. On the other hand
Northbrige may benefit from the high dollar to the extent that some payments
from the 2005 hurricanes have not been made yet and can now be paid at a lower
Canadian dollar cost (assuming they did not hedge).


Also given the high dollar, I continue to think it is a very good idea to be
moving money into U.S. stocks. Sure, the dollar could go higher, but it could
also go lower. I don’t think it is a good idea to try to wait for the very


September 25, 2007


Canadian Tire is updated and is
rated at (lower) Buy  at $79.50. This company has performed very well. We
would have rated it Buy except for concern that growth could slow as Canada’s
economy seems likely to slow with the higher dollar (although the high dollar
does help Canadian Tire in the short term until prices adjust down to reflect
the higher dollar).


I decided to sell my CN and some of the Telus today just given my defensive
outlook. Hope to buy back at a lower price later. With CN I like the long-term
but short term they are reported hurt by low forestry shipments.


September 24, 2007


My mood is defensive at this time. I expect markets to pull back temporarily.
I may raise my cash position.


September 23, 2007


Another edition of our free newsletter has
just been sent out. If you did not receive it by email, check your junk folder
and then try using the free member login menu item at the left to see if your
email is on the list for the free newsletter.


Topics are:


you know that consumers pay up to about an obscene 2.5% in fees to banks just to
convert money?


Canadians richer now that their money is worth much more in U.S. funds?


it seem like we can’t Beat This Market Down with a Stick? (not that we want to!)


Speaking of being richer due the currency movement…  I recently
calculated my personal return in U.S. dollars. Since the start of 2003, my
personal compounded return is 177%, but compounding in 58% for currency gains,
my return in U.S. dollars is 280% since the start of 2003. Similarly the model
portfolio is up a compounded 178% in Canadian dollars since the start of 2003 or
281% in U.S. dollars.


September 21, 2007


Performance figures are updated for 2007.


September 20, 2007


The market direction was down today. I had been expecting that after the
market rise on the Fed cut interest rates then there would be a pull-back
because the gloom of the sub-prime, housing and recession still looms despite
the Fed rate cut. But so far only this small pull-back in the DOW today.
Canada’s markets were dropping fort he same reasons as the U.S. but also because
of the threatened increase to emery royalty rates in Alberta.


The big story continues to be the  Canadian dollar now basically equal
to one U.S. dollar.


Here are some thoughts on how the dollar affects our Stock picks.


First, any company that trades in the U.S.  in U.S. dollars has done a
lot better in U.S. dollars than in Canadian dollars. Canadians that invest in
any company that has either costs or revenues that are not strictly in Canadian
dollars are then exposed to currency risk.


The major risk of concern now is companies that are hurt when our dollar
rises against the U.S. dollar.


Most at risk are companies such as manufactures that face labour and
other costs in Canadian dollars but with the majority of revenue from the U.S..
This includes Dalsa, Cognos and to some extent Manulife. Each company may be
affected to different degrees and may be partially hedged but in general I
expect the higher Canadian dollar to hurt these companies, and there prices,
would fall, all else being equal (although all else never is equal). Companies
that we don’t cover but that are similarly affected would include manufactures
like Bombardier and many forestry companies. With many companies being
international the extent of the pain is very different for each company.


Also at risk is any company that has big U.S. operations. In this case the
hit to revenue is offset by a benefit on the expense side, but in the net they
are hurt. This includes Kingsway, Couche-Tard, and First Service and Thomson
corporation. In effect these are essentially U.S. operations that happen to be
managed from Canada. All of these report in U.S. dollars because that is where
they get most of their revenues and also face most of their expenses. Manulife
is also somewhat in this category, although it reports in Canadian dollars.
Virtually all of the U.S. headquartered companies on our list would be not very
much affected by the dollar movements but Canadian investors in these are hurt
by the rise in the Canadian dollar. (The exposure on say Thomson corporation
might be similar to that on say Fed Ex). The location of the official head
office has little impact on the currency exposure, it is the location of the
expenses and revenues that drives the currency exposure.


Companies that are primarily operating in Canada but with substantial
revenues and expenses in the U.S.. are also hurt by a higher Canadian dollar.
Companies in this situation from our list are are CN, Stantec and Canada Bread.


Some companies should be almost totally unaffected by the rise in the
Canadian dollar (unless for some reason they had borrowed in U.S. dollars). From
our list such unaffected companies include, Shaw Communications, Telus, E-L
Financial, Home Capital, IGM Financial (at lest prior to its Putnam
acquisition), ING Canada, Loblaw, Northbridge Financial (Northbridge has a small
U.S. exposure), Tim Hortons (though Tim’s has a small U.S exposure) TSX Group,
Alarmforce and EGI Financial (EGI has a small U.S. exposure and I believe Alarm
force has a very small U.S. operation).


Finally some companies benefit from the higher Canadian dollar. These are the
lucky companies that face import costs in U.S. dollars and collect revenues in
Canadian dollars. Thier imported goods costs should be dropping like a rock.
These include Canadian Tire ad Reitman’s both of which source most products
outside of Canada. Under perfect competition they would pass the savings onto
customers, but I suspect right now they are not passing all of that along.


We will be updating our Canadian Tire report very shortly and it might be a
good way to ‘play” this dollar rise.


As far as companies that are hurt, your investments in U.S. companies show
the hurt instantly on your Web Broker account when translated back to Canadian
dollars. But for many companies it is not clear that the hurt has yet been
reflected in the share prices. Certainly it has not all shown up in the earnings
reports yet. Again some of these Q3 reports could be ugly. And for many
companies a drop in value due to the rise in the Canadian dollar is like a
permanent one-time hit to valuation. There is generally nothing the company can
do. (It it could cut costs it presumably already would have). Companies with
expenses in Canada and revenues from the U.S. could driven from profit to loss.
These have to be looked at individually. Luckily, Cognos and Manulife have
traditionally been very profitable, but I don’t see how they can escape some
pain in this regard.


Companies like Couch-Tard where it is a matter of the repatriated profits
from the U.S. being lower due to the dollar are not as bad off. The growth in
profit can resume once the dollar stabilizes but basically the profit level may
have been effectively set back removing several years of growth.


Overall, the story is mostly one of pain here, it is another reason to be
more cautious on the market at this time.


Canadian that have invested in U.S. have been hurt, but there is a (very)
bright side, your wealth when measured in U.S. dollars has increased
dramatically. I’ll address that topic further in the next day or so.


If you are thinking about the impact of the high Canadian dollar on other
companies, here is the general rule:


Revenues mostly from outside of Canada with expenses mostly in Canada equals the house of
severe pain (exporters)


Expenses outside of Canada and revenues inside Canada equals heaven


Operations out side Canada (revenues and expense) equals more moderate pain


Hedges can eliminate the pain or gain but it is difficult to know who is
hedged without detailed study. And generally currency hedges are only temporary.



September 19, 2007 (This comment is a day late getting uploaded, due to a
technical problem)


The Dow continued up a little today but I think the American market will now
likely pull back… So I bought some of the Canadian bear ETF funds (HXD and HFD) today.
However, maybe I should have waited on that because it is very possible that
Canada will now lower interest rates to put the brakes on the dollar and if so
that could move the market up.


September 18, 2007


Does our now mighty Canadian dollar deserve a new name? If so I have a
suggested name. Believe it or not there are better names for a currency than the
“loonie”. Or should we adopt the U.S. dollar?

Read the full story here.


An impressive rally today. But now what? We have the Dow up 10.2% this year.
That is a surprisingly high return in the face of a major credit crunch, an
ongoing decline in  U.S. housing prices and a looming U.S. recession. It
seems to me that the market has now wrung pretty much all possible optimism out
of the Fed interest rate cut and other good news on lower inflation. For the
short term it is really hard to see how the U.S. market can continue up. I am
thinking defensively, and looking to take partial profits. As usual, the
difficulty I face is that I do like the individual stocks I am holding and so it
can be hard to decide where to trim. But my outlook is definitely cautious and
defensive at this point.


September 17, 2007


Monday was a day of little movement as we wait for the Fed move today
Tuesday. If it’s not 50 basis points of lower interest than I think the market
drops. If it is 50 basis points then I suspect we get a short-lived rally. But
then again. trying to predict short term moves in the market is very difficult.


is updated and rated (higher)
Buy at $43.32. As an investment this company gets no respect these days. It’s
stock price has trended down for quite some years. But wait a minute because
meanwhile, its earnings per share continues to march up steadily. Right now the
market seems to be assuming that its growth will be close to 4% going forward
than it’s historic 12 or 14% level. This really seems to be a chance to buy a
great company at a bargain price. Sure, recession could hurt earnings
short-term. but recession is not a long-term concern. Buffett had bought a large
position in 2005. It would be interesting to know what he thinks of it now. I am
very tempted to buy some myself. My only hesitation is that I prefer to raise my
cash position at this time.


September 16, 2007


As we start the week, the surprising thing is that the DOW is up a rather
impressive 7.9% this year to date and the S&P 500 is up 4.7%. That is a
surprisingly good return given we have been hearing about the sub-prime /
housing / consumer recession scare since February. We have been on a roller
coaster… I suspect the move this week will be down. After all, if the Fed
announces a rate cut that is already expected and any rally on that news seems
likely to last about 5 minutes.


The TSX is up 7.3%, but that is not so surprising given the oil price.


Overall, I am inclined to be defensive this week. I would be very selective
in any buying, and would be more inclined to try to get my cash position up as
my cash position is still only around 12%.


As I post this the Japanese market is down…


I updated my personal portfolio composition.
With stocks held in four different accounts, I find it necessary to enter the
amounts into a spreadsheet to show me the overall percents otherwise it is easy
to lose track. I also have to admit that my portfolio is the result of a lot of
individual buy / sell decisions. In theory I should set target percents for all
these stocks and then move towards that. In reality a lot of emotional baggage
and past history gets in the way of establishing the correct percents in each
stock. Still. if I were particularly uncomfortable with the weights in each
stock I would move to adjust it.


The ratings in the table above represent my (our) best rational assessment
for each stock. Sometimes there too our past history with a stock can influence
our thinking but we lay out all of our thinking in each report… It is my own
portfolio that more emotional and historical baggage would come into play.
Therefore I suggest subscribers look first to the individual stock ratings in an
a-la-carte approach rather than mimicking my own portfolio. The model tracking
portfolio is also a possible guide though in general subscribers have stocks
outside of what we cover here and I do think the a-la-carte approach is best.


September 13, 2007


The market rose nicely today once again confounding (at least so far) those
who preach doom and gloom. The strength in the U.S. market is all the more
impressive because it came on a day when oil prices reached record highs (which
is bad for the U.S. economy). Shaw Communications
did very well today closing at $24.50 and it may go to show that it can be a
good idea to place orders to buy good stocks on dips (Shaw had dipped to $23.24
last Friday and had been dipping even as the market rose). It’s a bit surprising
to see Tim Hortons down in the past few days
even as the market was rising, and also given it announced a deal to be located
in the new Wal-Mart superstores in Canada.


Business ideas. I know many of you are highly successful individuals
and may have many business interests. I am opening up my Blog at

http://investorsfriend.blogspot.com/ for members to share some thoughts on
ideas about business opportunities outside of the stock market.. I had started a
discussion there last February but we did not get many posts to the blog. You
can post anonymously so, why not add your thoughts and responses to what you
read there? I only intend to keep that open for about 5 days, so lets get, your
thoughts up there. (It will be open for reading after that but I will only
encourage posts for the next few days).


You can also email business ideas to me at


Sometimes I am asked to comment on specific stocks. I really can’t give
useful thoughts on companies that I have never looked at. So I focus on trying
to be quite knowledgeable about a selected group of stocks rather than knowing a
little about hundreds of stocks. For discussion of stocks not “covered” here,
you could try www.stockhouse.ca See the
Bulleting Boards there. For Canada enter the symbol as T.TOC for U.S stocks just
enter the symbol.  At least there is some discussion there. But often I
must admit the discussion there is based on absolutely nothing. It’s often a
case of the blind leading the blind. Still on the blue-chip type stocks there
are some useful discussions. As far as on speculative stocks, it is 99% useless
chatter and hype, but can be mildly entertaining.


September 12, 2007


The Canadian dollar is back to 96.5 U.S. cents, which about ties the 30-year
record high it briefly reached on July 24.


My thoughts are: buying a car? go across the border and save thousands.
Shopping? consider a trip to the U.S. or consider on-line shopping. Retailers
need to drop prices in Canada to reflect the higher dollar but will only do that
if they see that shoppers are heading across the border. Our retailers (those
that sell U.S. and other foreign made goods) have benefited greatly from this,
but at some point the pressure will be on to lower prices.


This high dollar will I think at some point brutally hurt the manufacturing


The United States remains a hugely important country for most Canadians. Most
of us should think about having U.S. investments. We could wait for our dollar
to reach parity and higher, but that has risks too. I have moved some funds into
U.S. dollars and would like to continue to do so, averaging in when our dollar
reaches new highs, like now.


It’s an outrage that we are now allowed to invest all of our RRSP and RESP
funds outside of Canada but the banks are prevented (by some old-fashioned law,
as I understand it) from giving us U.S. dollar accounts within our RRSPs.
That means you face currency conversion costs on every U.S. stock you trade in
your RRSP. That is a needless cost.


September 11


This morning I heard that China had passed Canada as the number one import
country of the United States. Wow, that kind of crept up on us. I think it bodes
well for the rails like CN and Burlington since a lot of imports come by rail.
Also inflation in China is rampant. I suspect taht may mean wages will rise fast
in China and pretty soon some production will move to even cheaper countries.
But China will still be growing as an import source for the U.S. (And Canada


This morning there was news that one of the Fed Governors had hinted that a
rate cut was coming. Therefore the market opened higher. I then decided to sell
my two small position in the Horizons Beta Pro bear ETS. I believe this takes my
cash position up to about 15%. I would rather go to cash than the beta pro bear
funds because holding any bear fund while still being 85 or 90% invested just
seems too inconsistent. Still the bear funds can be a good way to hedge on short


I’m still feeling nervous about the U.S. housing / mortgage situation… But
right now the market seems to be holding in well on the anticipation of a FED
rate cut. But I wonder if after that happens, the overall market will basically
say, okay that’s fine, but it’s not enough and the selling sentiment might


In the long term markets always do well, but I don’t think the U.S. can fend
off a recession forever and the negative short-term affect that has on markets.


September 10, 2007


Hopefully markets won’t do much as we wait for the Fed to confirm  a
rate cut. For the short term I remain more nervous than optimistic. For the long
term I am confident that good companies will do well. In any market there are
always some bargains to be found, although it definitely is harder to well when
the general markets seem to be declining.


September 9, 2007


Canadian Western Bank is
updated and rated Buy at $27.10. For many years it has grown steadily in
earnings. It should continue to do well unless there is a major slow-down in
Western Canada.


(women’s clothing stores) is
updated and rated Buy at $20.18. It’s earnings have dropped somewhat in the
first half of this year. Based on the ratios it would still look like a (lower)
Strong Buy. However it reported that its next quarter has started off with a
7.2% drop in same store sales in August and therefore we are being more cautious
on the rating at this time.


September 8, 2007


I always appreciate any referrals that subscribers make. I am including here
a link that you can use to refer friends and relatives and which gives a special
price of $100 per year (regular is $120 per year).


I would be very grateful if you would email your endorsement and a link to
the following page to anyone you think might be interested.
Link to referral special rate.
Hopefully, it is clear that the value of the analysis here is well beyond


The TSX index is at 13651 and sports a P/E ratio of 17.8. This looks
expensive. See our updated analysis here of the
TSX valuation.


The Dow Jones Industrial Average closed on Friday at 13,113. Looking at a
long run analysis, this seems like a reasonable level. Our analysis of the
DJIA P/E ratio and valuation is updated.  (In the short-run the
direction is anyone’s guess but my sense is that markets will decline more due
to the sub-prime mess and the housing situation in the U.S.)


September 7, 2007


Another volatile week in the markets. Our Picks were generally down this
with, with the market. My own portfolio is up slightly on the week, helped by
the beta pro bear positions that I mentioned under September 5 and helped by
some of the selling I did.


As mentioned under September 2, I had placed an order to Buy Shaw if it
dipped to $23.25. It did dip to $23.23 today before closing at $23.54.
Therefore, so far it looks like my strategy there was a good one. Similarly I
had placed an order to sell my EGI Financial shares at $12.49 and it looks like
I got the high price of today as these sold today at $12.49 but then EGI closed
at $12.20. The idea here was to use volatility in my favor by placing some
orders to buy below the market and some orders to sell above the then market.


September 6, 2007


After the market close today Dalsa announced it would take measures to cut
costs. This included some down-sizing and lay-offs. There will be usual expenses
charged to earnings next quarter for this. There was also mention of possible
asset write-downs. It’s hard to say how the market will react tomorrow but my
guess would be that the stock will decline.


Today the market once again rose in spite of fears about sub-prime problems
etc. I was feeling in a defensive mood and slightly trimmed my position in Tim
Hortons today at $35.20. Also I trimmed my Telus position by half. I still like
these stocks but I want to have some cash in case better bargains appear. In
addition BCE was up nicely today and decided to sell half my position there.


While the market does not seem expensive, I do think U.S. housing prices are
going to fall, possibly a lot, and that is probably going to have some general
negative impact on stocks.


September 5, 2007


I mentioned yesterday that it is a time to be cautious. This morning a
headline in the National Post talked about large losses on non-bank sponsored
Asset Backed Commercial Paper. These short term investments could be on the
balance of many companies. If the 50% loss figure is correct than we will
certainly have a few companies that will be hit with surprising losses. I am not
aware if any of the stocks rated on this site are directly at risk… But it’s
easy to suspect that the U.S. economy will continue to be hit by the sub-prime
mess. Therefore, overall I would not be surprised to see markets head back down.


As a partial hedge I may trim some positions. Today I sold a but more of my
Western Financial Group. I also sold one third of my Canadian Western Bank
shares. I also bought a small amount of the double bear TSX Financial sector HFD
and the double bear TSX 60 ETF which trades as HXD. As I mentioned before, I
would really rather pull money out instead of buying the bear ETFs, but there
just were not any other stocks I want to sell at the moment. My biggest position
is Tim Hortons. I may even trim that back but as of today could not bring myself
to do so. Unless the market really tanks, I think Tim Hortons will be higher by
the end of this year, but it certainly could dip in the meantime. Overall I am
still reasonably close to fully invested.


September 4, 2007


Today I grabbed some Couche-Tard at the
opening price which was good since it was the low price for the day. A previous
order to sell my EGI financial was partially
filled. Also a previous order to trim my
Western Financial position back a bit was executed and some of that sold at
$5.85. I may enter an order to sell just a bit more at around $6.00. While the
market has recovered from August lows, there is still certainly the threat of an
American recession. It’s a time to be cautious and try to avoid stocks that will
sink really hard in a recession. But even more so, avoid stocks that might sink
and never recover. If it sinks but then comes back that is hard to take but in
the end does not really hurt you…


September 3, 2007


(consulting engineering
services) is updated and still rated Weak Buy, now at CAN $34.50 or U.S. $32.57.
It’s a great company with a great ROE and a steady history of profit growth. But
the high P/E at 24  and the housing recession outlook in the U.S. are
reasons that we can’t rate it higher. Recently in the market turmoil it got
under CAN $30 and that might be a reasonable entry point, if it happens again.


It has been exactly eight years since we first added Stantec to this Site. It
was one of our first stocks we looked at. We called it a Strong Buy then at
$2.50 (actually $10 but adjusted for splits, it is $2.50). It has been a winner,
but the P/E was no where near 24 back in 1999.


Attention, any Dentists
reading this: (everyone else if you have any dentist email pals you may want to
forward this)



My latest newsletter spoke of the huge
value of information. Coincidentally a friend of mine in Calgary has an “e-book” available that will be extremely valuable to any Dentist who is
interested in learning how to make more money from his or her practice. My
friend Dr. Dave Robertson, DMD owns a $6 million per year multi-dentist practice
in Calgary. And he works only 2 days per week. Dave told me last year that he
was thinking of setting up a program to offer all his dental management tricks
and tips to other Dentists. Just today he emailed me and it is up and running.


You may think you have seen and heard all this before, but Dr. Dave is the
real deal, he’s the guy actually working 2 days per week and making a LOT of money. Check
out Dave’s program at
http://www.dentalmanagementsecrets.com/ There is a lot if information to
read there. After he describes it all you will likely be shocked at his low
introductory price for all these secrets in his e-book format.


P.S. If you make a purchase from him let me know.



Alimentation Couche-Tard (operator of
Couche-Tard, Mac’s and Circle-K brand convenience stores) is updated and
upgraded to (lower) Strong Buy at $21.70. Reading their annual report I was
impressed by the simple strategy and the success they have had. It has been a
growth company and should continue to be. In fiscal 2007 ended April 30, their
earnings were about flat due to lower gasoline margins and also less acquisition
in 2006. However earnings growth has resumed strongly in the latest quarter with
strong gasoline margins and the impact of quite a few acquisitions in the past
year. The stock price has been hurt by the pause in earnings growth and also by
the higher Canadian dollar (They report in U.S. dollars and I translate that at
the current exchange rate). Based on past trends this should be a good
investment. It is always easy to point to risks like competition and the
pressures to stop smoking but the fact is that the numbers indicate that they
continue to do very well despite those pressures. One negative is that Q2 faces
a “tough comparable” and therefore cannot be expected to show robust earnings
growth. I plan to add to my position in this company.


September 2, 2007


Loblaw is updated and rated Weak Sell /
Hold at $45.45. There have been no signs of recovery. Even though it has
potential and has valuable real estate it is perhaps just as well to Sell and
move on. It is surprising because this was formerly thought of as the best
managed grocer in North America. Now they made errors in strategy in getting
into merchandise sales in Ontario. But worse then that they seem to have
repeatedly fell down in the simple execution of being able to stock the store
shelves! Too bad the family would not decide to sell to Warren Buffett if he
would have it. But Buffett usually insists on good management being in place.
But he does like family companies. Certainly if the family ever sells out,
Buffett and Berkshire would be a buyer of choice.


Loblaws (adjusted) net profit margins are only 1.2%. Personally my first
thought would be they can simply raise the prices by about 5% and I suspect the
bottom line would improve a lot even after losing some customers. To my mind it
was silly to cut prices in advance of Wal-Mart coming in because in the grocery
business, a customer will not stay with you next year because you gave him a
deal this year. They probably need to raise prices, focus on execution (stock
the shelves!) and figure ways to really retain customers like locking up either
the aeroplan points or the airmiles points in as many provinces as they can if
it is not too late. They give store-brand points, but I never know what those
are worth and am not much interested in collecting points other than airmiles or


My own portfolio composition is updated.


I took a look at a number of the Picks to see if any kind of unuusal insider
treading was happening. Of Note Some big Shaw insiders are buying JR Shaw bought
around 1 million shares. Ron Joyce was also buying. Also a few executives. This
is very positive signal for Shaw. Which we rate
a Speculative Buy.


I am surprised to see that Telus was not
buying back its own shares given the price drop. I thought possibly they are
under a black-out but then again one of their Directors was buying. It is
surprising because until about the end of June Telus was buying heavily and
steadily – possibly there is just some delay in getting going again.
Kingsway also continues not to buy its shares
even when they had dipped to the $18 range.


With the end of Summer and the start of a new month I decided to take a look
at my portfolio to see what adjustments I might make. I am inclined to place buy
orders on a number of stocks at 5 or10% below recent prices. But I have little
cash to do that. I also looked to see what I might sell in order to raise some


I have a sell order on EGI Financial at $12.49 to take profit and clean up
that small position from my portfolio. Similarly I have a sell order
EL-Financial at $679. I have a sell on all my CE if it gets to $40.95. I have a
sell on a small potion of my Western Financial at $5.85 as I am over-exposed to
it. I have a sell on a potion of my Northbridge Financial at $35.90. And I
placed an order to buy additional Shaw at $23.25 if it should dip that low. Also
a buy on some Berkshire Hathaway B shares at $3810. This is more orders than I
normally have but it might be a way to take advantage of volatility. If some of
these sell then I may place some buy orders below the market.


Burlington Northern Santa Fe
added as a new company and rated Buy at $81.15. I added this to the Site because
Warren Buffett (Berkshire Hathaway)
has been purchasing shares at about $80 and now owns 15% of the company. I
wanted to put this company through my analysis process partly in order to gain
further incite into how Buffett might be thinking. This railway bears a lot of
similarities to Canadian National. In both cases there lots of deferred income
taxes which adds to earnings quality. In both cases the ROE are very strong.
They are great companies but usually don’t tend to look cheap.


Buffett has said he prefers a great company at a fair price to a mediocre
company at what looks like a bargain price. I suspect Buffett is attracted by
the way rail companies can sometimes be protected from competition. Also as the
economy grows and they run more trains over the same lines they can be very
profitable. Right now there is the uncertainty about the economy and that causes
me to hesitate to assume that Burlington can continue to grow earnings very fast
. In fact for 2007 earnings are expected to grow only in the low single digits.
My strategy here would be to take an initial position and then hope to buy more
if recession drops earnings and the price temporarily by late this year or
through 2008. Buffett may see other things and he may have an ability to
influence management to cut costs or whatever. Based on my analysis I would
consider CN to be as good as or a better investment than Burlington. However,
buying what Buffett is buying seems like a very good idea to me.


September 1, 2007


Bargain opportunity on bronze statutes and decorative pieces
topic, I admit)


A friend of mine started a company and early this year imported a stock of
bronze statutes and decorative pieces. He intended to wholesale these to
retailers. Sadly he was unable to gain traction in getting sufficient retailers
to stock his products. Now he is selling off the stock at very substantial price
reductions. Many are half price or less.


I was at his open house and was certainly impressed. Some of these are quite
large and could be used outdoors. Most of the pieces are, I believe, for display
on a small table or the like. Frankly, I am no connoisseur of such things but to
me the articles looked to be of high quality and some would be suitable to
decorate the finest of new homes.


Prices now appear to range from about $150 to $3200. The original prices were
$300 to $7500. For $229 for example you can get a fish figure that is over 2
feet long and over 24 pounds. The $3200 statute is stunning and is basically
life-sized (6 ft and 218 pounds) and would be suitable for a finer home or
business and could be used outdoors.


My friend is able to ship these pieces anywhere in North America. He is
located in Sherwood Park, just outside of Edmonton.


If you have any interest in such baubles, check out his Web Site at



At these prices, these articles will not last long. (In fact, I almost
hesitated to post this, because I may want first dibs myself!).


The latest edition of the free
newsletter has been sent. If you did not receive it by email, enter your email
address onto the free newsletter list, using the
menu item to the left.


I have updated the 2007 performance figures.
It’s no one of our best years, but we are doing reasonably well in a tough


The market recovery was surprisingly strong on Friday. I had expected initial
gains on the speeches by the President and the Fed chair, but I then expected
the gains to fade on Friday afternoon, but they held strong.


August 30, 2007


President Bush is going to outline some kind of sub-prime mortgage imitative
tomorrow (Friday). This should provide at least a brief rally in markets
especially banks and builders – which will send short sellers into a tizzy. With
the continued volatility, one idea would be to place order to sell a portion of
holdings at say 5% to 10% above the current price and to buy more on a 10% dip.
This would work well in  a non-taxable account. If you are sort of luke-warm
on a stock. then this sort of “stink-bid” 10% below market could end up getting
triggered just by volatility. Or same on the up-side an overly optimistic offer
might get taken up…


August 29, 2007


The market today again showed its ability to bounce back. Convenience store
operator Alimentation Couche-Tard (Macs, Circle-K) released strong earnings
today and jumped 7% to $21.88. We last called it a Buy at around that same
price. We have not updated our report but it will still be rated Buy or higher
given the strong earnings report. Tim Hortons also did well today. At times like
now when investors are realizing the complexity of some companies (such as those
with sub-prime or asset backed commercial paper), it is comforting to own a
simple business like a convenience store chain and a coffee chain, where you can
drive in and judge for yourself the quality of the operation. Warren Buffet has
always favored simple businesses. Frankly the more I have learned about the
complexities of financial and other companies, the more I have come to
appreciate a simple retail business, or any business with clean uncomplicated
financial statements. Other reasonably simple (and profitable) businesses like
Shaw and Telus also did well today. Again these are the type of businesses that
you deal with yourself and it becomes easier to understand how they make money.


I removed Pet-Value from the list above, it was a new addition that turned
out to be only a weak buy and so I am removing that to focus time on more
productive areas. Similarly, Clemex has been removed since our report was out of
date and I have little interest in this stock which has been a frustrating
under-performer for many years (notwithstanding that it is up in price this


In the past year I cleaned up my own portfolio by selling off a lot of small
positions that really had almost no chance of having a major impact on my
results and which basically were taking up valuable “mind-share”.  I still
hold over 20 positions spread across 3 portfolios. Ideally I would like to trim
that back to 15 or even 10 positions. That will involve greater volatility. But
it will also force me to be more selective and invest only in my better ideas.


August 28, 2007


It was certainly a bad start to the week. Perhaps we should all have a plan
for what to do as the market falls. Will you sell to preserve capital? or ride
it out? I have said before this decision has to be different for each individual
depending on both capacity to take risk and the willingness to take risk. I do
not believe that there is a “right answer”.  If you are intending to buy on
dips you should decide that ahead of time and take action accordingly. If you
intend to sell on dips then you should enter stop losses so that the job gets


The markets have shown surprising resiliency as in last week when they were
strong. But when I think about the housing foreclosures in the U.S., it is easy
to conclude that a consumer recession the U.S. looms. In this situation the
earnings of many companies would fall and P/E ratio would probably drop somewhat
as well. Perhaps a good strategy would be to stick with stocks where earnings
are not likely to drop due to a U.S. consumer recession. That might include
stocks like Shaw, Telus, our property insurance picks, Canadian Western Bank and
Tim Hortons. But I certainly can’t guarantee that these stocks will not drop.
What I am quite confident of though is that the fact that if they do drop, they
are strong companies that will recover.


Home Capital is updated and rated
Speculative (lower) Strong Buy at $34.30 (it closed today at $33.25). Based on
past earnings it qualities as a Strong Buy. But it is speculative because of its
possible exposure to sub-prime issues and because financials in general are at
risk of falling. Also a housing recession could cut its earnings sharply.
Possibly we could rate it lower, but the fact is that on its achieved numbers
and its trend to date it looks like  Strong Buy. It looks like a reasonable
pick but I would not bet too heavily on it given the speculative aspects. I plan
to buy a few shares in Home Capital.


Today I bought 1 B share in Berkshire Hathaway. I would have liked to wait
for a lower price and have an order to buy another if the price drops a bit
more. I also bought some shares in Wendy’s International today on the news that
it may get a buy-out offer. This speculative. Wendy’s has a high trailing P/E at
29 but indications were that this $33 stock might get an offer around $40. But
again that is speculative.


I was looking again at Coventree Inc. (COF on Toronto). This was the company
that has been in default in August on some of its Asset Backed Commercial paper
as it was unable to “sell” new debt to pay-off the maturing debt. I was looking
at its book value and discovered some shocking issues. Its 2006 fiscal year
ended September 2006 and the annual report stated that its book value per share
was $4.99 per share and bragged that this was a 64% compounded annual growth
since 1998. But this was “excluding Variable Interest Entities”. In reality the
book value per share was about $1.16. That is a shocking over-statement in my
opinion. If they are going to use a non-gaap figure like that, they should
clearly state the gaap figure at the same time. Apparently there were some 110
Variable Interest Entities consolidated in for GAAP purposes but excluded for
these non-gaap figures.


As of its latest quarterly report the book value per share is negative.
Clearly there are some enormous complexities and issues in the accounting here.
Clearly we have to very careful in looking for issues in the financial
statements of Coventry and any other company involved in asset backed


Home Capital seems a lot more straight forward than Coventree, but perhaps the
issues at Coventree do illustrate that there is risk in financial companies.


August 27, 2007


With this whole credit crunch I believe it is still safe to invest in
commercial paper issued directly by a large investment grade corporation. For
example, TD Waterhouse lists some commercial paper that is issued directly by
corporations. As I understand it the entities that are most trouble are sort of
shell companies that bought the right to receive say car loan payments (average
term maybe 24 months left to go) and then they funded that by selling 90 day
commercial paper. At the end of 90 days they redeem to commercial paper by
selling new commercial paper. If they can’t sell the new stuff that is a big
oops, they can’t redeem the 90 day paper that has matured.


If a little Trust like that trades then its market price has probably
plummeted. Thus could be a big but risky opportunity to buy the beat up little
Trust. After all the car loan payments will likely still come in, the Trust has
value, just no liquidity. I am not going to find the time to dig into these but
it is an opportunity. If there is a brave mutual fund that is swooping in to buy
these Trusts (assuming there are some that trade) then that mutual fund would be
a good investment.


However, I just took a look at Coventree Inc COF on Toronto. The shares have
plummeted. But the company is showing negative book value so I would not touch
that one at all.


DBRS listed other Conduit companies with liquidity issues




I suspect most of these do not trade in the market. If any do trade and have
book values well above the share price, they might be good, but risky
investments. Even if they trade, it may be under a parent name and so these
would be hard to find.


Based on my new Global ETF article, I
bought a few shares of the United Kingdom index EWU. I bought this in a U.S.
margin account, that way I will not face currency bid/ask spreads if I trade in
and out of this (I do face though the currency movement risks). I considered
Belgium and Italy with their lower P/E ratios but looking at the constituent
companies in those indexes (see www.ishares.com)
I saw that those indexes have some huge weightings to single companies and are
not that diversified. So I chose the U.K. However, I do worry that the U.K. is
exposed to a large bubble in its property prices. Anyhow, this little purchase
gives me a toe into into international diversification. (Although some of the
Canadian companies like Manulife have big international components).


August 26, 2007


Thinkin’ Global – For a long time I have wanted to take a look at some
global Exchange Traded Funds( ETFs). Basically the idea was to see if the P/E
ratios are a lot lower in some other countries. If so, an ETF investment would
probably be a good idea. Part of the idea was to “fish where the fish are”. In
other words if the low P/E stocks are in other counties then it might make sense
to invest there rather than strictly in Canada or the U.S.  What I have
found though is that in a global world the average P/E ratio in most counties,
even in emerging markets is up around 17 or higher.


Still, it is useful to know the ETF symbols and the P/E ratios for some
international ETFs in order to diversify. Also I did find a couple of European
countries that had lower P/E ratios.


You can click here for this important new
ETF article.


For now at least I am not making this available to the free members of this
Site, this is reserved only for you paid subsbcriber members.


August 25, 2007


Important article update – Our Special Report that analysis the valuation ratios of
Exchange Traded Funds and sectors
on the TSX is updated.  I also include there the symbols for the Exchange Traded
Funds that allow you to buy exposure to a given sector through an ETF and we include comments on the valuation of
each sector. I have added many more ETF symbols to this article. As subscriber to this Site you have access to all our special
reports. See the list above of links for members only.


I am hoping to develop a similar article with selected global ETFs. However,
it may not be easy to find the all-important P/E ratios for global ETFs.
(update, actually it was a lot easier than for the Canadian ETFs)


August 22, 2007


It was nice to see the recovery today. But it’s not at all clear if the
credit crunch has been fixed. I would be surprised if we don’t get some bad days
the other way, although the market direction seems to be up now for the moment.
But the real point is to keep investing in strong companies at low or at least
reasonable prices.


August 21, 2007


It was nice to see many of our Picks up today. It was not clear why the
telecos were up other than bargain hunting. But with the DOW down today the
overall market direction still seems to be down. I had hoped to buy some
Berkshire today but I cheaped out with a low bid and the price did not come down
to meet my bid.


With BCE up nicely today I sold part of my position there. Buying BCE was a
speculative bet that the take-over at $42.75 will happen. But there has been
some doubts that it will and so I took the opportunity to reduce my risk. At $38
BCE is hard to resist but at $39.88 it seemed opportune to sell some. In some
ways I am reluctant to sell more BCE since it seems more likely than not that
the $42.75 will eventually be paid. But then again if I sell now there may be
better gains in a stock like Telus and then I avoid the “deal risk” associated
with BCE.


EGI Financial
is updated and rated Weak Buy /
Hold at $11.75.  This is a stock that we rated Speculative (lower) Strong
buy at $9.90 at the start of this year. However, at this time I am focusing on
the fact that its high GAAP earnings are driven in large part by retroactive
gains related to prior years (what the industry calls “favorable reserve
development”). After adjusting for that and for realized gains on investments
the earnings look much less impressive. The fact is taht the profits of property
insurance companies are inherently volatile and we should not get too wrapped up
in the P/E ratio or ROE which can be highly volatile. Price to book is a more
reliable indicator. In this case price to book is reasonable at 1.27, but we
have some other property insurance stocks on this site with lower price to book
ratios. I am also cognizant that this company is small which adds to risk and
the trading is thin which adds to price volatility. Overall I am inclined to
reduce or eliminate my position ion this stock and take the profit. For the
model portfolio I will notionally sell half at tomorrow’s opening price and put
the proceeds half into Reitmans. and half
into Telus.


I also intend to no longer update the report for this stock in order to focus
more time on other stocks (I have too many property insurance stocks on the
list). EGI actually did exactly as I hoped since it was added to this Site in
that it has reported retroactive gains on auto insurance from prior years. This
drove the stock price up about 49% sincce it was added to the Site. But it is
not realistic to expect those retroactive gains to continue indefinitely.


August 20, 2007


Today’s market reaction was a pretty weak follow up to Friday’s FED interest
rate cut. Markets started out positive, then went negative and then finished
mildly positive. So that is hardly an enthusiastic reaction.


I decided to bargain hunt a little today and bought small amounts of Canadian
Western Bank and Kingsway.


I was hoping Warren Buffett’s Berkshire Hathaway would pull back a little and
I would buy. Instead it rose. Wiley old Warren Buffett is doing just fine in
this market. In fact his stock is up 29% since June 2006 when he announced he
would start giving away his money. So far he has given about $4 billion worth of
Berkshire stock to the charitable foundations he selected last year. Nevertheless
his own stake in Berkshire has increased from about $43 billion at that time to
about $52 billion now.


Warren Buffett has over 99% of his wealth in one stock, Berkshire Hathaway,
the giant conglomerate of which he is President and controlling owner. If you
look at the stock price history of Berkshire, it becomes apparent that some
years Warren has lost billions in net worth. Yet it does not bother him.
Occasional declines in wealth are a fact of life when one chooses stocks as the
road to riches. In times of decline we need to remember that id f we own shares
in good businesses and if we purchased those shares at reasonable prices, our
wealth is going to grow satisfactorily over the years despite some setbacks.


It’s up to each individual to decide if they stomach the volatility of the
market. My sense is that there may be further down-side ahead, but in the long
run, the markets will reward those who hold quality stocks.


August 19, 2007


I had mentioned in some detail under January 2 below that I thought that
Warren Buffett’s Berkshire Hathaway was a good investment at $3666 per B share
and I mentioned under January 3 that I bought a small amount. And I mentioned
under August 16 that these shares are doing well and that I think the big
company is well-positioned. Berkshire fairly leapt (up 4.1%) on Friday and now
are $3948 per share. I am thinking of buying more but would prefer if they
dropped back a little first. (Hopefully it will dip a little with the
approaching hurricane Dean)  I have long considered adding the stock to the
list above. However, it is very complex and the earnings tend to be volatile and
Buffett himself has said it would be very difficult to analyze based on the
financial statements. And there is no way that I could understand all of its
complexity. Still it trades at what seems like a modest 1.54 times book value.
Given its reputation I am willing to invest in it.


Transfer some money to a U.S. account? In recent editions of the free
newsletter I indicated it might be wise to transfer some funds into U.S. dollars
if possible. When I mentioned that in early July our dollar was at 94 cents and
looked to be headed to $1.00. But I thought it was prudent to transfer some
money now rather than getting greedy and waiting for parity. Unfortunately U.S.
dollar accounts are not possible inside an RRSP. I transferred a small amount
into U.S. dollars when our dollar was over 96 cents (I lost about 0.85 cents on
the exchange fee but a fee always has to be paid). I intend this money to
permanently remain in U.S. funds. That way when I buy and sell U.S stocks I will
not face an exchange fee each time. Today with our dollar above 94 cents having
recovered from about 92.5 cents, I took the opportunity to transfer a little
more into U.S. funds. Some experts are predicting our dollar will fall into the
mid to lower 80’s. On the other hand with the FED rate cut maybe our dollar will
rise. My thought is to take advantage of our high dollar and get some money into
U.S. funds. If we reach close to parity I am prepared to think about borrowing
money to put permanently into U.S. funds.


I am not doing this to make money on the exchange bet. Rather it is a hedge.
I know I will need U.S dollars in the future. They are cheaper now than they
have been in 30 years (except for very recent spikes above the current level).


In theory one could also buy options on currency and really make some money.
In reality that would not be hedging and would be pure speculation. And I
believe you need a special trading account to do that. I don’t know how to do it
and I am not particularly interested at all.


The market direction still appears to be down. Friday’s rally was really not
that strong given the Fed action. We have perhaps been “spoiled” by almost five
years without a 10%-plus market correction. Now, we are reminded that these
things do happen in the markets. Quality dividend paying stocks have been hurt
along with the market. But at least with those kind of stocks we can be
confident that they are good investments in the long run.


At some point if the market continues to drop I will be looking to bargain
hunt. However at the moment I am also thinking defensively.  I may decide
to reduce some positions, particularly on rallies.


With the large swings in the market, one strategy might be to place partial
sell orders 5 or 10% up on some stocks and buy order 5 or 10% down (on the same
stocks). In the past week some of these would have been triggered to advantage.


Our Performance figures for the year are
updated. It was quite a bad week for our stock picks.


Our article that looks at the
valuation of the S&P 500
index is updated. The conclusion is exactly the same as it was in our
February 10 update to that article, that the S&P 500 index is probably
moderately over-valued and caution is warranted. This is a long-term indicator
and not a predictor for the short-term. There is a link to these members-only
articles above, or click the link here.


August 17, 2007


Western Financial Group is updated
and rated (lower) Buy at $5.60. It just released a strong earnings report.
Given recent stock price volatility it may be possible to purchase this stock at
closer to $5.00 or less. It should be a good long-term investment. This stock
has done very well since we first called it a Strong Buy just over two years ago
at $1.96. It’s no longer a clear bargain like it was at that time, but it still
should do well.


August 16, 2007


The good news today was the recovery in the U.S. market. The Dow at one point
was down 2.6% but recovered to be down just 0.1%. The S&P 500 actually managed
to finish up slightly on the day. But the TSX was down 1.5%. The big declines
earlier today show that there is a lot of fear in the market. Despite the late
recovery in the U.S. market today, the trend still appears to be down.


When the credit markets recover we may see private equity buy-outs come back
into the market looking for bargains. But that does not seem to be immediately
on the horizon.


Possibly there were some good bargains to be had today (we won’t know if this
was the time to buy until we see where the market goes next. But Canadian
Western Bank was down to just over $23, Kingsway was close to $18, CNR was under
$50. But I must admit, I was not in a buying mood but was instead thinking
defensively. I sold a small portion of my Tim Horton shares. Also I bought a
small amount of the beta pro funds that is a two times negative bet on the TSX
60. It trades as HXD. This was as a hedge. Rather than hedge like that I would
prefer to simply sell something and move into cash, but I bought the HXD as a
quick way to hedge.


BCE has fallen to $38. This is on fears that the Teachers Pension Plan and
its partners may not be able/willing to complete the buy-out at $42.75. I don’t
enough about it to understand how likely it is that the deal could fall apart. I
hold BCE and I amof course worried about the possibility of the deal not getting
done. I saw a report today that “accuses” about 10 banks of not hooring their
promises to provide emergency funding to certain sellers of securitized debt. If
it is true that the banks are not absolutely living up to their commitments,
that is quite scary. The BCE deal also requires banks to honor their commitments
to finance much of the deal.


One stock that was up today was Berkshire Hathaway. I own a bit of it and I
had been thinking of buying more. I have not analysed the stock, but my sense is
that it is reasonably priced. Warren Buffett’ Berkshire Hathaway is sitting in a
great position now. They have cash and can swoop in to pick up bargains in this
market. Many private companies would probably love to be bought out by Warren
Buffett and Berkshire. They would be a buyer of choice.


At this point my plan is to pretty much continue to hold my stocks because I
am confident that my portfolio will recover in the long run. I also intend to
buy additional shares in our higher-rated stocks but I am not inclined to start
buying just yet.


August 15, 2007


There is not much to say about the market declines since no one knows how low
it will go. Some experts think the worse is over, others think it is yet to
come. As I post this Japan is down 2.6%, Hong Kong is down 3.3% and Australia is
down 5%, so things could be ugly tomorrow (Thursday), if this is any indication
(though North America often leads rather than follows Asia)


Reitman’s is updated and rated (lower)
Strong Buy at $22.07. This retailer has carved out a profitable niche in the
Canadian women’s clothing field. I plan to buy shares in this.


August 14, 2007


Another negative day in the markets and it seems likely that further declines
are coming.


The TSX Group announced certain fee cuts. The National Post reported that the
TSX was cutting trading fees by as much as 20%. That may over-state the cut
since listing and secondary listing fees are also big sources of revenue. But
there does seem to be a risk that the TSX Group is moving from being a virtual
monopoly (and almost obscene profit margins) to more of a competitive company. I
think it still ahs a lot of monopoly characterizes in taht most companies in
Canada are captive to having a listing on the TSX for the foreseeable future.
Still, I considered selling my TSX shares this morning but I have a relatively
small position and decided not to sell.


At some point stocks that have declined become bargains. The difficulty is to
know when we are at or close to the bottom.


I believe that Northbridge offers
excellent value at today’s close of $32.43. In fact I understood from their
conference call that they have a “out” on the S&P 500 and they will make gains
on this as the market falls and this will hedge them from about half of any
stock losses that they suffer in the market. Also
Kingsway  and ING Canada appear
to be attractively priced now. Shaw and Telus and
CN have all fallen quite a bit from their highs despite what appears to be
reasonably good outlooks. I would be inclined to buy these rather than sell. It
seems these last three had all benefited to some degree from premiums associated
with possibility of a take-over and that premium has been eliminated. At some
point stocks will certainly turn around. I believe that that there still some
very well financed private equity companies that will be looking at these lower
stock prices and thinking about acquisition targets.


But everyone has to consider their own risk tolerance and ability to stomach
losses since in this market everything seems at risk for further declines.


I did sell two thirds of my Dalsa today for
the reasons mentioned yesterday and also sold a bit more of my Clemex alluded to


August 13, 2007


The overall markets recovered a little ground today but then failed to hold
that ground and finished slightly negative. This is in site of whatever efforts
central banks are taking to “add liquidity” (I won’t pretend I understand how
that works). The ripples of sub-prime debt and a drying up of certain high-risk
debt markets are still spreading. As some assets go down in price then certain
investment funds start to report loses on those assets or (worse) an inability
to estimate the value of their investments in high risk debt. This tends to send
out shivers of fear and everything drops including stocks with absolutely no
exposure to any of this. Hopefully at that point the bargain hunters step in to
support prices of the better stocks. Overall it looks like the general market
trend is still somewhat downward.


Western Financial reported good earnings growth today and also reported low
loan losses in the banking business. Last week they had announced a small
acquisition. We’ll update our report after they release the full financials and
notes which we have not seen yet. But at today’s $5.66 and under it probably is
a Speculative Buy. But in this market expect volatility. I was able to buy a few
shares on Friday at $5.15.


I mentioned you might get EL-Financial under $600 and someone did grab 200
shares at $590 today, which I think was a nice price and then it finished at
$665. Partly that reflects the poor trading liquidity. This goes to show it can
pay to be patient, especially in a volatile market.


Our next updated report will likely be for Reitman’s. It looks good, probably
a (lower) strong Buy, though we are not quite finished the report. At tomorrow’s
opening price we will notionally sell the Dalsa in the
model portfolio and replace it with


I may sell some of my Dalsa tomorrow to
reduce my exposure. I have been a fan of the company. But who knows when they
will be able to convince Hollywood to start using their camera? (It should come
but when?). They were hammered by the high Canadian dollar and that problem is
not going away. In the last conference call they alluded that they may do some
restructuring to cut costs. Maybe the stock would rise on that news or maybe it
would fall since it might involve severance costs and other costs. I will not
get out entirely, but I may reduce my exposure.


Somewhat similarly Clemex is a stock I have grown extremely tired of waiting
to see some good news from. They were lately optimistic that sales of some of
their new products were about to take off – I have heard it before. And they
were also hurt by the high Canadian dollar. Again I will keep some but may
reduce the position. They are up about 50% since the start of the year but their
results don’t justify it.


August 12, 2007


A new edition of the free newsletter has been sent. If you did not receive it
then try adding your email address to free
newsletter list.


Given that there seems to be a higher than usual risk that the overall stock
markets will decline many of you may be thinking about increasing your cash
position and lowering your equity position.


In February this year as the market fell I went to 20% cash and later to
about 30% cash. But through the late Spring, early Summer as the market rose I
invested the cash back down and as bargains appeared more recently I have taken
the cash all the way down to 0%. During this period I also ended up clearing out
a lot of smaller positions and also clearing out some stocks that I just was not
at as “attached” to.


Now, I find that I might like to increase my cash position somewhat again.
The difficulty is that I am invested in stocks that I like. As a fundamental
investor I have put a lot of time and energy into understanding these companies
over the years. Therefore I have grown “attached” to many of them. Also I find
it difficult to sell even a portion of a position if we have a “Buy” rating on
it. When I look at my portfolio, there is just not much that I would consider


In this situation, one solution would be to “short” the overall market or
target segments of the market while keeping my portfolio as is. But this require
margin capacity or cash.


If the market declines further due to sub-prime worries the most vulnerable
stocks are probably U.S. sub-prime lenders, and possible some big U.S. financial
institutions that are involved in selling “securitised” mortgages to investors.
It’s difficult to say what Canadian stocks could be most affected. Possibly all
the financials could be, although in theory they have little exposure. Any big
company that has a “take-over premium” in the stock could drop further given
that private equity bids are drying up. This may explain why Telus and Shaw and
certainly BCE have dropped.  I think the entire real estate sector is quite


In addition in a market pull-back everything tends to get hit to at least
some extent. In these situations, stocks that trade at lower P/E ratios and that
are cash-flow positive should do better than average. Industrial companies that
have a high ratio of debt maybe affected because the borrowing costs for riskier
companies has risen.


Shorting the market or segments of the market can be done in margin accounts
by selling short ETFs. For the overall TSX market, sell short the XIU exchanged
traded fund (60 largest stocks on the TSX index). For the TSX Financials you can
sell short the symbol XFN, for the TSX real estate, you can sell short XRE. For
the S&P 500, sell short the symbol SPY exchanged traded fund.


Short selling is not allowed in RRSP accounts nor I believe RESP accounts.
For these, one can consider the new Horizon beta pro plus funds that allow you
to buy a position that is effectively in reality a two times short position. For
the TSX 60 two times short bet the symbol is HXD. For the TSX Financials two
times short bet, the symbol is HFD. These are useful symbols to keep handy if
you wish to bet that the market will go down.


Shorting the market might be a good idea at certain times. But keep in mind
that if you do this you will likely want to watch the position carefully. It
becomes almost an obsession. Taking a bet against the market takes up a lot more
“mind space” than does riding along with the market.


Shorting the market can be considered a hedge against your portfolio. The
idea might be that you are synthetically taking yourself out of the market. In
reality you will tend to watch thee individual positions rather than just
looking at the total hedged portfolio. If you really want out of the market, or
partially out, it is probably better to sell than to attempt to hedge.


I will give some consideration to selling a few small positions that I can
part with. I will also think about hedging. But for the most part I am probably
going to ride along with the portfolio I have.


August 11, 2007


YAHOO came out with a new feature to add stock quotes to a web site. I added
this above so that you can check the current price of any stock you are


BCE may represent a good opportunity. It closed Friday at $38.85 and was
available under $38 earlier ion Friday. Meanwhile the Ontario Teachers Pension
plan and its partners are to buy the company at $42.75. That transaction will
not close until perhaps March 2008. There appears to be a nervousness that the
deal will not go through. But the Teachers plan late in the trading day on
Friday reaffirmed their commitment to buy. It seems quite likely that if the
market starts to be more assured that the deal will happen then the price could
jump quickly back to the $41 range. So the opportunity here would be to buy now
in the hope of a small gain. The risk is that if the deal is somehow canceled
then the BCE price could tumble back to the $30 range.


In some ways BCE looks like a good bet for the small gain but then again
these are complex matters. I had bought some BCE on speculation on August 8
(unfortunately paying $39.60). I bought some more on Friday at $38.49.


A few weeks ago I had placed a bid for some additional Western Financial
Group at $5.15, well below the market price. Yesterday as the market tanked,
that order was filled.


EL Financial
is updated and rated (higher)
Buy at $660 per share. This is mostly a property and liability insurance company
but also has a large life insurance arm and a general investments arm. Like the
other property insurance companies, the earnings are cyclic and inherently
“lumpy”. Perhaps the most reliable measure of value here is the book value. This
stock trades at only 1.06 times book value. The stock price can be volatile and
you may be able to buy much lower (under 600) simply due to volatility and
especially if the markets are dropping in general. It has a strong profit
history and the chance to buy around book value is attractive. But this is a
long-term investment. Be prepared though for the price volatility.


August 10, 2007


Our performance figures for 2007 are
updated. Despite the last few days, we still have a reasonable return year to


ING Canada is updated and rated Buy
at $45.56. This appears to be Canada’s best property an casualty company. It is
the largest in Canada and has no exposure to the U.S. and no exposure to
high-risk drivers and little exposure to commercial insurance. It appears to be
highly profitable. However, I am increasingly of the view that the reported
profit of property insurance companies is too lumpy and cyclic to put much faith
in the numbers from any quarter. But ING has proven to be highly profitable when
looked at over a period of years. Its price to book value ratio is somewhat high
but may be a case of paying up for quality. I think it will be a good long-term


(11:30 Eastern time) Today’s continued decline is not what we like to see.
And it could get worse. But so far I am not all that distressed. After all what
we have so far amounts (for investors who have been in the market a long time)
to giving back several months gains from a bull market that is almost five years
old. Even if we get to the point that the market backs up a year or two,
(hopefully very unlikely) most investors are certainly well ahead over the past
five years.  In the long run markets go up. We are not at bubble valuations
and therefore I think a very serious decline is not that likely. Hopefully the
bargain hunters will be stepping in. So it could get worse before it gets better
but in the long term investors will always do better than non-investors.


For those with large holdings in cash, there will be buying opportunities…



August 9, 2007


Today’s stock market decline cannot really be described as a surprise. And it
is very possible that the market decline will continue.


In the face of this it was nice to see Tim Hortons rising. It has been
disappointing to see the declines in Telus and Shaw (although it creates
opportunities for new investments in these). These would generally be considered
relatively safer stocks and so I am hopeful that they will start to stand up


I sold more of my Clemex today and may sell more tomorrow. (See yesterday’s
comment on Clemex).


August 8, 2007


Another strong day in the markets. Surprisingly market sentiment seems to
have turned bullish again. But with the sub-prime issue still menacing and the
decline in the U.S. housing market things can turn bearish very fast.


Tim Hortons continued to climb. In the past six months or more it has been
volatile and those who waited for dips were rewarded. Given the generally
volatile markets, I suspect dips will occur. But if I owned none, I would start
to average in now, since we can’t be assured it will dip and I think it is a
long-term winner.


Telus and Shaw Communications have both declined probably because there is
now little or no speculation that they might be taken over. I hold more Telus
than I do Shaw but I would like to even that up by buying more Shaw.


I bought some BCE today. I paid about $39.70, maybe I should have been more
patient for a lower price. But with the take-over offer at $42.75 I think the
BCE price should move up.


I sold a small amount of Clemex
today. This a tiny Canadian manufacturer of computerized microscope image
systems. Recently it released poor results for its fiscal 2007 ended April 30.
It has been one of those companies that always has big promises about the future
and seldom delivers much.  Last year it looked like it was on the road to
good profitability but now it has stumbled yet again. I have kept a base
position for quite a few years in it in the hopes of being around if it finally
ever gets going but it hardly seems worth the aggravation. I’ll plan to update
this report soon but on the face of it, it looks like a Sell.


came out with a strong earnings
report today. The stock moved up 2.5% but could move higher again tomorrow as
the market digests the news. Manulife is a very complex company. I don’t
understand why it has not been hit hard by the higher Canadian dollar. After all
most of its revenues are from outside Canada with about 50% from the U.S. The
standard answer might be that it is hedged. There are certain natural hedges
given that its liabilities are also mostly from outside of Canada. But the
profits are not naturally hedged and it is not reasonable to think that it could
have hedged against the Canadian dollar’s huge rise these past few years. It
boggles the mind to think how well it might have done if our dollar had not
increased. Certainly the old John Hancock shareholders (who received Manulife
shares on a takeover deal several years ago) have done extremely well, as the
price of Manulife has soared in U.S. dollars. I plan for our report on Manulife
to be updated by Sunday.


I opined in the last free newsletter that
lululemon was over-valued at about $30. Now it has soared to almost $40. Clearly
it is a great company. But the market is effectively valuing it at $45 million
per store. Now these stores do roughly an average of $4 million per year in
sales (per the prospectus). At a 10% profit margin that would work out to about
113 times earnings. In Q1 the profit margin was in fact 8%, but it does seem
possible it could grow that margin (But 15% is probably at the high end of an
optimistic forecast) . Of course the market is valuing the future stores, not
just the existing stores. But any sensible math here shows the market is
requiring shareholders to pay up in advance for years and years of
phenomenal growth – which may not occur. Apparently the stock is going up
because among other things Jim Cramer recommended it. Jim is a smart guy but I’m
not sure he has done the math on this one.   I can’t see any analyst
recommendations for it except RBC said it was worth about $23 and an independent
firm in Canada said it was worth $16. I’m glad I did not short it. But I have to
think that shareholders now are unwittingly playing a dangerous game of “musical
shares”. I probably should just ignore this stock but it is a good illustration
of how the market can temporarily depart greatly from reason.



August 7, 2007


Tim Hortons
is updated and rated Buy at CAD
$33.95 and U.S. $33.20. The Q2 report was consistent with my expectations noted
under July 30. Profits up in Canada except down marginally after the much higher
income tax rate versus last year. U.S. division struggled somewhat. Overall the
stock does not look cheap but I have a strong suspicion it will do well. Q3
earnings last year were not very good and so in Q3 this year it should be able
to report a double digit earnings per share growth.


Tim Hortons was up nicely today. It is my largest position and I have felt
comfortable owning it because I think it would do better than the market if the
market “corrects”.


I’m not sure why Tim Hortons was up so much today. I expect it to bounce
around a bit before hopefully going higher after the Q3 earnings. Of course it
will also be affected by how the general market does. I may add more to my
holdings particularly if it happens to dip back to the $32 level.


Telus dropped further today. I noticed that TD Waterhouse is still bullish
with a target price around $70. It seems the market in general sees risk in
Telus. If I did not own any, I would definitely want to start a position at this


BCE has slipped to $39.05 despite that fact that the Ontario Teachers Pension
Plan has agreed to buy it out at $42.75. Investors who buy now will not receive
the $42.75 until perhaps March 2008. There may be some risk that the deal will
fall through but my understanding is that the risk is low. I believe that BCE
would be a good bet at this price. One ha s to be a bit cautious though. If BCE
is a smart investment at say anything under $41, then it seems strange that
various financial players have not bid it up to that level. So I think it is a
good bet, but would not “bet the farm” on it.


August 6, 2007


Fed Ex is updated and rated (higher) Buy at
$109.04 (the price today closed at $110.83). With a P/E of about 16.8 this
appears to be an opportunity to acquire a high-quality company that is the
leader in its field at a reasonable price. I have not personally bought this but
would consider doing so. Canadian investing in this face down-side currency risk
if the Canadian dollar goes up but benefit from the currency move if the
Canadian dollar goes down. I believe it is prudent for many Canadians (those
with little or modest U.S. investment exposure) to move more investments to U.S.
stocks given that the Canadian dollar is recently near 30-year highs.


Markets were open in the U.S. but closed in Canada today. The DOW was up
2.2%. The only thing that seems clear is that the direction of the market is
very uncertain at this time. There appears to be bargain hunters pushing prices
back up when they fall, but at the same time there is a lot of fear that markets
will fall.


Early today Telus was down over $1.00 on New York. Seeing this I decided to
add to my position in Telus.


August 5, 2007


Telus is updated and rated (lower) Strong Buy
at CAN $55.99 or U.S. $53.00. It had an earnings report on Friday morning that
was bad on the surface although it appears that after adjusting for one-time
items, earnings were up. It seems the market is worried about the rest of the
year and does not believe Telus when Telus says it will still meet its target
earnings per share for the year. Maybe that is true, but on the numbers the
stock looks good at this price. I think it will do better than “the market” in
the short-term. (But if the general market drops further it may get pulled


August 4, 2007


Kingsway Financial is updated to
Speculative Buy at CAN $20 or U.S.18.95. Kingsway is a property and liability
insurance company that insures mostly vehicles  and operates 69% in the
U.S. and insures mostly high-risk autos and also trucking.


I am considering adding to my position in Kingsway.


I added a small amount to my Northbridge holdings on Friday.


Northbridge Financial
(a property and
liability insurance company with business that is 90% commercial and about 87%
Canadian, 13% U.S.) is updated and rated (higher) Buy at $33.55. At the present
time it is highly profitable and would be rated a strong buy except for the fact
that profits are expected to decline in the near term due to both increased
competition (lower prices) in its market and also recent profits were boosted by
unusual capital gains.


The market in general views property/liability insurance companies as very
risky and unpredictable. The market always seems to focus on any aspect of the
earnings which are negative. Northbridge trades at a relatively low (1.26)
multiple to book value. It seems likely that if book value can be increased in
future then the stock price will rise. While earnings are unpredictable
Northbridge has been able to increase book value per share rapidly in recent
years. In the near-term I expect lower but still positive earnings which should
push up the book value (even after the dividend is paid) and this in turn should
push up the stock price. I view Northridge as a good long term investment.


August 3, 2007


Our Performance figures are updated.


August 2, 2007


Today was a good day for markets and our Picks in particular. Telus,
Kingwsway. Tim Hortons, CN , Cognos were among the stocks that rose noticeably.
Again it is encouraging that the market seems to keep showing signs of optimism.
But at the same time the credit problems remain.


I saw a report today that close to 1% (1 in 120) of all house in the U.S.
were in foreclosure proceedings. I’m not sure i believe it can be that high.
That sounds like a huge rate… It is hard to imagine how the U.S. will escape a
recession if this is true and that would definitely drag markets down.


So despite a good day today, I definitely remain cautious.


Northbridge Financial reported
excellent earnings today after the close. I have read the report but not
completed an analysis yet. On the surface earnings were phenomenal, $2.29 in Q2
and this is a $34 stock! It has earned $3.17 year to date. But there were some
one-time gains. Still the operating profitability is quite strong. Book value is
$26.70 per share and so the premium to book is only about 27%. In the short term
though the revenue is shrinking and profits are expected to decline somewhat.
Overall, I think the stock should rise tomorrow but the market always seems to
value property insurance stocks lower than most sectors in terms of multiples of
earnings and multiples to book value. I would definitely consider buying
tomorrow, especially if it has not risen at the open. We will update our report
probably by Sunday and based on where the price goes tomorrow. On a quick check
on insider trading, there was a little bit of selling and less buying. Not
enough selling to be a concern. The company itself has not bought back shares
this year even though at times the price seemed quite low.


Kingsway Financial also reported earnings
today. I have read the report but not in detail and have not done any analysis
yet. Kingsway had a good quarter with an ROE of 17%. (And this is all the better
given that the high Canadian dollar hurts them). But the market may focus on
the bad news that had more retroactive losses (reserve developments) in its
Lincoln General division. Also they predict lower profits and sales ahead due to
competition. But this stock trades only about 7% over book value and has an
attractive ROE. In addition the company states that it had retroactive gains
(positive reserve developments) in Canada, but chose not to “release” these
earnings. Overall I am not as confident that this will rise tomorrow, but I will
consider adding to my position if it does not. We will update our report
probably by Sunday and based on where the price goes tomorrow. Taking a quick
look at insider trading there appeared to be a number of buyers including the
CFO and fewer sellers. This is positive. The company itself did not buy back any
shares in the quarter which is quite disappointing given what they would
presumable view as a low price.


Kingsway provided a link to a conference call but it was a dud link tonight.
Also they said the conference call link was on their Web Site, but I don’t see
it there. Their Site does not seem to be up to date. It seems like they are a
bit sloppy with their Site and I think that reflects a company that overall I am
sorry to say seems always a bit sloppy around the edges. (For example poor
supervision of subsidiaries and the credit analysts at S&P complain that their
risk management is not up to par. So overall not a bad company and the price is
cheap but they simply do not seem to be on their game.


Tim Hortons will report tomorrow morning and I am hoping for good things
except from the U.S. division they may report more problems.


August 1, 2007


Another volatile day in the markets. The Canadian market was poor, it was
down 330 points but closed down “only” 214 points or 1.5%. But the U.S. DOW and
S&P market was only down very modestly most of the days and then surged in the
final hour to be up 0.7% for the S&P 500 and 1.1% for the DOW. I always consider
the U.S. DOW and S&P 500 to be a better indicator of broader market sentiment
than the TSX composite index. The Canadian TSX index is more volatile due to its
concentration in energy, financials and resources.   So overall while
the dip in Canada is a bit scary, the strength int he U.S. is encouraging.


Nevertheless I think the fear meter has been turned up for all of us. I am
certainly optimistic about markets in the longer term. But in the shorter term I
am worried the market could fall further due to problems in the lending markets
and a possible slow-down in the economy.


On the Canadian market there are certainly good dividend-paying companies
that are down in price. If the markets goes back up we may kick ourselves for
not buying this dip. But then again the dip may deepen. markets are always
unpredictable in the short term. While stocks like CN, Shaw, Tim Hortons and
Telus may go down further I am quite comfortable holding them as I think the
longer term direction is up.


Stantec is down noticeably. I would wait until after the quarterly earnings
are released (tomorrow, I believe) before possibly buying. I suspect they will
have been hit by the Canadian dollar and so it will be interesting to see if
they can post a good number despite the dollar.


I am about 90% invested in equities and 10% in cash, therefore I am not in a
big hurry to bargain hunt.


The fact is that markets normally do go down as well as up, although the
long-term trend is up. I am prepared to hold good stocks through a period of
decline. The decision as to whether to try to move some money to cash is alwys a
very personal one, depending on each investors situation.


lululemon (lll, Toronto, lulu, NASDAQ)


Wow, this stock has done well, despite a small drop today. If you want to you
can let me know if you own it or are thinking of buying. It is a great company
with exceptional marketing. But he stock price seems grossly high to me. I was
in the Edmonton store at lunch today at Kingsway Garden Mall. I saw that the
merchandise did seem to be high quality and probably unique products possibly
not easy to find elsewhere (although I suspect some sport stores have some
similar products). The products are high-priced but not outrageously so. I saw
nothing over $99 (pants for personal trainers to wear). Shorts and “tops” tended
to be in the $50 range. That does not strike me as obscenely profitable unless a
high volume is sold. I was in the store about 15 minutes. There were other
customers and browsers but it was not crowded. The cash was not lined up but
they did make some sales during my time in the store (not from me, although I
would consider buying if I had been there to shop).


 The store is pretty small, I would guess maybe 1000 square feet. In
Sunday’s newsletter, I had estimated that
based on 2006 sales of $149 million and probably the equivalent of 40 stores
open all year that was roughly $3.7 million per store or $10,000 per day. I
don’t have a good feel for estimating retail sales but I suspect $10,000 would
be considered a really good day in most small stores in a shopping mall. In the
store I was in, I doubt that there was enough merchandise for sales to be much
higher that roughly $10,000 in a day. (And I would not be surprised if Summer
sales are more like $5000 per day at that store). Although I guess in retail the
reality is it might be $5000 or less many days and then would ramp way up close
to Christmas. But the point is the stock market is valuing lululemon at over $36
million per store (based on 59 stores $33 dollars and about 65 million shares).
Obviously most of the value being paid is not for the existing stores, but it is
for the growth. But the problem is that investors are paying up in advance for
years of growth that has not yet happened. I maintain my prediction that this
stock has to drop in price.


Consider too, there are almost no analysts putting out valuations so far. I
believe RBC Capital put a target of about $23 on it. (As I recall based on
earnings tripling by 2009 and then a P/E of some 36 applied). The investment
bankers that sold the shares for lululemon and its insiders received an option
on over  I believe 2 million shares. Those investment banks have an
incentive to make sure the price stays high so they can sell those additional
shares. I do not believe in conspiracies, but I think this stock is selling on
pure hype. In the coming couple of weeks I would suspect that retail analysts
will come out with price targets well below $30, but we shall see.


I mentioned I was thinking of shorting and that I think shorting is very
risky. Clearly had I shorted on Friday I would be deep in the loss territory
now. TD Waterhouse does not have this available for shorting. Is that because it
is too new? I don’t know.


If anyone has facts on lululemon that counter my analysis, please let me



July 31, 2007


On the one hand it was nice to see a positive sentiment in the market this
morning. But the sharp dip in the DOW near the end of the day indicates a mood
of fear still exists..


Canadian National Railroad is updated and
rated (higher) Buy at CAN $55.30 or U.S. $52.20. It has proven itself to be very
well managed. In the near term earnings are projected to grow only 5% in 2007,
much lower than its recent growth. But it will likely resume higher growth and
meanwhile is available at a reasonable price. It has been a bit volatile lately.
I hold a position and I would consider adding if it dipped to the $52 range. For
new positions a good strategy might be to buy some now and then look to buy
again on a dip.


July 30, 2007


Tim Hortons will release earnings Friday morning. Here are some thoughts on


I am hopeful of strong sales increases for Canada. I note that their recent
Camp Day raised 15% more than the prior year. So that is a positive indicator.
At all their better locations I see big line ups… With over 3000 locations,
the few I see may not be indicative but still…  Profits in Canada should
be up but that depends on any unusual charges… last year they had a low tax
rate in Q2 due to a one-time tax refund…   I expect the U.S.
operation will still be having some trouble, it is going to take I think a few
years to gain traction in the U.S. and at any time they could have a
restructuring charge to close a few stores in the U.S. Recall they had bought a
small chain in Southern New England a few years ago an converted the stores to
Tim Hortons. Those I think are the ones that have not worked out, probably
better that they build their own locations, not buy and convert. The high
Canadian dollar will hurt the results from the U.S. also. But going forward it
gets easier to invest in new locations in the U.S. with our now-mighty Canadian


Regarding Manulife financial which should also report shortly, for some time
I have expected them to be clobbered by the high Canadian dollar and it never
happened. I don’t know why, given most of their earnings are in U.S. dollars. It
seems to be a great although very complex company. It would not surprise me
though if the dollar finally catches up to it.


Basically any company that has a lot of revenue outside of Canada could be
hit hard by our dollar in Q2 and harder still in Q3. The worst hit are those
with most costs in Canada and most revenues from outside. Meanwhile a retailer
like Canadian Tire enjoys bring in cheap imports with our high dollar…


Obviously it was  good to see the market recover a bit today…
But with all the credit worries in the market, it seems like the overall
sentiment in the market is quite nervous and dips to the downside seem more
likely than does a full recovery of the recent dip.


lululemon went up again today. I did have a thought to short it, but on the
other hand it would be dangerous to short it when it seems to be still rising.
Shorting is always very risky. I have had very little experience with shorting.
It can sound easy in theory.


I spoke to TD Waterhouse about shorting it early today and they indicated
they had not available. Possibly that is because it is so new, that it has not
landed in the customer’s accounts yet. I know when I have bought a stock on an
IPO with TD it has not landed in my account right away. I wonder if some people
who bought on the IPO are still waiting for it  to appear in their
accounts? lululemon traded 2.8 million shares on NASDAQ today and only 423,000
shares in Canada. So it may be that most of the share are in U.S. hands.


July 29, 2007


The latest edition of our free newsletter has just been sent. We keep totally
separate email lists for the free newsletter versus the list of paid
subscribers. But most of you are no-doubt on the free list and have recently
clicked to verify your membership in the free list. To access this latest
newsletter click the menu item  for the login for subscribers to the free
newsletter at the left.


In this free newsletter I discuss the lululemon IPO that was much in the news
on Friday. I believe that this IPO was grossly over priced. And that is the case
despite the fact that it then popped upward in the market. This seems almost
sure to sink and I’ll bet the investment banks that touted it will have some
explaining to do.


I am thinking of shorting lululemon, if it is possible to do so. But I view
short-selling as extremely risky and complex. In short-selling you can lose an
unlimited amount.


July 28, 2007


Alarmforce is updated but still rated
Weak Sell / Hold at $5.61. For this update we added back an expense for
amortization of an intangible asset since that was a non-cash items and since
unlike depreciation, it does not represent the wearing out of any asset that
will have to replaced in future.  Despite this the adjusted P/E still seems
very high and we can’t justify buying this stock. However, we continue to think
that the earnings are conservatively stated and that at some point as it gains
scale it may start to look attractive. 


The performance figures for all of the stocks in the
model portfolio have been updated.
However we have not done and any trades there. Performance figures for all the
stocks picked at the start of 2007 are updated. While we rate stocks all through
the year, we track performance on an annual basis based on the picks at January 1
each year. Full details of all the ratings throughout the year are also
maintained and are provided in the daily comments below. That way subscribers
can track our performance on ratings made at any time through the year.


e-Bay is updated and the rating is raised to
Speculative Buy at U.S. $33.53 (the price last closed at U.S. $32.57). For this
update we have added back amortization of purchased intangibles. This expense is
very similar to goodwill which is no longer expensed and we simply do not
consider that to be a real expense. The result is that our rating increased. We
call this a Speculative stock because it is a large international company that
operates in several lines of business and thereof we consider it a hard company
to understand. It is not cheap but if the growth trend continues then it should
be a good investment.


Shaw communications has run up steeply on take-over rumors. But the whole
environment for takeovers has cooled. Shaw could easily slide back a few dollars
at this point.


Dalsa is updated and our rating is cut to
Speculative Weak Buy at $10.19. Dalsa has clearly been a disappointment for us.
With most of its costs in Canada and the great majority of its revenues in U.S.
dollars, it has been “hammered” by our higher dollar. And that is in spite of
some hedging which it has in place. I had hoped it would be able to adjust
prices upward, but it seems that has not been the case. The company is going to
have to reduce costs significantly in order to regain profit in its core
business. They do seem optimistic that they can do this starting in 2008. The
company indicates that some cost-cutting initiatives could be announced within
weeks. That could lead to restructuring charges before it leads to actual
savings. The company has a new digital major motion picture camera which it is
trying to convince Hollywood to use. If they can convince a director to use
their camera in a major motion picture, then this could send the stock price up.
In the near term it is certainly possible that this stock will continue to
disappoint. I am reluctant to reduce my position but I do view it as
increasingly risky. On a positive note the company has little debt and has great
technology and it should eventually recover.


July 26, 2007


It was a nasty day in the markets. It is always frustrating to see investment
values drop.


But no one should claim to be particularly surprised. The market has had two
earlier “corrections” this year and the surprise has been that it came back and
resumed new highs.


This time there are indications that higher interest rates are putting a real
damper on future private equity take-overs. That becomes a double whammy. All
else being equal markets do fall with higher interest rates. But private-equity
deals were pushing the market higher. Without the support of private equity
deals the market could easily fall a good deal more.


I don’t think we are in for any kind of disastrous decline but a pullback that
totals say 15% down from the high would not be a shock. But I don’t think anyone
can predict what the market will do in the short term. Perhaps tomorrow the
bargain hunters will be out. Personally, I am comfortable holding the stocks I
own because most of them are solid, dividend paying and profitable companies
that are likely to move higher in the next few years, no matter what happens in
the next few days and weeks.


Dalsa reported weak earnings after the close
today. It has been hurt by the high Canadian dollar. It is also hurt by losses
in its digital cinema division (which is attempting to get Hollywood to switch
to digital). I view those losses as more of an investment than as “real” losses
but that is only the case if they will eventually gain success in this business.
Dalsa trades at only about 1.2 times book value and book value will increase
next quarter when they close a land sale at a material profit. Given the high
Canadian dollar I think the stock is going to continue to languish or decline
somewhat until they are able to announce significant progress in digital cinema.
Our report on this stock will be updated in a few days after we see how the
stock price reacts to the earnings.


July 25, 2007


Of note today, Shaw was up to $53 which has been a sudden strong run for this
stock. I suppose one could trim positions but often when you trim a position on
a good stock, you may never end up buying it back on the dip, so maybe it is
best to just hang in there and see where it goes. Meanwhile Telus is down so I
would consider adding to positions there.


Tim Hortons was among the stocks that slipped lately and I would consider
adding to positions there.


Canadian Tire should be benefiting from our high dollar and personally I am
thinking of buying. It always looks somewhat expensive but has been an


The TSX continues to earn outstanding profits (released earnings after the
close today) The problem there is that its long standing (virtual) unregulated
monopoly position is coming under fire from new competitors and it is very hard
to know if the TSX will be harmed by the competition. I am therefore cautious on
that stock at the moment. I have effectively a “half” position in it (2% of my
portfolio rather than my more typical position of closer to 4% in a number of


We are in the middle of earnings season for stocks that had a quarter end of
June 30. Therefore we will have a number of updated reports over the next few


July 24, 2007


This was a negative day as the Toronto stock index fell 2.8%. Of more
concern, even the less volatile DOW fell by 1.6%. It will take a few more days
to see if this turns into a larger drop or instead proves (once again)  to
be short-lived.


As our dollar moves ever higher, it is certainly a good opportunity buy some
U.S. stocks or even to simply convert some Canadian cash into U.S. dollars.
Sure, our dollar could continue to rise. But like the stock market, that can
also turn around fast. Right now we have the best opportunity since 1977 to buy
U.S. dollars on the cheap. If you have a need for U.S. dollars for a trip or
just for diversifying your investments, I think it is a good decision to buy now
and not be too greedy in waiting for parity.


Having said that it does look like there is reasonable chance that we could
get to parity with the U.S. dollar. But as I have said before, this high dollar
is really going to hurt Canadian manufacturers and our tourism industry. At some
point the Bank of Canada may have to try to reverse this.


Meanwhile, many of you will no doubt be planning shopping trips to the U.S.


July 23, 2007


Market Outlook


Markets have done very well lately, apparently shrugging off worries about
inflation, sub-prime loans, housing price declines and a potential U.S.
recession. It would therefore be easy to become complacent and assume that the
good times are set to roll on.


But keep in mind that a rising market give no guarantee that it will
continue. After all, logic would suggest that all major market declines begin at
a high point and I suspect most major market declines begin directly after
strong up trends in the market. (1929, 1987 and 2001 being the most notorious
examples). So… while I am enjoying the ride I am also keeping a cautious eye
on things. Markets can change direction very rapidly indeed. I am hopeful that
most of our higher-rated stocks here, would do relatively well even in a market
decline. A falling tide does pull down all boats but at least companies like Tim
Hortons, Telus and Shaw would tend to be somewhat recession proof (though they
would certainly be hurt by higher interest rates).


There were a number of interesting developments today.


Shaw Communications jumped over 3% to CAN
$51.68 this is up almost 7% since we updated it last week. I like the company
and would consider averaging in at this price for new positions. Personally, I
already hold it and was hoping it would dip so I could buy more.


Canadian National Railway reported
earnings after the close. Net income was down but on an adjusted basis it was up
6% which is not too bad given they had some weather and line closure problems.
They lowered the earnings outlook for the year partly due to the higher Canadian
dollar. This is not a surprise given that they have significant operations in
the U.S. An earnings slowdown due to a higher Canadian dollar should be viewed
as a one-time impact. It does mean that the profits are at a lower level going
forward but if the dollar is expected to stabilize then it has no further impact
on the rate of growth. We will update our analysis after we see how the stock
price reacts tomorrow to the earnings results.


dropped in price today
but that was due to a special dividend whereby it is handing out about $5 U.S.
in preferred shares for each existing share. This seems a bit strange. However
it is probably a positive indicator overall. It is somewhat equivalent to
roughly a 13% stock buy-back (which is huge) financed by a preferred share
issue. I am not at all clear as to why they chose this rather unusual route.
When looking at the stock price in future it would seem fair to add back the $5
U.S. in preferred stock that will be received.


Dalsa jumped a surprising 8.6% today ahead of
its earnings to be released on Thursday. The stock had suffered lately partly
due to our higher dollar. Perhaps its recent dips under $12 were good buying
opportunities. While we had last rated it (higher) Buy I was not sure it would
recover meaningfully until it is able to announce much better revenue results
for its digital major motion picture camera product. Hopefully today’s gain is a
a signal that the earnings will be good or at least reasonable.


July 22, 2007


The composition of my own portfolio has been updated. (See the last item on
the list of links for Members only above – below the table of stocks.)


Alimentation Couche-Tard
(the big
convenience store operator with main brand names Couche-Tard, Mac’s and
Circle-K) is updated for its fiscal 2007 results and rated Buy at $21.26. The
stock price has been hurt in recent months by the sharp rise in the Canadian
dollar (80% of its operations are in the U.S.). The company had a relatively
flat earnings year in fiscal 2007. However indications are that earnings may
grow in the range of 20% in fiscal 2008. I am comfortable holding shares in this


July 19, 2007


Another good day in the markets, with the DOW up 82 points to 14,000. My
strategy is for the most part to hang on for the ride while selectively buying
on dips. A focus on cash generating stocks will continue to to rewarded as long
as private equity buyers remain active. Things to watch for are higher interest
rates or recession which are likely to eventually bring the party to an end.


CP and CN stayed pretty high despite the fact that CP indicates it is not in
active talks to be acquired.


July 18, 2007


Today’s big news was the news that Brookfield Asset Management might bid for
CP Rail. This sent CP up 15.5% and CN up almost 6%.


This adds support to other potential targets that are profitable and generate
cash such as Shaw Communications and Telus.


If this bid materializes, CP may rise more and also CN could rise further.


Today I bought shares in


July 17, 2007


Where’s the Bear?


Once again reports earlier this year of the death of the now 4.5 year old bull
market have tuned out to be greatly exaggerated. Markets have continued to do
very well. A key driver seems to be high bids to take companies private. It’s a
bit odd since in most cases companies always traditionally were worth more in
the public market.


With a possible U.S. recession looming and also higher interest rates it’s is
a bit hard to believe that markets can continue to rise. It’s not time to panic
in any way given that valuations still seem not excessive in most cases. But in
my view we should be cautious because a market decline is overdue and seems sure
to arrive at some point. Nevertheless in the long term markets will continue to
do well.


July 16, 2007


As the Canadian dollar seems to keep going up, it may seem est to wait before
investing in the U.S. But keep in mind the dollar could fall. And it is at a 30
year high. So I believe now is a good time to invest in U.S. stocks and take
advantage of the high Canadian dollar.


Shaw Communications is updated and rated
Speculative Buy at CAN $48.35 or U.S. $46.38. It just released an excellent
quarter and also increased the dividend by 18%. On value ratios it still looks
expensive but I think this may be a good investment due to the growth. I am
looking to add to my position in this.


July 12, 2007


WOW! a 2% rise in the DOW today. Again it goes to show that the risk of being
out of the market is often greater than the risk of being in the market.
(Although to an academic there is no risk in a sure return of 0%, while even a
return that may vary between 10% and 20% would be considered risky, because it
is uncertain. No wonder most academics are not rich!). As noted a number of
times I have been a bit cautious on the markets. But at the moment sentiment
driver by merger mania is certainly high. It’s okay to ride with the merger
mania as long as we don’t get to a point where the market is clearly
over-valued. We don’t seem to be there yet. The market is not cheap but its not
stupidly expensive either.


July 11, 2007


With the modest weakness in Western Financial Group I placed an order to
re-purchase some of what I sold at $5.55 and some more at $5.25. Seems a
reasonable chance it will dip at least to $5.50 area…


I bought some Telus today on its recent
weakness. I did not see any reason for the weakness although it could be due to
fear that they will mount a bid for BCE. I now hold a large position in Telus
than I do in Shaw. I would prefer to have more
Shaw and will buy it on
weakness. Shaw will release earning on Friday morning and I suspect they will be


July 10, 2007


A negative day for the markets due to some earnings disappointments and
worries about sub-prime loans (which is also related to U.S. housing price
declines and a U.S. house construction decline which could lead to a general
slow-down in the U.S. economy). If earnings reports in the next couple of weeks
are positive then the market will continue upward. There are always individual
bargain stocks to be found. But it is certainly possible that we are in for a
market decline in the overall market averages. If that happens I suspect that
the type of stocks featured as Buys on this Site will perform better than the
market average.


On July 5 I mentioned Wi-Lan shares and indicated I might buy some. I have
now bought some Wi-Lan shares. I bought these on speculation, it is not a
company that can be analyzed based on past profits since it is really just
getting started in the process of beginning to collect royalties on its patents.
It’s not clear how successful they will be in convincing the alleged patent
infringers to pay up.


July 9, 2007


Walgreen the large U.S. drug store chain
is updated and rated Buy at $43.88 (it closed today at $44.69). It looks well
priced given its growth. I am considering buying. Canadian investors face
currency risk if our dollar continues to rise.


I sold my BCE shares for a small profit today. They have been a little
volatile and I am just not that hopeful that Telus will try to make a bid given
the Competition Board issues. Although the fact that the BCE Chairman Richard
Currie has now called them amateurs might provoke them. Ironically, in the same
interview Currie called attacks on the BCE bid process “graceless”. Not a lot of
grace shown by anyone here…


July 8, 2007


Pet Valu
a pet store retailer is added as a
new company but is rated only Speculative Weak Buy at $12.81. I screened for
some new companies to add and this one looked good with a P/E around 11 and a
very high ROE. And a pet food retailer seemed like a potentially high profit
business given the tendency for ever higher spending on pampered pets. But on
detailed analysis it is not clear that this is a bargain. The P/E turned out to
be about 13 on a diluted earnings per share basis. Earnings have been growing
sharply but that was partly due to the higher Canadian dollar. The store count
is flat and therefore we cannot expect the strong earnings growth to continue
for too long.


But it could be bought on speculation that the recent sharp rise in the
Canadian dollar will result in strong earnings growth in 2007.


Some subscribers may wonder why I would post a new company that is only a
Speculative Weak Buy. Our policy is that we cannot know the rating until the
analysis work is done. Having done the work here, the rating turned out to be
lower than hoped. But having done the work it is still worth posting as some of
you may hold the stock or be familiar with the stores.


I do think the Pet supply retail “space” is worth watching.


We hope to be in a position to post a few more new companies in the coming


July 6, 2007


Performance figures are updated. Our three
Strong Buys from January 1 are now up an average of 20.0% each since then.


July 5, 2007


I am considering buying some Wi-Lan shares. They are now a patent royalty
company hoping to earn revenue by colleting license fees from a large number of
companies that are allegedly using its patents. It’s definitely quite
speculative and is a story stock. It is not proven yet that these companies will
pay the royalties and they could be battling in the courts for years. Nokia has
signed on to pay for use of the patent and I understand another unnamed company
has signed on. Companies have until the end of July to sign on at a reduced rate
or face law suits and a higher rate.


BCE moved up 26 cents today mostly near the close. There has been further
speculation about a Telus bid. That still seems unlikely unless Telus could get
an advance ruling that the competition board would okay the merger. But its hard
to see how the competition bureau could possibly give any kind of advance


July 5, 2007 (before market open…)


My buy of BCE at about $41.30 may not do well unless Telus decides to bid
again for BCE (which I doubt). The deal will not close until first quarter 2008.
So I have a long time to wait to collect $42.75 – but I will get dividends along
the way and so the downside seems limited (Teachers unlikely   to back
away form the deal, BCE shareholders likely to approve. The other possibility was
that Teachers would go into the market now and buy up shares.


Meanwhile the market overall has done well this week and my purchase of Telus
and Tim Hortons this week looks good so far. (I am supposed to think long term,
but it’s always nice to see things go in the right direction…)


July 3, 2007


Today I added a small amount to my Tim Hortons shares. I think the recent
price drop provides a buying opportunity.


I was thinking about Bell and Telus. BCE is to be purchased at $42.75, the
stock was trading today at $41.30. It probably makes sense that there be  a
discount since the deal is not expected to close for some six months. But there
is still the possibility of a Telus bid (although I think that is a slim chance
and is problematic given the competition Board review). Still I decided to buy
some BCE hoping it will trade up closer to $42.75 and I can make a tiny but
hopefully fast profit. Possibly Teachers Pension Plan will go into the market
and be a buyer. If they can buy now at say $42 that might be better than buying
later at $42.75.


I also thought maybe Telus will rise if those who have BCE sell now and then
look to replace it with Telus. Also the BCE bid validates a high value for Telus
and it is possible some of the failed BCE bidders would look to buy Telus. …
So I bought a few Telus shares on that basis.


All of this goes against my wish to keep holding cash but I thought these
might be good opportunities…  I would hope to close out the BCE purchase
for a small gain and get that part back into cash.


July 2, 2007


Home Capital is updated and
rated Speculative (lower) Buy at $36.90. Given its growth we could rate this
higher. But it’s hard to understand how it can sustain this kind of growth in
the supposedly competitive mortgage market. And in a housing recession it could
even face losses if loan losses grew large. But based on the numbers it does
look like it would be a good investment. It has done very well in the past and
the price is almost 5 times higher than when we first looked at it, calling it a
Buy in April 2002.


Note, our new business opportunity described above.


The latest issue of our free investment newsletter was sent today. You should
have received it. In addition you

can access it here.


June 30, 2007


Our year-to-date performance figures have
been updated. With the year half over our Picks are ahead of the market.


Cognos is updated and rated Speculative Buy
at U.S. 39.70 or CAN $42.48. The company does not appear to be cheap but the
accounting seems conservative in that a tremendous amount of R&D is expensed
under accounting rules  even though one would suspect that some of that
spending represents an investment rather than a current expense. I am tempted to
buy some Cognos. I may enter an order below the market and see if it dips a
little. I am a little hesitant to buy because of my inclination at this time to
raise or at least maintain my cash position in case the overall markets decline.


Note that while Cognos trades on the TSX and is a Canadian company, investors
should judge its performance and price trend in U.S. dollars, not Canadian. This
is because it earns most of its money in U.S. dollars. Accordingly it reports in
U.S. dollars and our analysis is in U.S. dollars.


Since we first rated the company calling it a Speculative Strong Buy in June
1999, it has risen 269% in U.S. dollars. The rise was 168% in Canadian dollars.
Canadian investors were hurt by the rise in our dollar and this happened even
though the stock traded in Canadian dollars on the TSX.


June 28, 2007


I sold 25% of my Canadian Western Bank position today. This was not due to
any dis-like of CWB but rather was a desire to raise cash. I considered adding
to my large position in Tim Hortons but did not do so. I may start to add to
this position since I am confident of the quality of Tim Hortons in the long


I am current working on an update for Cognos, which will be posted in the
next day or so. Based on the accounting results it looks fully valued. But I
believe the accounting may be conservative due to expensing of R&D. Earnings
were up sharply in the latest quarter and yet the price has declined. I expect
to rate this Speculative Buy. I may buy some.


June 27, 2007


Another interesting day in the markets. The Dow at one point was down 77
points but then rallied to close up 90 points.


Western Financial Group announced today that its convertible preferred shares
would have a dividend of 6.75% and be convertible at a  price of $7.25. On
reflection, maybe this is a good thing. It’s a lot better than issuing shares
now at some price below the market price, as they have done in the past. If the
stock price continues to go up over the years then in effect they will have sold
shares at $7.25. WES closed at $6.18 today.  I hold shares and will
continue to hold and would be interested in adding to my position if the stock
fell back to say $5.50 or lower. The preferred shares might be a good investment
since they mostly insulate an investor from the volatility of the shares and
still leave upside if the shares eventually go above $7.25, which does seem
likely in the longer term.


June 26, 2007


It was a big surprise this morning to find that Telus had pulled out of the
bidding for BCE. This sent BCE shares down 3% while Telus was initially up as
much as over $2.29 but ended up 19 cents. Yesterday the Telus CEO was asking
that a competition review be done immediately in order that Telus not be
disadvantaged in the bidding. Wow, what gall. Telus should have expected to be
disadvantaged in that they proposed to merge with one of only two other National
competitors in the cell phone industry. We happen to have a legal requirement
for a competition review. (And on the face of it if this deal was allowed the
what point is there to ever  review any deal for competition? This was
clearly going to reduce competition.) This brash CEO thought he could whine and
get his way? I recall that did not work in October when he thought the
government should allow Telus to turn into an income trust. Sure we have too
much government in this country. But  given the laws the government and the
competition bureau has to be shown respect.


I said when Telus announced the bid, I did not think the merger would be
allowed. It’s probably for the best that they withdrew the bid. If the BCE was
faced with the highest bid from Telus then it would have had to decide if it
would accept a bid subject to a competition review or go with a clean bid from
the other bidders. My guess is that the Telus Board which apparently met last
night to consider the bid price decided it was not likely the bid would fly. I
think the Telus CEO was prepared to go ahead but was likely over-ruled. If so,
we have a rare case of a Board of Directors actually doing its job and not just
rubber stamping whatever the CEO wants to do.


At this point I suppose BCE has some up side. Then again any accepted bid
could take months to close… I am not too keen on the BCE shares right now,
although if they fell to $38 during the bid review that would likly be a good
bet. And also buying at $40 or so might work out well, especially if they
announce an attractive bid in the next few days. There was talk of the
successful bid being revealed by Friday. A bid of $43 might see the stock run up
close to that but then would likley fade a bit as the reality of a long wait for
the cash sets sets in.


I would consider buying Telus (the voting shares see below) here as they are
down from recent highs and we had last rated the company (lower) Strong Buy at
$56 so I think $62 is not unreasonable…


I notice the Telus voting shares closed at only 42 cents higher than the
non-voting. Often the voting shares trade at $1.50 or even $2.00 more than the
voting (I have not tracked the exact spread so going by memory here). At he time
of the Trust conversion, the spread got tight like this but then went back to a
much wider spread. In the very long run the non-voting are worth the same as the
voting and someday the two classes will likely be come one. But meanwhile there
is a lot of risk the spread will widen. So if I owned the non-voting I would
probably sell now and buy the voting while the spread is tight.


Market sentiment continues to look negative. The DOW was up as much as about
70 points today but then closed down 14 points. It seems there are bargain
hunters out there but fear seems to be winning out most days. Toronto has had
some bad days but I always expect volatility based on oil prices and that is
very hard to predict. I mentioned that my own bias is to raise more cash, but I
keep having trouble deciding what to sell.


I was tempted to buy more Tim Hortons today but first I may force myself to
sell something as I do want to keep my cash position at its present level of
about 23% or higher.  So far my stocks and our picks in general have held
up very well in this market correction and this has left me less anxious to sell
any of what I hold.


June 25, 2007


Again today the broader U.S. market showed signs of both fear and bravery
with no clear direction established.


Canadian Western Bank
updated and rated Buy at $28.26. In recent years it has not seemed cheap but it
seems to keep on doing an imitation of a slower but steadily rolling snowball by
growing ever larger and more profitable. It has jumped in price recently. It
might be wise to take a half position and then hope for a pull-back.


June 25, 2007 (pre-market opening)


The drop i the DOW on Friday reinforced my defensive outlook on the market.
So far the markets seem to keep bouncing back but with higher interest rates
broader declines seem more likely than gains in the short term. In such an
environemnt it seems wise to trim more speculative positions and concentrate on
more solid companies that have lower P/E ratios. Divend stocks do get hit when
rates rise but at least most of those are solid and tend not to fall


My bias at the moment is to increase my cash position but to still be on the
lookout for bargain priced stocks. We will have a couple of updated reports
within the next few days (Canadian Western Bank and Cognos) 


June 21, 2007


A big story today was that Telus would like to buy BCE. On this news BCE was
up 4% and Telus down 3%. I can’t see this deal being allowed to happen. For
better (or more likely) worse we do have a competition board in Canada. It’s
hard to imagine the competition Board letting this through. Also why would the
BCE Board accept a bid from Telus if there was a big risk it would not go
through? Better to take a lower but more certain bid. On this news I would be
inclined to sell BCE if I owned it and consider buying Telus since it has moved


June 20, 2007


Today’s 1% fell in the Dow reminds me of the fact that I have a generally
defensive view of the market right now. Markets were still heading down at the
Close today and this could indicate the down-trend will continue tomorrow. This
fall was apparently caused by higher interest rates in the bond markets.


Unrelated to this I reviewed some data today that showed that in the past few
years lenders have experienced very low default rates even on junk debt. This
cycle will likely turn at some point. At that point (after it settles out) there
could be better bargains in the debt markets as interest rates jump especially
for junk and other risky debt.


I do think stocks are destined to continue to do well in the long run. Still,
I am inclined to want to increase my cash position to build cash for future
investments and to limit my risk at this time. I have not made any decision yet
on what I might sell.



June 19, 2008


Today, Western Financial Group indicated it will issue $15 to $25 million in
referred shares. The market showed little reaction but did push the share price
down a few cents. When I read the press release it is difficult to understand.
They indicated the share will be convertible at a price not yet determined. In
general I view this as negative for the share price at least in the short term.
At this time I might be more interested t buy the convertible preferred shares
than the common shares. I like WES, but the use of dilutive securities like
this makes the stock more difficult to analyse. What tends to happen, as the
earnings improve these things come into the money and suddenly the diluted share
count shoots up. It’s harder to grow earnings per share when the share count
goes up.


On the other hand the fact that they are raising money is perhaps indicative
of more acquisitions ahead and those have been good in the long run.


By-the-way, I am downtown Toronto this week. They have a very nice waterfront
area here. I was pleasantly surprised when I visited this area this evening.


June 18, 2007


Another interesting day in the markets.


A couple of financial stocks really jumped.
Western Financial Group jumped to
$6.48 although there were probably extremely few share traded at that price. It
ended the day up 3% at $6.05. Partly this may have been a delayed reaction to
the confirmation last week that (as previously announced) it will start to pay a
small dividend. An interesting trading strategy with a small stock like this is
to put in a sell order say 10% above the usual price and just maybe you will get
a sale at a high price. I did not consider selling today because I have already
sold probably too much of this Stock on the way up. Possibly now though the
trading is getting a bit silly. There is a lot of excitement about the dividend,
but the reality is the the dividend at 4 cents per year is less than a 1% yield.
At this point some people are buying WES simply because it has momentum. But
momentum can evaporate quickly…


Similarly Canadian Western Bank
was as high as $29.40 before closing up 2% to $28.55 and this was on top of a
big jump of around 6% on Friday. But the higher price did not last long. I was
about to sell some at $29 but the price had slipped to $28.55. Again an interest
strategy would have been to have been sitting there with an offer some 10% above
the recent price. This could give a sell at a good price but also can mean you
sell too early if the stock for example jumps 15% and stays there. I have placed
an order to take partial profits here by selling at $29.50 if it should hit that
price. (I am not sure that that is a good move because this stiock may go higher
than that before too long, but as always nothing is certain in the markets, and
at $29.50 I will have made a very quick 20% as I only recently bought this
stock. And I will only sell 40% of my position)


June 17, 2007


I rarely do this, but I wanted to let you know about a business operated
by a friend of mine who is also a member of this Site. He is importing unique
products to decorate finer homes and offices. If you are looking for something
special to decorate your home or office check out



This company is bringing in unique products and can ship to you anywhere
in North America. I have seen the products in person and I thought that they
were very reasonably priced given the size and quality. 


Canadian Tire is updated and rated
(lower) Buy at $82.10. This company has often appeared to be fully valued and
not a bargain but then it has managed to out-perform by growing earnings faster
than expected. Our last update in February we called it (lower) Buy at $73.20
and it has done well since then. It has more than tripled since it first was
added to this Site as a Strong Buy at $22.90 on February 4, 2000. Admittedly and
regrettably subsequently under-rated it, even calling a Weak Sell at some times
as the Wal-Mart threat loomed. I personally held it years ago and sold too
early. We had removed it from the Site and then brought it back as a (lower) Buy
at $39.45 for the start of 2004 and it has doubled since then.


Investors are often eager to know when to Sell. But as this company
illustrates, it may be that a good time to sell is never reached if the company
keeps growing earnings. When I look at some of the big-ticket items like “Quads”
that they are selling at very attractive prices, I suspect this stock may
continue to surprise to the up-side. The stock has been moderately volatile and
so it might pay to be a bit patient in buying it.


Hub international is removed from the Site since it was taken private. Bank
of Nova Scotia is also removed. The report was out of date. We prefer to focus
on smaller banks like Canadian Western Bank.


Canada Bread
is updated but rated only Weak
Buy/Hold at $58. The stock has been volatile but with no clear trend since we
added to this site in 2005. While sales have started to grow, earnings even
after adding back restructuring costs have been flat. It is possible that there
is up-side if its parent Maple Leaf decided to take it private, but based on the
numbers this stock is fully priced. If I held it personally, I would likely sell
and move into something higher rated.


is updated and rated Buy at $63.79.
This company was added to this Site one year ago (May 29) and was rated Buy at
$48.82. It has done well and is up 31% in that time in U.S. dollars. Most of the
increase in the stock price is due to the earnings increase and the P/E also
rose somewhat. This continues to look like a good investment.


June 16, 2007


FirstService is updated and rated
(lower) Buy at U.S. $ 36.59 or CAN $38.79. This stock has done exceptionally
well since we rated it (lower) Strong Buy on February 6 this year at U.S. $25.16
or CAN $29.68. This was an example of the benefits of buying a high quality
company. It is a great company. However, give the big stock price increase it is
no longer clear that it is a bargain. At this point it would be prudent to
average ina nd perhaps hope to buy on a dip. If its past growth rate continues,
it will continue to be a good long term investment. It has had a history of
significant stock price volatility which can be frustrating but which has
created buying opportunities in the past. Looking at the long-term, the stock
has almost tripled in U.S. dollars since we first added it to this Site in 2002
at a split-adjusted $12.28. Although headquartered in Canada this should be
considered to be effectively a U.S. stock since the majority of its operations
are in the U.S.


June 15, 2007


Performance figures for the year to date
have been updated.


There was a very strong gain for Canadian Western Bank up 6%  to $28
today. This stock was mentioned as a buy on dip at May 15 and at $24 of April 24
(see below). Given no news today, I am not at all sure that this jump in price
is sustainable in the short-term. But long-term the stock should continue to do


June 14, 2007


Another surprisingly strong day in the market. In particular Couche-Tard did
well today which comes after a long slide in this stocks – partly the slide was
caused by the higher Canadian dollar. Western Financial had a strong day.


Tomorrow, the direction that market will likely be determined by a U.S.
consumer price index report that I understand comes out tomorrow.


With the market up, I thought about what I might sell. My second largest
position is Northbridge and so I decided to reduce my position in that stock by
one third. We recently rated the Stock (higher) Buy but I just wanted to reduce
my exposure. We have had some minor storm damage in the West lately. It should
be no big deal at all, but in the past I have seen insurance stocks get hurt
over payouts on relatively small storms, so that was another reason to reduce my
exposure to the property insurance segment. My cash position is now about 23%.


June 13, 2007


Today’s market rise was a welcome surprise. It illustrates that, as always,
markets are very unpredictable in the short term.


June 12, 2007


Wal-Mart is updated and rated (higher)
Buy at $50.08. That was the price yesterday. Today it closed at $48.91. It
appears to us that the stock represents good value at this price. We had last
rated this (higher) Buy Nov 29, 2006 at $47.39, and it has risen somewhat
since then.


A negative day on the markets. With market interest rates increasing on
government bonds, the negative trend seems set to continue. A couple of bright
spots were Western Financial Group and Canadian Western Bank as well as
Northbridge Financial. Western Financial tends to be volatile and it could
certainly move lower if the negative trend continues.


In order to build cash I decided to sell some shares today. Instead of
following my idea of cutting my larger holding proportionately, I decided to
first sell some other positions. I sold my New York Stock Exchange Group shares
because I don’t follow the company and therefore do not have a strong basis to
hold it. Also I sold half my TSX Group position because of concerns about
competition there. I sold my IGM position simply because it was a small position
and I have decided to hold a more concentrated portfolio. I sold my small
position in XEG the oil and gas exchange traded fund because it is not a “stock”
that is rated on this Site. In general these sales are not a comment on the
value of these stocks but rather reflects my desire to hold more cash. My cash
position is now 22% with the remainder being all equities.


My portfolio is almost entirely in non-taxable accounts, this allows me to
trade in and out without worrying about triggering taxes. Ina taxable account I
would be more reluctant to take gains.


In terms of the Model portfolio, as mentioned on the
model portfolio page, the percentage
of cash to hold is a personal decision and so the model is meant to be a 100%
equity portfolio except when small amounts of cash are parked as a result of a
stock sale.


I find myself certainly in a defensive frame of mind, but certainly not in
any panic. The market really has not fallen all that much. If it continues to
drop my inclination is to sell more shares in order to raise cash just in case
the correction does deepen as in that case there will eventually be bargains to
be had.


June 11, 2007


Our Stock Picks did well today as did the Canadian market. However, the DOW
was flat.  I remain concerned that the recent minor market down-turn is not
over yet. Still, market timing is always difficult and for the most part I will
remain in the market. I am prepared to suffer the risk of short-term declines in
return for long-term gains. As alluded to earlier, I may engage in limited
market timing by raising my cash position from 14% to perhaps 20 or 25%. We also
intend to look for additional bargain priced stocks, as investing in bargain
stocks is a good way to insure against major losses in a market down-turn.


June 10, 2007


Friday’s partial recovery is encouraging. But it is fair to say that the
market may be “due” for a more significant down-turn than we have so far seen.
Market P/E ratios are perhaps moderately high but not excessive. But given
inflation and interest rate increases and slowing economies and given the fact
that markets have risen for some 4 and one half years, a down-turn of 10% or
more would certainly not be much of a shock. As always I would hope that the
Buy-rated stocks on this Site would do better than the market. Nevertheless a
significant market down-turn would tend to pull almost all stocks down to some
degree. that is simply the reality of the stock market.


As I post this late Sunday evening, the Japanese and Chinese markets are up
in Monday trading and so perhaps this will meant hat the North American markets
will not be down tomorrow.


The percentage holdings in my personal
portfolio is updated. My largest holding by far is Tim Hortons. Given that
it was not one of the highest rated stocks on this Site (great company but
expensive) and given the recent price decline it now seems apparent that based
on my enthusiasm for this company (despite the expensive stock price) I may have
let myself become over-exposed to this company.


Last week I found myself wanting to increase my cash position. But given that
I like the companies I hold, I found it hard to pull the trigger and sell. In
particular I do find it hard to sell shares of companies that we are rating here
as Buys.


To combat this I believe I should set a cash percentage target and then sell
proportionally from all or most of my significant holdings. In this manner the
sales I would make would not be an indication that I no longer like any
particular company. Rather it would be based on an indication that I want to
raise cash in case the market does correct further. With commissions of only
about $10 per trade it is feasible for me to proportionately trim back positions
in say 10 stocks and it only would cost me $100 in commissions.


My current cash position is 14.3% which is up from about 0% in April.
Depending on the market’s direction this week, I may raise this cash position by
selling proportionately from five to ten of my larger positions.


June 8, 2007


I sold half my Shaw shares today. This was one of my largest holdings and yet
was rated only Speculative Buy. I think the company will do well. The stock
however had a high P/E and so I was worried about a decline and wanted to move
some funds to cash.


June 7, 2007


We have had a modest “correction” in the markets and it could certainly get


I believe it is very much an individual decision as to whether one should now
attempt to time the market by selling some stocks in the hopes of buying back at
a lower price, or stay the course. In depends on time horizon and individual
tolerance for loss.


So far this week, I have not sold stocks because I do like the companies I
hold and I can’t be certain that the market will continue to fall.


If an investor is inclined to sell when the market appears to be going into a
correction, then it is probably not too late. The market is really only down
enough to suggest that a deeper correction may be underway. It is hard to say if
the correction will now end or will deepen. It is certainly possible that a
correction in excess of 10% could develop here. But I see little danger of a
really deep correction because stocks still have reasonable P/E ratios on
average given today’s low interest rates.


June 6, 2007


A bit of a nasty day with the Down down 130 points. Toronto was down 200 but
I look at the Dow as a broader indicator – Toronto moves with commodities. We
could very well be in for further declines. It’s never easy to decide if one
should stay in the market or instead reduce positions at a time like this and
hope to buy at lower prices. My inclination is to stay mostly in the market
given that I believe I am holding high quality companies that will do well in
the longer term. At the same time it would be nice to have an allocation to cash
in order to buy if the market does drop a material amount. I see little
advantage in holding longer term bonds because higher inflation and higher
interest rates – which seems to be the expectation a this time  – drive
longer term bond prices down even faster than they drive stock prices down.


Tim Hortons
has dipped lately. While it
could dip further I view declines in a strong company like that as a possible
buying opportunity. A good strategy might be to average in buying as it
declines. Similarly ING Canada is at low
not seen in over 1 year and this could be an opportunity.


Couche-Tard has not done well.
Apparently two senior managers recently left. However I understand that its four
most senior officers remain in place. Part of the frustration for the next level
of management is that the old-guard who own significant shares are in no hurry
to leave. Part of the reason for the decline in Couche-Tard is certainly the
fact that most of its revenue and profits come from the U.S. and the higher
Canadian dollar hurts this company. On this one I would wait for the next
earnings report to see how the valuation looks at that time.


June 5, 2007


The following was sent by email to all paid members late on June 5:



The stock markets in general have done very well this year to date.


Our main focus is always on individual stocks. In terms of the general
markets I think they may be somewhat over-valued but not in a bubble state by
any means. The long-term outlook remains good for stock markets. In the short
term I note a rather sharp rise in Canadian interest rates (10 -year goverment
yield at 4.5%). Most of the past few years that has been closer to 4.0% and
even lower. Last May it also went up to around 4.6% very breifly and we had a
noticeable decline in the markets at that time. Also there is talk of Bank of
Canada interest rate hikes and inflation worries are surfacing.


The factors above are negative for stocks. On the other hand corporate
buy-outs have continued to support stock prices.


If your equity exposure is very high, it may be prudent to move some funds
to cash. The decision to attempt to time markets is always very dependent on
individual circumstances and preferences. There is a risk of being in the
market and there is also a risk of being out of the market.





Walgreen Company
is updated and rated Buy
at $45.14. This stock seems to be reasonably priced,. If it can keep up its
historic growth levels then this will be quite a good investment. Even if growth
falls somewhat to the 11% range (from 15%)  it will be a reasonable
investment. I do not own this stock but I am very tempted to buy some. Canadian
investors do face the risk that the Canadian dollar will continue to rise.


June 4, 2007


is updated and rated Speculative
(lower) Buy at $50. The stock is well down from its historic highs. Even when we
add back restructuring, goodwill impairment and related charges identified by
management, our resulting adjusted earnings figure is low and results in a P/E
of 35. It’s unclear what the “normal” level of earnings would be in the absence
of current problems but in the presence of the recent more intense price
competition. We continue to hope that they can resolve their problems and
increase the earnings but it is not clear if this will happen. The price to book
is 2.5 but we suspect that the building assets would be worth far more than book
value…  In the end it is not clear when the problems with this company
will be resolved and therefore caution is certainly warranted.


Most of the subscribers to this Site are Canadians. Lately Canadians who
invest in U.S. stocks have been hurt by our higher dollar. The consensus seems
to be that our dollar will continue to rise. From that point of view Canadians
might not want to buy more U.S. stocks.  But then again, with our high
dollar U.S. stocks look cheaper… If there is a very attractive U.S. stock
which Canadians would like to own, it probably makes sense to buy and not worry
too much about the currency. Most Canadians will eventually spend some money in
the U.S. and that offsets some of the risk of a higher dollar. Despite all the
predictions of a higher Canadian dollar, there is always a chance that out
dollar will decline. If a person were certain that our dollar would rise then it
might make sense to buy the appropriate currency futures to capitalize on that.
I view currency futures as a specialized and risky area…


American investors who own Canadian shares (those that earn their revenues in
Canada – as opposed to Canadian based companies that earn most revenue in U.S.
dollars) have benefited from the higher Canadian dollar. 


FedEx is updated and rated (higher) Buy at
$111.18. This appears to be a relatively simple business. It has brand value and
continues to grow with global trade. This appears to be an opportunity to
purchase a great company at an ordinary (although not particularly low) P/E.


is updated and rated Buy at
$30.48. This is a huge and complex company. The investment thesis here is taht
while the share price has bumped along the share price is not much different
than it was five years ago. And it is well down from the breif euphoric peak of
around $60 of 1999. Yet the revenues per share have grown steadily over the
years and the earnings per share have grown. The P/E of 21.5 is higher than the
market average but is not grossly high and would normally be considered low for
a company with an ROE of 40%. Canadian investors face currency risk if our
dollar continues to rise.


June 3, 2007


Stantec is updated and rated Weak Buy at
$34.20. This has been an amazing stock – rising some 1268% from the $2.50 that
we rated it a Strong Buy at when we first looked at this stock in September
1999.  This growth was supported by earnings to a degree with earnings per
share rising some 400% over those years. The P/E ratio has also risen
substantially from 10 to a present 24, which actually accounts for most of the
stock price increase.


Over the years we initially called it a Strong Buy and then Buy or Weak Buy
and it was (lower) Buy at $25.25 for the start of 2007. It seems we have been
conservative by not rating it high enough most of the time…


This is clearly a Great Company. It would be easy to change our growth and
P/E assumptions enough to keep on rating it a Buy. But from a conservative value
analysis perspective it is hard to rate this a Buy at this time. Yes, the stock
price may keep rising if it keeps on growing at past rates. But I have to think
the P/E can’t get much higher.


I have very much liked its growth strategy of buying private companies at
lower P/E multiples and folding them into Stantec which trades at a higher P/E.
But now there is a danger they could over-pay. The reason is that with a P/E of
24, any purchase at a P/E lower than 24 is accretive to earnings per share. But
if they start paying high P/Es for acquisitions (and I don’t know if they are)
the danger is they would be over-paying. Just because Stantec trades at some
high P/E does not really mean that they get a good return by paying high P/Es in
acquisitions. They continue to buy back shares despite the high price. This may
indicate a lack of discretion in this area.


I am just wondering if the stock is now pricing in a rosy future of continued
very strong growth. In such a case we then leave little room for up-side and
lots of room for downside.


Also their U.S. based earnings are hurt by our higher dollar.


Overall, give the high ROE and the great history we can’t call it a Sell and
we rate it Weak Buy.


Regrettably, I sold my Stantec too early some years ago. I do have some in an
account I manage for a relative. Although we rate it Weak Buy, I may sell that
and transfer the money to something we rate higher. (This is a non-taxable
account and has a 75% gain on Stantec achieved in a relatively short period…In
a taxable account I would be less inclined to sell)



Our performance figures including the graph for 2007
are updated.


June 1, 2007


A strong end to the week with renewed interest in the bids for BCE driving up
the telco / cable sector.


I am in Fort McMurray right now, my first trip here ever. I have a little oil
sands tour tomorrow. It is amazingly warm here, over 30 Celsius, and probably
the same tomorrow. If you are ever here in Summer I highly recommend the jet
boat tour of the river. A one hour tour that includes some of the history of the
City and the role of the river. Incredibly we saw a couple of groups of young
people swimming in the river. (Don’t tell Al Gore, or David Susuki, they will
blame global warming…).


I noticed two Tim Hortons here both lined up out the parking lots, despite
the hot day… While the stock has slid down and certainly could slide back
further I do think it is a reasonable investment at this price. Likely to do
well in the long run…


We will have several updated reports within the next few days.


May 30, 2007


The S&P 500 finally closed at a new record high after 7 years. In some ways
that could be interpreted to mean no money was made in stocks in the last seven
years. The reality is that anyone who kept investing every year in the S&P 500
has made money. Those who started investing around 2002 or were making larger
investments in recent years have done well.


I’m not sure that this record S&P 500 close will generate much excitement…


I sold a bit more of my Western Financial today. I then entered an order to
buy around $5.10 and would not mind seeing it take a  dip to $5 or below.
But it certainly has momentum lately and maybe will not take such a dip.


As the Canadian dollar continues to soar any Canadian who invested in U.S.
stocks feels some pain. The natural reaction is to now favor Canadian stocks. In
reality we clearly have a good opportunity here to use our high dollar to
diversify into the U.S. and other countries. Sure maybe the dollar will keep
rising, but at some point if you don’t put some dollars outside the country then
you could miss the boat and see our dollar slide back. I am of the view that
over the longer term the movement of our dollar against the U.S. will not be
that large. For example if our dollar rises to say $1.14 in say 10 years , that
would only be 2% per year and if one could make 2% higher in some U.S. stocks
then that would be a wash. And I feel I have no ability to predict where our
dollar will go. I do have trouble believing our economy can withstand it getting
much higher. And it could certainly go lower.


Of course those Americans who bought Canadian stocks are smiling all the way
to the bank. This should create more interest for Americans to buy Canadian
stocks, which is a good thing.


May 29, 2007


Western Financial was up again today. I did have some correspondence with the
CEO today and he explained that the reason that he sold shares recently was
because an interest-free loan from the company that he had used to buy the
shares some years ago, had to be repaid. So that takes away what I thought was
quite a negativee factor. I have revised the report a bit for that. Perhaps I am
being too conservative but I an leaving the rating at Weak Buy / Hold at $5.42.
I may sell a few shares and try to buy back at a lower price. But I will
definitely continue to hold some shares.


My Tim Hortons Pick has not done so well
lately. There is probably no reason to expect it to recover until and unless Q2
comes out and is positive in late July. But long-term I definitely like this
stock. Today in the Financial Post there was a story they may have to close a
few stores in Southern New England. I was already aware that they have a few
poorly performing stores in Southern New England and this was mentioned in my
note under May 6 below. I believe those are stores from a chain that they took
over and re-branded so this situation may not have happened had they built their
own stores and chose the locations. In any event it does not seem like such a
big deal to me but does indicate expansion in the U.S. will take time. My view
is that this could be an opportunity to average in as the price declines.


May 28, 2007


Western Financial Group is
updated but rated only Speculative Weak Buy / Hold at $5.42. This stock is up
99% since we first added it to the Site as a Speculative Buy at $2.73  in
September 2004. Subsequently it fell to $1.96 where we rated it Speculative
Strong Buy at $1.96 and it is up 177% since then. It has grown a lot over those
few years, but the share count also went up a lot. In the past 3 months it has
jumped from $4.25 to $5.42 on the strength of a very good Q1 and strong
prospects. It would be easy to get over-excited and keep buying. But the stock
has tended to be volatile. On a number of occasions they have issued equity
below the market price. They just announced a pending acquisition and my fear
would be that they would issue shares to pay for it and might have to issue at
$5 or so (that is pure speculation on my part). On the one-hand it is a growing
company and will likely be a good investment if held for the next five years. On
the other hand I am nervous about this higher price and believe it could easily
come back under $5.00 I trimmed my position at $5.38 and do not regret that. I
may possibly trim more but will definitely hold some. I like the company a lot,
but the share price seems somewhat high.


May 27, 2007


An edition of the free newsletter was sent late Saturday night. If you did
not receive the email, here is a copy of what was sent access it here



Fellow investors, please click the link below to access the latest edition
of our investment newsletter.




This issue I take a look at the mathematics of how to eventually grow a
portfolio into the $3 million range or even the $10 million range.


I review why Warren Buffett, by age 20,  did not merely THINK or HOPE he
would become rich, he KNEW he would. – Because he had a PLAN and so can you.


I discuss the pontential for a Registered Retirement Savings Plan to grow
to $100,000 and a bold idea to find another way to pay for college allowing
the RESP to become the seed money for an investment fortune for your child. 


I also discuss some of the expected winners and losers that will emerge due
to the recent surge in the Canadian dollar.



EBay is updated but remains only a
Speculative Weak Buy / Hold at $33.01. Given its stature it is worth monitoring.


May 24, 2007


With Western Financial up 10 cents this morning I decided to take some
profits and sold 3000 shares at $5.38 to hold 6500. Also I decided to take some
other profits as well. BCE was back above $39 and I sold my BCE shares which I
had bout very recently at $36.03.  I also decided to sell my Telus shares
since they were at about a record high. If the BCE bidding cools a bit both of
these would fall and I may get a chance to buy back in. 


Longer term interest rates in the U.S. rose today on the news that the prices
on new houses fell 11%. My sense is that we are quite likely to see some sort of
decline in markets.


May 23, 2007


The S&P 500 failed to close at a new high despite flirting with this for the
third straight day. This was blamed on Alan Greenspan’s comments about China’s
stock market being over-priced and ready to burst down. I read something about
stocks in the same company that trade higher in China than they do in Hong Kong.
If true, that is scary. I’m beginning to feel that the market is due for some
kind of correction. Long-term interest rates are creeping up and yet the market
has not reacted. Still, I am reluctant to sell much right now given the recent
upward trend and the buy-outs. Strong cash flow companies will likely fare well
in any correction.


With Canada’s higher dollar, any company that has a majority of earnings
outside of Canada could be hit with lower earnings and a lower stock price in
terms of our dollar. It would not change the true trend of earnings growth for
such companies but would lower their earnings. An example is Manulife. I have
been amazed that Manu life managed to grow earning very strongly these past few
years as our dollar soared. Partly it may be offsetting liabilities in the
foreign currencies, but I think the dollar will hurt Manulife. Canadian
Manufacturer’s would also be hard hit. A company like Dalsa would be hit
somewhat. Others that are affected include Kingsway, Cognos, Thomson and FirstService. These company’s should be judged by their performance and share price
in U.S. dolalr terms but even if they stand still in the U.S. they decline in
Canadian dollars.


But I don’t regret having some exposure to U.S. equities or Canadian
companies that have exposure to the U.S. dollar. Our may very well trend higher,
but I would not try to get too cute and for example get out of U.S. stocks on
the hope of buying in later with a stronger Canadian dollar.


A good day for Western Financial Group on the news mentioned in yesterday’s
posting here. It opened at $4.95 (only up about 2 cents) but got as high as
$5.48 and closed at $5.28 on over double the normal volume. This was a rare case
where the market was slow to react to the news in the morning. I grabbed 1500 at
$4.96 (Almost bought more but chickened out). This is a great growth story.
However as I look at the value ratios it is hard to justify this price. I have
some concerns about the way the share count has grown due to dilutive
securities. More shares appear in the diluted share count as convertible debt
came into the money. Also there were preferred shares issued last year and
apparently these are convertible into a lot of shares. I like the story here,
but not so much the price. I may reduce my position particularly if it goes
higher tomorrow. I will update the report on this company within a few days.


May 22, 2007


The S&P 500 failed to close at a new high after flirting with it two days
this week. Hopefully it makes the push across that line tomorrow (Wednesday) or
else the technical guys will probably conclude the old record is a resistance
level and failure to cross it would be negative from that perspective.


I added to my positions in both Northbridge and ING Financial today.


My next update will likely be
Western Financial Group and then WalGreen. I was reading the Western annual
report tonight and was impressed with the Growth and the optimism. I have said
before that CEO Scott Tannis is building a growing business there and it might
be a good idea to tag along. Coincidently, they just announced they bough a
small Bank to merge with their Bank. I don’t think they released the price paid.
The Bank acquisition is $125 million in loan assets, which is very tiny by Bank
standards but big enough for Western and it gives their little Bank needed
scale. Hopefully they can finance without issuing more shares. It may not be
more than a $25 million or so acquisition, we shall see.


Maybe it’s a good think their Chairman, Jim Dinning did not win the
conservative leadership and become Premier. I have a lot of respect for Dinning
and if he can focus more attention on Western Financial that is great. If
Western does not jump tomorrow it might be worth picking up some shares. But I
would not buy too much at once, their shares tend to be volatile and so their
may be better opportunities to Buy later on, so on this Stock I would average


May 21, 2007


Northbridge Financial
is updated and
rated (higher) Buy at $34.07. This is a property and liability insurance company
operating 90% in the commercial (non-residential) market and about 87% in Canada
with the remainder in the U.S. The stock is up 12% since we called it a
Speculative (higher) Buy on February 24 at $30.49. Longer term it is up 70%
since we rated it a (higher) Strong Buy in February 2003 at $20.20. However, in
the last 20 months it is has been frustrating as it reached $35 several times
only to fall back to the $30 range. The set-backs were mostly related to
hurricane losses that happened in 2005 but for which the loss estimate was
increased several times. They have since exited that volatile business. Still,
unpleasant surprises are to be expected with insurance stocks. Overall this is
not a growth story but is a value story. It appears to be a company that making
attractive profits over the long term and which is available at about 1.26 times
book value. With some exceptions, buying insurance companies at this lowish
multiple to book value usually turns out to be a good investment.


At the last update we called Northbridge Speculative – that is because it is
unpredictable. But as a solid usually profitable company it is not particularly
speculative and so we have dropped the Speculative word from the rating this
time. Recently the price jumped a couple dollars to $35 and then fell back to
$34.07. These are reasonable entry prices, but possibly it will fall back to the
$33 level…  The Q2 earnings will likely boosted by a large gain of about
$1.75 per share on the sale of its shares in HUB International.  while that
is a one-time event and is already known, it may still provide the support to
push Northbridge up somewhat. There is also a possibility that its controlling
parent Fairfax could either sell it or take it back private.


Northbridge appears to offer better value than ING Canada at this time.
However, with insurance stocks it seems preferable to spread an investment over
several rather than making too large a bet on any one company. I may increase my
position in this stock.


May 20, 2007


If the U.S. market rises this week, that should push the S&P 500 index to a
new record, finally regaining its high close from March 2000. Making a new high
after 7 years is nothing to write home about, but still it could generate some
excitement in the markets.


May 19, 2007


ING Canada is updated and rated Buy at
$48.11. It recently released earnings. Although earnings were down from the very
high level of Q1 last year, they were still very good. Most of the value ratios
look very good, but the Price to Book value at 1.9 may be somewhat high for a
financial company. Earnings will continue to be volatile and unpredictable which
is the nature of property insurance companies. Earnings may continue to trend
down from recent very high levels. But this is a very well run company and it is
lower risk than the other property insurance stocks that we feature because it
focuses on lower risk mostly residential business. I intend to add to my
position in this company.


May 18, 2007


Our Performance figures for this year have
now been updated.


If you need to change credit cards in PayPal see the link near the very top
of this page to a short article
that covers some tips on how to do that. If the credit card is changed
PayPal requires you to go in and find the subscription to investorsfriend and
then update the funding source for this subscription. Otherwise when the old
credit card is expired or is deleted from payPal they automatically cancel the
subscription to investorsfriend.


May 17, 2007


The market continues to show good strength. It was good to see the Telecom
and cable stocks rise today on news of renewed interest in BCE. Hopefully that


Currency Moves


The Canadian dollar has risen back past the highs of last May and so is at a
high not see in I believe 20 years. As it continues higher this hurts our
investments in U.S. dollars. And it could very well go higher given the trend
and given that the consensus is that Canada is more likely to raise interest
rates then is the U.S. and given that higher oil and commodity prices tend to
push our dollar higher.


But when it comes to investing in the U’S’ I am not going to be too bothered
by the risk that our dollar could move higher. There are several reasons for


1. Like most Canadians I will likely have a need for U.S. dollars at some
point for short visits to the U.S. and in later life longer visits or even
winter residence in the U.S. Therefore having some U.S. investments is a hedge
against our dollar moving lower. If I had substantial non-registered assets I
would definitely consider having a U.S. dolalr account for U.S. invesments and I
would monitor  the value of those assets in U.S. dollars and not worry
about the value in Canadian dollars, since these would be dollars destined for
U.S. spending.


2. It’s always possible our dollar will fall. If it falls then it will turn
out that buying U.S. stocks now iwas a good move.


3. In the long term of over ten years, the currency movement will not likely
be all that large. I would hope to double or triple my money based on U.S.
returns over a ten year period. If the investment is up say 150% in ten years,
then even a 20% movent in the currency over that period is not a big deal.


I believe that his high dollar will be very bad for exporters and for the
tourist industry. The tourist industry will also be hit by moves to require
passports for Americans that visit Canada via air travel. Ground travelers from
the U.S . don’t need passports (yet) but may stay home thinking they do need
passports. My suspicion is that a huge percentage of Americans don’t have
passports and will not get one. Ontario could be hurt badly.




Recent figures show that inflation in Alberta has really taken off. As a
resident of Alberta I was surprised that inflation seemed pretty tame at about
3.5% annually through most of 2006. By March 2007 the year-over-year rate was
5.5%. Recently apartment rents in Alberta have truly sky-rocketed and with that
and labor shortages, I would not be surprised if inflation in Alberta zooms to
the 10% range. That would be very significant and could lead to lots of labor
trouble. Government unions are going to want raises tied to inflation but the
government will not want to give them.


It’s gets interesting because Alberta almost needs the brakes to be applied
such as through higher interest rates. But the rest of Canada has inflation
close to 2% and could use lower interest rates to stem the rise in our dollar
which as noted above hurts both exporters and tourism.


As we update various companies we will be thinking about how our higher
dollar may be affecting them.


May 16, 2007


is updated and rated Buy at $58.01.
(it’s $56.92 as I post this). It’s got attractive profitability and past growth
and should be a good long term investment. In the short-term recession could
temporarily slow it down but as a discount chain it should not suffer too badly
in a mild recession.


May 15, 2007


Buy ’em when they’re down? A reasonable strategy is to buy good
companies when they dip in price. If they truly are good companies then they
will bounce back. However, when a company slides down on bad news it is usually
difficult to have the courage to buy.


In the past seven months CNR got to $55 and then had dips back to around $50.
Early this year it was affected by strike action and by poor weather. Given that
the stock is now at $58.78, it looks like buying on those dips would have been a
good idea.


A number of our Picks have dipped from their recent highs and are worthy of
consideration for a Buy on dips strategy.


TSX Group – down on concern of a possible future competitor


Telus and Shaw are down from the recent highs that they reached in the
excitement over the BCE bid and the run-up in BCE. They could regain those highs
if related merger and acquisition activity heats p again or may do so by Fall
based on earnings results.


NYSE/ Euronext symbol NYX – Not a stock we have analysed but I have commented
on it before and do own it. The stock has lately been volale and is currently
down at an eight month low. The P/E is shown at about 52 by Yahoo so that seems
very expensive.  But the NYSE is still transitioning from its former
essentially non-profit days and its profit has been rising sharply. Given the
brand name I felt it likely has some competitive advantage and pricing power.
It’s hard to get a feel for such big numbers, but it’s $12 billion market cap
seems reasonable compared to the TSX at $3 billion. I consider it speculative
given that I have not analysed but simply note that this mght be a reasonable
entry point on the expectation the price will recover…


Couch-Tard – Down due to lower profits on gasoline sales but management
expects that to be temporary and the company continues to grow. Should be a good
long-term investment.


Tim Hortons – Down from recent highs, could rise in 3 months if the Q2 report
is good. I think we can have good confidence that even if volatile it will very
likly be higher in 2 years.


ING Canada – Down due to a more competitive environment for property
insurance. It remains the only pure exposure to strictly Canadian standard home
and auto insurance. A blue-chip type stock. A good candidate to buy now on the
assumption it can recover.


Canadian Western Bank – recent dip should be an opportunity to buy…


Kingsway – another possible candidate but I do consider it more speculative
due to recent and ongoing issues regarding its insurance profits and retroactive
changes to estimates made in prior years.


Tomorrow I will review my holdings and will likely add to my position on one
or more of the above.


May 14, 2007


Over the weekend I sent out the latest edition of our
free newsletter, which you should have


late last week I sold my shares in Pason, a company we used to cover but no
longer do. I did not analyze the results so I sold without a lot of basis to do
so. I generally think very highly of Pason. They seemed to be signaling a poor
quarter or two coming up so I decided to sell and try to buy back later at a
lower price.


May 11, 2007


It seems like there is no stopping this market. The DOW roared back from its
little setback of yesterday. I am somewhat worried about the soft retail sales
figures in April. Today, the market seemed willing to shrug that off. If retail
sales are poor in May then that would likely put a damper on the market. But in
that case interest rates would stay and low and so it seems unlikely that we
would see any huge market correction. I am hoping that the S&P 500, next week,
can finally and at last pass its old record from year 2000.


May 10, 2007


Western Financial Group came out with very strong earnings today. Given the
recent increase in this stock, this kind of growth was probably largely priced
in. The stock did not move today on the news. But I think it is possible that
these earnings will push WES up somewhat in the next few days. I have not yet
updated our report. I suspect it will not look like a real bargain, but if it
can keep growing at anything close to the recent pace this will be a good
investment. If it happens to fall in price I will be looking to add to my


May 9, 2007


EGI Financial
came out with quite good earnings
today but the stock did not react. It’s thinly traded and so may be slow to
react or perhaps this good news was already “priced in”. I would consider adding
to positions at this price (about $12.30)


Shaw has come down in price partly I think because the excitement about BCE
that had pulled it up has die down. It’s always hard to buy on dips but I would
consider adding to positions as it drops. I think it will do well, unless
competition with Telus erupts into a pricing war. It would be nice to see
Buffett buy into this as well (fit’s the bill as a family controlled
cash-positive business with to some extent monopoly like characteristics – but
as always Buffett might not like the price and never gets into bidding wars).
Foreign ownership rules would prevent Buffett taking full control but he
sometimes gets around such rules by leaving the votes with the family. Anyhow,
it’s probably not for sale. The Shaw’s are having a great time owning it and
collecting lots of dividends so why sell?


May 8, 2007


Thomson fell 3% today on the confirmation that it will bid to buy Reuters. I
am not in a position to judge if they are paying too much. The fact that they
are buying at a time when many companies are buying could suggest the price
might be high. I do like the economics of selling electronic information. As I
understand it this move would leave just two major players in the financial
information field, Thomson-Reuters and Bloomberg. Bloomberg apparently has no
history of competing on price. So it should be possible for both Thomson and
Bloomberg to make high returns in this business. The acquisition at around $17.7
billion U.S. is large for Thomson which has an equity value around around $26
billion U.S. and another $4 billion in debt. This will increase the size of
Thomson by over 50%.


It seems to me that Thomson made a very smart move to get out of newspapers
some years ago and focus on providing subscription based information to
businesses and to do so increasingly in electronic formats. Those smart changes
were made under the watch of current CEO Richard Harrington. (He will retire and
the Reuters CEO will take control if this friendly take-over proceeds).


A situation like this certainly makes the Thomson stock more risky. It will
take some years before we would know if the take-over was a wise move. Still,
with the stock down I am certainly inclined to hold my position and if did not
own any I would consider buying.


The Thomson stock price in Canadian dollars has also been hurt by our higher
dollar. Since it earns most of its revenue in the U.S. it is really in substance
a U.S. company and the stock performance should be judged in U.S. dollars.


I had pondered whether Warren Buffett might have been interested in buying
Thomson – assuming the family would sell. It might be the type of company that
he likes – though he might not like the price. Buffett often buys
family-controlled businesses, but only with the cooperation of the family and
never in an auction situation.


Another one I would like to see Buffett buy in whole is CN but that is
probably quite unlikely. It would be nice though if it turns out this is one of
the rail roads he has been accumulating shares in.


May 7, 2007


It is encouraging to see the DOW and S&P 500 continuing to go up. In addition
private equity deals and mergers and acquisition activity continue at a fever
pace. Therefore market sentiment seems strong.


May 6, 2007


Kingsway is updated and rated Speculative
(lower) Buy at $CAN $20.48 and U.S. $18.50. Q1 was disappointing because of yet
another retroactive reserve development related mostly to 2004 and 2005 and
related mostly to U.S. trucking insurance. This is an actuarial increase. Partly
it may reflect a more conservative estimation approach. Kingsway’s earnings are
volatile by nature. It seems clear that “the market” is not pleased with the
unpredictability. It would be easy to rate Kingsway no higher than a hold. But
it does look attractive on a price to book value basis. Sometimes good
opportunities arise by buying on bad news. The recent problems relate to
retroactive claim estimate increases for past years. The company indicates that
current profits would be quite attractive if not for the retroactive issue. If
there is no further retroactive problems then the reported profits would
increase to attractive levels.


Tim Hortons is updated and rated Buy at
CAN $34.99 or U.S. $31.53. It is not a cheap stock and in rating it Buy (as
opposed to Hold or (lower) Buy) we are giving weight to the quality of the
company. It probably has the highest consumer loyalty and brand value of any
large Canadian company.


Q1 was not as good as I had hoped but it was still a good quarter with 14%
revenue growth. The company has room to expand in Canada particularly in the
West. The U.S. expansion will likely proceed slowly and will take heavy
advertising to build awareness. In particular the company has had trouble with
about 60 locations mostly in Connecticut and Rhode Island. The Company is
running these units directly and having difficulty getting franchisees due to
lower sales.


Just over half of the trading takes place in New York, which may indicate
that U.S. residents still own perhaps half the she shares. U.S. residents have
enjoyed stronger returns recently due to our higher dollar. Possibly, this
explains some of the price weakness recently as U.S. residents may be taking
profit as our dollar rises.


I see this as a good long term bet, not a company that is likely to shoot up
in value but also one where there is little chance of losing money over a period
of years and certainly some chance for returns in the low double digits. My
strategy is to hold the stock and to add to add to my position on dips.


May 5, 2007


The TSX Group is updated and rated Speculative Buy at $43.74. This stock fell
significantly on Thursday after the big Banks announced they plan to develop a
competitive trading exchange. This is viewed very negatively, given that TSX has
enjoyed essentially an unregulated monopoly position to date. The stock is
speculative now because it is not at clear what the impact of competition will
be. The Banks may take only a niche slice or they may take a big slice. This
will not start for about 1 year. Meanwhile the TSX still is very profitable and
has a number of plans for expansion. It may be unlikely but a take-over offer is
also perhaps possible. The stock did recover somewhat on Friday.


TSX had a weaker Q1 for earnings, but that was mostly due to growth-oriented
spending initiatives, the revenue growth remained strong.


It is always hard to wade in and Buy when a stock is down like this. I feel
comfortable holding a modest (4%) exposure to it but given the uncertainty I
have no plans to add to my position.


On Friday, I added a small amount to my Tim Hortons position.


Sobeys is removed from the list above given that it is being taken private.
We had under-rated that stock based on its weak earnings. We had noted that it traded
(previously) at only about 1.3 times book value and that it was likely trading
at less than market value of the assets. This is an example of the concept that
“value will out”. When a company trades at less than market value of assets
(because earnings are low), it can often be a good opportunity because there is
safety in the market value of assets and because sooner or later that value
tends to be released.


I suspect Loblaw is far to large for Weston to ever take it private, but
still the valuation of Sobeys may be an indication that eventually a way will be
found to realize more value from Loblaw.


May 4, 2007


Performance figures (see links above) are updated. Our Picks took some hits
this past couple of weeks (most notably TSX Group and Kingsway Financial).
Nevertheless, our performance in the year to date is still good.


May 3, 2007


There is a LOT happening out there


TSX Group fell 12% to $41.77 after the big banks jointly announced some kind
of competitor system. I have said before that TSX Group was obscenely profitable
and was effectively an unregulated monopoly. Given the high profits of the TSX
it is not all that surprising that a competitor would try to come in. The TSX’s
former president Barbara Stymiest had moved to RBC last year and I suspect this
may have been her idea. Normally, it would be very difficult to mount a
competing exchange and gain traction with customers. In this case the big banks
probably represent a large percentage of the TSX customer base and therefore may
be able to mount an effective competitor. It is not clear if the new competitor
intends to go after most of the TSX’s business or just a smaller portion. It’s
very hard to say if the TSX Group’s share price will now go lower… We intend
to update our TSX Group report by Sunday.


Tim Horton’s reported earnings per share that were lower than last year. But
that was mostly due to a very low tax rate last year. The stock will likely fall
tomorrow. The U.S. same-store was only 4.0% which will be viewed negatively.
It’s my view that U.S. sales traction will take a few years and a lot of
advertisement investment, but they will ultimately do well in the U.S. Dunkin
Donuts outlets appear to look like poor cousins compared to Tim Hortons, and
Starbucks is a different market. Canadian same-store sales growth was 6.3%, down
from a stellar 8.7% last year. But it seems to me that 6.3% is very good, we
can’t expect these little locations that are already lined up to continually
increase volume, it looks like they are producing a maximum volume already in
many locations. The real growth in my view is from added locations and they
expanded the store count by about 6.5% in 2006. In Q1 revenues grew by almost
14% which is very strong growth. It seems clear also that the company could
raise its prices and add to profits in that way if it wanted (although the bulk
of any price increase would go to franchisees). We intend to update our THI
report by Sunday.


Kingsway was down 13% for the reasons mentioned in yesterdays post here. This
has been a very disappointing company. But at this point it is down around book
value and for that reason alone it should turn out to be a good investment over
the next couple of years. At this point though I am glad I had reduced my
position earlier this year. It’s not a stock I want to get over-exposed to.


Northbridge Financial reported after the close. While its profits were down,
I believe they were still excellent profits. They made 6.5% profit on insurance
(before investment earnings) and note that Warren Buffett considers it
acceptable to break even on the insurance and let the investment side make the
money, so making 6.5% on insurance is outstanding. This stock is not well
followed. If the stock is about flat tomorrow then I believe this would be an
opportunity to Buy.


Our picks have taken some hits in the last week or so. But I am encouraged by
the continued rise in U.S. markets. It is the nature of stock markets that they
go down at times. But over the years being in the markets gives you a share of
the profits of large corporations and it usually brings a very good return over
the long term.


May 2, 2007


Q1 earnings releases are now coming in.


Kingsway reported poor results after the close today. The market will not be
pleased that is is once again reporting retroactive losses. The company contends
that it is currently quite profitable except for large retroactive adjustments
to insurance loss estimates of prior years. The stock will likely drop quite
materially tomorrow (Thursday).
If what the company says is true then
ultimately this will still prove to be a good investment. Admittedly it is
getting very hard to believe this company. They have not been on their game.


I added a small amount to my Western Financial yesterday at $4.71. I placed
an order to buy more Tim Hortons if it falls to $34.75 (corrected I had said
here $34.5)


The Dow has continued its march upwards… This bodes well blue-chip type


With the Canadian dollar rising, now may be a good time to buy U.S. stocks
(on the assumption that our dollar is unlikely to rise much more and could


April 30, 2007


CN is updated and rated (higher) Buy
at Canadian $55.61 or U.S. $50.24. The stock has done well despite a Q1 that was
weak due to weather and labor problems that were likely temporary. The Canadian
price is also hurt by the higher Canadian dollar.


Our Picks have suffered some declines in the past few trading days. Partly
this reflects the big run-up in cable and telco stocks which has now cooled
somewhat. BCE has cooled as the market realizes the sale/auction will likely
take some six months. This has affected telcos and cable companies.


Tim Hortons will report earnings on Thursday. Apparently the market is
expecting 32 cents earnings per share versus 39 cents last year. This may
reflect some one-time items. I think the strength of Tim Hortons is obvious and
that earnings will almost certainly continue to increase. If Q1 shows an
earnings decline and the stock backs off below CAN $35 or U.S. $31.50, this
would be a buying opportunity. I have great confidence in this company for the
long term.


April 26, 2007


The late-in-the-day announcement that Sobey’s controlling parent would buyout
the trading shares at a 50% premium was big surprise. It reinforces the notion
that these acquisition type deals may keep pushing the market higher. It also
reinforces the value of cash flow producing companies. It may fuel speculation
that Loblaws will also have to do something to increase its share price. The
share price jumped about 51% to just a few cents below the offer price.
Therefore, I see no opportunity to get in on this at this point. If I held it I
would tend to sell at prices above $57 rather than wait for the full $58 offer
price – which could take some time.


ING Canada
has slipped all the way to $48.
Possibly “the market” knows that Q1 was not a good quarter. But I have no reason
to suspect that. The nature of property insurance is that earnings can swing
quite wildly due to the impact of storms and even retroactive adjustments to
prior years. Overall, I have long considered ING to be probably the highest
quality property insurance company in Canada that trades on the market but it
has been expensive. It is still not cheap, but I suspect at $48 this will turn
out to be a good investment. I may add to my position. I checked insider trading
and there was none in 2007 other than when the company bought back shares in a
dutch auction at $54. The parent company did sell some shares into that auction.


Dalsa reported earnings after the close.
Earnings and sales were disappointing but the backlog was up and the outlook
seemed improved. My sense is that the company is more valuable than its earnings
would suggest. I believe that soon some film makers will start using their
digital cinematography camera. They are very confident that they have the best
product and it seems a safe bet to assume that digital will eventually replace
film in motion pictures. I consider the stock somewhat speculative due to low
earnings. But it also has little debt and is cash flow positive and it trades at
only about 1.25 times book value all of which should provide some down-side
protection. If the shares fall on Friday then I believe that this will be a
buying opportunity.


It was mentioned in today’s Financial Post that BCE bonds have dropped as
much as 16% in price due to credit worries associated with the possible buy-out
of BCE. However bond holders are working to try to protect their interests. A
reasonable trade now would be to buy the particular long-term BCE bonds that are
yielding the most. This would be based on speculation that when the dust settles
the BCE bonds will still have a strong credit rating (that is unknown at this
point). I have little experience in buying bonds. Be careful because the trading
commission is hidden in the bid/ask spread from your broker. Ask your broker for
the bid/ask in terms of percentage and try to negotiate. Be aware that buying
long-term bonds is also effectively a bet that interest will not rise. I would
not bother with this trade unless willing to invest at least $10,000. Having
little cash right now, I will not try this trade.


My old “friend” Clemex inc. is
showing signs of life at last. It reached 31 cents today on volume that is much
higher than normal for Clemex but which is still just small dollars of volume.
This recent price has been as low as about 20 cents. I know of no news to
account for this. I am not inclined to Buy but hold onto my very long-standing
and money-losing position. Those interested in speculating on such penny stocks
might consider a small bet on it, but I have no great faith that anything much
will happen. It would be nice to see a buy-out but I would really only like to
see that at 50 cents or hopefully higher. They seem to have great technology but
questionable marketing over the (way too many) years that I have followed it.


April 25, 2007


It was nice to see the DOW go through 13,000 so decisively, closing at 13,090
for its first ever close above 13,000. It’s just a number but I think it does
indicate that the buying enthusiasm in the market. The S&P 500 should soon close
above 1500 for the first time since I believe 2000. It does not have too far to
go to surpass its all-time high. In many ways that is nothing to brag about, we
expect markets to go up and so it’s a about time it did pass that old high. But
the old year 2000 high was at the top of a bubble. This time around the index
deserves to be this about high and so is much more sustainable than it was in


Many people thought that the rally that began all the way back in late 2002
was a sucker rally and that based on chart patterns from 1929 and from Japan
they thought the DOW would fall back below it’s year 2002 lows. Many of those
bears are still waiting, having missed out on tremendous gains since late 2002.


I entered an order for some shares of
Western Financial at $4.71, the low today was $4.76, on relatively light
volume. I like the company and would not mind seeing it fall temporarily so I
can buy more.


April 24, 2007


In the next week or two, Q1 earnings results should be a driver for many
individual stocks…


As some of the excitement over BCE has warn off, Telus and Shaw have also
dropped… The Pension plans still have to bid enough to entice the BCE
shareholders to sell and that could be an amount of $40 or $42 or more. If the
bid comes in that high then Telus and Shaw should climb back up. Either way both
Telus and Shaw seem set to continue to rake in higher cash flows.


While some of my stocks lost ground the past few days, it was good to see
that the DOW kept rising. I consider the DOW more of an indication of the trend
given that the TSX is so volatile with energy.


I hold some NYSE Euronext Inc. I have not analyzed the stock  and I
believe it has a very high trailing P/E ratio. But I hold it in hopes that it
can ultimately earn high profits like the TSX has and other exchanges have. But
unlike the TSX, the NYSE faces active competition. lately it has been volatile.
Right now it has swooned down to levels where it worth considering as a
Speculative Pick.


Western Financial Group has also backed off. I am not that keen to add to my
position unless it backs off further. Canadian Western Bank has come back to $24
and I think that is a good entry point. I suspect it is still growing its
earnings given the hot Alberta economy.


April 23, 2007


Before the markets opened today there was an expectation that something of a
bidding war for BCE might erupt. Instead the indication was the opposite.
Several pension plans lined up to get in on the bid that involved the Canadian
Pension Plan investment Board. So rather than mounting an alternative bid these
firms just wanted in on the CPP bid. Meanwhile Ontario Teachers Pension Plan
indicate it would not over-pay for BCE. I suppose we would never expect any
bidder to suggest they would over-pay. But it seems like things are cooling down
a bit. I mentioned I had bought some BCE on April 16 (at $36.03). I sold half of
that today at $39.83. I was hoping this whole BCE situation would continue to
lift Telus and Shaw along with BCE. This will depend on how the bidding action
for BCE goes.


I had not analyzed BCE, I bought it purely as an opportunistic move based on
rumors of a take-over bid of around $40. Some have suggested as high as $45, but
that may be a stretch.


I decided to a bit clean-up on my portfolio today. I have long been carrying
about a dozen or more small to very small positions. These are mostly stocks
that I have owned for years and which I have never done an analysis or I stopped
analyzing them for some reason quite some time ago. I kept some of these just
for diversification. Also it can be painful to sell a stock that is really down
only to see it rise later. But for the most parts these tiny holdings were just
a distraction. The positions are too small to really affect my portfolio (unless
they jump 500% or something). Another reason I kept these was it would have cost
me $29 per trade to sell but for the last six months my trading costs have been
reduced to $9.99 per trade.  Anyhow I cleaned out four of these minor
positions today. It feels good to be rid of the distraction. And I would rather
redeploy the money to stocks that are on our current buy list.


CN reported earnings after the close. As expected they were not great. But at
a quick look, they did not seem that bad given the strike and bad weather. If CN
happens to fall on this news then I think that would be a buying opportunity.


ING Canada has fallen noticeably. Meanwhile
our other property insurance stocks seem to be mostly rising. Therefore it might
be opportune to buy some ING at this price.


Couche-Tard has fallen to about $23.
In part this may simply reflect the higher Canadian dollar. Most of their
revenue is from the U.S. so its value falls as our dollar rises. This is
unfortunate but a fall in price for that reason would not indicate anything
negative about the company itself. Possibly though the drop also reflects that
the market may be aware that fuel margins remain low (I am personally not aware
of where fuel margins are). The bottom linme for me is that I still like the


With our dollar at a relative high point compared to where it has been, now
may be a good time to buy some U.S. stocks. I don’t claim to predict currency
moves, but I figure right now our dollar could either rise or fall, but if I
were looking to buy U.S. stocks I would not wait for our dollar to rise further.


April 22, 2007


I have not updated the Performance figures this week, but as summary, the
model portfolio is up 9.1%, the Strong Buys are up an average of 16.1% and the
24 Buys or Strong Buys are up an average of 9.9%. My own Portfolio is up 8.0%.
The TSX is up 5.9% and the DOW is up 4.0%. Heading into 2007, after four strong
years, I was not expecting the markets to do this well.


With markets doing this well, our brains tend to assume the trend will
continue. In fact we should be watching out for the opposite. High gains in the
last 4 and one half years could mean we have squeezed all the good out of the
markets and it will be time for a rest or a retraction. I am trying to keep that
in mind and watch out for signs of a decline.


But overall, my inclination is to hold my equity allocation close to 100%
given that private equity and acquisition bids seem to be pushing the market
higher. Today’s market may be somewhat overvalued on a P/E basis but it is
certainly not wildly over-valued given today’s low interest rates. But markets
could fall if interest rates rise or if earnings or expected earnings drop. I
reserve the right to change my mind and start lightening up on equities if the
market starts to drop.


I have updated the breakout of my own portfolio.
My cash position is about 0%. In response to the February market correction I
had taken my cash to about 30%, the highest ever for me. As I re-deployed the
cash I took the opportunity to rebalance my portfolio. For example, I took my
weighting in insurance stocks down quite a bit.


While you may find it of interest to know what I actually hold, I also do
this exercise for my own use. I hold my shares in two RSP accounts and one RESP
account plus a small unregistered account. I find it useful to have a
spreadsheet where I put it all together. I currently own 24 stock (plus a
another dozen or more very tiny positions – which are becoming insignificant and
which I may soon weed out entirely). Right now a lot of these 24 are at about 4%
of my portfolio. Tim Hortons is my largest position at 13.3% and I feel quite
comfortable with that. You may notice Tim Hortons is only rated (lower) Buy. It
has a high P/E and maybe I am being aggressive in holding it as my largest
position. It also has a very high ROE and basically I have decided it is worth
paying the high price for the quality.


April 20, 2007


Well this week certainly ended on a high note, with the DOW leaping 153
points or 1.2% to a new all-time high. It seems entirely possible that the S&P
500 index will soon surpass its old all-time high from way back in 2000. The
last time the S&P 500 was this high, its P/E was around 28. Now it is at a much
more sustainable 18.


I have just added a new Article that looks at the historic results from using
a 100% equity
strategy during a 30-year savings period, as compared to a fully Balanced
approach. For many years I have been reading advice about asset allocation.
Much of the advice never made sense to me – for example we are told that
equities are expected to have the highest return but that despite this we should
still invest some of our money in bonds. I could see the logic of this for some
retirees but was not convinced it was right for most savers or even for all


In earlier articles I have plotted the results of investing a one-time lump
of money and the results strongly favored equities. However, plotting a more
realistic savings strategy with investments in each year is more complex and it
seemed possible that dollar-cost-averaging would pull the results in favor of a
balanced approach. Now for the first time I have plotted the data myself to see
the results for myself. The results are very enlightening. Take a look,
questions are welcome. I have made this report available exclusively for you
paid subscribers.


April 18, 2007


I recently posted a few new testimonials. I
really appreciate receiving those. It really makes my day to hear about
subscribers doing well.


BCE, Telus and Shaw all cooled somewhat today. But if the reported bidding
war erupts for BCE then we could see more up-side soon. However, given the
run-up there is certainly the risk that they come down. I am content to hold.
Meanwhile Tim Hortons, and CN were up nicely today. Even though Tim Hortons is
up a couple dollars very recently, I like its chances to go higher when it
releases Q1 earnings. It could easily soon surpass the temporary high it made
last April in its first day of trading $37.74. That was a pretty meaningless
high that was made in the excitement of the first few minutes of trading when
buyers got over-excited. But it may be news when it eventually passed that old


All the Tim Hortons that I visit are extremely busy.


Has anyone visited a Tim Hortons in the U.S. in the past few months? I
suspect it will take a few years at least before it really starts to catch on
even in the Northern States. 


April 17, 2007


I had the following question from a Member of this Site:



I note that in take-over deals often the stock of the company being taken over
goes up and the stock of the company doing the taking over goes down.  Why is


On a take-over deal the target usually goes up simply because the price being
offered is higher than the recent trading price. If the offer is a cash purchase
the stock price often rises to close to the offer price. Sometimes it can stay
below if the market thinks the deal could fall through and/or take a long time.
Sometimes the target companies trading price rises above the offer. This usually
means that the market expects a higher offer to materialize. If the offer is for
shares of the buying company then the price of the target will jump around as
the stock price of the buyer moves.


The stock of the buying company can go up if the market thinks the purchase
of the target is a good idea and especially where their are synergies or where
competition will be reduced. But often the buyer is paying a hefty price for the
target and may be taking on debt to pay for it. In these cases the market price
of the buyer can fall. Basically it signals that the holders of the buying
companies shares are not in favor of the deal.



Another nice day for telecommunications shares. At this point I am just
enjoying the ride. I am thinking about taking profit on Telus but so far I am
just holding.


April 16, 2007


As markets reach new highs in spite of predicted lower earnings growth and a
possible U.S. recession we should be growing cautious. But take-over offers are
driving the market higher and it is hard not to be optimistic.


In a fit of exuberance today, I bought some BCE given that there is much talk
of a take-over at $40. I then added to my Tim Hortons and my Dalsa position,
taking my cash position down close to zero. Tim Hortons is not a cheap stock but
rather seems to be a case where paying up for quality will likely be rewarded.
It’s a fun stock to own because every day you can see evidence of how well they
are doing.


I was surprised that Telus has jumped so much. Partly that is due to the BCE
increase. It looks to me like Shaw communications is taking a lot of customers
away from Telus but the market seems unconcerned. I own Telus but my larger
position is in Shaw.


April 15, 2007


Shaw Communications is
updated and upgraded to Speculative Buy at Can $43.73 or U.S. $39.90. It
released strong earnings on Friday morning, but the share price fell. I doubled
my personal position in Shaw on Friday. I did that based on the growth story.
When I now review the value ratios, my enthusiasm is somewhat tempered. The
stock appears expensive. However, that seems partly due to conservative
accounting. The sales growth storey has been very good. I like the potential for
future strong earnings growth based on digital television. Phone revenues are
also growing strongly, but that does bring up the concern that a price war with
Telus could occur. It may be unlikely that a take-over offer would occur but it
would be an attractive company for take-over if the Shaw’s wanted to sell.


I had unfortunately sold half the Shaw in the model portfolio earlier this
year. At this time I will notionally buy it back at tomorrow’s opening price.


Shaw has been a good Stock Pick and more than doubled in the past two years.


April 13, 2007


Performance figures for 2007 are updated.
Our average Strong Buy or Buy is up 7.7%. There were only three Strong Buys as
of January 1, 2007, but these are up an average of 13.4%


April 12, 2007


The TSX closed at a record high today. A number of our Stock picks did well
including CN, Shaw, Thomson and Tim Hortons. For now at least the bears and
doomsayers have been foiled by the resilient market.


April 11, 2007


My article on the valuation of the various segments of the Canadian Stock
Market is updated. You can access it
here. (See the fifth article, updated April 11). This article also gives you
the trading symbol for Exchange Traded Funds that track various segments.


April 10, 2007


I added to my Tim Hortons position today. I notice Canadian Western Bank has
been a bit weak and I think this may be an opportunity to Buy.


April 9, 2007


CN rose today on news that Warren Buffett’s
Berkshire Hathaway had invested in three rail roads and that CN might be among
these. CN might very well be included. I note that CN serves Omaha and that Bill
Gates has been a long-time major investor in CN.


April 6, 2007


In the Links for Members Only section above, the performance figures for 2007
are updated.


April 5, 2007


Markets continue to do well. The Dow is back almost to record highs. In the
short term it appears that private equity buyouts continue to provide support to
stock prices. The sentiment can turn negative at any time but so far market
sentiment seems reasonably strong. The old advice that while being out of the
market protects from risk, it also exposes one to the risk of missing market
gains has proven true since the little correction in February.


April 4, 2007


Cognos is updated and rated (lower)
Speculative Buy at Canadian $46.65.This is a good, possibly a great company. It
always appears expensive but that is perhaps due to conservative accounting
rules. For those interested, this is probably a good entry point, particularly
if one averages in with a smaller initial position.


April 3, 2007


An edition of the free newsletter was sent out
today. If you did not receive it, this may be due to your spam control system.
You can check if you email is on the list for this free newsletter by adding
your email “again” on the signup box on our home page, or the bottom of any page
on this Site. If the email is a duplicate our system will indicate it is a


Our stock picks continue to do well this week.


April 2, 2007


The model Portfolio has been
updated to show performance by individual stock. I have not made any notional
trades in this Portfolio.


March 31, 2007


2007 Performance figures are updated. With
Q1 over, we are ahead of the market.


March 29, 2007


Cognos is out with strong earnings. I like the company but when I last
analyzed it, it was too expensive. I plan to update our rating in a few days.
The stock will likely rise tomorrow as the earnings were apparently higher than


The rumor of a take-over bid for BCE this morning was interesting. These type
of take-overs and rumors of takeovers are definitely a factor in keeping the
stock market going up.


I bought some BCE this morning but then sold at a small profit given that the
rumor was denied. But it does seem quite likely that an unsolicited bid for BCE
could emerge and so I suspect it would be okay to hold BCE. But there would be a
danger of it falling back to where it was if no offer materializes.


It has been a good week for our Stock Picks, hopefully it finishes off that
way on Friday.



March 28, 2007


With the DOW down about 100 points today, I suppose my recent feelings of
caution should be reinforced. As I write this, the Japanese market is down 1%
and so tomorrow may well be another down day.


But meanwhile my own stocks were up quite nicely today and were up each day
this week. So I feel good about that.


I am interested in buying TSX Group as it has come down, and particularly if
it drops more. Also Tim Hortons comes to my mind.  The recent update of my
portfolio composition indicates I am 21% in cash. But I am somewhat inclined to
wait and see if better bargains emerge before adding to my equity allocation. If
the worse happens and we get a major correction, and I I happen not to have much
cash at that point, then my plan is to borrow money to invest at some point. I
feel that the borrowing capacity that I have allows me to be more aggressive in
my asset allocation. On the other hand I want to move slowly, if the market does
drop, it will not be easy at that point to decide to borrow for investing.


I have removed the link to my Blog area for now. There is into that much
activity and it is only a nuisance for you to check it only to find no updates.


Business Update:


As investors, I suspect that you would agree that this Web Site business
needs to continue to grow and that growth will enable us to expand the number of
stocks provided and to add more U.S. stocks and ultimately some international


The paid subscriber count stands at about 540 having grown slowly but surely
over the last four years. I would certainly like to see that grow to 1000 this
year. We tend not to cover thinly traded stocks and so there is plenty of room
for lots more subscribers.

If you know other people who could benefit from this
Site, please consider referring them to this Site.


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March 27, 2007


I note the Canadian dollar is up quite a bit from recent lows. In my view
this may be an opportunity if one is looking for U.S. stocks, our dollar goes a
little further now.


March 26, 2007


This week is off to a good start. I bought Couche-Tard shares today.


March 24, 2007


U.S. stock markets rose this week, largely on indications that inflation is
tame and that therefore the Fed will likely not raise interest rates and may
even lower them. On its own, that is good for stocks. However, if the the reason
that inflation is tame is that the economy is cooling and companies are less
able to raise prices, then that is bad for stocks. Overall, I remain cautious on
the direction of the markets in general. A stock market that rises due to a
cooling economy does not sound all that promising to me.


Higher oil prices helped the Toronto market. That was partly due to increased
middle East tensions. If such tensions ease then oil could head back down. My
understanding is that on a supply and demand basis, oil should be somewhat


The Thompson Corporation is updated and
rated (lower) Buy at U.S. $42.45 or CAN $ 49.23. Most of its revenues are
derived from electronic information sold on a subscription basis. I am attracted
to the economics of the business. However, Thomson does not seem to be bargain
priced. Over the six or so years that I have been looking at it, it has tended
to under-state its earnings. Possibly this family controlled company has little
incentive to try to inflate the share price. For this update, I added back 70%
of the expense related to amortization of trademarks and customer lists. These
are very similar to goodwill which is not amortized and I do not view these as
real expenses.


I also include earnings from divisions that are for sale, while management
excludes those earnings. This allowed me to arrive at a higher and (I think)
more realistic view of adjusted earnings. Still, the P/E based on such adjusted
earnings was above 20. Management seems optimistic about growth but they still
indicate that earnings growth will be around 9%. On that basis I cannot rate the
Stock higher than (lower) Buy.


Because of its activity in acquisitions and divestitures, Thompson’s
accounting has some strange complexities. I believe this is a case where some
view of adjusted earnings is needed since GAAP earnings are distorted in various
ways by acquisition and divestiture accounting rules.


The stock may be a bit volatile as the market attempts to figure out where
earnings will go after the Learning division is sold.


It would be nice to think that after the sale Thomson would issue a special
dividend, but there is no indication that this is planned. Due partly to
securities regulations, it is expensive for companies to issue shares. Therefore
when they have excess cash they tend to hang on to it, since if they dividend it
out, it is expensive to raise new equity later when needed.


I hold some Thomson and I like its prospects over the long-term. If the stock
falls to about U.S. $39 I would definitely consider buying more at that price.


I removed AeroPlan from the list above because the report was out of date.
The unit price has moved up a lot since I last looked at it. Although I really
like the business model, it looked expensive =to me even before recent
increases. Also I had concerns about the negative equity on the balance sheet.
Overall it may be okay, but I had no plans to update it and so it is best to
remove it from the table above.


March 23. 2007


In the section below the Stock table that is labeled “Links For Members
Only”, the 2007 Performance figures are
updated. It has been a volatile year, but our Stock Picks have done well. The
composition of my own portfolio has also been


Alimentation Couche-Tard
(which is
more commonly know as simply Couche-Tard) is updated and upgraded to Buy at
$23.71. The stock is not cheap but does represent at least reasonable value if
its past growth rate is any indication. Earnings declined in Q3 but the company
believes that is simply due to volatility on gasoline margins. The store count
continues to increase. If the controlling shareholders ever decide to sell, I
believe it would be an acquisition target. The stock is cheaper on a P/E basis
than it has been in some time but that may be due to fears that earnings growth
has faltered. If it continues to operate as it has in the past, I suspect this
will be a reasonably good investment. I am considering taking a small position
in this.


March 21, 2007


A very strong day in the markets today. Once again rumors that this bull
market is over seem to have been greatly exaggerated. I still remain cautious
however, it seems like liquidity and private equity are pushing markets up, but
I think with earnings growth now moderating quite a bit, the market will be
nervous and will tend to be volatile on any hint of bad news.


March 20, 2007


I notice Tim Hortons down a bit today. We only rate it (lower) Buy. Still it
might be worth nibbling at at this price. Even if just for the psychic pleasure
us shareholders get every time we see those big lineups, this is a stock most
Canadian investors should consider owning.


Canadian Western Bank is updated
and rated Buy at $25.95 (it closed today at $25.72). Our last full update on
this company was in September when we rated it Buy at $20.96 (as adjusted for
recent split). For January 1, we called it Weak Buy at $26.39. Given the strong
Q1, we are now back to Buy. This has been an exceptional investment over the
years. We first featured it on this Site way back in August 1999 at $4.94 (split
adjusted) and we rated it Strong Buy at that time. This stock has grown somewhat
like a slowly rolling snowball…


In recent years it has not been bargain priced (and still is not a clear
bargain) but the earnings have managed to grow to support the price. Until very
recently I was concerned that the return on equity was okay but not impressive
at under12%. Now it is up around 14%. Perhaps with scale this will keep
improving. With the strong Western Economy this stock seems likely to continue
to do well. I do not look for any huge price jumps, but rather reasonable steady
gains over a period of years (which is not to say that at times it will not fall
in price).


March 19, 2007


A nice day in the markets. I added to my Telus position today. I also placed
an order for Western Financial at $4.16. Perhaps I should have just paid the
$4.25 but since I already have a reasonable exposure, I decided to try under the
price. It’s possible the stock will jump a somewhat in one direction or the
other in response to Wednesday’s conference call. Q4 was very strong, if it is
confirmed that this in a new “run-rate” for earnings then it might rise, if on
the other hand they reveal there a one-time gain that explains the Q4 earnings
jump, then the stock could fall. Either way I like it long term.


An interesting story today was a pet food Income Trust called Menu Foods that
fell 25% and at one point was down about 40% on news that some of its pet food
product was causing sickness in animals and there would be a big recall. It is
not a stock that I have ever looked at.


There is not much that can be done to avoid getting exposed to a situation
like this. Investors who pick and choose individual stocks (on their own or with
the help of advisors and newsletters and other sources) hope to beat the market.
As a result of attempting to beat the market we will tend to have significant
positions in individual stocks. As a result we will tend to be less
diversified than the index. It then becomes a fact of life that occasionally
something bad and unexpected will happen to some of our companies. Even if you
invest in solid companies with excellent managers, things can go wrong. That is
simply a fact of life. Certainly Warren Buffett teaches us that we should take
big positions in our best stock picks. If we choose our stocks wisely then we
will beat the index but unexpected volatility is part of the price we pay top
play the game.


Below I answer three questions from Members of this Site.


QUESTION: Am I correct to recall that about 2-3 years ago, that you
were not in favor of investing in Telus? Now you are saying a strong buy. I am
wondering how the turn came about.


You can see most of our history on Telus by hitting Control-F and entering
Telus this will search for every mention of Telus in the dated comments below.
Then scroll to the bottom of this page and click a link that gives the dated
comments all the way back to 2002. Also if you click to our Performance figures
and then find the ratings for the start of each year, you can see where we had
Telus as of the start of each year.


But here is the story: Telus was rated Weak Buy at $39.50 on October 3, 1999.
Even Weak Buy turned out to be too high a rating. On November 3, 2000 it was
rated Weak Sell, also at $39.50. (I don’t have all the intermediate ratings at
hand, but they are in our records). For the start of 2002 we rated Telus
Buy at $23.56 (It sank a lot from there but is now well above that). On February
15, 2002 we updated Telus to sell at $20.30. That was the last update for a long
time (it was removed from the list at some point) By the summer of 2002, Telus
was briefly under $8 and I bought a tiny amount at that time. The market
effectively was pricing Telus as if bankruptcy were a possibility at that time.


As it struggled back from its lows I suspected that its earnings would rise
sharply at some point but it was difficult to analyze given that it had very low
earnings at that time.


Telus returned to the Site as a Speculative Buy, October 6, 2004 at $28. By
then its earnings had recovered. Subsequently it has at times been rated in the
Strong Buy range. Basically a few years ago Telus was not earning any money and
insisted on talking about EBITDA rather than earnings. Eventually the earnings
did recover and that explains our rating change. In retrospect it would have
been nice to have called it a Buy at about $14 rather than $28, but still even
since $28 in late 2004 we have done well.


QUESTION: When we go shopping for stocks, should we be looking for 15%
per year annual growth in individual stocks? I think that is a good target. I
was a member of the Canadian Shareowners Association for some years, about 10
years ago. That was their mantra. Steady growth and growing earnings to the tune
of about 15% combined, with the growth plus dividends.


I think using a potential increase of 15% is a reasonable hoped for target.
However, interest rates have come down a LOT in ten years. These days if we were
pretty confident of 8%, that would probably be high enough. Our reports indicate
that when we calculate intrinsic value we use an 8% discount rate, which means
we require a minimum expectation of 8% return (an expectation is not a
guarantee. As of recently, we  also calculate what kind of growth would be
needed to give us a 15% return per year for five years, assuming a selling P/E.
(We may start mentioning this calculation in future reports).


QUESTION: I’m curious why you rate WES a (speculative) buy at $4.25 and
would consider buying more, yet your high estimate of the intrinsic value is
$4.11.  Does this mean your assumptions are inherently conservative?  I have
viewed your high intrinsic value estimates compared to current prices as
indicators of expected gain. Is that a valid approach?  If you bought WES now,
what price do you think (at this point in time obviously) it should reach before
you sell some again? 


Intrinsic value is just one tool and factor to look at. Intrinsic value
estimates a value based on having a current earnings per share level and then
assuming some growth and assuming a P/E ratio at which it can be sold after a
holding period (we use five years). This works best for companies that already
have a string of smooth annual earnings increases and where the company is
stable and the future is somewhat predictable. In the case of WES earning per
share jumped 33% in 2006, but had fallen in 2005. Our assumption of 10 to 15%
earnings per share growth annually over the next five years might be
conservative. But it is also rather uncertain, it’s tough to predict when the
recent history is pretty volatile. For more mature companies we would place more
weight on the intrinsic calculation. However, in no case do we want to
over-emphasize the intrinsic value calculation. It’s only as good as the
assumptions that go into it. Our overall rating does not tend to focus too
heavily on the intrinsic value, again it is one of quite a few factors.


If I bought some WES now around $4.25 or lower I would consider selling some
if it quickly jumped to $4.75 but I would definitely keep some as well. Should
be a good stock for the long run.


I have cleaned up the Blog somewhat,  removing some Posts. It does not
look like the Blog is going to get a lot of traffic. Use the Blog when you want
to share ideas with other Members or seek feedback from them. For questions
emailed to me I will try to Post here. I do not plan to Post very often to the
Blog, but rather let that be for Members to share ideas.


The Blog is at



March 18, 2007


AlarmForce is updated and remains
rated Weal Sell/ Hold at $5.60 (It last traded at $5.55). This is a stock we
liked at considerably lower prices. With a P/E of 38, to buy this is to believe
that earnings are grossly understated (and we do think they are  at least
somewhat under-stated) or that growth will be very high. At this time it seems
priced to high.


Microsoft is updated and rated Buy at
U.S. $27. (It last traded at $27.33). This is a huge and complex company. I don
not currently own it. I would consider averaging into over time.


is updated and remains rated Weak
/Buy / Hold at $39.17. (Our analysis price is from Friday morning, but is
dropped to $37.75 by the close on Friday). We continue to monitor this. It has
an attractive price to book ratio. If the competitive situation improves and
earnings increase then it would do well, so there is some up-side potential
here. However, we do not think that now is the time to buy.


Canada Bread is updated and remains
rated Weak Buy / Hold at $55.30. (It last traded at $53.45 and our rating would
still apply at that price). This is not a stock I have much interest in but we
continue to monitor it.


Western Financial Group is
updated and upgraded to Speculative Buy at $4.25. The company released 2006
earnings after the close on Friday. The details were very skimpy and further
details will likely be released tomorrow and there is a conference call on
Wednesday at noon. Q4 was not reported separately but was apparently very good.
I had sold some of my holdings at around $4.20 in February but now I am strongly
considering adding to my position. It’s possible that the shares will trade a
little under $4.25 but it may be more likely that they will return to recent
highs around $4.50. Partly this will depend on the outlook that the company
presents during Wednesday’s conference call.


March 17, 2007


Telus is updated and remains rated (lower)
Strong Buy at CAN $56.06. The overall investment thesis is that it has a
reasonable P/E, and attractive price to cash flow and its earnings have been
ramping up. If it continues to execute it the same way, adjusted earnings are
expected to rise about 20% in 2007 and this will be a good investment. If
overall markets “correct” downwards, this would likely be hit but not to the
same extent as the overall markets.


March 14, 2007


North American markets were down slightly most of the day but ended positive.
It seems the battle between those who are nervous on dips (and are inclined to
sell) and the bargain hunters continues. As I post this late Wednesday night,
Asia markets are up…


In any event the best approach is to be invested in stocks that are
relatively under-valued, that will provide some cushion if the market falls and
ultimately such stocks tend to out-perform the market. We have several updated
reported we are working on and will have some updates by Sunday at latest.


March 13, 2007


I think today’s slide was a reflection of the nervousness in the markets.
Most investors are sitting on excellent profits from the last few years and
there may be a tendency to head for the exits on any bad news. Today the bad
news was related to sub-prime banking loans and also weaker than expected
economic news. Sub-prime problems were nothing new but the market seemed to
react sharply. As of late Tuesday, Asian markets are down and my bet would be
that North American Markets will fall on Wednesday.


It’s always questionable if one should attempt to time markets or just ride
through the dips. That I think depends on each persons circumstances and
attitudes. Two weeks ago I increased my cash a fair amount but then bought some
back last week. I’m inclined to just ride things out at this point. If the
market does drop, it will eventually recover.


March 12, 2007


The markets were up a tiny bit today. There was also a huge private equity
deal announced with a famous investment fund known as KKR buying Dollar General
for about $6 billion. This may be indicative of how private equity money can
support stock prices.


My sense is that the market will edge ahead, but I think there is a
nervousness in the market such that on my bad news the markets will fall fairly
hard (not disastrously, I suspect – but still hard). So we may do okay until and
unless some bad news event sends us down.


I notice Western Financial down a fair amount from its peak. It has tended to
be volatile and so a dip like that is not unexpected. I had sold some at about
$4.20 and might look to buy back if it happens to go under $4. It will likely
release earnings soon and I would think they should have done well in Q4.
Possible they are being hit with worries about bad loans given the sub-prime
situation in the U.S. But in Western Canada right now it is hard to imagined
that very many people will default on loans.


March 10, 2007


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this research page.


March 9, 2007


2007 Performance figures are updated.
Despite the market correction of last week, we are still up for the year and
ahead of the market.


March 8, 2007


I purchased Canadian Western Bank shares today when it released what appeared
to be good earnings. We will update our Canadian Western bank report shortly.


As of this morning the markets continued bounce back from last week’s dip has
been surprisingly strong. Most observers seem to agree that we should expect
continued volatility. I remain cautious about the short-term outlook. However, I
did purchase back the Tim Hortons shares that I sold last week.


On Feb. 25, we had updated Canadian Tire but had neglected to update the link
inth table above. That has now been corrected.


March 6, 2007


hmmm, well, maybe the bargains were yesterday. The reality is no one knows if
the market has now recovered from its recent correction, or if the correction
will resume.


Warren Buffett says Be scared when others are greedy and be greedy when
others are scared. Maybe at the end of yesterday I should have been feeling
brave and greedy. But I must admit I was being more cautious than greedy. In the end I
think my decision to move my cash position up to 33% was wise for my particular
circumstances. It allowed me to hedge my bet, in terms of the market direction.
I remain in a wait and see mode for now.


March 5, 2007


I have good news and I have bad news… and I can express both with the same
two words “Bargains Ahead”.


The Dow showed surprising strength and was in positive territory most of the
day when we might have expected something of a plunge based on world markets
overnight. The strength in the DOW seemed like a good sign but then it took a
hard dip at the end of the day. I’m generally not a trend investor but it does
look like we are in some kind of down-trend and it seems likely to continue.


Note that an edition of the free newsletter
was sent out yesterday. If you did not get it, try adding your email to our free
list with the link on the home page. If the system indicates your email was
already on the list then our newsletter must have got blocked as spam.


Part of the market decline is due to concerns over sub-prime mortgages in the
U.S. I mentioned this issue on Feb 9. I am not surprised that Home Capital was
hit by this today. Their loans are probably a LOT safer than many of the
American Sub-Prime loans but it is in that sub-prime market and therefore it
will likely be hit further by this issue.


You can share your thoughts with other paid members of this Site at our
Members-only Blog page.



March 2, 2007


The TSX was down 3.7% this week and the DOW was down 3.3%. Our Buys/Strong
Buys fell by 2.3%, The model portfolio was down by 2.5% My own portfolio fell by
2.4%. So, we got hit, but not quite as badly as the market did.


March 1, 2007


To Sell or Not to Sell?


With the market “correction” this week most investors are wondering if they
should reduce their equity position and perhaps at least partly step aside from
the markets for now.


This is an tough question and there are no universal answers.


Firstly, no one knows if the market correction will deepen or has already



The S&P 500 P/E ratio is 17.2 as of today. That’s above long term averages
which might suggest that markets are somewhat over-valued. But with today’s low
interest rates a P/E of 17.2 is certainly not grossly overvalued. The market is
very unlikely to crash like it did in the early 2000’s. At that time the S&P 500
P/E ratio was aroundd 30 and the market was grossly over-valued.


Factors which could drive markets down include. High oil prices, its moderate
overvaluation, terrorist attacks, international market events such as the drop
in China’s stock market, declining housing prices, a recession, back credit
losses brought on by lower housing prices and/or recession, lower earnings
expectations, or lower earnings reports (and this is not an exhaustive list).


Factors which might drive the market up are, bargain hunting, continued
excess money from inside and outside North America looking for a home, mergers
and acquisition activity by corporations, private equity and pension plans
taking over companies, continued or increased consumer confidence, lower oil
prices, a recovery in housing prices, the absence of recession (and this is not
an exhaustive list).


The market has now risen for four and one half years since it bottomed in
late 2002. Huge earnings growth supported this rise. But now earnings are
growing only slowly.


On balance we should not expect a strong year in the markets. A 10% gain is
probably the most we should hope for and a 10% drop is perhaps almost as likely.



But markets will go up in the long-run. If you pull money out of stocks you
risk missing the upside.


Young investors who are just starting out should simply rejoice that stocks
are cheaper. You will be be buying for may year to come and if the market
crashes that is simply an opportunity to buy stocks at a better price.


Wherever the market is going to be in five years or ten years, will depend
mostly on earnings at that time. If the market goes down 100 point tomorrow or
goes up 100 points, that does not change where it will be ten years from now.


Any investor with a fully balanced portfolio may want to simply ride out any


Sound advise might be “Don’t just do something, stand there!”


However, investors who perhaps have a very high exposure to stocks given
their age and circumstances might well want to sell some stocks now and move
some into cash. And selling at a point that is several percent below recent
highs may still look like a good idea if the market happens to correct more


The bottom line is that I can not tell people whether they should sell any
stocks or just ride out the bumps. That is a very individual decision.


In my own case when the week started I was over 90% in equities. And at 46 I
do have some years of saving ahead of me. At the same time I have accumulated
enough investments that if I were to take a 10% decline or greater it would be
pretty painful. In my own circumstances I felt it was prudent to sell into the
correction and increase my cash position.


Today with the market down almost 200 points (DOW) in the early going I did
sell some shares. I sold my Shaw Communications, my FirstService, some more
Kingsway and some more Tim Hortons. I think these are all good stocks. Possibly
I over-reacted, but I simply wanted to get into a reasonable percentage of cash.
My cash position is now about 33%.


I think that is a reasonable level. But I reserve the right to move into even
a higher cash position if it looks like the “correction” is going to deepen.


I am not in any way in panic mode. I expect there could be volatility and I
am prepared to accept losses. At some point the market would bottom (if it has
not already) and with a reasonable cash position, I would then hope to Buy close
to the bottom.


In addition, I have mentioned before that I had become over-exposed to some
stocks like Kingsway, so this recent action of lightening my position there was
perhaps long overdue.



February 28, 2007


I just posted a Question on the Blog, Is critical Illness Insurance something
we need, or is it just a high-profit margin scam? What do you think?




It was nice to see the DOW end in positive territory today. I think that
indicates that there are still lots of bargain hunters out there. I am not sure
that this correction has ended yet. I think it will take at least a few days to
settle out.


Early today the market opened higher but then fell back some and later was
rising… In the face of this I decided to trim partially my CN, Shaw
Communications and Tim Hortons. That brings me only to 18% in cash and I wanted
to have at least some cash to take advantage if the markets do fall. I am not
sure if I will sell anything else.


February 27, 2007


is updated and rated Weak
Sell / Hold at $5.40 (It last closed today at $5.20). We have rated this stock a
Buy in 2005 at $3.33 to $4.15. Since then we called it a Weak Buy and it has
done well. But at recent prices it seems expensive.


The market slide today was about 3.5% in the U.S. and 2.7% in Canada. It ‘s
not really that huge of a slide but it certainly is an attention grabber. The
question now is whether investors will see this an an opportunity for bargains
tomorrow or will they start more of a stampede to get out? I don’t think anyone
knows the answer to that. If the market is still trending down tomorrow than it
might be wise to reduce some positions to get into cash.


I wanted to do that this morning but then again it is always hard to sell
something that is already down. I did sell my Manulife shares this morning, just
to raise cash. I’m cautiously optimistic that this slide will soon turn around.


February 26, 2007


If you have done well with our Stock Picks I would appreciate if you could
send in a few words for our testimonials page.
(Thank you to those who have already done so) email



I no sooner had Hub updated than it was announced that it was taken over at a
premium today. Northbridge has an investment in Hub and will make a gain that
will add to its book value and to reported earnings this year. Stantec had a big
day, up $2.00, I am not sure why.


The U.S. market has been down a bit the last four days partly on concerns of
mortgage delinquencies. Sooner or later that is likely to be a very big issue
for the States but should not have much impact in Canada except that our
financial stocks may fall just because multiples in the sector fall with the U.S
troubles. With oil up over $60 the U.S. market is actually hanging in pretty
well. There was a huge take-over announced a record $32 billion leveraged
buy-out of a utility by private equity. It was also so private equity that is
buying Hub.


It looks like private take-overs could keep the general market rally going…
unless a recession or other event like a terrorist attack trumps that…
I’m inclined to build a higher cash position but at the same time I want to stay
mostly invested to take advantage of further price increases…


February 25, 2007


If I decide to raise my own cash position, one stock I may sell is Manulife
mostly I suppose because I do not have any emotional attachment to it.
(Logically we should all trade on cold hard logic, but realistically that is
simply not always the case). Also it is not one of our higher rated stocks.


Stantec is updated and rated (lower) Buy
at CAN $ 28.19. It has done very well in growing earnings. It may tend to be
volatile and there is some risk that the U.S. housing slowdown could hurt it.
But its management tends to be resilient in finding ways to grow…


Canadian Tire is updated and rated
(lower) Buy at $73.20 (It last closed at $72.31). It had a weak Q4 which was
blamed on weather. It has done very well in growing profits over the years.
Certainly not a company that I would bet against.


Home Capital
is updated and rated
Speculative (lower) Buy at $35.30. (The price closed Friday at $35.95. Given its
strong growth history and reasonable valuation is may be a good speculative
Pick. But we worry how loan losses would affect it if housing prices begin to
decline even moderately or a recession takes hold in Ontario. I would be
inclined to wait for a better entry point.


February 24, 2007


Hub International
an insurance
brokerage company is returned to the Stock list above but only as a Weak Buy /
Hold. Certain acquisition-related charges were depressing its earnings. Earnings
have now improved but the P/E is still very high at 29. It will release Q4
earnings next week and we plan to update this report soon after that and
re-evaluate at that time.


EGI Financial, a small high-risk auto
insurance company is updated for Q4 earnings and is rated Speculative (higher)
Buy at $11.05. This company is up 43% since we added to this Site as a
Speculative (higher) Buy in September 2006 at $7.75. The company had an
exceptionally good quarter and year. This auto insurer is doing what I had they
all would – release redundant reserves from prior years when auto insurers had
become very conservative in their claims estimates in the past few years and
then claimed had fallen sharply as drivers avoided claims and laws changed to
restrict court awards. At this point the company still looks attractive but is
hard to evaluate since earnings are likely to fall (perhaps substantially) in
2007 from the very high level achieved in 2006.


Northbridge Financial is updated for
its Q4 2006 earnings and rated Speculative (higher) Buy. The price to book value
of 1.33 seems attractive. Also the P/E nominally is attractive but earnings
could drop due to competition and possibly lower realized gains. I like that
this company is 90% in Canada and 38% in autos. But the approximate 60% exposure
to commercial property and liability could make it more volatile. Last year my
thesis for insurance stocks was that they would likely report reserve
redundancies (retroactive gains) particularly in the Canadian standard auto
segment. Some of the companies have now done that and for those that have not, I
am now less confident that this will happen. My thesis on Northbridge at this
time is that it looks like good value. It offers a good leverage to bonds in
that for each dollar of stock market value it has about $2.00 invested, mostly
in bonds. It should be a reasonable investment for the long-term but I don’t see
any reason for a near-term jump in price (Other than possibly if it were bought
out at a premium). While the value looks good the price could drop if earnings
drop in 2007 due to competition and/or lower realized gains on investment. Due
to uncertainty, I see it as Speculative particularly in the near term.


February 22, 2007


There have been  new posts to our new Members Blog, check it out at  http://investorsfriend.blogspot.com
Share your knowledge…


Two property insurance companies reported earnings today. EGI Financial
posted excellent results during the trading day but was only up 1.5% on that
news. It may move more in the next few days and looks like good value.
Northbridge posted after the close and I thought the earnings were reasonably
good, but not exceptional. At this point I will wait and see where it moves
tomorrow. We will likely have both of these stock reports updated by Sunday.
Kingsway continues to slide. Probably no reason to expect any turn-around there
until they and unless they report good earnings in Q1. I don’t think now is the
time to sell Kingsway and it it may very well turn out to be a good buying
opportunity but it will require patience.


February 21, 2007


Manulife is updated for its Q4 earnings
and rated Speculative Buy at $40.78. We had last rated this as Speculative
(lower) Strong Buy at $39.35. However, as I read the Q4 report and looked at the
50 page statistical supplement, I was reminded again of the incredible
complexity of this company and the fact that earnings are basically estimated by
actuaries. Some of its product lines continue to grow at absolutely amazing
rates but some others have slowed down. Overall I am just not as comfortable
with it as I was earlier. I don’t mind holding it but would not want a very
large position in given the difficulty of understanding its financials. It gives
Canadians international exposure but also exposed Canadians to currency risk as
most of the revenues are in U.S. dollars.


February 20, 2007


A surprisingly large jump in Western Financial today. This has been a good
run. I do expect continued volatility as the trading is still thin – although
improving. I’m not sure when the earnings are coming out. I had reduced my
position yesterday (a good decision despite a bad outcome). I will not sell any
more at this point. At this point I am waiting for the earnings report.


In general, markets have continued to do well. The Q4 earnings season for the
S&P 500 apparently came in at about 9.2% growth year-over-year which is quite
good although lower than the double digit growth of the past few years. The
danger is that soon the market will start anticipating lower earnings growth. I
am watching cautiously.


Regarding the new article on
asset allocation and
portfolio performance in retirement, I have made some relatively minor edits
in the article and I updated the date written to February 20.


Regarding our new Members Blog, note that you can post anonymously. For now
at least I will only advise paid members of this Site about the Members Blog.
But if too few posts are made I will make everyone on the free newsletter list
aware of the Blog as well. (A members Blog like that is of little value if no
one is posting to it.) I am convinced that the paid members of this Site form a
knowledgeable group of investors and have also generally been successful in many
ways beyond investing. Therefore this may be a great group to bounce ideas off
each other. So post away at
http://investorsfriend.blogspot.com. Already there are some posts there.


February 19, 2007


I recently created a Blog area for Paid Members of this Site to post comments
or question to other Members. See
http://investorsfriend.blogspot.com . Why not be among the first to post
something there?


Just below the Stock table above is a link to four items that are available
exclusively to you paid subscribers and two additional items that are also
available to those on our free newsletter list. None of these eight items are
available to casual visitors to the Site. Of particular interest are eight
articles that examine the state of the broader market’s current valuation levels
and the expected long-term return going forward. Most of these eight were very
recently updated.


Just added to that list today today is an
exclusive special report
that graphically delves into the question of how balanced portfolios compare to
all-equity portfolios in a retirement scenario, where money is being withdrawn
each year. This asset allocation problem is often discussed, but usually with no
real data to back up the arguments.


Portfolio Review


In reviewing my own portfolio it is apparent that I have a very high exposure
to property insurance. And in some cases my larger positions are stocks that we
only rate as (lower) Bur or even Weak Buy. Logically I should probably keep my
portfolio closer in line with the stocks we rate higher and should trim the
lower rated stocks. Also I should be careful about too high an exposure to any
one stock or sector unless I am very sure of my position. It is particularly the
case that I should rebalance given that my portfolio is about 95% in non-taxable
accounts, where tax impacts of trading are of no concern. Also I recently
qualified to trade at $9.99 per trade with TD Waterhouse. Therefore, trading
costs to rebalance are not a concern. So, logically I have little excuse not to
trim certain positions, and rebalance my portfolio. And this could include
moving to a targeted level of cash.


However when I sit down to do this, logic seems to meet emotion. It is
difficult to trim any position I own because “its price might rise”. Logically
this should not stop me from moving to a more balanced portfolio. But
emotionally I find it difficult.


Therefore I find myself unable to fully rebalance. But I did trim my
Northbridge position today. And I entered an order to trim the Western Financial
if I can get $4.20 or $4.19. I did get $4.20 on some of it but quickly ran into
the fact that this stock is not very liquid and had to drop the price a bit in
order to sell more. I may trim other positions later today. In some ways I
should trim both Tim Hortons and Shaw Communications because both are lower
rated. Their prices are high in relation to trailing earnings. But both appear
to be in a great position to increase earnings in the next 12 months and
therefore I find it difficult to trim these.


In a future newsletter, I will further address this emotional difficulty that
arises in trying to rebalance a portfolio.


I have done very well in the markets the past four years. Naturally, I don’t
want to see my portfolio decline by any material amount. If I begin to have a
greater fear of general market correction, I will be trimming positions and this
could include even higher rated stocks where I am simply over-exposed.


February 17, 2007


ING CANADA is updated and is rated Speculative
Buy at $51.50. I do not view it as highly speculative but it could be volatile.
The property and liability insurance business, by its nature, is difficult to
forecast. ING remains highly profitable but its earnings are declining from a
cyclic peak. It appears to be the highest quality Canadian stock in this sector,
but it also trades at a higher valuation. I expect it to do reasonably well in
the next several months. The company has offered to buy back $500 million of
shares in a Dutch auction and announced -after the close of trade on Friday –
that it will accept bids within a range from $51 to $59. It seems to me that
should place a floor under the share price at $51 and possibly the shares will
move up on the news that the company views the shares to be worth up to at least


February 15, 2007


ING fell on what were considered disappointing earnings today. In fact the
earnings were actually quite good and only looked bad compared to incredibly
high earnings in Q4 last year. There are many issues here. Insurance accounting
is a strange mix of inconsistencies. Realized gains come directly into earnings
(though often ignored by analysts) Unrealized gains, which are just as real are
not brought into income. Income is affected by changes in estimates from prior
years. Bottom line, ING remains highly profitable. But it commands a premium
valuation. I will update our rating in the next few days. This company does not
have the type of issues that hurt Kingsway… I don’t expect it to trend down
now as Kingsway has.


CN has done surprisingly well in the face of the strike… Could easily
pull-back a bit if strike is expected to cause problems. So far market seems to
assume strike not hurting CN…


The overall DOW continues to show momentum to the up-side…


February 13, 2007


It was nice to see the Dow up 102 points, so maybe the overall trend is still
up… (Toronto was up 131 which is great but Toronto is volatile with energy so
I don’t get excited by jumps up or down in Toronto as I have little that is


I had sold some Shaw Communications near the peak and bought some of that
back today. Also I redeployed some of the money from selling Kingsway into ING
Canada. I no longer owned any ING and I wanted to own at least some in case it
comes out with strong earnings. I like that it sells standard home and auto
insurance and strictly in Canada . I have said before it is the highest quality
Canadian property insurer. But it also sells at a premium price compared to the


February 12, 2007


A negative start to the week. After a very positive start to the year,
perhaps we are in for a bit of a pull-back. I sold 40% of my Kingsway today
because my weighting in it was too high and because although it still seems
cheap, it has not done what I expected it to. The company has repeatedly said
that it was “reserving” very conservatively for claims. Therefore it should have
been releasing redundant past reserves. Instead it added to prior year reserves.
Over the years it has been a good investment but very volatile. It seems like
management is not on top of their game. I always said with these insurance
stocks it is best on spread the investment over several of them. I had too much
in Kingsway… I don’t see it plummeting or anything since it trades only about
1.25 times book value and some 9.1 times trailing earnings. But with negative
sentiment it could go somewhat lower especially if the credit rating agencies
decide to down-grade them. I have not seen anything about that however a and in
this case “no news is good news”.


February 11, 2007


Tim Hortons is updated and remains
rated (lower) Buy now at CAN $36.16 and U.S. $30.83.


It’s not cheap because the market is pricing in robust growth. But given the
earnings growth in 2006 it looks more attractive now at $36 than it did last
Spring at prices under $30. With a P/E of 26, this is a case of paying up for
quality. Also its U.S. expansions appear to be proceeding well, whereas these
were more doubtful last Spring. I expect its Q1 to be strong which could be the
catalyst to get it over its IPO opening high of $37.99. On the other hand there
is some risk that profit taking and a general market correction could see it
fall back to the lower 30’s. In that case I would add to my position.


February 9, 2007


Web Site Developments


I have moved 8 articles that
use recent data to examine whether or not markets in general are a bargain at
this time. These 8 were formerly available under the Free Reports button but
will now be available exclusively to paid subscribers and those on the free
newsletter list. I have placed a link to these articles above under the Stock
Picks table.


In addition, I am working on a couple of advanced articles (asset allocation
graphs of actual past results and ETFs) that will be exclusively for you paid


This move is designed to give more value to those who join the free list and
particularly to those who join the paid service.


Kingsway Financial is updated and rated
Speculative Buy at $23.16. The overall thesis is a good (not great ) company
available at what seems like a good price. It has been frustrating due to its
unpredictability. Some of that unpredictability is inherent in this industry. It
will likely require patience and the price will likely rise only as the company
demonstrates earnings growth. Not a company that the market is likely to get
excited about any time soon.


For those owning property insurance stocks I continue to think it best to
spread the investment across a number of companies. Personally I became more
exposed to Kingsway than I should have.


Loblaw has continues to disappoint. It is
incredible that they are letting so many experienced staff go. Just a few years
ago they were considered the best grocery operators in North America. I would
not buy at this point. Analysts have pointed out that they coould easily raise
the share price by doing a sale and lease-back on the real estate. But there is
no indication that they will consider such a move.


Market Comment


HSBC bank yesterday announced higher bad debt on sub-prime mortgage lending
inthe U.S. This could be the beginning of many announcements regarding bad debt
in the U.S. After all lending criteria have been soft (for example lending
mortgage money on stated income – ne need to prove your income). A ridiculous
practice that evolved in the U.S. was to offer mortgages with below market rates
for the first few years and then that rate would climb significantly in a few
years. This was an obvious recipe for trouble.  Marginal consumers are
likely running into trouble as interest rates have risen and as their
teaser-rate mortgages come up to market rates. Trouble with bad debt losses
could create a lot of negative sentiment in the market if it takes hold.


February 8, 2007


Kingsway Financial came out with Q4 earnings after the close of trading and
they were disappointing. The headline is Q4 earnings down by 53%. However, I
have said many times that insurance company earnings are lumpy and therefore
straight GAAP earnings year-over-year comparisons are not that meaningful. The
company did disappoint by announcing (in effect) retroactive reductions to prior
years earnings (pre-tax) of $53.6 million.


That’s bad but it helps that it was confined to just one of their
subsidiaries and that it related to discontinued lines of business. In any other
business, analysts would treat this as an unusual loss and add it back in for
adjusted earnings. But in the insurance industry this “unusual” loss is
considered sort of normal business and by convention it is not added back.
Also the $53.6 million hit was offset by opposite developments that totaled
about $30 million (pre-tax). Overall the quarter was disappointing but it was
still a pretty good year. And overall we still have a company that earned 14.5%
ROE and that trades at a P/E of 9.9 and a price to book of 1.35. I consider it
an “okay” to “good” company (not great given no inherent competitive advantage
or barriers to entry) and it is available at an attractive price.


This is a stock that is probably going to continue to require patience. I
will update our rating after we see where the price goes tomorrow. It could well
go down tomorrow. Certainly it should not go up. Some analysts may gripe about
the (in effect) retroactive change to prior years results but unrealistic to
expect insurance companies to report smooth earnings. Analysts may also focus on
the fact that revenues were down in 2006. I’m not bothered by that as I focus
more so on profitability rather than revenue growth. Management stated that they
were confident earnings would grow in 2007.


Kingsway shares did fall about 3% today, perhaps in anticipation of the
disappointing earnings.


Feb 7, 2007


An excellent earnings report from Tim Hortons today. But it seems the market
was expecting it and therefore the stock price basically did not move. They
increased the store count by around 7% this year. Therefore it seems to me that
they have two ways to grow. One is by adding more stores the other is by selling
more in dollars per store. We’ll update our report by Sunday.


Kingsway was up nicely today, hopefully this signals that its earnings will
be good.


February 6, 2007


FirstService Corporation is updated for
strong Q3 earnings and we upgrade our rating one notch to (lower) Strong Buy. I
am attracted to the management quality here. The insider buying and holding
signal is also strong. Our report is in U.S. dollars because it reports in U.S.
dollars and it trades in the U.S., but Canadian investors should buy on Toronto.


Tim Hortons has been creeping up towards
the high that it reached in the euphoria of its opening moments of trading when
it hit the exchange last Spring. Possibly that will generate some excitement. It
may be largely still owned by Americans who received the shares in the spin off
from Wendy’s. The Tim Horton shares have done better than the Wendy’s since the
spin-off and I see no reason for those American to rush to sell, although
certainly some will continue to take profits since the stock does seem
expensive. While it is expensive, I am satisfied to hold onto my position.


February 5, 2007


Dalsa declined today and it seems that the
market is worried about low revenues on its semi-conductor business. I believe
that this will turn out to be a good investment over a two year plus holding
period. But as a technology company, it is less predictable than many companies.


February 4, 2007


Earlier today, I sent out an edition of the free newsletter. If you did not
receive it, check your junk mail folder. You can access the

free newsletter here.


The TSX Group is updated. Its rating drops to
Buy from (higher) Buy because of the strong price increase since our last update
in November. We consider this company to be almost an unregulated monopoly and
this is reflected in its staggering profitability of 40% on sales and an ROE of
70%. Certainly the price could drop if market volumes or fall or the TSX index
falls. But overall, it still looks like a good investment. A case of paying-up
for quality.


February 3, 2007


Our Performance in 2007 has really leapt out of the gate. The 24 Strong Buys
/ Buys are up an average of a rather amazing 5.8% (in 1 month!). The Model
portfolio is up about 4.9%. In comparison, the TSX index is up 1.2%. Click to
see the results graphically. The graph does not
show the company names. I’ll resume more detailed reporting of performance later
in the year. 19 of the 24 Buy / Strong Buy stocks are up and 5 are down, with
the largest decline being only 3%.


Dalsa Corporation is updated and remains
rated (higher) Buy at $12.35. Its profits are low, but is has been cash flow
positive and has been reducing debt at a good rate. It has little debt. This
represents a chance to buy a small technology company that probably has little
down-side risk if held for several years, but which could double within a couple
years if its revenues improve and if its digital major motion picture camera
product becomes accepted in the picture industry. The shares trade near their
low points of the past four years despite profits having improved from a steep
fall in 2005. I am tempted to add to my position but will likely decide to be
content with the position I have.


February 1, 2007


Wow, another great day. Just about everything up… I notice Lakeport Brewing
Income Trust to be bought by Labatt for $28 and the stock is up about 36% to
$27.92. Good for those holding it!. I have never looked a it in detail but I
understand that they have done a great job. If I owned it, I would be very much
inclined to sell at this price and take my gain and run. Investors may be hoping
for a higher bid. On the other hand the controlling owner has tendered her
approximate 25% stake, so I highly doubt that a competitive bid will be
realized. Also there is a question of this deal being stopped by the competition
bureau. I’m no fan of government control, but if ever a deal looks like it would
reduce competition, this looks like it.


Lately I am focusing more on companies with strong competitive advantages (In
the best cases things that look like unregulated monopolies). Basically I am
looking for more great companies at good prices and fewer good companies at
great prices.


At the other end of the spectrum are companies that are in horrible
industries like (most of the time at least) Airlines. I avoid those. Some years
ago I analyzed Nova Chemicals. I really respected its management. And it seemed
to be a low-cost producer. But I eventually concluded that they were in a
horrible situation. They produce as I recall commodity products like Styrene
where they cannot command pricing power and where there often seems to be excess
capacity in the market driving down prices. Meanwhile one of their big inputs I
recall was natural gas which was shooting up in price. I gave up on them. I last
looked at it May 11, 2001 at $35.10 and called it basically a hold and then
stopped looking at it. It subsequently got briefly over $60 but today trades
again at around $35 and just announced a big loss. For me, this is a type of
stock to avoid. It’s to hard to understand, it’s too volatile and it just seems
to be in a really tough industry.



January 31, 2007


eBay is updated for Q4 and rated Speculative
Weak Buy/ Hold at $32.06 (it closed today at $32.39). It is a great company, but
with a P/E of 41 it is pricing in growth around 20% which means it probably has
to grow at 20% just for the price to stand still (and management is projecting
20%). It could well exceed that growth so it is a possible speculative Buy but I
am not planning to buy it. We like that it probably has barriers to entry but we
were bothered by management’s attitude toward executive compensation and an
apparent refusal to acknowledge that stock option expenses are real. Note that
others may report their P/E as 25, which is based on 2007 non-GAAP earnings. But
those Non-GAAP earnings exclude stock related expenses, which is just plain
wrong. But again, it does have strong business characteristics…


A good day for the markets with the DOW up 98 points. (Unfortunately the TSX
index is so heavily weighted to energy, that the DOW is a better indicator of
broad market trends).


We have some new earnings reports to deal with. The TSX Group had a great Q4
as expected. Dalsa’s earnings after the close looked good. I am not clear if the
TSX earnings came out before the close or not. In any event we usually wait at
least a day or so before updating our reports because if for example the
earnings after the close are higher than the market expects, then the market
price will tend to jump at the open and so if we rate it a Buy the night before,
it will usually be too late to act. So we tend, as I said, to wait until we can
give a rating based on a more stable price after the market has reacted to the


I’m going to be doing some analysis of the risks of being in all equities
versus balanced portfolios. This will be based on actual patterns of returns
that investors (both those saving for retirement and those living off of a
portfolio) would have seen with those strategies had they followed them in
various years for 10 and 30 year periods going all the way back to 1926. The
results in some ways were surprising. Stay tuned for a new article on this
subject. (I already have some articles like that on the Site, but this will show
graphically year by year volatility and return of various strategies of balanced
versus all equities).


January 30, 2007


U.S. Fed meetings started today but I now understand their economic comment
will come out tomorrow. That and the release of earnings reports could cause
some higher volatility in the next few weeks (hopefully volatility in the upward


January 29, 2007


I notice that 10-year interest rates are up about 1/4% since December. In the
face of that , the fact that our stocks have done well is a positive sign.
Tomorrow the U.S. Fed will release a statement on interest rates and inflation
and this could move the market.


Kingsway has been volatile and at $24 is
down from its highs of around $26. The company has a share buy-back program and
was active in December. They only seem to report the activity once per month and
so we don’t know if they were buying in January. Possibly the market knows that
its 2006 final earnings report is not going to be great. With property insurance
companies, we never know if they are going to report retroactive losses related
to prior years. I was hoping they would be reporting retroactive gains rather
than losses. We shall see. In any event at $24 it appears to be a solid
long-term investment, but the short -term is very difficult to predict. It’s my
largest holding.


January 28, 2007


I’m working on an article that looks at exactly how all-equity and balanced
portfolios grew or shrunk, based on actual data from 1926 to 2006 and for both
the investing phase of life and the spending-the-portfolio, phase of life.
Preliminary results are rather startling. This article, when completed will only
be available to you paid subscribers.


Our article Are Stocks Really Riskier
than Bonds? has just been updated for the 2006 data. I’ve also just updated an article that looks
at the returns from stocks, versus bonds and cash for different time-periods
since 1926. I consider this to be a very important article. I recently paid $135
U.S. just to get the updated data for 2006, so that also gives an indication of
the value of this information.


January 27, 2007


Microsoft, is added to the list above rated
Buy at $30.97. Microsoft has spent the last five years trading mostly between
$25 and $30 and the stock is well down from its highs of over $50 reached
briefly around year 2000. But the company has continued to grow although at a
slower pace and its P/E ratio seems reasonable (although not compelling) at 23.5
Combine that with its quasi-monopoly characteristics in some of its products and
we think the stock is worth considering.


January 26, 2007


Performance Update


The TSX index has jumped around a bit this month and is up 0.6% year to date.
While the Dow is up 0.2%.


Meanwhile our three Strong Buys from January 1 are up an average 4.0% and the
average for all the 24 stocks that started the year in the Buy and Strong Buy
categories is a gain of 4.6%. And only a few of these 24 are down, and the most
any of them are down is 3%.


I just added new material to the Performance
page that indicates that over the years our high returns have apparently not
come with high risks. I can’t say that the future will not be risky. I have
always said stocks involve risk, especially in the short-term. But the numbers
indicate that for calendar year holding periods our Picks have exhibited little
risk (with the exception of 2002 which does exhibit more risk).


January 25, 2007


Canadian National Railway is updated and rated
(lower) Strong Buy at Can $53.00  U.S. $44.96. This company has
exceptionally good history of growth in profits per share. They were at around
$1.00 per share in 1998 and are now at $3.40. This seems to be another huge
company that has defied the usual assumption that big companies cannot grow very
fast. The share price today is pricing in growth of around 8% assuming that the
P/E remains around 15 to 16. If it grows faster than that it will be a good
investment. As mentioned in comments on January 23, I am attracted to the idea
that this company is likely somewhat protected from competition. If you want to
move freight by rail along its networks, I suspect you would often have at most
1 other choice of rail company. Sure, you could use trucks, but it seems that
rail is more cost-effective over long-hauls. I suspect that if this stock is
held for the next five years, it is quite unlikely to be a poor investment such
as losing money over that time, but is has a reasonable chance of earning 10 to
15% annually. So, that seems like a good risk-reward tradeoff.


January 23, 2007


fall a bit today after announcing
800 to 1000 layoffs in head office (15 to 20% of staff). It seems the market is
having a hard time accepting this as good news. I have to wonder how cutting out
a big chunk of workers will fix the distribution and computer system problems
that they had. They will take a yet another special charge to cover the cost
$150 to $200 million.


I still think Loblaw will be a great bargain at some point, but it’s not clear
if that is now, or will it decline back to its recent low around $45 and below?


It is a bit scary to think that a 33 year-old is in charge and that he got
the job largely because of being the controlling owner’s son. Maybe it’s good
that he is taking decisive action. But the market is going to continue to punish
any perceived mistakes.


I don’t own it and am not thinking of buying at this time. But again, at some
unknown point, it will have hit its lows and the brave buyers at that time will
likely be rewarded. So, it’s worth watching.



A very nice day all around today. CN was up
almost 3%. And after the market closed it released a strong earnings report and
raised its dividend by 29%. I would think it will be up tomorrow as a result.


I was thinking about CN in terms of whether or not it would be a company that
Warren Buffett would approve of investing in. (Note his good friend Bill Gates
is a big shareholder in CN, and CN’s U.S. line runs through Omaha where Buffett
lives – coincidences?)


His investment criteria stated in his 1977 letter to shareholders was:


We want the business to be (1) one that we can understand, (2)

with favorable long-term prospects, (3) operated by honest and

competent people, and (4) available at a very attractive price.


In later years he said the same thing applies but he is now satisfied with an
attractive price rather than requiring the price to be very attractive.


He often talks about companies that make high profits because they are
protected from competition by their superior “franchise” or brand name appeal.
Therefore, I think his favorite type of company might be an unregulated
(virtual) monopoly in a simple, predictable business, ran by competent and
trustworthy management and available at a reasonable (preferably a bargain)


Examples of unregulated monopoly companies are rare but they do exist. I
believe the TSX group is an example. In the U.S. there are only are two main
bond-rating agencies that virtually every large corporation has little choice
but to use. These are virtually unregulated monopolies. Coke used to be one. For
many decades there was no way in the world you would open a convenience or
grocery store or restaurant and not sell Coke.


And I wonder if maybe CN qualifies? There are only two railroads in Canada
and I suspect many CN customers may not have access to CP. It seems to me that
railroads have proven themselves to have big cost advantages over trucks at
least for long-hauls and bulk product. I suspect it would impossible for anyone
to build a third competing railroad in Canada even if they had billions to
spend. So, I think if CN is not a monopoly, it is at least a duopoly with CP. CN
is generally acknowledged to be the best run railroad in North America, so that
means management is quite competent. While management is no-doubt well rewarded
I don’t think anyone questions their integrity. But what about price? This great
company sells at about 15 times earnings. So basically, it is a well above
average company and is selling at a below average multiple of price to earnings.  We will
update the CN report soon, after seeing where the price settles out in the next
few days.


Yesterday I was mentioning energy trusts, I added a new paragraph to
yesterday’s post.


January 22, 2007


Today our stocks were generally up most of the day but ended down slightly.
The 88 point drop in the DOW is a bit of a worry. I don’t sense that we’re into a
general down-trend, but certainly if the earnings season is perceived as weak,
we could be in for some negative market action in general. Still, P/Es are
generally not too high and I see no reason to think we are in for a big


Energy and oil stocks march to their own drums. I’ve never claimed any
ability to judge where oil prices are going. But with prices now down to the
low 50’s I would think it could certainly head lower unless the weather turns
and stays cold in the Northeast U.S. If not the market will soon look to Spring
and I suspect that would be negative for oil. (Probably the same applies for
natural gas).


I don’t follow energy trusts but I believe I have said in the past that when
energy prices were rising that was covering some sins on the energy trust side
like high-payouts and high acquisition costs. An ever higher price for your
product can make any company that bought more oil and gas fields look like a
hero. Now the reverse is true. Lower energy prices are sure to hurt any Trust or
corporation that bought oil and gas fields based on say $70 oil prices.


Basically, even over-priced acquisitions of oil and gas fields would have
turned out to be accretive to earnings and cash flows per unit as energy prices
jumped upward.  But a falling energy price can make a good acquisition look
bad. As energy prices have fallen, distribution cuts were likely a given. But
certain Trusts and corporations that made high-priced acquisitions will face a
double whammy. I would predict more pain in this area, but again it is not an
area I know much about.



January 21, 2007


Reitmans is updated and rated Strong Buy
at $21.25 (it closed Friday at $21.45). This stock is far too boring to be of
any interest to the ninnys who spend a lot of time of stock message Boards.
(Sorry if I cause any offense with this remark, but most of the posts I have
ever seen are based on absolutely no knowledge or analysis and message boards
tends to be most active for penny stocks that have no earnings).  It’s
so boring – all it seems to do is make money. It’s also up 32% since we added to
this site on October 21, 2005, rated (higher) Buy. The basic investment premise
here is that it is a good company (23% ROE) that is trading at a relatively
cheap multiple of earnings at about 16.


I don’t own shares in it, but plan to buy some. Logically it should be added
to our model portfolio, and I will consider doing so soon.


Walgreen Company is updated and is rated
(lower) Buy at U.S. $46.16. This is definitely a great company with a excellent
history. Unfortunately with a price/earnings ratio of about 25, it seems fully
valued. It’s up 6% since added it to this site on December 11. It could be
bought on the basis that it is worth paying a premium for such a high quality
company. But I would prefer to wait and see if an opportunity to buy at closer
to $40 happens to occur.


January 18, 2007


A negative day today. But I am encouraged that the DOW lost only a small
amount. Most of our picks are unrelated to oil and energy and tend to move more
in tandem with with the DOW than the TSX.


With recession still being talked about for the U.S. we should keep in mind
that market sentiment could certainly turn negative.


Telus has been weak and it may be that the
market senses it is being hurt by competition. We will know more when it
releases Q4 earnings.


January 17, 2007


fell back today. It seems this
company will only rise if it reports strong earnings. The market always seems to
be pricing it pessimistically. I believe “the market” finds it frustrating that
this company like most insurance companies is so unpredictable. We never know
when they will surprise us with retroactive charges or credits as their
estimates of the profits of prior periods keeps changing as their accident
claims get filed and settled. Still, it continues to look cheap.


Tiny Clemex did well today rising 4
cents to 25 cents releasing some good news. This is an extremely tiny company.
It has disappointed me in the past but may be poised to move somewhat. I think
its a reasonable speculative pick, but given the volatility I would try to get
it for 22 cents or less and would not be too eager to pay the 25 cents unless it
trades at that level for at least a few days. It is definitely speculative. But
they have survived for a long time and appear to cash-flow positive, so that
should support the price in the 22 cent range at least. A buy-out is possible
but my sense it that the founder/President values his independence and has no
intentions to sell out.


Tim Hortons continues to creep up, now
at $37.30. It tends to look expensive but then again is a case of paying up for
quality. In the euphoria around its over-subscribed, much-hyped IPO last Spring
it apparently traded as high as $37.99 that first day but soon started falling
and bottomed out at just under $27 around August and then again around October.
It was widely expected (not by us) to “tank” somewhat when the Wendy’s
shareholders received their Tim’s shares in early November (increased the
trading float by some 5 times). Instead it has climbed steadily since then. It
may make some news if it it goes over the $38 mark, setting a new high and
generating excitement. I’m happy to hold at these prices but am not adding to my
position. If I had none, I would consider buying a small amount and then adding
to that if the priced dropped several dollars.


January 16, 2007


Nice increases from Tim Hortons and
CN today. At this point I am just enjoying the
ride… We will have a couple or more updated reports by Sunday.


January 15, 2007


A good start to the market week today. I sold what amounted to 31% of my Shaw
shares near the opening this morning. It opened at $42.50, I sold at $43. In
retrospect I could have waited because the price was over $43 most of the day
and closed at $43.61. But the reality is that when you want to sell, you pretty
well have to take the bid price or risk the price dropping. It was good to see
the price climb today after the opening drop and so maybe it will hang in there
and rise. But I just thought it prudent to take some money off the table on this
one. I still have a large position in it and may trim a bit more or may just
hold on to the rest.


January 14, 2007


Late Saturday I sent out an issue of our free
newsletter. If you did not receive it, this was either due to the email
getting blocked as spam or your email is not on our list. To test if your email
is on our list for the free newsletter just enter it again in the box on our
home page. If it is a duplicate email, the system will indicate it is a


A technical note – In some browsers you may need to do a control-refresh to
see the latest version of this web page. We typically post updates, evenings and
weekends, and very seldom during the trading day.


Shaw Communications is updated
and now rated Speculative Weak Buy / Hold at $43.81. The stock price has really
jumped recently. Our prior ratings in the past two years were:


Oct 27, ’06 Speculative Buy at $34.90


July 3, ’06 Buy at $31.55


April 14, ’06 Buy at $28.49


Jan 14, ’06 Speculative Buy at $25.60


also January 21, 2005 Buy at $21.20


The investment thesis over that time was that earnings seemed under-stated
and both earnings and cashflows were increasing rapidly. Now the earnings have
increased sharply as expected, but the price has also doubled and the P/E is
still over 30 so it no longer looks like a bargain.


It may keep going up on earnings and price momentum… On the other hand I
would think a lot of people including insiders will now look to take profits.


It is 10% of my portfolio. Therefore, I will likely reduce my holdings
probably by at least half. Since I am of course still greedy for up-side I may
just enter a stop-loss at say $42 for half or more of my position. I don’t have
any real reason to think it will drop, it’s more that it looks fully priced and
I don’t want to risk 10% of my portfolio on it. I also have little cash and
selling some of this allows me to raise cash.


I hold my stocks in RRSP and an RESP account. In a taxable account I would be
more inclined to hold.


For purposes of the model portfolio,
I will notionally sell half the Shaw at tomorrow’s opening price.


January 11, 2007


Wow! Shaw Communications was up $2.95 or 7.5% to $42.38. That is quite a
large jump for such a large company. This jump was in response to a good
earnings report released this morning and perhaps also sparked by what must have
been an enthusiastic mood at their annual meeting today. At this point I do
wonder if it is a bit over-done. But I’m not anxious to sell yet because it
could keep moving up based on its earnings and sales performance.


Kingsway also did well today. And a couple
of more volatile stocks, Western
Financial and Clemex also did
very well today. Moves in small volatile stocks are often pretty meaningless but
nevertheless the whole situation looked nice on my screen as my stocks were up
over 1.5% today.


E-L Financial has come down to $600
which makes it a better Buy than when we very recently rated it a Buy at $635. I
understand that in B.C. there was considerable property damage due to recent
storms and this my hurt E-L Financial somewhat, but overall should not have any
lasting impact.


January 10, 2007


Shaw Communications (last rated Speculative Buy at $34.90 was up about $1.00
this morning to $39.24. Possibly driven somewhat by anticipation of its annual
meeting tomorrow. It may also be about to release earnings for its Q1. It’s up
6% since the start of this new year. And it’s up 12% since we rated it a
Speculative Buy on October 28. Our report indicated that the value ratios did
not look strong but that the cash flows were higher than suggested by the
earnings. If I decide to raise cash in my own portfolio, I may sell some of
this. But on the other hand, it still seems to have strong price and earnings
momentum, so I will most likely hang on to this.


One bothersome negative aspect of Shaw is its rather obese pension and
related compensation to the Shaw’s. The company is big enough that it may not be
a big concern. But the fact that they chose such lavish pay packages is


In general, I would like to be about 20% in cash at this time to take
advantage if the market dips. But I like the outlook or the stocks I hold and
therefore I am not inclined at the moment to sell. Recent market weakness has
not affected our Stock Picks, which are up slightly in this new year.


January 8, 2007


We really should not judge stock selection performance over a period shorter
than at least six months or a year. But it’s human nature for most of us to
watch stock market performance by the day, if not by the hour. I have not yet
started to calculated returns for 2007, but I do know that the TSX is down about
3% and my own account is slightly up. So it looks like we are off to a good


I had mentioned in notes below (see Nov 9 and Nov 28)  that at some
point Loblaws was going to be a good investment opportunity. The trick was,
when? Now it is at $51.21, up from lows around $45. So perhaps the bargain level
was $45 to $47. Perhaps it is still a bargain. Again it is interesting that most
analysts fell all over themselves recommending this at prices over $70 but then
abandoned it and were not recommending it at $45. Admittedly, we were too early
in rating it Buy on the way down.


The market is applauding recent continued changes in the executive ranks. I’m
not so sure all these changes are a good thing. Loblaw’s for many years had a
reputation as the best grocer in North America. They were on their game. They
seemed hungry, always finding a way for profits to go up.  They must have
had some very good operational managers all up and down the chain of command.
Given that I would have thought promotion from within would be called for. Sure
they ran into problems lately but I don’t think that is reason to start making
wholesale changes in management. When you do that the message to existing staff
is, “you are not competent, we need new people to run this place”. That does not
seem fair given the three decades of prior stellar performance. At this point, I
continue to wait-and-see. I would not be surprised to see the stock settle back
at least a few dollars before things eventually turn around. But then again if
they get their act together again, it could just continue up.


January 7, 2007


is updated for its price increase
and remains rated (lower) Buy at $24.54


January 5, 2007


A nice bump on Tim Hortons up 5.5% today, because of a strong sales report. I
think this is an example of how investing in an obviously great company can
pay-off even when the stock is not cheap. Even when the stock looks a little
expensive, common sense as you see the line-ups says buy this stock.


Kingsway was down 2% today but on no news. Insurance companies are hard to
predict and at this point I am waiting for the Q4 report to see how Kingsway did
in 2006. But it looks attractive to me.


January 4, 2007


Our Picks held up well today despite the TSX being down another 1.2%. The DOW
was down at times today but in the end was up slightly, which is encouraging.
Tim Hortons did well today perhaps in anticipation that its Q4 same-store sales
to be reported tomorrow will be strong.



January 3, 2007


Toronto market was down 1.7% today. That was mostly related to energy and
gold stocks. I am encouraged that the DOW was up a small bit today because most
of the picks on this site are more correlated to the broader economy like the
DOW, and our picks are not so much correlated with the TSX.


The Home Depot President today resigned or was asked to leave and it is
reported he got a severance of $210 million. Actually the severance was $20
million and a lot of the other amounts are for stock options he already has but
which vest early and for other entitlements already earned like an obese
pension. Apparently most of the $210 million was contractually obligated under
his contract. It crazy that the Board of directors approved that contract back
in 2000. Imagine how motivated this guy must have been lately. If he did nothing
but suck his thumb all day then he gets to be fired and walk away with $210
million. So basically he had very little motivation. That sucks.


I added today to my position in Berkshire Hathaway, per my comment yesterday.


Just based on volatility it might be a good entry point for a general
exposure to energy through the XEG exchanges traded fund on Toronto. I
considered buying at $78 today but cheaped out and placed an order at $75.10. I
usually go with individual stocks but for a number of reasons (including the
difficulty of predicting energy prices) we do have any energy stock picks here –
and will not be adding any – but we have some XEG in the model portfolio.


January 2, 2007


..And we are off to the races for another year and the market is up this
first day…


BerkShire Hathaway and Warren Buffett


I have often though about adding Berkshire to my list. I own 1 B share and
attended his annual meeting in Omaha in 2003 (along with 14,000 other people
that year). But even Warren Buffett warns that Berkshire can be hard to analyse
because it is a huge conglomerate and has “lumpy” earnings. Still, this summer I
was thinking of analysing it but sadly never did. (There will always be many
missed opportunities in investing, especially in hindsight). Berkshire B shares
are up from about $3000 last summer to $3666 today. And last summer would have
been a good time to buy using our higher dollar.


But that’s history. I have not analysed Berkshire in any detail but took a
look today and I believe it is a good investment at U.S. $3666. Q4 will likely
show a profit drop because last year it had a special $5 billion gain in Q4.
Reading the Q3 earnings press release, my sense was that Buffett is excited
about business prospects at this time. Not a stock that is going to leap in all
probability but I think it will be a good investment over the long term.




Telus announced that its president, Darren
Entwistle has sold 168,000 shares (wow that’s about $8.8 million worth). He
still holds about 402,000 ( $21 million). Back around September they were
bragging he was the largest individual shareholder and had never sold any shares
except to pay the taxes when he exercised options. But then on November 1, with
the Income Trust Announcement he would have lost about $6 million on his shares
and another $4 million on his approximate 400,000 options. That’s about $10. No
wonder he was real cranky about the Government’s move. 


..So I can’t blame him when he decides to diversify out of Telus somewhat.
And who knows, maybe he suddenly felt the need for $5 million in spending money.
But I also have to take it as a somewhat negative signal, in isolation. If he
had full and total confidence that Telus shares will rise this year, he might
not sell. We still rate Telus a (lower) Strong Buy, but this news in isolation
is cause to be a little cautious. The numbers and trends on Telus look quite
good, but maybe, just maybe, the Telus president is sensing increased
competition ahead. (Sorry to send a mixed signal on this stock, but the fact is
the signals are almost always at least a bit mixed when it comes to the
prospects for stocks).


Loblaw will take a $100 million write-down
to liquidate some non-food merchandise. Market reacted well to this. A bit
disappointing. As merchandisers I would have thought they could sell that stuff
on their own without resorting to selling it off to a liquidation chain. I
totally respect their past history of profit and growth. And maybe their current
actions are a sign they are going to turn things around. Here in the West their
Superstores with cheap bag-your-own groceries and with lots of general
merchandise have apparently done well over the years. With recession looming in
Onterio I would think the budget no-frills approach would be good. But then a
gain maybe demographics is against them, many of us are tire of no-frills and we
want to enter a nice bright clean full-service grocery and we are not too
interested in buying a shirt and pants with our groceries! Again, I respect
their history but they need to show some strong management action soon. The
market will punish any negative surprises. I am taking a wait-and-see on this


January 1, 2007


Happy New Year and greetings in particular to new subscribers.


Heading into 2007, markets appear strong. Valuations generally seem good, due
to high earnings. In general corporations are likely to keep on increasing
earnings over time and shareholders will benefit from that.  However, there
can be no guarantees. A recession in the U.S. could push markets down. As could
a terrorist attack – particularly if on North America. And individual stocks are
always subject to negative surprises.


For purposes of Performance tracking for 2007, the above ratings will be used
as the ratings at the start of 2007. Most of the reports are fairly recent and
in most cases the price has not changed much and those ratings from various
recent dates still apply for
January 1. In a few cases above we have adjusted the rating to reflect stock
price changes or a change in view.


These were:


Canadian Western Bank now considered a Weak Buy at 52.78


Home Capital now considered a Weak Buy / Hold at $34.05


Tim Hortons now considered a (lower) Buy at $33.69


I am removing some companies from the table that have not been updated in
some time. These include Hub International and Forzani Group.


December 31, 2006


Happy New Year to all of our valued subscribers. I am hoping that 2007 will
be another successful year for all of us.


December 30, 2006


FedEx is updated at rated (higher) Buy at
$108.62. This looks like an opportunity to buy a “great” company at a reasonable
price. We first added this stock to the Site in October at $112.


Manulife Financial is updated and rated
Speculative (lower) Strong Buy at CAN $39.35 or U.S. $33.79. Manulife is one of
Canada’s very few “world class” companies. Our last update was September 9, when
we applied this same rating at $36.10. We originally added it to this Site as a
Strong Buy at $17.48 (adjusted for subsequent split) on Dec. 13, 2002.


The final performance figures for 2006 have been updated. It was another good
year in the markets. Although the TSX index did well, we managed to beat it for
the seventh straight year. And, I believe our Model Portfolio and also our group
of Buys and Strong Buys were a lot less volatile over the year than the TSX


December 27, 2006


E-L Financial (property insurance life insurance and other investments) is
updated and rated (higher) Buy at $635. This company can tend to be volatile
given its earnings volatility and low trading liquidity. However, it appears to
be a good long-term investment. I bought shares in this today. Our previous
rating was Buy at $622 in June this year. We originally added it to this site as
a Speculative Buy in March 2004 at $345.


When it comes to property insurance stocks I believe in holding several of
them rather than just one or two.


The earnings of these companies tend to be quite unpredictable. Therefore,
the ratio of price to book value may be a better guide to value.


(Note a table that was here has been removed as it was causing a problem in
width of this page)


It’s not our particular intention to focus on the insurance sector. But it
has been a sector that appears to offer good value. Therefore we continue to
have an over-weighted focus on this area.


The market is worried that auto insurance rates will will due to competition
and that therefore these companies will not grow. That may be true. But,
off-setting this is high current profits and the fact that sharply higher real
estate prices could allow revenues to grow despite lower auto insurance prices.
Also, to date, it does not look like auto insurance rates have come down very


December 26, 2006


Sobeys is updated but remains rated Weak
Buy/ Hold at $39.25 (Our analysis date was Dec 19, since then the price has
increased to $40.75). The company is not over-valued but basically we would like
to see evidence of more robust earnings per share growth before we would be
interested in this stock.


EGI Financial is updated and rated
Speculative (lower) Strong Buy at $9.60. This means that we consider it
Speculative and also consider that it fits into the Strong Buy category, but at
the lower end of that category. We could easily have rated this lower on the
basis of risk. But on the basis of the value ratios it certainly looks like a
good Buy. In essence, here we have an established  company with a good
history of profitability where the market is willing to let us buy in 1.21 times
book value, which seems reasonable. But it is in a risky and often unpredictable
industry. I may add to my position in this company.


I sold my Cognos shares based on our updated rating. I was a bit hesitant to
sell since, although it seems over-valued, it is a great company and it
certainly could continue to rise in price. But logically, it makes sense for me
to move my money toward my high-rated picks. For the same reason, I added to my
FirstService position (Actually, I entered an order to Buy FirstService at its
last traded price but it did not hit my price today) . (Canadian Markets are closed today, but I was able to
these trades on the the U.S. market.)


December 24, 2006


FirstService Corporation is updated
and rated (higher) Buy at U.S. $23.42 or CAN $27.14. This company has a strong
history of growth and appears to be available at a reasonable price.


Cognos is updated and rated Weak Sell at
CAN $47.55 or U.S. $40.97. This stock is up 54% since we called it a Speculative
(lower) Buy at $30.29 on July 21. At $47.55 it looks over-valued. Possibly it
will keep going up on the hopes of higher profits, a special dividend or a
take-over. But based on fundamentals it appears over-valued. I plan to sell my
shares in Cognos.


To our valued subscribers:


I hope that everyone is having a great
Christmas season.


It has been our pleasure to provide stock
research to you. As a group, our subscribers have always demonstrated
great maturity and intelligence when it comes to investing. You have looked
for guidance in picking stocks but at the same time you have taken ultimate
responsibility for your own investments. You have understood that that there
are rewards in the stock market but also risks.


If you know of others with similar
attitudes, who are looking to invest in stocks and are looking for some
guidance and high-quality stock analysis, please consider emailing a link to
our site to them with your comments. 


At InvestorsFriend Inc. we are just
completing our seventh full year of operation and our seventh year of beating
the market index.


Each year at this time we update and/or
reconfirm our stock ratings for the new year. You can login over the next week
to check for updates. I trust we will continue to earn your business
throughout 2007 and beyond.


Many of you are set up on monthly or
annual subscriptions that renew automatically through PayPal. If you paid by
cheque you can check the end-date of your subscription by choosing “My
Account” on our login page.


December 23, 2006


I’ve reorganized the Articles list so that you no
longer have to drill down more than 1 level to find any article. Many of these
articles are definitely worth reading again even if you have already read them
once. (My view is that in any endeavor, you can never review the basics too many


My own portfolio break-down has been updates (see links below the stock
table) and the 2006 performance has been updated as of Dec 21 (Thursday).


December 21, 2006


Note that we will be updating a number of reports (as many as we can get to)
in time for the start of trading for 2007.


I just sent out an issue of the free newsletter, which you should receive.


I was very pleasantly surprised to see
Western Financial Group jump to
$4.20 today. This may have been the result of an institutional player trying to
accumulate shares. It announced today that its underwriters were using a
“over-allotment” from their recent share issue to buy more shares. That gives
the company cash but I don’t see why that should have driven the stock up,
unless these brokers were encouraging their clients to buy it. I like WES long
term but it does look expensive right now. I would not be surprised at all if it
fell back to say the $3.70 level. It is thinly traded and that makes it
volatile. I considered selling at $4.15 today but decided to hang in for the
long term.


December 19, 2006


Kingsway financial was down 2.7% today to $23.28 . My comments just below
under Dec 13 still apply. CN and Telus were also down which could be good buying
opportunities for both.


I note that the Dow Jones set a new record high today. As long as the Dow is
still going up, it seems unlikely that most “blue-chip” stocks like Telus and CN
will continue to slide.


December 17, 2006


My analysis on the valuation of the Dow Jones
Industrial Average is updated. Since the last update in September, the Dow
index is up a fair amount, but earnings also rose. Therefore the index remains
perhaps moderately overvalued. I expect the Q4 earnings reports to be good. On
that basis, the Dow could continue to rise unless fears of recession grow.


December 16, 2006


Walgreen Company is added to the list of
stocks above as a (lower) Buy at $43.56. (That was our analysis price but note
that it closed on Friday, up slightly at $44.50). It is not a screaming Buy and
in fact is pricing in continued strong growth. But this may be a case where it
is worth “paying up” for quality.


We have added a few companies lately. At this time i am also removing
Sleeman’s which was taken private and Brampton Brick (which we have lost
interest in).


December 15, 2006


Telus is updated and rated (lower) Strong
Buy at $53.17. I plan to increase my position in this stock.


December 14, 2006


The markets have kept powering ahead with the Dow and the Toronto composite
index at record highs. At some point we will get a down-turn. Therefore, it
seems wise to have some money in cash or short-term investments to take
advantage of any major market decline. But the market certainly may continue to
rise. P/E ratios are still reasonably low compared to where they have been over
the past ten years. Therefore I am comfortable keeping most of my investments in
stocks. I tend to take a long term view and I am willing to live with the risk
of a market pull-back.


Clemex, which is a very tiny higher
risk company announced earnings today. Q3 Sales were down 6% to $1.40 million
which is disappointing. Profits were down over 70% but that may not be too
meaningful as profits last year were only $147,000 and so a small decline in
revenues combined with a small increase in expenses made for a large drop in
profit. The comapny had indicated last quater that this Q2 would not be
strong… The company seems confident about the future. I tend to think it is
worth its current price, but then again this company has a bad history of
under-delivering (see my comments dated Sept 16 below). The company did not yet
release its balance sheet but I believe its debt has continued to come down
which has reduced its risk.


I did add to my Kingsway position today.


December 13, 2006


Kingsway Financial fell under $24 today.
It’s always hard to “step-up” and buy on dips like this. There is always the
fear that a dip means that someone knows something negative is coming. Thos who
trade on based on analysis of charts and momentum would tend to sell rather than
Buy. However, those who, like myself, trade on fundamentals are inclined to buy
on dips. In the past three years buying Kingsway on dips would have worked well.
But there were periods in earlier years where a little dip was followed by much
bigger drops. At this time I believe that the fundamental value of Kingsway is
such that a very large price drop is unlikely. Therefore I am inclined to Buy on
this dip. Many times in the past I have regretted not adding to my positions on


One thing that is a bit annoying is that Kingway is “supposed” to be buying
back shares but have not reported buying any shares since mid-September. They
have said that it can be hard to buy since they are only allowed to buy on a
down-tick in price and cannot buy on an up-tick in price. I would have thought
that they could have stepped in to Buy in the past few days. (Maybe they have
bought and have just not reported it yet).


Meanwhile a number of our other Picks were going up…
Clemex reported that it believes its
shares are under-valued and indicated that it will buy back some shares. I’m a
bit surprised that they would have the cash to do so, but anyhow this was
positive news. Tim Hortons seems to be
fighting back from a recent small decline in its price. They have not reported
their same-store sales increase for November (This use to be reported when they
were part of Wendy’s)


December 11, 2006


Western Financial Group fell to
3.61 today. Based on the financials it looks like only a hold or weak buy. Buy
as a speculative play on the Alberta economy it may not be a bad pick. In early
December it bough 15 new insurance agencies with the proceeds of its equity
issue. This brings the total number of insurance offices to about 71. It may
take at least 6 months before this shows up in earnings, so this Stock is likely
to require patience.


December 9, 2006


Performance figures are updated.


Target is updated and is rated Buy at
$58.09. This retail stock has done very well (up 19%) since we added to this
Site in late May at a price of $48.82.


December 7, 2006


I sent out an email to all paid subscribers tonight. It was really just a
reminder to login to this Site, but if you did not receive it, we may not have
your correct email address (You can check that under “MY Account” on our Login
Page). (If you change your email address, the email that is your user name will
not change unless you request me to change it.)


Dalsa reported today that its CFO was
resigning as of January 13. They did not say why but they thanked him for his
service and giving that he is staying until January 13, I suspect he simply left
for a bigger opportunity.


Check our recommended book section, I have started to
add a few comments under each book.


December 6, 2006


IGM Financial is updated and rate (higher) Buy
at $48.80. Since our last update in March the price has not changed but earnings
are up. In addition long-term interest rates are down and dividend stocks are
more in favor due to the announced Income Trust tax changes. IGM’s earnings
could fall if the market falls or if Banks win more of the business. But overall
if IGM keeps on doing what it has been doing and has success similar to its past
then it seems likely to provide a return in the range of 10 to 15% annually
(although with volatility) if held for five years. In the short term if markets
continue to do well, it could certainly advance to $55 or $60


Good gains today on Kingsway and Shaw
Communications. CNR was down but I suspect
that is just normal volatility. I did hear today that American executives were
selling shares at record or near-record rates. That ‘s not a piece of
information that I would act on but it is a reminder of the fact that with the
Dow  and TSX at record levels we have to be aware that a significant market
“correction” is always a possibility. As mentioned earlier that is offset by
very low interest rates and still-strong earnings. In the end I don’t think
anyone can accurately predict when a market correction will arrive.


December 5, 2006


A number of our Picks did well today including
Kingsway, CNR and
Western Financial Group. Based on
economic news today, there was some talk today that the U.S. economy will do a
soft-landing rather than a recession. That remains to be seen. But for the
moment the market sentiment seems good.


December 4, 2006


The market continued to show strength today. I was surprised that the
TSX Group rose 3.5% today on the same day when Instinet announced it would
start competing with the TSX in 2007. I’m not sure how big a threat Instinet
would form. Tim Hortons was at first up
today but ended up down for the day even though the overall market was strong. I
don’t think there is much reason to think Tim’s will rise much more in the short
term. Perhaps a dip is more likely but at the same time I am not going to sell
since the dip may not happen.


November 30, 2006


Wal-Mart is updated and rated (higher) Buy
at $47.39 (our analysis price was $47.39, but the stock closed at $46.10 today).
Analysts are focused on weak same store sales growth in the past two months.
However total sales increased almost 12% in the past two months year-over-year
which seems impressive. Overall the stock is out of favor and may well fall in
price, but I view it as an opportunity to buy a company that historically has
been exceptionally strong but which is available at a very ordinary multiple of
price to earnings.


November 28, 2006


It was good to see stability in the U.S. market today therefore there seems
to be no reason to think that Monday’s drop was the start of a down trend. EGI
Financial holdings appears to have dropped back to reasonably attractive levels.


Loblaw is updated and rated Speculative
(lower) Buy at $47.70 when evaluated (closed at $47.26 today). I continue to
watch this stock and believe that at some point it could offer good value if
there is an indication that profits will rebound. But currently it is not clear
if profits can rebound quickly to the 2004 levels. Therefore I continue to take
a wait and see approach to this one. It did drop since we gave it the same
rating in August at $49.01. It remains to be seen how effective and aggressive
will be the new CEO, Galen Weston jr.


November 27, 2006


Home Capital is updated and rated
Speculative (lower) Buy at $28.75. It closed today at $27.94. This stock has
struggled lately and we last rated it Speculative (lower) Buy at $31.80 on
August 7. The high was reached early this year at $43. We first rates this Stock
a Buy at $7.43 (adjusted for subsequent split) in April 2002. We have done well
on it but don’t currently own it.


It seems unlikely that Home will regain it former 30% growth rate. Recently
net interest revenue was growing at 14.5%. It faces more competition. Lately I
keep hearing advertisements from more and more new mortgage companies that I
have never heard of. At some point some of these companies are going to suffer
credit losses. But Home has a strong history and I would not bet against it.


I don’t own it and am content to wait and see how Q4 does, before considering
a purchase.


Our Stocks took some hits today mostly on names that had gone up a lot
lately. (New York Stock Exchange, Tim Hortons, Cognos). I had thought about
reducing my position in NYSE but having already reduced it once this year, I
just decided to ride it out as a speculative pick. I think this company has lots
of potential but it certainly go much lower, having risen do quickly. With Tim
Hortons, I had mentioned on Nov 9, that I would think about trimming. But again
I just decided to ride it out and bank on the long-term strengths of this


Today I did add to my positions in TSX Group and Thomson, both as longer term


Nov 25, 2006


The Thomson Corporation is updated and
rated Buy at CAN $48.30 or U.S. $42.66. This is another stock where the GAAP
earnings appear under-stated. The value ratios would suggest hold rather than
Buy. However, it is in a good position for strong earnings growth due to the
electronic delivery of most of its products. I may add to my position in this
stock. It is essentially a U.S. company although it is based in Toronto.
Canadian investors face currency risk. It is up about 7% since we rated it lower
Buy in September. The stock price has not done that well over the past 6 years
or so, but that was partly due to currency for Canadian investors and for U.S.
investors it was mostly the fact that the stock had simply become over-valued in
the early 2000’s.


The TSX Group is updated and rated
(higher) Buy at $45.81. This Stock was originally added to this Site as a Buy on
October 12, 2003 at $14.43. (adjusted for a split and for a special dividend)
Clearly it has done very well since then. At various times I have considered it
to be too expensive. It is not cheap. But I believe that its special
characteristics as a near-monopoly in Canada do justify its current price. I
have a small position in it and plan to add to my position.


Nov 23, 2006


Performance figures have been updated.


Nov 22, 2006


More gains today…


Note that we will likely have a couple of updated reports by Sunday.




Most of you pay your subscriptions through Paypal. New subscribers to this
Site who pay through PayPal end up opening a PayPal account as you sign up with
us. We use PayPal because they are an established secure payment processor. But
admittedly they do have some confusing and or annoying practices.


If you just opened a PayPal account, they will email you to confirm your
email address with them (confirm your PayPal account). If you never intend to
use PayPal except for payments by credit card, I don’t believe it is necessary
to confirm the email. I don’t think there is a harm to confirming the email at
all but you don’t need to do it in my experience.


PayPal may also encourage you to link in your Bank Account. Personally I see
no benefit to that and would not do it. In fact if you do confirm your bank
account, they will make the bank account the default payment source for any
future PayPal transactions (existing subscriptions paid by credit card would
continue to go to the credit card). Bottom line, is unless you use PayPal for
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Be aware that scammers often pretend to be PayPal. Be careful of any email
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the link but if you click through you will see the URL is not really a PayPal
URL. This is not PayPal’s fault it is scammers but the point is always be very
careful. If you need to change something on PayPal log in at
www.paypal.com. Also the PayPal buttons on
this Site of course are safe and go to the real PayPal.


I hope the above is not confusing or alarming. In fact none of our
subscribers have ever reported being scammed by a PayPal look-alike. But I just
thought the above might help in trying to understand the various emails from
PayPal about confirming email address and confirming / adding a bank account.


Nov 21, 2006


Our model portfolio got a nice boost today from New York Stock Exchange
Group, up 9.7% today and it has been on a real tear lately. It started this year
as Archipelago rated Speculative Buy at U.S. $50. Archipelago was attractive
because the it was about to buy the New York Stock Exchange (in a reverse
takeover where the former owners of the NYSE would own most of Archipelago – and
where Archipelago would be re-named NYSE Group). For a variety of reasons the
new NYSE Group is hard to value and we did not have a rating on the combined
entity but we kept it in the Model portfolio and I own it personally.
Archipelago went up to about $85 soon after the takeover of NYSE and then fell
back briefly to the low 50’s. We sold half at $65.69 on the way down. It has now
climbed all the way to U.S. $104.50. I really don’t know what it is worth now.
But I have a feeling that the brand power of the New York Stock Exchange makes
it worth a lot. It will have to increase its profits by a huge amount to justify
its current price. But I suspect it can do that. Having already sold half, and
not having a huge position in it, I am content to just let it ride. But I do
view it as being quite Speculative at this price.


In terms of easier to predict stocks, Shaw Communications and Kingsway both
had nice gains today.


Nov 20, 2006


A good start to the week. Kingsway, Shaw, CN, Tim Hortons all up. Western
Financial was down a couple cents most of the day. It finished up one cent but
that was on a tiny end of day volume. I did not sell any yet. I may sell some


Nov 18, 2006


Western Financial Group is
updated and rated Weak Buy / Hold at $3.64. In August we had rated this a
Speculative Buy at $3.25. At the beginning of 2006 we rated it a Speculative
(lower) Strong Buy at $2.80.


In Q3 the earnings growth was definitely good with a 44.8% growth and in 2006
to date earnings have grown 38%. But we focus on earnings per share and more
particularly on earnings per diluted share. The diluted share count has
increased quite materially due to conversion of debentures in January and due to
other convertible securities that are now “in-the-money” given the share price
increase. In addition the company just issued additional shares at $3.50.
Fundamentally, I have trouble paying $3.64 for shares that the company is
apparently willing to sell for $3.50 (though I realise the company may have had
little choice but to issue shares to finance growth – although I believe they
previously indicated growth was more likely to be financed by debt).  I am
still reasonably comfortable holding it and I believe it should do well
particularly given the strong Alberta economy. But I expect the share price to
be volatile. I have a large exposure to it and I may reduce my position, but I
will definitely continue to hold some.


For purposes of the model portfolio I will notionally sell half the position
at Monday’s opening price (but not lower than $3.45) This could be accomplished
by placing a sell order now for $3.45 since I would then get the opening price
if it was higher than $3.45 or if lower, this becomes a  limit order at



Nov 17, 2006


ING Canada is updated and rated Speculative Buy at $54.60. It is not highly
speculative but has to be considered somewhat speculative due to its high price
to book value and the volatile nature of earnings. But overall it will likely
continue to do well. Our previous rating on this stock was Buy at $52.96. It
started this year rated (higher) Buy at $51.25. It originally was added to this
site as a (higher) Strong Buy at $34.15 in June 2005.


The main reason I was attracted to insurance stocks in 2003 was my theory
that auto insurance rates had gone too high and with drivers avoiding claims if
at all possible, I figured auto insurance profits would go very high. This has
definitely happened with ING.


Nov 16, 2006


I never did own any oil and gas Trusts, and I don’t know much about them. But
for many the business model included buying production. There was perhaps not
much value added in those cases except maybe the tax savings were a big value
add if purchased from a taxable corporation . Though I suspect exploration
companies never paid much cash tax anyhow with their capital cost allowance
deductions or other depletion deductions.


One thing, for sure in a rising oil and gas market if a Trust over-paid for
assets, that sin was hidden as the market rose and took care of it. In today’s
market, oil and gas have fallen therefore we may see some cases where Trusts and
others over-paid for assets. That is just one more piece of bad news for the


If I wanted to play oil and gas right now I would likely buy the exchange
treaded XEG units on Toronto. I don’t disagree that it is a good idea to have
some exposure to oil and gas, though I happen to have none and I focus my
attention on companies that seem more predictable to me than oil and gas prices.


Loblaw was up only $1.00 earlier today but ended up $2.40. I did not buy. My
strategy there would be to establish maybe a third or a half of a target
position and then wait and see. Q4 will be ugly and the price may drop . Then
again the market already knows about the write offs coming in Q4, so maybe it
will just focus on the future. They say it will be a  long haul though so I
guess no reason this will shoot up. (unless maybe they did something big like a
sale and leaseback of the real estate – and maybe new CEO (young Galen Weston
junior) will try something like that to make his mark…) I have not analyzed
the Q3 results yet…


Nov 15, 2006


Loblaw reports earnings, tomorrow, Thursday. They announced a certain key
executive will stay (I think he had resigned but now will stay..). I’m tempted
to Buy but will likely wait for the earnings and then see where the price goes
and re-evaluate.


A good day in the markets. Markets can always turn down quickly, but right
now it feels like the market will keep rising. The last three calendar years
ended very strongly, I hope this will be one more. We expect to have a couple
updated reports on the Site by Sunday.


Nov. 14


Kingsway is down from its highs. Basically this stock tends to be volatile
but has trended up over. It could certainly drop somewhat more but I am
comfortable holding it. Recent lower oil prices and lower inflation in the
U.S. bode well for most of the stocks we feature here.


Nov. 13, 2006


Note some of these updates under Nov 13, will not get posted until the
14th due to a problem uploading the Site at this time.


Stantec is updated and rated (lower) Buy

CAN $22.65 or U.S.$19.99 (Subsequent to our analysis date, it closed today
at CAN $23.62 and U.S. $20.83).



Canada Bread is updated but remains
rate Weak/Buy / Hold at $53.80. Basically not a stock we are too interested in
at the moment but given past growth we feel it is worth keeping an eye on.




With all the spam and spam filters these days it is easy to miss legitimate
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Because this is a subscription system, the expiry is indicated as “Next Payment
Due”. For PayPal subscribers this indicates when the next payment will process
(of course it will not process if the subscription has been canceled).


Given our rating on Dalsa I decided to add to my position in it today. I also
added it to the model portfolio. As a high-tech company it is always possible
that it will surprise us with some bad news such as a write-off of its
investment in the cinematography camera. But the stock seems cheap and I believe
the risk/reward balance is quite good at prices under $13. I’m not taking a huge
position in it, but I figured why have a tiny position that would hardly matter
to my portfolio?


Nov. 12, 2006


A edition of the free newsletter was
just sent out (1:15 pm eastern time). If you did not receive it by email, let me know, as I am
interested in knowing if it is not getting through to some of you for any
reason. (To email me click on
shawn@investorsfriend.com )


Nov. 11, 2006


Dalsa is updated and rated (higher) Buy at
$12.23.  With a P/E of 21 the stock does not look cheap. But the price to
book value ratio of 1.27 is quite attractive. It appears to me that earnings may
be considerably under-stated due to (presumably temporary) start-up-stage losses
in digital cinema and also due to amortization of intangibles and the expensing
of R&D. The stock price has not done well over the past few years. However, at
prices under $13, I believe that this stock represents strong value with
excellent potential. As always though, there are no guarantees. As I mentioned I
would under Nov 8, I have added to may position in this stock. I doubled my
position and it represents 2.3% of my portfolio and I may increase this to as
high as 5%. I would note, that listening to the conference call, the analysts
seemed to have some concerns and did not seem supportive. Therefore the Dalsa
shares will not likely rise until it actually produces higher earnings, it is
unlikely to be driven up by analysts recommending it.


Nov 9, 2006


I notice Loblaw down around $46 again. I
believe this will be a bargain at some point. For example they could announce a
sale (and lease back) of real estate to a REIT and that would lift the price. I
don’t believe they have announced Q3 earnings so I would wait for that.


Western Financial Group has
announced today (I believe it was after the close) that it will issue $25
million in shares. This is hefty considering it has a market cap around $120
million. I notice this press release did not get picked up in YAHOO Finance, so
not all investors know about this. I have often mentioned in my reports the
possibility of a share issue as a negative thing. It may be good long-term, but
in the short term it usually drives the stock down, and sometimes substantially.
Possibly, they can market this at around $3.80. Given their earnings growth and
the recent stock price increase it may be possible for them to sell the shares
for $3.80. But certainly $3.50 or lower is possible. Given no price is yet
announced, we may very well see noticeable drop tomorrow. Unfortunately, if that
happens it will likely happen fast and there will simply be no chance to sell at
say $3.75 or higher with the hope of buying back in as others sell. Trading was
halted as of the end of today. My bet is it will open $3.50 or lower,
unfortunately. We have had a good run with this stock and volatility is to be


Tim Hortons is updated but rated only
Weak Buy / Hold at $33.55. They really did not release a lot of financial data
for Q3 and also due to the share issue in June and other factors associated with
the spin-off from Wendy’s we really don’t have comparable financials for even
the last 12 months. It is going to be a least after Q1 2007 and possible later
before we really get an accurate picture of the annual profitability of Tim
Hortons as a public company -particularly given that there were some unusual
expenses associated with going public and the separation from Wendy’s. The stock
is up 18% since we rated it a (lower) Buy at $28.37 and indicated we were buying
on July 30. It has been moderately volatile.


After this run-up and given the quality of the company I am reasonably
comfortable with the 5% weighting in the Model Portfolio. However, my own 8.9%
weighting may be a bit high and I may trim that. If I did not own any I would
probably buy just a small position and average in that way. It’s certainly
possible that it will fall in price, although long-term the direction is up.


Whenever I am in their stores, or drive by, I think, “how could I not own
some of this?”. It’s a case where the numbers do not indicate a bargain, but
then again the strength of the brand is apparent to all and that should bode
well in the long-term.


Nov 8, 2006


Wow, yet another great day in the markets.
EGI Financial Holdings came out
with earnings mid-day and rose 11% to $9.41.
Western Financial came out with
strong earnings after the close. Clearly the market has been anticipating strong
earnings from WES so it remains to be seen if the stock will rise tomorrow.
Cognos also did well today.


Our performance is at a record high for the year, and that is a good
accomplishment considering the Income Trust situation that negatively affected
many investors.


On the other hand Dalsa closed at $12.01
today, although a more realistic price is about $12.50 since it traded at that
level most of today. It looks like someone traded a block of 200,000 at $12.01
late today. In the last update I said I would be interested if the price fell
below $13. I am going to add to my position in this stock. It could turn out to
be a real gem, but is likely going to require patience. It recently reported
earnings and I have not updated for that. Basically their digital movie camera
unit loses money, but this may be more of an investment than a true loss.


Nov 7, 2006


I ended up selling about 40% (had entered an order to sell 50% but then
decided to sell a bit less) of my Kingsway on the stop loss. I really don’t like
stop losses, I would have got a better price by just selling. But I was
reluctant to sell and this stop loss at $25 was a way of forcing myself to sell
but only if the price dropped. Tim Hortons had another good day today. I will
update the Tim Hortons report in the next couple of days.


Nov 6, 2006


Kingsway Financial is updated and is
lowered to a Speculative Buy at $25.60 from the former Speculative Strong Buy at


It may be useful to review how the investment thesis on property insurance
has changed over the past few years.


When I began looking at insurance companies in 2003, I was attracted by the
extremely high insurance rates that were in the news. I figured they might be
making a lot of money. GAAP earnings were low or negative around that time but
that was being caused by retroactive expenses (developments) related to prior
years. My theory was that insurance rates had over-shot the mark as they were
moved high enough to generate profits in spite of retroactive expenses. It
seemed likely that a profit gusher was around the corner. And this came true,
insurance profits have absolutely soared since then. (I hope I am not
over-stating the accuracy of my thinking in 2003, but that is how I recall it).


Over the ensuing period profits did rise and so did the share prices but in
general the property insurance companies looked very cheap.


At the present time, profits are still high, but rates are declining. And the
stock prices have risen noticeably. In general insurance stocks look like good
investments but are not as compelling as before. Update added Nov 17, 2006.
While rate decreases put revenues and profits under pressure, an offsetting
factor is that property values have increased dramatically and ultimately this
should increase the revenue and size of the industry.


In the case of Kingsway I was very hopeful that they had over-reserved and
would at some point release these reserves creating huge profits and increasing
the book value. Now I am not as sure this will happen. It sounds like they were
so burned on being under-reserved in the past that even if they think they are
over-reserved they will be very reluctant to release that as earnings.


So… I still think Kingsway is a good investment. It should continue to do
well. But I will definitely consider cutting my exposure to it. I may put in a stop loss at $25 on half
of my
Kingsway position. (Hopefully the
stop will not be hit…). I generally don’t use stop losses but I will make an
exception here due to my high exposure to the stock. The model portfolio has a
much lower exposure to Kingsway than I do and so I am comfortable with keeping
the Kingsway position in the model.


Update: for my own account I entered a stop loss order to sell half my
Kingsway if the price goes to $25 or below but not to sell below $24.


Nov 5, 2006


Northbridge is updated and continues to
be rated (higher) Buy at $30.84. Northbridge had a combined ratio of 93.6% in
Q3. This means it made 6.4% on the insurance itself before any earnings on
investments. For whatever reasons insurance company analysts have come to view
that kind of profit as normal when in contrast Warren Buffett considers it quite
acceptable to merely break even on the insurance. The industry is still quite
profitable but is viewed as very risky. Basically this company will likely
continue to drag its share price up slowly by its own bootstraps (profits add to
book value and that tends to drag the price up). Also it plans some significant
share buy-backs which should help although that will actually pull the book
value down a little.


Nov 5, 2006


ebay is updated and rated Speculative Weak
Buy/Hold at $32.67. We added it to this site back on July 17 with the same
rating  and at a price of $25.66. Maybe we were a little conservative then.
We realize it still has great potential if past very high growth continues. But
the fact is that investors buying now are paying up-front for some pretty robust
growth. If growth slows the price would drop. In addition I really don’t like
their high executive compensation and the fact that they were so slow to expense
options. It’s an okay investment as a way to benefit if it keeps growing fast,
but I definitely consider it somewhat speculative. I hope to have one more
updated report later today and some through this week as well.


Nov 4, 2006


Performance figures are updated, as well as for the Model Portfolio, and my
own portfolio. See links above (below table of stock picks).


Nov 3, 2006


I’m now in Toronto Airport. Big line up at Tim’s… Although not a cheap
stock I love the company.


I will update performance figures tomorrow. Also some report updates by
Sunday night. Looks like the week ended on a positive note.


Nov 3, 2006


Northbridge earnings out… it fell but does not look bad to me…


I’m sitting in Ft. Lauderdale airport returning to Edmonton. Check for
updates over the weekend.


Even with Trust and TSX situation we have not had a bad week maybe down a
little but not much.


Nov 1, 2006


A big hit for Telus today… I don’t see it going lower from here. This
income Trust tax announcement is a bit of a shock, but not really. There has
been lots of speculation that the government needed to do something and it was
only wishful thinking that people thought the government would stand idle. Our
picks lost I believe about 1% today while the market was down 2.4%.


As usual these things happen so fast that there was no time to react. I am
not thinking of selling anything on this news. It does take away some of the
upside for Shaw, CNR, TSX Group and Tim Hortons.


October 30, 2006


This week started off with a good day for our stock picks, although the
overall market was flat… Various stocks could be volatile in either direction
in the next few weeks as they release earnings which in a few cases may have
negative surprises and a few other cases may have positive surprises. But
overall the market tends to “know” (somehow – such as insider leaks) what the
earnings will be and therefore the stocks often don’t move much at all on an
earnings release.


October 28, 2006


The model portfolio is updated. Until Friday, I am attending a course at
Delray Beach Florida and may or may not be able to respond to emails.


October 27, 2006


Shaw Communications is updated and rated
Speculative Buy at $34.90. The current profit would not justify this price but
profits have been trending up very strongly. It seems to be in a good position
to keep growing cash flow. With the recent dividend increase to $1.00 per share
from 60 cents, we may see interest from income oriented investors. I believe it
is generally thought that if the company was for sale it would fetch over $40
per share. Also the Income Trust route is a possibility. So it may be somewhat
speculative at this price because it needs to keep growing the cash flow and
earnings to justify this price, but I like its chances.


October 26, 2006


Lots of earnings news today.


Shaw Communications had great earnings which must have been anticipated,
given that the stock was flat today. I plan to update our report on on this
company soon. My sense is that it will continue to well.


Tim Hortons reported great sales but lower net income. It showed surprising
strength on that news. I was almost tempted to take some profits but thought
better of it. It certainly could pull back, but I would not count on it.


I don’t follow Wendy’s any longer. But I wonder if the market is confused
about how much Wendy’s is making without Tim Hortons. Some headlines today spoke
of Wendy’s earning 61 cents per share. But that was with it owning 82% of Tim
Hortons for most of Q3. Absent Tim Hortons Wendy’s earned a paltry 16 cents per
share. That would appear to make its $35.50 share price look pretty expensive.
Meanwhile Tim Hortons earned 27 cents per share. I really wonder if the U.S.
market totally “gets it” regarding the fact that Tim Hortons was the main profit
element of Wendy’s in recent years. I like Wendy’s as a business but it looks
expensive and it will now be necessary to analyze its profits without Tim


October 25, 2006


Yet another good day today…


Check out our Performance page. I have added
bar graphs to show the average return for Strong Buys and Buys etc. in each year
since our inception. Until now this data was in a table format, but as more
years were added to the table, it is probably a lot easier to see graphically.
Of course past returns are no guarantee of future results, but it seems logical
that if we have done well each year for seven years and we keep with the same
approach, we can reasonably expect good returns in future.


October 23, 2006


I added to my position in CN today… If oil prices stay low/decline, it
looks like the general market outside of energy can keep rising. Nevertheless,
it is not a bad strategy to build some cash and also to be ready to react if the
market starts to turn down


October 22, 2006


Canadian National railway is updated and
continues to be rated (higher) Buy at $52.31. It had a great earnings report. We
started the year with CN rated (higher) Buy at $53.15. When it fell to around
$46 it was tough to have the resolve to keep rating it highly. We kept it at
(higher) Buy. In retrospect maybe we should have said Strong Buy, but we bought
in to the fears of recession.  It turns out that $46 was a great
opportunity to buy CN. And at around $52, indications are that it is still a
good investment opportunity. (But there are never any guarantees).


October 21, 2006


Couche-Tard (operator of the over 5000
Mac’s and Circle K convenience stores) is updated and rated Weak Buy at $25.85.
This has definitely been a great company and it probably has substantial growth
ahead of it. But it seems too expensive at this time. If I owned it I might
continue to hold or I might look to re-deploy the money.


Kingsway fell noticeably this week but
this may just be normal volatility especially in light of its very strong recent
gains. Overall performance of the stocks on this site was up again this week.


CN certainly did well this week. I had mentioned a few times in September and
October my interest in CN as it had fallen to prices around $48 and $46. It’s
always hard to be brave and buy on those kind of dips but now we have CN
suddenly back over $52.


October 19, 2006


CN released yet another great earnings report after the close today.
Presumably it will rise tomorrow. I think it is becoming even more clear that
this was a real bargain when it fell to the $46 level recently.


October 17, 2006


FedEx Corporation is added as a new
company rated Buy at $112.68 which was our analysis price. It closed at $115.82
and in any performance figures we would start measuring from that higher price.
Our Buy rating would apply up to at about $120 at which point we would want to
re-evaluate. The investment thesis here is the chance to buy a great company at
a pretty ordinary price to earnings ratio.


We could easily see a few more down days in the market. My hope would be that
strong Q3 earnings would quickly reverse any negative trend. I thought Western
Financial held up surprisingly well today given a negative day in the markets
and the fact it rose so much recently.


October 16, 2006


It was interesting today that Aeroplan
announced that points will now have to be used within seven years. That is
probably reasonable but will still breed some resentment. I know a lot of people
have accumulated a ton of miles via the aerogold credit card. At this point if
they don’t have travel plans maybe they will switch to another credit card that
gives a different benefit. Aeroplan also upped its dividend which is a positive.
More importantly Aeroplan introduced a new system whereby all seats will be
available but at various levels of points that will be linked to the cash fares
of those sets. This should be a very good move and could see a lot more points
being redeemed. Bizarrely this will be bad for cashflow but good for GAAP
accounting earnings. (Although it could also possibly lead to more accumulation
of points which is good for cashflow).


Another good day… particularly for Western Financial Group. I would worry
that this could certainly be volatile. Most of the recent increase was on low
volumes but today the volume was good. It may start to attract more attention
just because it has done so well. At this point our rating at $3.25 is quite a
bit below today’s close of $3.88. We will update in November after they release
Q3 earnings.


With such strong gains lately one could fall into the trap of thinking the
market will just keep going up. But from experience we know that it can turn
around easily to the down-side. But so far so good…


October 15, 2006


In terms of stocks to Buy I am personally thinking of adding to positions in
CN, Shaw communications and maybe E-L Financial and Bank of Nova Scotia. All of
the Buys and higher above are worth considering but note that our ratings apply
as of their date and if the price has jumped a lot or too much time has passed
then our rating would likely change if we updated it. As always, subscribers
invest at their own risk. Although we have done very well, stocks are always
risky in that surprise events at a given company can take the price down in
a hurry – as we recently saw with Cryptologic. The Q3 earnings will soon be
rolling in and we will update many of the reports for that.


I made a note on the model portfolio
page that I will notionally buy CN, Manulife and Bank of Nova Scotia


Alarmforce is updated but is only
rated a Speculative Weak Buy at $4.66. We continue to monitor the company but it
is not one we have much interest in at this time.


Bank of Nova Scotia is updated and
rated Buy at $48.20 as of our analysis date (it closed on Friday at $47.74). The
basic investment thesis here is that buying a company with an ROE around 21% is
a good deal when the P/E is only about 14. Should continue to do well barring a
recession that causes significant loan losses.


Performance figures have been updated. Outside of energy stocks much of the
market has been doing unexpectedly well and seems to have momentum heading into
the Q3 earnings release season.


On Friday, I bought back the half of my
Kingsway shares that I recently sold. I felt that the pain of missing out on
the the potential gains there outweighed the potential pain of the loss if it


If anyone has emailed me and not heard back, try re-sending the email. I get
a huge volume of spam emails. Occasionally when deleting spam I may end up
deleting a valid email.


October 11, 2006


Looks like I was early in taking profits on Kingsway and in trying to play
the volatility on Western Financial. Both up today.


So.. BCE goes the Trust route, I first speculated on that on this site
a couple of years ago that we might see some mega-conversions. There should be
more to come why not Loblaws for example? (not that I have heard anything).
Large coprations that pay lots of cash taxes will be looking to convert. Maybe
big energy companies…


Some people talk of leveling the paying field with a higher dividend tax
credit. That will not work. The playing field would only be level if corporate
dividends were tax deductible (like interest payments) to the corporation and
fully taxable to the shareholder. Even then some trusts have the advantage of
being able to flow through distributions as return of capital so corporations
would need that right as well, dividends in excess of earnings would be tax-free
return of capital.


Overall there still seems to be some financial engineering at work which is
still providing a one-time boost to stocks.


October 10, 2006


Sobeys is updated but remains a Weak
Buy / Hold at $37.58 (We analysed the ratios based on a price of $38.16 but the
same rating applies at today’s closing price of $37.58). It’s not an investment
we are interested in at the moment but we feel it is worth monitoring and
keeping an eye on Sobeys will help us in monitoring other grocers including


Tim Hortons was up again today. If I did not own any I would not take a large
position at this price but would definitely be interested in owning at least
some of it. It looks expensive but it may be a case where paying for quality
pays off in the longer term. I would not mind seeing it drop in price because
that would be  an opportunity to accumulate it.


October 8, 2006


I have updated the percentage holdings in my personal portfolio. (See link
just below the stock table above). My cash position at 27% is the highest it has
ever been. This was due to profit taking and a desire to build up cash in case
of a market correction. I have missed out on some return by moving into cash but
I think it was a prudent strategy. I may even give some consideration to more
permanently allocating a portion of my portfolio to safer short-term


An edition of the free newsletter was
emailed out late Friday night.


October 5, 2006


Earlier today, I posted the following note on the login page.



I may sell half my Kingsway today. I was wondering if I should take some
profit or maybe even buy more. Checking insider trading I see a a few sells in
September and no buys. Just to be prudent I think I will sell half… Later I
indicated that I had indeed sold half.



There is a very good chance I will regret selling half my Kingsway shares.
But at last check it was about 14% of my portfolio and I just wanted to take
some money off the table. I’m not sure that the insider sales in September were
anything to worry about at all. Insiders still have very large positions and
this was probably just the normal exercising of options and sale of shares that
happens to most companies all the time. But Kingsway tends to be volatile and I
just did not want to be holding so much of it if it fell – which I have no
reason to think it will. In the model portfolio it is around 8% and I am
comfortable at that level.


As always there are no truly easy answers in the market, no guarantees. Each
of us has to decide what we are comfortable with.


I bought back the 25% of my Tim Hortons that I had sold last week, plus a bit


October 4, 2006


Today was another positive day for our Stock Picks.


There was no sign today of selling pressure on the Tim Horton shares despite
the float of shares having increased by over 400% on Monday. Volume continues to
be ten times normal. It occurs to me that some of that volume is probably just
due to arbitrage between the New York and the Toronto price. If it gets cheap in
New York based on the Toronto price adjusted for the $U.S. dollars then the
arbitrators sell in Toronto and buy in New York and ten minutes later may be
doing the reverse so that creates some of the volume I believe.


I was skeptical that all the Americans would sell, but at the same time it
seemed logical that there might be some selling, when the number of owners goes
up 400% and the pool of potential buyers is unchanged. Tim Hortons itself was
going to buy back shares and this may be helping. Also the news stories on the
share distribution may have generated some buyer interest. And there is perhaps
still the effect of it having been added to the Canadian indexes last week which
forced index funds and other mutual funds that track the index to buy it.


I had sold about 25% of my Tim’s just as a precaution in case it dropped. Now
I think it is time for me to buy these back in the next 1 to 5 days. We only
rate it a (lower) Buy but I like the company and it would be a shame if I fail
to buy back just because it is up 20 cents from where I sold and then the thing
keeps going up. But I will not buy too much, I want to be ready if the price
does fall back below $27 and will buy more if that happens. In the past I have
sometimes been stubborn and failed to buy a share just because it was 20 cents
or a $1.00 higher than where I thought it was going. I’m trying to become less
stubborn that way. In other words my “clever” trade of selling 25% of my Tim’s
last week has not worked out and it is best if I admit that and reverse it by
buying back in.


Apparently there is a new OPEC agreement to keep oil above $50 to $55 through
production cuts and Wednesday night this has driven oil up somewhat. I guess the
point here is that oil will certainly continue to unpredictable and that in turn
will push the markets around.


The Dow Jones has certainly shown strength after pushing through its highs. I
don’t follow technical analysis but I understand that a decisive push above an
old high is considered to be a positive indicator.


As planed I sold my small amount of Wendy’s today.


October 4, 2006 (6:45 am)


I did bail out of Cryptologic yesterday for the reasons mentioned previously.
I plan to remove that company from the list above as the report is no longer at
all valid given the retreat from the U.S. market and the move to Ireland and the
pending change of CEO. I am thinking of selling my Wendy’s shares today. They
are up a lot… may have more upside as they sell off the Baja Fresh division.
But on the other hand their earnings will look bad I think without Tim Hortons
and it will take a while to sort out the value of the company on a stand-alone
basis. Tim H. shares have not yet landed in my TD Waterhouse account.


October 3, 2006 (6:35 am Mountain time)


I am going to notionally sell the Cryptologic in the model portfolio at the
opening price today. Currently the opening price looks like it will $19.
Everything has changes for this company and it is likely to make months to get
back on track and a couple years to get back to where it was in profits. I may
sell what I have as well and move on. It is not worth the mental distraction at
this point.


October 2, 2006


CN will report earnings on October 19. I am
tempted to add to my position before the earnings come out.


I took a hit on Crypotologic based on news today that they will no longer
have revenue from the U.S. due to a change in laws. They will lose about 30% of
their revenue and probably a bigger percentage of profit. Perhaps I should have
seen it coming , in  fact I had this listed as a risk for this stock. It
was no secret that the company operated in an arguably illegal business, which I
mentioned in the report. This is (in part) why the stock was called (highly)
speculative. Again perhaps I should finally dump it but it is not a large
holding for me and so I have not decided to sell. It will be very difficult to
analyze the company at this point because one has to figure the earnings under
the new situation with the loss of the U.S. customers. The company was trying to
put a positive spin on the fact that it was well prepared for this. But still,
it is certainly a major blow to them. In retrospect I should have steered clear
of this company but as they say, you can’t win ’em all.


I mentioned on September 28 that I would place an order to sell about 30% of
my Western Financial at $3.35. On Friday there were some trades at $3.35 but
those people must have been ahead of me as my shares did not sell on Friday. But
they sold today. I hope to buy back at $3.15 or lower. I complained to TD about
the high trading charges for stocks like this. The charge is 3 cents per share
for amounts over 1000 shares. That is 6 cents for a round trip trade or 1.8%.
Compare that to the paying $58 for a round-trip trade of 1000 shares of a stock
that is priced at $58 where the percentage is then 0.1%. I feel that the fees on
a small dollar shares are way too high on a percentage basis. I am seriously
considering switching over to E-trade.


It was interesting to see that Tim Hortons was down only 23 cents today. A
lot of people expected it to plummet as the Wendy’s shareholders who received
Tim Horton shares over the weekend start to sell. Volume on Toronto was 10 times
normal so indeed there has been some selling. It may take at least another few
days to see if a down-trend develops. My “free” Tim Horton shares are not in my
account yet so some people may not have been able to sell yet. I’m hoping it
does fall at least to $27.50 so I can buy back what I recently sold at $29.13.
If it goes much lower that will be hard to take in the short term but would
actually be a good buying opportunity. I mean if a stock goes lower just because
more people own it and want to sell, that seems like a decline that should be
temporary. The stock is ultimately valued for its future earnings and cash flows
and that has not changed with the Wendy’s spin-off. Tim Hortons was going to buy
back some shares so that may have supported the price today. The bottom line for
me is I have some exposure to it, I would like to have more but I am going to
wait to see where the price goes in the next week or so.


Kingsway has been up very nicely lately… I am certainly hoping for more yet
from it.


October 1, 2006


It will be very interesting to see what
Tim Hortons does in the next few days. Report on Business Television were
indicating that it was expected essentially all the Americans who receive the
Tim Horton shares will immediately want to sell and Canadian shareholders will
buy. If true, it seems logical that that Tim Hortons could dive a few dollars.
But then again if the market really anticipated this then it should be already
“baked in” to the price.  Of course Tim Hortons rose on Thursday and Friday
due to a surprise announcement that the stock will be included in the TSX/S&P
index. Perhaps many funds were forced to buy for that reason and perhaps all the
more so because Friday was the end of Q3. But it would really seem strange if
the Tim’s were now to dive early this week because if that is expected I would
have thought that many of these funds could have waited for the cheaper price
this week.


Well, Q3 is over and there has been little or no damage from hurricanes this
season. I have to think the property and casualty insurance stocks will report
excellent Q3 results. Therefore I am hopeful of good gains in our insurance
stock picks by the end of this year. But possibly any gains will be held back by
reductions in insurance rates and general fears of risk regarding this sector.


September 29, 2006


This was an extremely good week for our Stock Picks here. See updated
performance figures at the links above.


September 28, 2006


Onward and upward so far. I have been surprised by the gains this week. As
alluded to yesterday, I did sell just over 25% of my Tim Horton shares at the
opening this morning. I intend to buy back if it drops to about $27.50 when
Wendy’s dividends out all its Tim Horton shares tomorrow. (It may take a few
days before the recipients will be able to sell any even if they want to, I know
with TD it usually takes a few days before shares like this show up in my


Similarly I placed an order to sell roughly 30% of my Western Financial
Shares at $3.35. I am gambling that before the stock goes to up to say $3.50 and
beyond (which it should eventually) it will first fall to say $3 and I can buy
back in. I usually don’t try to get cute like this and play the volatility but I
am giving it a try with these two stocks. If nothing else I will have raised my
cash position in case the general market falls.


September 27, 2006


Adding to the note below about Tim Hortons. Given that the rise today was
apparently simply due to the stock getting added to the TSX/S&P  composite
plus TSX/S&P 60, and given all the shares due to hit the market on I understand
this Friday, it might make sense for anyone with a lot of Tim Hortons to sell
some if the price is still near CAN $29 tomorrow and then hope to buy back in a
few days at a lower price. I may do this with a small portion of my shares. The
risk of course is that the stock will stay high and I won’t get to buy back, so
this would just be a short-term risk management type of trade.


Tim Hortons jumped a surprising 5% today… just when it looked to keep
dropping due to the flood of shares that will hit the market in about 7 days
when Wendy’s spins off the approximate 82% of Tim Hortons that it owns and those
shares hit investor accounts and some of them start to be traded. But I said
before that may not push Tim Hortons down much and if it does it will be


The 5% rise today was because Tim Hortons will be added to the TSX
composite. Actually this is a pretty dumb reason for a price increase. It should
have been anticipated and it has nothing to do with valuation, so this
particular rise may be indeed temporary.


A new share called WEN-WI is trading and it is Wendy’s without the Tim
Hortons and it reached $31 yesterday. Back in the Fall of 2004 we had a Strong
Buy rating on Wendy’s at U.S. $36 and it fell as low as about U.S. $31 briefly
after that. Those who bought Wendy’s at that time still have Wendy’s worth U.S.
$31 and will receive about 1.36 shares of Tim Hortons now worth about U.S. $35.
So this was a great deal back in 2004. We saw Wendy’s as a great deal in 2004
due to the value of Tim Hortons, although we did not expect a 100% gain two
years. I did not happen to Buy Wendy’s at the low and keep it until now but have
still done well on the stock. Also in the Spring of 2006 when investors were
frothing at the mouth to buy Tim’s at the IPO (and were told they could not get
any) we were calmly indicating that you could get Tim Horton shares simply by
buying Wendy’s.


Tim Hortons may continue to be volatile and could certainly fall several
dollars quite easily, but long-term it still looks good. With a good company
like this, time is on your side if you hold long term.


September 26, 2006


Canadian Western Bank is updated and
remains rated Buy and was analyzed at $41.91 (closed today at $41.49). If you
are interested in this or any other stock on this page, please be sure to read
the report closely. It is always a judgment factor to come up with a rating and
subscribers should read the report to be sure they agree with the analysis.
Various facts in each report could cause you to come to a different conclusion.


Kingsway rose 18 cents today. However,
very briefly just after the open of trading it was down over $1.00. I have seen
this stock do that before. This suggests that one strategy would be to place a
bid about $0.75 or 1.00 below the close and just see if it dips down the next
day. One strategy might be to keep changing the offer every night to only buy if
it dips below the previous day’s close. But the danger is that if there is some
bad news that sends it down rather than just a dip, you will have bought on the
way down. Basically such a strategy would just be a trading a strategy. If you
really want a stock then often you are forced to offer the market price. Another
strategy is to place an offer more substantially below the market like 10% below
and then you only buy if it drops, and in this case you would leave the offer
and not change it every day. I paced an order today about $1.00 below the close
to add a small amount to my position if it drops.


As mentioned previously, the trading volume on
Western Financial is down. It did not trade yesterday at all.  While I
definitely like it long term, it could certainly dip below $3.00 quite easily on
this lack of liquidity.



September 25, 2006


Cryptologic took a nasty 11% hit
today on the news that it move headquarters to Ireland and that the CEO is not
able to move and will be replaced. Our report did note that this was risky,
after all it is engaged in internet gambling which is of questionable legality.
From a risk management point of view it might make sense to sell and move on. I
have a fairly small position in it and may hang on to see what happens. I would
not be surprised though it it falls further just on the uncertainty. The stock
fell steadily all day today, so that might mean it will keep falling tomorrow. In terms of
the model tracking portfolio I have not decided what to do there either. It is
2.9% of the model tracking portfolio. If it was 5% I would likely sell half just
to manage risk. Unfortunately I can’t give a clear direction here, the
fundamentals still look very strong but there is now much uncertainty as well as
significant one-time expenses for the move.


Sept 24, 2006


Click on “Our Track Record” at the top of this
page to see our new “Mountain Chart” that shows the results of investing in our
Stock Picks over the years.


Sept 23, 2006


EGI Financial Holdings is added
as a new company rated Speculative (higher) Buy at $7.75. This means it is
Speculative and that I consider it to be somewhere between a Buy and a Strong
Buy. It is quite thinly traded, perhaps almost too thin to put on this Site. It
may not be possible to Buy at $7.75 but I would consider the same rating would
apply up to about $8.75. Basically, the investment thesis here is that buying a
nicely profitable company at a price around book value should be a good


I first mentioned this company around November 2005 when I bought shares at
the IPO at $10.50. I did not add it to this Site at that time because I
certainly already am over-represented in property insurance companies. But as I
see the price here fall under $8.00 I think it is worth considering. Due to its
speculative nature I would not want to put too much into it however. Although I
am inclined to keep building my cash position, I may add to my position in this
stock. I will not do so before Wednesday Sept 27, because it is fair that I
trade only after giving subscribers to this Site an opportunity to buy before I
do. For most of the stocks on this site, that would be a rather pointless
restriction since most of the stocks here are very liquid and my trades would
not disadvantage anyone. However, I will make it a practice not to Buy any
company until at least 2 full trading days after it has been, for the first
time, rated a Buy or higher on this Site.


Speaking of property insurance companies. I continue to think Q3 should look
very good for them, given the lack of extreme weather or major fires in Canada.
I am tempted to buy back into ING Canada as it
has fallen in price in recent days.


Performance figures are updated. My own portfolio and the Buys had a small
gain on the week even as the TSX went a bit lower.


Sept 22, 2006


At this time the overall broad market such as the DOW index is in something
of a tug-of-war between lower oil prices and lower long-term interest rates
which should both push the broader market up and fears of recession which is
pulling the market down. This week the fear of recession was the stronger force.


The Thomson Corporation is updated
and rated (lower) Buy at  CAN $45.02 or U.S. $40.31. I like the business it
is in – selling information electronically. I seems to me that profits could
really grow as it continues to deliver more products electronically and less in
print. But the price is high. I prefer to wait for a pull-back before I would
buy. I have a small position in it and may even consider selling that to raise
cash or to move into a stock that I rate Buy or high. A (lower) Buy rating means
I consider it somewhere between a Weak Buy / Hold and a Buy.


Sept 20, 2006


Loblaw was down 2% today after announcing
its President is being replaced by Mark Foote an executive that had joined them
from Canadian Tire earlier this year. I was also surprised that Galen Westin
senior age 65 will hand over the executive chairman role to junior aged 33. In
some ways I saw the moves as positive. It says to me that the Weston family is
concerned about the stock price and the profit slide and they want action to fix
it. On the other hand, it could well signal that Q3 will be bad. The new CEO
could take the opportunity to make certain “charges” for the future costs in the
restructuring which would drive earnings down in Q3. After all if there is any
way to transfer expenses from Q4 when the new guy is in charge to Q3 where it
can be blamed on the old guy, it would be an easy decision for the new guy to do


My belief is that at some point Loblaws will be a good investment but it is
not clear if it has bottomed yet. I believe there are things the company can do
to “realize value” these include turning into an income trust (why not?,
everyone else is) or selling off the real estate and leasing it back. I have not
bought any yet. If I did I would consider buying about 25% of the shares I would
ultimately like to have and then waiting to see where it goes after it post the
Q3 numbers. If the family ever wanted to sell, I wonder if Buffett would be
interested? Other Canadian companies that I have thought Buffett might like to
buy include Thomson,
Shaw Communications and any of the Power
Financial group. (Although Buffett prefers totally private companies that do not
trade on the market.)


Shaw was up nicely today. With oil down I would think
CN might recover. It may depend if the market is
still expecting a recession.


I may place an order to sell some (say 25%) of my
Western Financial if I can get
say $3.30 or more. I have a big exposure to it. I notice its trading volume is
down so not much buying interest right now. On the other hand it could announce
an acquisition which could boost the price. And Q3 should be strong unless there
are developments in the area of bad debt on loans. But with the strong Alberta
economy there is little reason for people to default on loan payments.


September 19, 2006


With oil down today and with benign inflation reports I would have thought
the DOW and non-oil stocks would go up. At some point I may become interested in
the Energy Exchange traded fund XEG if oil falls further. We have some XEG in
the model tracking portfolio but I do not own it personally.


September 18, 2006


It was not surprising to see CN go up today.
This is a strong cash generating stock and it should do well. If we had a bad
recession it would likely drop but it’s not clear that we will have a bad
recession and in the long run it will do well even if it does dip temporarily.
As a different situation I also like Shaw
Communications as a company that is increasing its cash flows. It seems it could
be running a path similar to that of Telus but maybe a year behind Telus in its
move towards better profitability. I sold some of my Pason Sytems stock today
(no longer rated on the Site). If I bought anything right now it might be to add
to my Kingsway or
Northbridge positions.


September 16, 2006


A tiny company, Clemex is updated and
rated (highly) Speculative Buy at 22 cents. This stock would not be on this Site
if it were not for the fact that I have held this stock for many years and that
it was one of our picks in our earliest days on this Site.


I will provide here some “true confessions” on my history with this stock:


I have a rather unfortunate history with the stock having first bought it at
its IPO around 60 cents, followed it down to under 30 cents and then very
briefly up over $1.00 where I sold only to buy back at around 80 cents and then
bought more as it fell to 20 cents. As I averaged down all the way to about 15
cents I became way over-exposed to it. Around then I removed it from this Site.
It ultimately fell to under 10 cents.  As it finally became profitable
again in recent years I sold some around 23 cents and 33 cents but still have it
as about 1.6% of my portfolio. As it recovered in the past few years from under
ten cents to the 40 cents level, I finally added it back to this Site at 38
cents which in retrospect was either too late or to early given the recent move
back to the 20 cent level.  This is a stock where I basically clung to my
early positive views on the stock (from year 2000) even when it began posting
losses. Hopefully that is the type of mistake that I can avoid in future.
Certainly most of my trades in recent years have worked out much better than
this one.


The thing is, it really does seem to have great technology and so I keep
thinking there is potential here. Right now I consider it quite speculative but
I keep it on the Site because of my own interest in it. It is not a stock that
investors should get over exposed to. Management appeared to indicate that Q2
will not be all that strong, but that Q3 and Q4 will be strong. (The year end is
April 2007). If so the stock price could recover nicely in the Spring of 2007
but may or may not do much until then.


September 15, 2006


Recently I decided to refresh my memory by re-reading a book called How to
Pick Stocks Like Warren Buffett
by Timothy Vick. According to Vick, Buffett
had a rule that he would not invest in a stock unless there was a reasonable
chance of making 15% per year if held for the longer term (say ten years). We
calculate intrinsic value on the assumption that an investor would be satified
with an 8% return. However, in truth most of us are certainly hoping for more
like 15%. Therefore we have added a new calculation to to our analysis where we
will calculate what earnings growth would be required in order to provide a
return of 15% per year using a reasonable projection for the selling P/E in five
years. In some cases this may help reveal cases where there is little hope of
ever achieving a 15% return.


Canadian Tire is updated and
rated Weak Buy at $69.02 (it closed today at $69.85). In the past we have under
estimated the company’s ability to grow earnings and perhaps that is the case
again. But the stock price is pricing in fairly robust earnings grow at a time
when the economy in most of Canada may be slowing.


September 14, 2006


For those holding Wendy’s, do not panic if the stock appears to plummet from
its current $63.84 level to about the $29 level. It should do so on whatever
date it starts to trade without the right to receive the 1.3593 shares of Tim
Horton per Wendy’s share that it is expected to spin-out at the end of this
month. I saw an indication today that tomorrow Friday September 15th may
possibly be the last day that Wendy’s trades as a Wendy’s / Tims combo. But I am
not sure on that date. The correct date may be Oct. 2. TD indicates record date
September 15 and ex-date Oct 2, so it seems more likely that Wendy’s will drop
to a “Wendy’s only” share on October 3. It’s been a nice run for Wendy’s
considering that when I first added to this site in 2004 it was just under $38
and it fell as low as about $31 before eventually doubling to in the two years
after that.


Tim Hortons has fallen back a bit and while we only rate it a (lower) Buy I
do like the potential and will likely add to my position if it should happen to
drop to about the $27 level.


My cash position has increased to about 16%, which is still not that high
given the possibility of a pull-back in the markets. Still, I find myself itchy
to add to some of my higher rated positions.


September 13, 2006


Performance figures have been updated. Our Buys and Strong Buys have done
well in the past few weeks even as the TSX index has fallen. At the moment I am
feeling optimistic about how things will go through to the end of the year.


September 12, 2006


Quite possibly I was too hasty in selling off some of my Telus shares. For
the model portfolio purposes I will hold onto Telus for now at least and see
what happens.


I don’t se why a company like Loblaws or CN might not think about going the
Trust route as well, which is an added bonus in holding those stocks. (Though I
have heard absolutely no indication that they would consider it).


The conversion of Telus could cause the government to start looking at this
again. If they don’t do something, then at some point very few companies will be
left paying income tax. If they do announce a review of Trust taxation then it
will send the Trusts down in price.


Trust conversions are financial engineering – wringing more value out of the
same pre-tax cashflow. We seem to have had an awful lot of that in the past five
years or so. But at some point I would think most of the financial engineering
and mergers and divestitures will be essentially done and then we could enter
quite a dry spell where this extra boost to stock prices will no longer happen.


I noticed today a stock I used to cover, Sino-forest is down to $3.70 from
highs around $7. Based on earnings it would look quite cheap. Also there has
been some insider buying. So that seems tempting. But as I said earlier about
this company I was just not comfortable with it due to past changes in strategy
and seeming inconsistencies in their story. Warren Buffett teaches us to not
invest unless we are comfortable with management. For whatever reason I am just
not comfortable. Therefore I think it is best if I just stay away from this
stock. Maybe I will miss out on something here. But the fact is that there are
thousands of companies to choose from and I prefer to put money into companies
where I don’t have any nagging doubts about whether I quite trust management.
So, I think I will continue to ignore Sino-Forest.


September 11, 2006


The TSX market was down over 200 points today as the hot energy and minerals
sectors continued to cool. However my own account and our stock picks here had a
positive day.


The big news was Telus announcing it would become an income Trust. I did
mention that rumor under March 9 below. But we rated Telus a (higher) Buy even
without the Trust conversion possibility. So the Trust conversion is just an
added bonus. I sold just over half my position this morning. For the model
portfolio purposes I will continue to hold it.


Another interesting thing with Telus today. The non-voting shares which in
recent days trailed the voting by $2.00 and have generally trailed by about
$1.50 closed the day at only 40 cents lower than the voting shares. I have for
some time felt that in the case of Telus it would be best to buy the cheaper
non-voting shares because the vote was not really worth anything to a retail
investor and because the two share classes would likely eventually come
together. The non-voting shares existed so non-Canadians (mostly Americans)
could hold more Telus than would otherwise be allowed. As soon as Telus found a
way around that foreign ownership restriction it was predictable the two share
classes would converge. That’s why I switched to analyzing the non-voting shares
back on May 7, 2006. And under Feb 21, I mentioned I bought Telus non-voting for
my account.


For the moment I consider Telus to be a hold. It may well rise further if the
conversion goes through but that is some months off. If the conversion does not
go through it would drop. So overall I am comfortable with my decision today to
sell about half my shares and play wait and see with the other half.


It looks like this Fall could be a tough period for stocks. Ina falling
market it will be more difficult for the picks here to rise, still I like the
chances for these picks.


September 10, 2006


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This weekend I have been doing analysis regarding whether or not the broad
stock market indexes such as the TSX or the Dow Jones Industrial Average are
fairly valued and what return we can expect on these indexes in long-run if we
purchase these indexes today. This analysis is based on logic and also on
looking at historical relationships between stock market returns and growth in
the economy. I have updated 6 articles that explore this topic. To explore these
important articles, click on the “Articles” link at
the top of this page. A new summary article has also been posted.


September 9, 2006


Manulife Financial is updated for
its strong Q2 earnings and rated Speculative (lower) Strong Buy at $36.10 (The
rating is better than Buy, better than (higher) Buy but not quite a full Strong
Buy). Few analysts would call it speculative. I think it is moderately
speculative due to the “black box” nature of its earnings calculations. Earnings
are calculated using actuarial assumptions which are rather opaque. In addition,
I don’t think management does as good a job explaining those assumptions as it
could. Howeve, this is a company that hhas really delivered. The stock is up
107% since it was first added to this site as a Strong Buy in late 2002.
Earnings have almost doubled since that time as well. I would consider adding to
my small position in this stock except that right now I have a goal to be a bit
higher weighted in cash.


Telus has slipped back a little on its announcement that it will increase
capital spending on its internet facilities. Given there recent successes I am
willing to assume that the investment will pay off and so my opinion of the
company has not changed.


September 8, 2006


Our stock picks lost some ground this week. Performance figures have been
updated. But they held up quite a bit better than the TSX which was down 2.4%.
Kingsway Financial did quite well this
week. It now becomes even more clear what a bargain it was when it fell to about
$19 in June. It still looks to be a bargain. Even though it is my largest
position I am tempted to add to my position. So far in Q3 the hurricane season
in the U.S. has been tame. And in Canada I have not heard of any major fires or
weather causing property damage. Therefore, I believe Q3 is shaping up to be
quite good for insurance company earnings. However, I always have to caution
that insurance stocks are by nature risky.


September 6, 2006


The markets took a hit today. Just when they seemed to be reaching for new
highs. It goes to show the market is nervous about a U.S. recession and
therefore it may be a time to be in safer stocks and to raise the cash
percentage somewhat. Still our picks did not get hit as bad as the market today.
With the oil price coming down that is good for many stocks. Also long-term
interest rates have come down which is generally good for stocks (unless that
is, it signals a recession). These are some of the factors the market is trying
to digest at this time.


September 5, 2006


I did sell my small position in Aeroplan today, as I indicated on September 3
that I might do.


Nice gains today in Kingsway and Cognos. It is disappointing to see Western
Financial fall to $3.06 from recent highs over $3.40. But this is the nature of
smaller companies, they do tend to be volatile. Also provides a chance to buy it
at lower prices (I have enough of it already…).


September 3, 2006


Aeroplan is updated and is rated Speculative Weak Buy at $13.60. On the one
hand I really like the loyalty points business model. It is a virtual business
with few hard assets and it does not actually create a product. It has great
strength as the loyalty program of choice in Canada. It appears to be a cash
generating machine as points are sold and the cash is in hand long before the
members ever cause a cash expenditure by using their accumulated points.


However Aeroplan is saddled with problems related to Air Canada. Until 2002,
Air Canada essentially used to take out all the cash and nothing was set aside
to pay for the trips earned by members. Even after raising money from the public
it still retains a billion dollar deficit rather than any equity. That does not
seem exactly a responsible situation. If Aeroplan were regulated like insurance
companies and banks it would have to have equity. Perhaps it should not be a
Trust. As a Trust it is paying out essentially all earnings and does not seem to
be building equity at the current time.


Maybe the strong underlying business model will allow it to prosper. But
overall it makes me somewhat nervous. Also I found the accounting to be complex
to understand. Given that I wish to build my cash position, I may sell my small
holding in Aeroplan. (Having said that, I would expect Q3 to be strong from a
GAAP earnings perspective as many points will have been redeemed for air travel
and it books earnings only when points are redeemed.)


I understand that ACE aviation may distribute its 75% stake in Aeroplan to
its shareholders. his may be good for ACE shares but could have a temporary
negative impact on Aeroplan.



September 2, 2006


Reitman’s is updated and rated Buy at
$20.61. This company has performed well and if the trend continues it will
provide a strong return.


Sobeys is added to our list of stocks
and rated Weak Buy / Hold at $38.88. (the price closed at $39.15 on Friday and
that is the price we will use in any performance figures). Sobeys has an
attractive price to book ratio (which should limit its downside risk) but the
recent growth is quite low and the growth outlook is quite uncertain.


Heading into the Fall I am somewhat cautious about the direct of the overall
markets. In any event I expect the Buys and Strong Buys on this Site to continue
to do better than the market averages. The U.S. market rose yesterday based
partly on lower inflation indicators. The danger is that the U.S. will enter a
recession due to high interest rates, stagnant or falling house prices and high
energy costs. Offsetting this is the fact that interest rates are still not high
by historical standards. Also it seems likely that the Q3 earnings reports will
be good.


I note that Western Financial came back to $3.15. It may settle at this level
until such time that the company issues further news such as acquisitions.


August 28, 2006


I sold my Jean Coutu shares (see posts of the last few days) today at a small
loss. Normally I am investing for the longer term. This was a case where I
thought the market might grow to like the Coutu deal more and more over a period
of a week or two. Instead the market decided, the more it understood about the
deal the less it liked it. The original basis for my trade was proved wrong and
I decided to make a quick exit.  When the entire basis for a trade changes
then it probably makes sense to get out.  Coutu could do well in the long
term but since I have not done a detailed analysis I had no good reason to
continue to hold.


August 26, 2006


FirstService is updated at U.S.
$23.81 or CAN $26.45 and is rated Buy. This is a company with a great history of
growth in earnings per share. With a P/E around 20 it is not necessarily a
bargain but it is reasonably priced if it can grow earnings at at least 10% per
year and historically it has been closer to 17%. This is analyzed in U.S.
dollars, even though it also trades in Toronto, because it reports in U.S.
dollars. Revenue comes mainly from the U.s. with some international and only 22%
from Canada. So it makes sense for it to report in U.S. dollars. Canadian
investors have been hurt by the rise in our currency and that risk continues to
apply if our dollar keeps rising.


It was disappointing but not exactly shocking to see
Western Financial Group trade
down 8.7% to close at $3.15 on Friday after reaching $3.45 on Thursday. This is
thinly traded. Possibly what happened was that someone wanted to sell say 25,000
shares. In fact it looks like someone sold about 17,000 at $3.40 and then
another 9,000 or so went at lower prices with probably only 4000 at $3.15.
Basically the $3.15 is meaningless. The bid was at $3.25 at the close. The point
is this stock will tend to be volatile and it may pay to be patient in placing
orders to buy or sell. As mentioned below I let a small potion of my shares go
at $3.40. I considered placing a “stink bid” to buy back at a lower price like
$3.05 but I still have this as one of my biggest holdings and so will probably
sit tight. Possibly I would sell a bit more if it happens to climb to say the
$3.60 range, just to take advantage of the volatility.


Wal-Mart is updated and rated Buy at
U.S. $44.09 (it last traded at $43.88).  The investment story of Wal-Mart
is that the stock rose by something like 1800% from the mid 70’s to the start of
1993 (with some volatility but generally pretty steady). During 1993 to about
mid 1997 it declined noticeably. Then it took off and rose sharply about 400% by
the start of 2000, peaking over $80. In the over 6 years since then it has
trended mostly down. This was the moody “Mr. Market” (See Benjamin Graham’s The
Intelligent Investor) at his “finest” given that the earnings per share of the
company advanced in much more steady fashion than has the share price. On a
valuation basis the stock appears to be a  reasonable long-term investment
at this time.


My speculation on Jean Coutu shares is not going so well. A major difficulty
is that a large portion of the purchase price will paid to Jean Coutu in the
form of shares of Rite Aid. But Rite Aid is apparently a weak company that will
(especially after this deal) have excessive debt. The future valuation of Jean
Coutu is therefore tied to that of Rite Aid. For one thing that makes it complex
to figure out even if Rite Aid was a strong company. But worse, Rite Aid is
weak. The market is therefore not too excited by the deal.


The announcement of
the deal was certainly badly handled as it was leaked Wednesday night and then
hurriedly announced Thursday morning but with no analyst conference until
mid-day Friday. Some news reports indicated that Jean Coutu was getting $3.4
billion for stores it had paid only $2.4 billion in 2004. However the company
indicates it will post a loss of $140 million on the deal. (Just in the past two
days our dollar has moved noticeably higher which will add to the loss.
Coutu also indicates it will take 12 months before its earnings go up as a
result of the transaction and for the first 12 months it would lower earnings.
Apparently there may be some legal challenges about a transfer of debt to Rite
Aid. Overall this is looking very messy. I believe I should exit my position. It
no longer looks like the Coutu shares are about to rise unless somehow an
alternative bid were to materialize and there is no sign of that. The lesson for
me is to stick with investing only after making an analysis of the facts and to
avoid speculating and investing before the facts become clear.


Listening to the conference call Coutu seemed less than fully open and also
seemed less than totally “on their game”, in terms of being able to answer the


August 25, 2006


Stantec is updated for Q2 earnings and
rated (lower) Buy at $20.75 (note it closed today at $20.48). The graph of the
revenue and earnings per share growth for Stantec is a thing of beauty. It has
truly been a remarkable success for many years. However it now gets about 40% of
its revenue from the U.S. and with a housing slow-down there and a possible
recession looming, we rated it a (lower) Buy rather than a Buy. If the past is
any indication, it would be a good long-term investment, but the share price can
be volatile. This stock is up 730% since it was first introduced to this Site as
a Strong Buy in September 1999.


August 24, 2006


There are more and more signs of a slowing U.S. economy. Nine or twelve
months ago I worried about energy prices and higher interest rates but the
consumer boom roared on. Now it looks to slow considerably. This is one reason
to have a higher allocation to cash and to generally watch the market closely.


I mentioned Jean Coutu yesterday. Like I said, I normally don’t get into
speculating on takovers. By this morning Jean Coutu had confirmed a big deal was
in the works, so that made it a bit less speculative. As expected the price
moved up at the open. It opened up $1.70 at $12.65. Had a range today of $12.46
to $13.24 on huge volume. Therefore existing holders of Jean Coutu were up about
$1.70 at the open and ended up being ahead $1.81 at the close.  That’s
fair, on this kind of positive news it should be existing shareholders who
benefit, which is what happens unless the news gets leaked and then a few inside
players get to scoop the gain from some shareholders who unwittingly sell ahead
of good news.


Anyone who bought today paid at least $12.46 so most who bought today are
only up a few cents and some were down. I decided to buy some on speculation. I
have not analyzed the stock. But I understand that the U.S. stores purchased in
2004 were viewed as a big problem. From what I can see they did not lose money
on the sale (may have gained) and so it appears that a problem has been solved
or at least made a lot better. If a big problem has been solved then it seems to
me that the share price might jump a bit more yet and at the same time hopefully
will at least stay where it is. Again, I normally have analysis to back up
opinion, in this case I am speculating on the news event so that is risky.


They have an analyst conference tomorrow at noon and maybe the price will
move one way or the other based on the conference. It is not unusual to have the
analyst conference in the middle of the trading day like this. But I find it
unfair and frankly offensive to retail investors since most retail investors
will not be a position to react to the news but the big guys will. If the
conference were after the close then retail investors would get a better chance
to digest the news.


There should be a couple or three updated reports on the Site over this
coming weekend including most likely a new stock being added.


August 23, 2006


It was a good day in the markets for many of our picks. Western Financial
closed at $3.44 on higher than average volume of 88,000 shares – which is still
not that much volume. Based on my order placed when the stock was $3.20 or so, I
sold what amounted to 18% of my Western Financial shares today at $3.40 to raise
cash and possibly take advantage of volatility. It’s hard to say if this will
turn out to be a good move. But based on normal volatility it will likely be
back to the $3.25 level unless it announces news like acquisitions that are
viewed favorably. And despite the fact that we rate the stock a Speculative Buy,
it could also fall noticeably if it happens to announce any bad news.


The Wall Street Journal is reporting that Jean Coutu is close to a deal to
sell its problematic U.S. stores for cash and shares in the purchaser (U.S. Rite
Aid Corp). From the figures quoted I suspect Jean Coutu will rise sharply
tomorrow. (Sounds like they would be selling at a noticeable gain over what they
paid in 2004). However I have never looked at the company and so my suspicion is
based on very limited information. The problem with this type of news is that
usually the market reacts so fast that there is no time to trade. But if this
turns out to be a good deal and if the deal is actually struck (they are only
reported to be close) then maybe the price of Coutu will go up only gradually.
The danger is it jumps up and then the deal falls through. Might be okay to
throw some speculative money at it. Overall though my inclination is to sit
these things out since it does seem quite speculative.


For the story see:





August 22, 2006


Cognos had moved up nicely to about $35
since our report at $30.29 but now has fallen back to $31.80. It’s always hard
and possibly dangerous to buy into a down-trend. I hold some and I would
consider buying more but will likely just hold tight.


Western Financial has been somewhat volatile, with a range today from $3.13
to $3.39 on light volume. On a stock like this it may pay to be patient in
buying or selling to try and get a better price. Of course the danger with that
is is that it then refuses to be volatile in your favor and you fail to buy or
sell as intended. Similarly I sometimes think with a stock like this, I should
put an order to sell  a bit if it moves up say 5% and to buy if it moves
down 5% and hopefully take advantage of the volatility. Since I hold a lot (by
my small standards) of Western Financial I put in an order when it was $3.15 to
sell a bit if it goes to $3.40. Almost got there today. The danger with my
strategy is that if it moves more permanently up I will have sold and miss the
upside. Similarly if I put an order to buy some if it goes to say $3.05 then if
it takes a sustained run under $3.00 I will have bought on the way down. There
are no riskless strategies but I will leave my order to sell a little if it
happens to get to $3.40 in the near term.


On the subject of Western Financial. They are trying to grow their little
banking operation. One of their main strategies has been to offer financing for
recreational vehicles including travel trailers, largely in Alberta. A Trailer
dealer that I talked to told me that Bank West had been aggressive in that it
gave financing to some people of lower credit quality. That trailer dealer who
had some experience in loans said he would not have given the loans. That is a
bit scary. I have always said that a bank can wipe out its equity on bad debt if
it is not careful. And I have said in the report that Western Financial Group in
particular faces this danger due to its inexperience. On a positive note though,
the economy is so good in Alberta that it is hard to imagine there would be many
people who default on payments. Also Bank West is only a part of Western
Financial’s operations. Even in a worse case scenario where Bank West lost money
and maybe closed up shop, I see no reason that Western Financial would not
survive. But it would be beaten up by such an event. I hope I am not sounding
too scared about the company. The fact is that every stock has some kind of
risk. If investors always worry too much about worse cases then probably
investing in individual stocks is too risky for investors that would worry too
much or who are not prepared to take the occasional hit. Overall my sense is
that Western Financial is going to continue to do well. (But I wanted to pass
along the the word of caution from the Trailer dealer).



August 20, 2006


Canada Bread is updated for its Q2
earnings and is rated Weak Buy / Hold at $62.40. Our analysis was done at a
price of $62.40. We note that the stock last traded at $61.00. Our rating would
not change with that small price fluctuation.


August 19, 2006


Our Performance figures are updated above. We are not yet back to where we
were in early May. But the progress in the last few weeks has been quite good.


The Q2 earnings reports are mostly in now. From the S&P web Site I calculate
that reported earnings per share on the S&P 500 were up 10% year-over-year,
while adjusted earnings per share were up 13%. That is yet another quarter of
very strong earnings growth. In the long run earnings per share growth in the
stock market does not tend to exceed the nominal growth in GDP which is closer
to 6%. Earnings growth has been running well above the long-run expected level
for at least three years.


Market sentiment seems to be strong at the moment as the market is expecting
that interest rates will not rise. Offsetting this is the fact that a possible
recession is the reason that interest rates will not rise. As always the
sentiment in the market can change very quickly, but for the moment thhe trend
is positive.


Western Financial Group is
updated and rated Speculative Buy at $3.25. This is one of own largest holdings.
In terms of a trading strategy the price is a bit volatile and it may well be
possible to get it at close to $3.15. I have an order in to sell a bit at $3.40
if it is should reach that price in the very near term. That is just to raise
cash and if it falls to $3.05 or so I would be tempted to add to the position
rather than reduce. I look at this as the chance to buy at a reasonable price –
into a successful company that probably has a lot of growth ahead of it.


On Friday I sold half of my Wendy’s because the price was up. I may move that
into Tim Hortons. I was only ever holding Wendy’s because of my interest in Tim
Hortons. Now that I am not rating Tim Hortons and no longer rating Wendy’s it
made sense to move my holdings directly to Tim Hortons which I have largely
done. Still I would not have minded continuing to hold the Wendy’s until it
spits out the Tim’s shares on October 1 because that potentially could work out
well. Also Wendy’s may still get a boost if it splits off its Baja Fresh unit as
some activist shareholders want it to do. For me, though the Wendy’s seemed more
speculative as I am more familiar with the Tim Hortons.


August 15, 2006


A number of our stock picks moved up nicely today (Kingsway, Telus, Western
Financial) and some others). Tomorrow, (Wednesday) an important consumer price
index will be released for the U.S. If inflation is low, the market will
conclude that the Fed will not raise interest rates in September and therefore
the market could do well tomorrow in that case. If the report shows high
inflation, the market will likely fall tomorrow. Canada will follow to some
extent except that energy stocks as always will march to their own drum.


August 12, 2006


ING Canada
(Canada’s largest property and casualty insurance company) is updated and rated
Buy at $52.96. Three years ago I began adding property insurance companies to
this Site because I felt that they were going to enter a period of very high
profits on automobile insurance, because rates had been raised substantially and
laws were being changed to limit claims for personal injury and drivers were
becoming ever more reluctant to make claims. All of that came true and remains
true. It appears that ING Canada will continue to be very profitable for at
least the next few quarters. However at some point insurance prices and profits
should come down because the claims are lower.  So far, it seems that the
insurance rates and profits are staying quite high. ING is the most expensive of
the insurance stocks on this Site but also the most profitable. As noted in
comments below on this Site, I sold my ING to raise cash a few months ago. I am
not sure if I will buy any at this point. Possibly I will sell some Northbridge
and move into ING.


Western Financial Group’s results look good, net income was up sharply in the
quarter but revenue was only up 12%. (But this moderate revenue growth was
expected because of lower insurance rates). There are also more shares due to a
conversion of some debt to equity. The full financial statements and discussion
of results have not yet been posted. I will wait for the full results before
updating the report. The recent little jump to $3.20 is nice but I note that
this was on low trading volumes. I expect this stock to require patience. It
could certainly retreat back below $3.00 in the short term. Lower insurance
rates are probably hurting revenue growth but this is being offset by the growth
and strength in the Alberta economy.


August 11, 2006


Telus (non-voting shares) is updated for
its Q2 earnings ad rated (higher) Buy at CAN $51.35. This has done very well
since we called it a Speculative Buy back on October 6, 2004 at $28 (that was for
the voting shares, the non-voting were a bit lower). At that time, our theory
was that the GAAP earnings were under-stating the true value and that GAAP
earnings would rise and that the company was generating more cash than the GAAP
earnings suggested. Our theory was correct and the price has risen. Perhaps most
of the “easy money” has been made. But if the company continues on its current
trend then the shares should continue to rise. As always, there are risks. In
this case more intensified competition with Shaw Communications is a risk.


For interest the old Telus report from October 2004 happens to be one of our
example reports and is available here:



August 10, 2006


Good earnings reports out from ING Canada and Western Financial Group today.
By Sunday, we will have some updated reports for these or other companies that
have recently reported.


After today’s terrorist scare (threats to blow up large passenger jets) I was
pleasantly surprised to have a good day in the market. Our stock picks have
recovered much of the ground lost in the recent market down-turn. The Q2
earnings releases have been strong, as expected.


But I am getting nervous being about 91% invested in equities. Historically,
a high equity allocation is best over the long run. But if the market takes a
dive due to recession/interest rates or terrorist attacks, I am then going to
regret being so heavily weighted to equities. I am therefore going to look at
trimming my equity position. I find this hard to do because it might mean
selling some stocks that I really like and which I think will continue to rise.
But I won’t sell whole positions on any buy or strong buy rated stocks, rather I
hope to just trim some of those.


Given today’s terrorist scare and given all the problems in the middle east,
we certainly should not be surprised if there does come major terrorist attacks
in North America. It seems there are millions of people with a seething hatred
for the United States. Partly this is due to the U.S. support of Israel. I make
no judgment who is “right” in these wars. But I can imagine that when people
have family members or fellow citizens killed, emotions run extremely raw. Also
many of the survivors are leading bleak lives and see no bright future. Under
that scenario, it is really not that hard to imagine someone deciding to become
a suicide bomber. Unfortunately that is starting to lead me to think that a
major terrorist attack(s) in the U.S. will occur.


Having said that, North America is a resilient place and stocks will
eventually do well in almost any imaginable future. Still, I think I will feel
more comfortable if I can raise my cash position to say 25%.


For those with exposures to oil stocks I would think that recent events bode
well for the price of oil. I also think Alberta will continue to do very well.
This would benefit any Alberta-based companies including Stantec, Canadian
Western Bank, Western Financial Group. Even if oil prices drop, I would think
that North American governments would desperately want to see the Alberta oil
sands developed as fast as possible. More Alberta oil supplies mean less
dependence on the middle east and it also means that less money flows into the
hands of the potential enemies of the United States.


August 9, 2006


I added to my Tim Hortons today as I
had entered a price below the market and ended up buying as the price fell. This
stock is now below the $27 IPO price and certainly well below the $36.21 that it
opened trading with on its first day back on March 24. Remember back in March
there was a frenzy to buy and you could not get your hands on any at the $27 IPO
price and so it “popped” into the mid-thirties when it started trading. Now it
is available in the market at $27 and apparently few people want it at this
price. The frenzy is long gone. I only rated it (lower) Buy at $28.37 so I too
think it is not a screaming bargain. Still, I am happy to hold some and may buy
more if the price keeps going down.


Apparently one reason for the decline is the fear that all the American
Wendy’s shareholders will dump it when they are handed their shares on October
1. Well maybe so, but that has exactly zero impact on what the shares are
actually worth, and will affect the share price only temporarily. Also Wendy’s
went to great pains to insure that the Tim Hortons shares would be received
without a capital gain by those American Wendy’s shareowners. They will have to
keep the Tim Horton’s if they want to avoid the capital gain.


Maybe Tim Hortons will not have any kind of spectacular growth but I am
willing to bet that this company which has been growing fast in Canada for 40
years has a bit more growth left here. And maybe it will stumble in the U.S.,
but on the other hand maybe it will start to slowly build up in the U.S. as
well. I like its chances.


August 7, 2006


The market has now recovered half or more of the losses from the recent
down-turn – although this depends on an individual’s portfolio composition.
Investors may be wondering if it would be best to reduce the equity position and
move into bonds or cash. I believe that such a decision is very much dependent
on individual circumstances and risk tolerances. For that reason, I will have
little to say on that subject.


Personally, I do see some risks in the overall market. There is the risk of
higher interest rates and a consumer recession due to interest rates and high
energy prices. The events in the middle east are indicative that major terrorist
attacks in the U.S. are certainly a possibility. For that reason I would prefer
to be adding to my cash position (given I am about 91% in equities and only 9%
in cash). However, right now I not holding stocks that I would like to sell. I
will be reviewing that and may sell some lower rates stocks just to raise cash,
although I have nothing definite in mind. For the next week or two I am hopeful
that strong earnings releases will out-weigh the negative influences of oil
prices, possible recession and the middle east situation.


Home Capital is updated and rated
speculative (lower) Buy at $31.80. The value ratios indicate it would be a Buy
but I am worried about the possibility of bad debt losses if house prices turn
down and a recession causes some people to be unable to make their mortgage
payments. The company has been highly profitable and for that reason may
continue to do well. But given higher interest rates and the possibility of
recession, I am cautious on this stock at this time.


August 5, 2006


Kingsway Financial is updated and rated
Speculative Strong Buy at $CAN 21.97. The market sent it up $1.45 on Friday
based on its strong Q2 earnings. The stock certainly appears to be good value
but the market gives it little respect – the stock price certainly has not kept
pace with its earnings growth. The earnings graph shows that the annual earnings
have gone up fairly steadily over the years. Meanwhile, the stock price has been
very volatile. This stock is likely to continue to require patience but such
patience seems likely to be rewarded in the long run.


August 3, 2006


Note, that a number of the companies we rate here have released Q2 earnings,
watch for more updates in the next few days and weeks.


Loblaw is updated and rated Speculative
(lower) Buy at $49.01 (it closed slightly higher than our analysis price today
at $49.21). Loblaw a long-time market darling and strong performer has struggled
in 2005 and 2006 and its stock price has fallen about 33% from highs around $75
in 2005. We call it speculative because it is trending down and that could
continue. On the other hand if the earnings start to climb in Q3 then this may
turn out to be a great opportunity to buy into this company. The grocery market
has become more competitive and Wal-mart may enter it. On the other hand, Loblaw
has an extremely strong operating and profit history prior to the problems of
the last year or so. I am tempted to buy some at this price but may wait for
further word of how Q3 is progressing.


Kingsway Financial came out with excellent earnings today. This was after the
close of trading, so we will not see the market reaction until tomorrow. It
seems to me that Kingsway should rise on this news. But, when it comes to
property insurance stocks the market always seems to look for something negative
to react to. Kingsway did increase its claims estimates for prior years by a
small amount. The market may see that as a negative since it means that
management was apparently not as conservative in estimating those claims at the
end of 2005 at it claimed to be. The other way to look at this is that
Kingsway’s earnings would have been even higher in Q2 2006 without this charge
related to prior years. I’ll update my report over the weekend. I continue to
view the stock as very attractive. If it keeps making profits like this, the
stock price will rise, it just becomes a question of when. Of course there is no
guarantee that the earnings will continue to rise, but I am certainly happy to
hold it given the current strong earnings and low premium to book value.


August 1, 2006


Northbridge financial is updated and
rated (higher) Buy at $29.76. It’s Q2 report included a big surprise earnings
hit related to the 2005 hurricanes. In many ways that should be treated as a
one-time cost since it related to a prior year and since Northbridge is no
longer offering new policies in the areas that caused the hurricane losses.
Absent the 2005 related hit, the profits in 2006 are very strong. It appears
that overall the Canadian auto and property insurance is very profitable. While
that will not last indefinitely Northbridge appears quite attractive at the
current price. However its parent (Fairfax Financial) may run into further
problems which could affect Northbridge. Overall I still like Northbridge but my
enthusiasm has been tempered by the added hurricane loss estimates from 2005.


Rogers communications (not covered here)  had strong results today. I
would expect Telus to have good results on
Friday driven by cell phones although Shaw
Communications is taking away significant numbers of land-line phone
customers. Shaw should continue to do well but it will not be reporting results
until perhaps late October as it has an August year-end.



July 30, 2006


Tim Hortons is added to the Site and
rated (lower) Buy at $28.37. Tim Horton’s on Thursday released strong Q2
earnings and sales growth. As discussed in the report Tim Hortons is a very
strong company. It is not bargain priced, but this may be a case where it is
worth paying the price to hold a high quality company.


Wendy’s is removed from the Site since our interest in Wendy’s was always
driven by its ownership of Tim Hortons. Also, it would be difficult to calculate
a fair value of what Wendy’s will be worth in the absence of Tim Hortons since
Wendy’s itself has recently been losing money. Wendy’s has potential but needs
to restructure further before it will become profitable again.


For purposes of the model portfolio, I will notionally sell the Wendy’s and
replace it with Tim Horton’s at tomorrow’s opening prices. I intend to soon do
the same with my own Wendy’s shares. With Tim Horton’s I feel I am getting a
known quantity but by continuing to hold the Wendy’s I take the risk on what
those shares will be after it distributes out all its Tim Horton shares
(scheduled for October 1).


Boston Pizza is removed from the site as the report was well out of date. I
hope to add some more Income trusts in future.


July 29, 2006


Dalsa is updated for its Q2 earnings and
rated Speculative Weak Buy. The earnings had declined in 2005 and this makes the
value ratios continue to look weak. But profits are now recovering and my sense
is that the company is better than its current value ratios would suggest. I am
comfortable holding a small position here, partly because i have little other
exposure to high-tech and I do like the potential here.


The latest version of the free newsletter has
just been sent out.


In regards to Fairfax, which I mentioned on Thursday. I decided to “get out
of Dodge” and sell my few shares on Friday. I bought it as a speculation based
on the very low price to book value. Ultimately is should recover. But it is
extremely complex and is undergoing some serious problem at this time. The
company itself says not to trust the financial statements so I decided to take a
small loss and get out.


July 27, 2006


TSX Group is updated for the Q2 earnings
release and rated Buy at $45.95. This is an extremely profitable operation.
Growth has recently been very strong.


Not surprisingly, Tim Hortons reported strong growth today, I continue to
like this stock. It is a bit difficult to analyze since it is so new as a public
company. However, I plan to add an analysis report for Tim Hortons to this Site
soon. Wendy’s reported more troubles. I am only holding Wendy’s (in my own
portfolio and notionally in the model portfolio) because it will spin off Tim
Horton shares to me on October 1. For those not facing capital gains taxes on
Wendy’s, an equally valid strategy would be to sell Wendy’s and put the money
into Tim Hortons directly.


On July 11 and June 14, I mentioned Fairfax as a speculative pick. There has
been more bad news about this company. Yesterday it announced it would sue some
hedge funds. Maybe the hedge funds did something wrong. If so, I think that
should be left to the police and regulators to pursue. I believe Fairfax should
get its own house in order and not focus on such a lawsuit. Today, after the
close, it released earnings which included bad news and indicated that its past
financial statements would be restated and are not reliable. I expect the stock
to fall tomorrow and now consider it to be extremely risky. I hold a few shares
and I may sell tomorrow.


July 26, 2006


The TSX group released – after the close of
trading – another quarter of astounding earnings growth (after adding back a
one-time income tax charge). Due to accounting rules free cash flow tends to
materially exceed net income. The market may worry that the TSX group cannot
continue such torrid growth. However, based on the earnings I would expect the
stock to rise. I will consider adding to my position in this stock tomorrow if
the price remains no higher than $45 to $46. This company is unregulated as to
its pricing despite holding a near monopoly position in Canada. Nice for
investors. I will update the report on this stock after I see where the stock
goes in reaction and after the financial statements are made available. (It is
very disappointing, and I think unfair to retail investors, that financial
statements did not seem to be posted tonight).


Strong markets the past three days were a welcome relief from the recent poor
markets. This illustrates that while the market has seemed risky lately, it is
also risky to be out of the market because rally’s like this are unpredictable
and those hoping to buy at the market risk being left out when the market and
various individual stocks eventually recovers to new highs.


July 24, 2006


Today, Monday, saw a great start to the week for the market. Many of the
Canadian companies will be reporting earnings in the next few weeks. We will
soon have a number of updates as a result.


July 21, 2006


Cognos is updated for its earnings release
this morning and is rated Speculative (lower) Buy at $30.29. After its big price
drop, I had hoped it would look cheap but it still does not look exactly cheap.
But it may be a good opportunity to buy into a strong company at a reasonable
price. And an RBC analyst has speculated that IBM would like to buy it and if
so, I would think there would be a reasonable price premium paid. A reasonable
strategy here would be to buy 1/3rd to 1/2 of an ultimate position and look to
add to it over a six to twelve month period.


Canadian National opened at $48.40 but then fell and is at $46.49 as I write
this. So, the stock has dropped despite stellar earnings and operating
performance. I believe that this is a reflection of the current overall
pessimistic mood in the market. Investors are afraid of higher interest rates
and a recession and therefore nervous investors are cashing out which drives
down prices. Taking a long term view I believe CNR represents good value.
However, it could very well go lower before recovering. A strategy of averaging
into this and other strong stocks that are down may be wise. On the other hand
those with cash may wish to stay on the sidelines and wait for signs of a
general market recovery before buying.


Northbridge was down 6% on no news today (see update just below), the same comments would apply in
that it looks like good value but that does not mean that it will not continue
to decline. The action on CN suggests that investors should wait for Q2 results
before investing. Most stocks seem unlikely to jump even if earnings are good,
so it seems best to wait until the Q2 reports are out. UPDATE – I have now
learned that Northbridge did release an earnings estimate for Q2 which was the
cause of the 6% slide. Northbridge revealed that losses from the 2005 hurricanes
were significantly larger than earlier estimated. This was partly offset by
realized gains on securities (unrealised gains have fallen). Northbridge has now
sharply reduced its exposure to hurricane losses for hurricanes in 2006.
Northbridge indicates that profit on its standard Canadian operations remains
very high. This bodes well for the results from ING and from EL-Financial. Given
that Northbridge has sharply reduced its exposures to hurricanes, it does
continue to look attractive, however this latest development does illustrate the
risk of this stock.


July 20, 2006


Canadian National is updated and now rated
(higher) Buy at $47.45. CN reported Q2 earnings after the market close today and
those earnings showed a very strong increase year-over-year as well as
sequentially versus Q1. The updated report indicates the reasons why CN seems to
offer good value at this time. Of course, there are always risks and counter
arguments – like CN cold suffer in a recession. But I would rather invest in a
company where one has to think of reasons why it is not as good as it first
looks, rather than the usual approach of investing in high P/E companies that
will only be good investments if in fact predicted growth materializes.
Consider too, that Bill Gates is a big investor in CN and Bill may well have
been advised to buy this by his good friend Warren Buffett. I regret that I took
profit on CN and sold some years ago. I plan to buy tomorrow if the price does
not jump too much. Logically I would expect the price to jump somewhat tomorrow,
but given the recent market pessimism it may not do much tomorrow. for the model
portfolio, I will notionally double the position in CN at tomorrow’s opening


July 19, 2006


There have been many times when the market has been going strong and many or
most stocks start leaping up often for n apparent reason. Clearly now is not
such a time. In fact the market seems in a negative mood. In this type of
situation, good news is often oer-looked and the market seems to pounce mostly
on bad news and fear leads to a situation where stocks go down easier than they
go up. This is depressing. However, he silver lining is that at some point it
definitely leads to bargains. A strategy of averaging into stocks at current
lower prices may turn out to be wise. For the stocks on this site, I have the
following thoughts. (In many cases these stocks are in down-trends so keep in
mind they may g lower before they start to recover. Also keep in mind tha
individual companies can be hit by surprises. Read the latest updates above on
these companies for further information. In many cases Q2 earnings will soon be
released and that could change the picture).


Target and Wal-Mart look quite reasonable at about 16 times earnings.


Loblaws will likely be a good investment assuming that thir current
turn-around strategy starts to work soon.


Cognos, looks like a Buy and its P/E ratio is lower than it has been in


Stantec, Alimentation Couche-Tard, and the TSX Group have all declined and
look like reasonable bets. CNR has also declined, and this may be a good
opportunity. There was news about a strike this morning but so far the stock
reaction is minimal and therefore I suspect this is a minor strike but I have
not seen full information yet.


Manulife has been a perennial performer and continues to look reasonable.


Cryptologic is a very speculative pick and declined sharply yesterday. For
aggressive investors it may be a good pick but I have to wonder about the reason
for its big decline.


I have not analyzed Tim Hortons partly because I believe it will take some
time of it operating as a separate public company to get a sense of its
earnings. I believe the stock is not necessarily cheap but that it will do well
do to profitability and growth. The maritime provinces are said to be saturated
with Tim Hortons. However, I have recently been traveling in the martimes and
all the Tim Hortons I saw were very busy. That hardly seems like saturation. As
I stood in line yesterday waiting for a coffee I thought, “how can I not own
this stock?”. I think it will do well. If not, at least when I have to wait in
one of its lines I will feel good abut owning a piece of it. It seems like the
more locations they put in, the more customers they generate. I bought a few
shares yesterday and this will add to the shares I will receive (on October 1)
from my Wendy’s holdings.



July 17, 2006


ebay is added and rated Speculative Weak
Buy/Hold at $25.66. The report is dated July 14 as it was posted prior to the
market opening today, Monday. This is certainly not a very definitive rating but we think ebay is worth watching. Recently we have been adding more U.S. stocks and we do
intend to add more of the well known U.S. names, on a selective basis.


July 13, 2006


The markets continue to be on a negative sentiment. At some point it will
turn around but it is unclear when. We are hoping that the Q2 earnings reports
will be quite strong, particularly for our strong buys. Property Insurance
Company earnings should do well on an operating basis but may have capital
losses due to the market decline. The market tends to ignore insurance company
capital gains but may not be as forgiving of capital losses (when they sell
stocks and bonds at a loss). Overall, in this period it seems patience is


Alarmforce is updated and rated
Speculative Weak Buy at $4.42. We have followed the company for a few years and
it has done well operationally. However, the accounting has undergone changes
which lowered reported net income. My sense is that the accounting earnings are
understated. But the market price seems to already reflect that fact. If we held
it we would likely continue to do so. I do not hold it at this time but might be
interested below $4.00.


July 11, 2006


The Bank of Canada interest rate was left unchanged today which should be
good for stocks.


The Q2 earnings reports will begin to come in very shortly and we will soon
have updated reports for many of the companies here. I mentioned Fairfax under
June 14, it did fall further since then but then recovered. I think it may be a
good pick although it is quite speculative. As a speculative pick, I will buy
some today.


Jul 7, 2006


Stantec has fallen under $21 and I would consider it a buy at that price.
Cognos was down 4% today to $30.70, on no additional news. I am going to buy
some shortly. As mentioned under June 11 this might be a good entry point
although it may be risky due to an on-going accounting investigation by the SEC
and delay in reporting results. I continue to view Kingsway very favorably
although it is apparent that “the market” has little interest in the stock and
therefore patience will be required. I hold Wendy’s which has risen lately. My
tentative plan is to hold Wendy’s until October 1 to collect my Tim Hortons
shares and then I would likely sell the Wendy’s which at that point would likely
fall to the $20 range or below when they no longer own 83% of Tim Hortons.


July 6, 2006


Manulife indicates that investor sentiment was at a high in June. This may be
a contra-indicator given that this sentiment had a record high in early 2000
(just before a market crash) and was at a low in early 2002 not long before a
long bull market that started in the Fall of 2002.


Canadian Tire is updated and rated
Weak Buy at $65.61. This is a great company and has done extremely well over the
past five years. At this time it seems fairly priced rather than particularly
attractively priced.


July 3, 2006


Shaw Communications is updated and rated Buy
at $31.55. It just release very strong earnings for its Q3 fiscal 2006. We began
rating this a Buy around 18 months ago at $21.50 (see Jan 21, 2005 below). Since
then earnings have increased sharply as we expected. If current trends continue,
the stock should continue to do well. I particularly like the strong levels of
insider ownership and buying in the past few years.


June 29, 2006


The market went up sharply when the Federal Reserve Bank in the U.S. raised
rated only 0.25% to 5.25% instead of a feared 0.5% and softened its tone on
inflation warnings. Given the market may still expect the the rate to go to
5.50%, this optimism on the interest rate outlook may soon fade. However for
July we can hope that earnings announcements will dominate the market’s
direction and I expect the Q2 earnings reports to be mostly strong.


Loblaw is updated and rated Weak Buy at
an analyzed price of $52.50 (closing price today was $52.02). This has been a
great company but earnings recently fell on some restructuring problems largely
related to a change to large more centralized warehouses and partly due to
competition. Based on the lower earnings and uncertain outlook it is rated a
Weak Buy. If growth was to return to it’s long term history of double digit
percentage earnings growth then this would be a Buy. More aggressive investors
could consider buying now on speculation earnings growth will resume. However
conservative investors should wait to see the results of Q2 and possibly Q3.


I would like to review some history for this stock. We first covered it as a
Weak Sell on January 3, 2001 at $50.50. At that time the adjusted P/E was 29.5
and the price to book was 4.7, so we considered it expensive. Since then the
stock generally continued to look expensive to us and got as high as $76 in
early 2005. As the price fell throughout 2005 we started to find it looked
reasonably priced, but were a little early. Now the P/E is more attractive than
it has been in many years, but the earnings have declined and earnings growth
seems more uncertain. While it may be best to wait for an earnings turn-around,
my sense is that this stock will turn out to be a good investment at this price.
Despite only a Weak Buy rating, I will retain it in the Model Portfolio.


An interesting point – in our analysis when a stock has a current P/E of say
30 (Like Loblaw in 2001) our analysis assumes that the P/E will regress to some
more sustainable level such as 18 by the end of an assumed five year holding
period. Sometimes that is too conservative since if the company keeps growing
strongly the P/E can stay high. But in the case of Loblaw the P/E did indeed
regress to about 18 over five years. Ideally we would like to buy when the the
price is reasonable even assuming the P/E will decline, then if it stays high we
earn a bonus return over and above the minimum hoped for level of 8 to 9%.


June 26, 2006


Well the week is off to a positive start…


Very interesting news that Warren Buffett will begin giving away his fortune
starting in July. In depth news about this is available here

http://www.berkshirehathaway.com/donate/webdonat.html and particularly in
the Fortune article




I am not much interested in the giveaway. What fascinates me is how he
amassed this fortune. The combination of returns averaging well over 20% per
year and his 60 years of investing means that he did not have to start out with
all that much money in order to obtain his fortune.


Mathematically, if he had $70,000 at age 15 as a one-time lump-sum investment
and made 25% per year (after tax) it would compound up to $46 billion in 60
years. In reality he had far less I think than $70,000 at age 15 but he also
made and invested money from employment and from large  profit commissions
on his Buffett partnerships (essentially a hedge fund).


The point is that at a very young age he absolutely KNEW he was going to be
very rich because he was confident he could make 20% plus on money and he knew
that over time it was going to compound up to a huge amount.


This should be pretty motivating to younger investors. For people that are
planning to be alive in 30 plus years and who are willing to let money compound
for that period it does not take all that much money to compound up to several
$million if one can find higher returns through finding under-valued stocks. And
if you think of teenagers who have 60 years and more ahead of them to compound
money, there is every possibility of reaching mega millions. I will do some more
math on this…


In this charity he continues his amazingly loyalty to his friends. It has
long been reported that he is very good friends with Bill Gates. Carol Loomis
wrote the Fortune article. Carol is over 70 and has been a friend of Buffett’s
since the mid-sixties. Fortune and Carol Loomis get to do articles on Buffett
frequently with access to Buffett while other publications do not get that


June 21, 2006


We are now announcing a new referral program. If you recommend the Site to
someone and that person subscribes, (and you let us know) then we will
immediately refund you $20 via PayPal. If you pay monthly, it will come off your
credit card. If you pay annually or by cheque it will come as an email link and
can be transferred to your bank account. (Naturally, the expectation is that
these subscribers will remain our customer for several months or possibly much
longer – as indeed most of you have, or that they take an annual subscription.)


It’s my expectation that this referral program will work to the advantage of
InvestorsFriend Inc. as well as offering a reward for referrals.


If you wish to participate in the referral program, simply refer someone to
subscribe (for example, send them an email link to the Site with your
recommendation) and if and when they indicate that they have done so, email me
(shawn@investorsfriend.com or
editor@investorsfriend.com) with
their email address that they used (preferred) and/or their name.


A nice move in the markets today – but one day does not make a trend. Given
higher interest rates and inflation and higher consumer spending, the markets
are in a tug-of-war between, earnings growth pulling it up and higher interest
rates and a feared recession pulling markets down. This volatility seems likely
to continue.


FirstService corporation is updated
and remains rated (lower) Buy at $U.S. 25.87 or $CAN 28.83. The report is
updated extensively to reflect the recent 2006 fiscal year earnings and annual
report release. While it is not compelling, it has a great long-term history of
earnings growth, although the stock itself has been volatile even while earnings
were growing relatively steadily. I own a small amount and have no immediate
plans to Buy but may consider adding to my position particularly if the price
should fall.


June 20, 2006


After three and a half years of almost uninterrupted gains in our stock
picks, the past month has clearly been a less happy time. As the saying goes –
this too will pass. I don’t think anyone can say when things will improve or how
much worse the market decline might get. But I am confident that over time our
performance will continue to be strong. Over longer periods of time the general
market will rise and although it it can not be guaranteed, we definitely expect
to continue to out-pace the market.


In times like this I am most comfortable holding stocks of companies that are
making good returns on equity, that have growth and that are trading at
reasonable prices. While I did move 20% of my funds to cash I don’t plan to move
any more to cash. In fact I am trying to hold myself back from buying as prices
go down. I see no reason to panic and sell out of good companies. But everyone
has to consider their own particular circumstances and time frame.


Canadian Western Bank is updated and remains
Buy rated at $41.00. This is not a screaming Buy but it has been a very steady
performer and the outlook is good. This stock is up 315% since we first placed
it on this Site as a Strong Buy on August 5, 1999 at $9.88 ($9.88 after
adjusting for the stock split). Over the years since then we have not always
rated it a Buy but often we have and it has generally surprised to the up-side.
Check out, the very nice graph of its growth on a per share basis. It’s
interesting to note that by December 31, 1999 the stock was down 13.5% to $8.55
– we hung in with it and it rose 32% in 2000 and another 283% since then!


June 17, 2006


E-L Financial is updated and rated
Buy at $622. Last year (See Aug 26, below) we rated this a Buy at $392.
Unfortunately I failed to buy it myself at that time. Since then the earnings
and book value are up quite a bit. It’s not as tempting as it was back then but
still looks like a good long-term pick. However it may fall somewhat when the Q2
earnings come out since it will take an earnings hit due to the lower stock
market as it has investments that it must mark to market. Therefore, it may be
best to wait for the Q2 earnings before buying. If bought now, the best strategy
would be to be prepared to add to the position on a significant dip in price. In
other words the Buy is more a long-term rating. This company is more complex
than the other property insurance stocks tat we follow because it also has a
large component in life-insurance and because at the holding company level it
has additional investments. The accounting for each of property insurance, life
insurance and the holding company is different with repect to gains on market
investments and that adds to the complexity. Also note the thin trading and
largetr bid /ask spread. It may pay to be patient and place an order below the
asking price when buying this stock.


June 16, 2006


Performance figures are updated. While the picks hare have suffered in the
market drop, they are still doing well for the year to date and better than the
market and with less volatility.


Cryptologic is updated and rated
(highly) Speculative Strong Buy at CAN $27.14 or U.S. $24.14. On the face of it
the financials suggest that this is a highly profitable fast growing company
with no debt and is available at under 15 times earnings. That seems quite
attractive. But as mentioned in our report here and under April 24 below, it
seems that this company has been accused of being a criminal organization. I
note that the market price has not done well lately in spite of stellar Q1
earnings and a very large increase in the dividend. Perhaps that is a warning


Overall, I am very tempted to buy back into it but given these accusations I
would avoid taking a large position. It would be nice to think that because it
is audited by KPMG and listed on several stock exchanges that we can trust it.
But that is not necessarily the case. (On the other hand the accusations may
simply be from people who lost large amounts of money gambling and also some
former casino customers that were hurt perhaps partly by the decision of U.S.
credit card companies to stop processing payments for on-line casinos in
December 2001). I spent several hours reading the 2005 annual report and
everything certainly looked legitimate – but I can’t be sure. The notion that a
company that makes software for on-line gaming would be highly profitable is a
believable storey.


June 14, 2006


I added to my Kingsway position today. While there can never be any
guarantees and while insurance companies are risky, I believe that at a price of
around 1.25 times (diluted) book value Kingsway should be a good investment. No
doubt it will have suffered somewhat from the stock market decline, but most of
its investments are in relatively short term bonds. Clearly market sentiment is
not in favor of the company and therefore it is unlikely to recover much until
and unless it can continue to report strong earnings, and it may take several
quarters of strong earnings. If it continues to report reasonable to strong
earnings then the growth in book value should pull its share price up.


I have recently been looking at Fairfax Financial as a very speculative pick.
The following will only be of interest to more aggressive investors. Fairfax is
a large property insurance holding company headquartered in Canada. However the
great majority of its operations are in the U.S.


The earnings (and losses) and share price has been extremely volatile and
currently the company is somewhat under siege.


Right now, the shares at $U.S. 107 are trading at only 69% of (diluted) book
value per share. In isolation that is very attractive. If the company can put
its troubles behind it the share price could easily double (but even if it
occurs, that could take many months at least).


However the company has had poor earnings over the period since 1999. In 2005
it really got hammered with hurricane related losses. Prior to 1999 it had a
very good record with an average 20.5% return on equity.


Most recently the stock has been hammered down because of the losses in 2005
and because the Securities and Exchange Commission was investigating certain
accounting practices and it has been targeted by a number of class-action law
suits claiming improper financial disclosure. In many ways that is reason enough
to avoid this stock.


Fairfax’s debt ratings are poor with most at bb+ by A.M. Best.


In the first quarter of 2006, Fairfax reported strong earnings.


This is clearly a highly risky company, the share price has been falling and
may continue to fall.


It also certainly faces the risk that 2006 could be another bad hurricane


However, it is a large company with strong subsidiary companies. It is
certainly very possible that it will put its troubles behind it and the stock
could rise substantially. However even in a positive scenario, that could easily
take 6 to 12 months or more. Several of its subsidiaries are not 100% owned
trade separately (most notably, Northbridge and Odyessy Re). It appears that
Fairfax as a holding company trades at a discount to the value that would result
from the sum of its parts (only some of which trade on the market).


My conclusion is that this is a risky stock that has potential to move in
either direction. The company is very complex and certainly its legal and
regulatory troubles are very complex and I am not in a position to have a good
understanding of all of its risks.


It may be wiser to wait for a partial recovery before touching this. I may
consider a very small position now with a view to averaging UP if it starts to
recover. If I do so I will be prepared to hold while the stock price drops
because I would be buying into a downtrend. Again, it may best to wait for more
positive news.


June 13, 2006


I sold the rest of my ING Canada today as well as just a small amount of my
Northbridge and a small portion of my Wendy’s all just to raise some cash. At the
moment I don’t plan to sell anything else.


Kingsway credit rating was reaffirmed at BBB- by Standard and Poor’s which
could be viewed as a minor positive. Wednesday there is a consumer price index
report coming out that should move the market one way or the other. Hopefully
the market already expects it to be based (high inflation) and if so then their
might be little reaction if it is high as expected.


For those in oil, it is interesting that oil stocks have come down so much
when oil itself is not really down all that much… (In any event I don’t follow


June 12, 2006


Another ugly day for stocks. And this could certainly continue if more people
decide to cut their losses and get out. I understand that certain economic data
that will come out this week as well as speeches by the U.S. “Fed Governor” will
be closely watched and could throw the market either higher or lower depending
if the market likes what it hears.


Hopefully before two many more weeks the market can start to focus on Q2
earnings which are likely to be strong…


It would of course be nice to be sitting on some cash to take advantage of
bargains at some point… I may possibly trim some of my positions to raise
cash. Possibly the rest of my ING Canada, maybe some Wendy’s. I may consider
somewhat trimming anything that we are not rating a Strong Buy at or above the
current price. The decision to try to cut losses in a market decline is very
specific to each individual and includes the tax status, the risk tolerance, the
stage of life and other factors.


I’m certainly hopeful that the down-turn will not get much more severe. On
the other hand it is hard to feel optimistic about the markets direction in the
next few weeks at least. As always the market tends to do well in the long terms
but the bumps along the way can be tough to live through.


June 11, 2006


Dalsa is updated and remains rated
Speculative Weak Buy / Hold at $15.00. It seems like a good small technology
company but it definitely had some struggles in 2005. If profit returns to the
2004 level the stock price would definitely rise. I hold shares and will likely
continue to hold. I would consider buying more if it dropped under $13 again.


Note that an edition of the free newsletter was sent out late on Friday. If
you did not receive it, you can access it here.


Cognos has fallen hard since we last
updated it at $43.42 on April 8. At that time we rated it Weak Buy / Hold. The
company announced that Q1 earnings would likely be only 15 to 19 cents per share
compared to last year’s 25 cents. The earnings decline is partly due to the
higher Canadian dollar. But the biggest reason for the share price drop is that
the Securities and Exchange Commission (SEC) is looking at how it allocates or
recognizes revenue. This caused a delay in filing the last fiscal earnings
report in the U.S. and a delay for Q1 as well.


The SEC investigation at first glance appears to be much ado about nothing.
They are looking at the allocation of revenue between the actual software and
the support services. Cognos apparently provides both the software and at least
some support for a bundled price. An SEC investigation sounds like an ominous
thing. But in this case the issue seems less than ominous. The Cognos press
releases do not suggest that any changes in earnings will result. (I am not so
sure of that, I think there could be some change in earnings as the revenue
recognition could affect how the software development cost is amortized).


I note that Cognos has no debt and has a about $6 per share in cash and
short-term investments. Therefore it would appear to be in absolutely no danger
of any financial difficulty. I also note that it’s free cash flow generally
exceeds earnings, which is normally a sign of conservative accounting. It would
be well positioned to buy back shares after the accounting issue is settled.
Over the past seven years that I have followed the stock it has always had a
high price/earnings ratio. Now it is trading at a much more reasonable 21 times
trailing earnings (although note that earnings may decline this year).


This could turn out to be a wonderful opportunity to pick up the stock at a
more reasonable price. However, wading into an SEC investigated stock is
certainly somewhat risky. At this point it is probably best to wait until the
SEC issue is resolved and the Q1 report is released. That should also provide an
indication of the earnings and revenue outlook.


More aggressive investors could consider starting to average in at this


June 9, 2006


Note that the TSX has recently been simplifying a number of stock symbols.
For example SJR.nv.b becomes SJR.b, ATD.nv.b becomes ATD.b. If you are tracking
stocks, be careful to update your symbols. If a stock is shown as not trading,
it may be because the symbol has changed. On this site it is going to take some
time before all the symbols are updated.


Performance figures are updated. The last
month has not been good. But we did lose less ground than the TSX market and the
return this year to date is still relatively good and are well ahead of the TSX


I decided today to sell most of my ING Canada and entered a sell at the bid
of $56.05 I have approximately zero in cash and 100% in equities and I thought
it prudent to move something to cash, in light of recent market weakness. ING is
very strong but it also trades around 2.5 times book value which is aggressive
for an insurance company. I had mentioned a number of times in the past that at
any time I might lighten up even on stocks that we still rate highly. I am very
highly concentrated in the top picks here and for diversification may sell some.
Right now, I have nothing else in mind to sell. I will not be selling any
Kingsway. I will also treat the ING Canada in the model portfolio to be sold at the opening price on Monday (that is more fair than me assuming it sold


June 7, 2006


It has been an ugly few days in the market and the markets have trended down
significantly since May 10. I can offer no assurance that things will not get
worse. On the other hand earnings are strong and stock market valuations are
generally reasonable. Strong companies that make double digit returns on equity
and that trade at reasonable prices will, on average, be good investments in the
long term. The short-term however is always unpredictable. Hopefully what we are
experiencing is short term pain in return for long term gains.


June 5, 2006


The DOW and the TSX were both down 199 points today…


Kingsway was down 4% to $20.81. This is
now well below its high of around $25. I don’t know of any material specific
reasons for the decline. It just seems investors are nervous about this stock.
With the overall stock market being down, Kingsway may not have gains on any
investments stocks it sells this quarter and may report losses. Certainly its
unrealised gains will decline unless the market recovers in June. But these are
non-operating items. The market usually focuses on underwriting profit and on
cash yield on investments. I know of no reason that Kingsway should not continue
to report good underwriting results. The higher Canadian dollar hurts it
somewhat but not to a huge extent since it also has substantial costs in U.S.
funds. The company is facing a low growth period but the stock price appears to
assume that growth will be stagnant for several years…


It is disappointing that the company does not appear to be buying back its
own shares – as it indicated it would. Perhaps it will start to based on the
latest price decline. There was also a small amount of insider selling lately
which is not encouraging. Overall the stock looks attractive and I am
comfortable holding. However, property insurance stocks do tend to be risky and


It is always depressing to see prices fall on the stocks one holds, but in
the long run it is long-term earnings per share growth that matters most and not
the short-term volatility in stock prices.


June 3, 2006


Wal-Mart is updated and rated Buy at
$48.34. The growth chart for annual earnings and revenue per share is a thing of
beauty for this company. Future growth may slow but I would not bet against a
track record like this. My theory is that when it comes to earnings per share
growth consistent Winners usually continue to Win and losers usually continue to
lose. Note that Canadian investors face currency risks investing in this stock.
Gains in the Canadian dollar hurt the returns in Canadian funds versus U.S.


June 2, 2006


Target, the big U.S. retailer is added as a new stock on our list. Our
initial rating is Buy at $48.82. (This was evaluated at the closing price of May
29, but today’s price was about unchanged at $49.19). This stock has an
excellent history of growth in earnings per share. The valuation of big U.S.
“blue-chip” stocks like this has recently come down to attractive levels in
terms of P/E. For that reason we have been adding more U.S stocks to the Site.
Note that Canadian investors face currency risk.


May 30, 2006


With the market decline today it continues to look like markets are going to
be difficult, probably for some months. Things could turn around quickly but it
seems like markets overall are going to be tough. I don’t like the cliche that
it is “a stock pickers market” since I think it always makes sense to pick the
best stocks if you can. But it is true that in any market some stocks will still
rise. Still, it is always difficult to escape some pain if the markets in
general are going down.


Reitmans Canada is updated and rated
Speculative Buy at $20.15. (Price today was $20.39). In some ways it does not
get much more boring than a women’s clothing store. Then again this stock is up
25% since we first added it to the Site as a speculative (higher) Buy at $16.06
– which is not so boring at all!


Stantec is updated and rated (lower) Buy
at $22.72. This is a stock we first rated as a Strong Buy back in 1999 at
(adjusting for two splits..) $2.50. Most recently we called it a Buy in march at
$19.90 ($39.79 before the recent split). It’s a great company and the graph of
its 10-year earnings per share growth shows very steady and strong growth. The
share price has been somewhat volatile over the years but the earnings on an
annual basis have grown steadily. It does look fully valued at this point
however. And there is the risk it will be hurt as the construction industry in
the U.S. appears to be softening. Still, in the past 10 years it has managed to
grow every year…


May 29, 2006


Another good day in the markets… ING Canada has been volatile but seems to
bounce back well after any declines – up $1.01 today. They will start offering Aeroplan points in September so that may be a competitive advantage – but then
again they must pay for those points and it will cost a lot to buy the Aeroplan
points for existing customers. But they can entice new customers with these


May 27, 2006


It ended up being a good week in the markets. Nevertheless with interest
rates still climbing it’s not clear that the market decline has ended.


Canada Bread is updated and rated Weak
Buy /hold at $59.50. That’s back up from a recent decline to the $50 range in
response to a good Q1. It seems about fully valued now… It’s a good company
though and so we would not sell it at this price.


May 25, 2006


A welcome jump in the market today. It would be nice to see two positive days
in a row… We will have several updated reports by Sunday.


May 22, 2006


The decline in the markets in the past two weeks or so is certainly dis-heartening.
But in many ways it comes with the territory. Markets tend to go up in the
long-run but certainly not in a straight line. It’s tempting to feel bad about
about not jumping out of the market two weeks ago. And it’s tempting to think
about getting out now. It’s hard to feel optimistic about the market in the next
few weeks or months. It seems like inflation and high energy prices are finally
having an impact and pulling markets down and that could certainly continue and
get worse.


On the hand it is very hard to time the markets. Those who got out a couple
weeks back may still be out when the market turns around and may miss a big
rise. The list of of famous rich investors who are successful market timers
seems conspicuous by its absence. The market has risen by a huge amount since
the bottom about three-and-one-half years ago. Over that time there were periods
that I felt quite pessimistic and might have gotten out. But I would have
regretted it as the market pulled ahead.


So… while I don’t feel optimistic about the markets in the short term, I am
reluctant to sell the shares I own. Possibly I will trim some positions just to
be prudent but I will not be bailing out of the markets.


Each individual investor has to make their own choices in these situations.
For younger investors it may make a lot of sense to stay in the market and
continue to buy in on a steady basis from savings. For older investors who are
not investing new money, it certainly may not be prudent to be 100% in equities.
But if a retired investor is well diversified and has a suitable asset
allocation in equities, bonds, cash and other assets then it may make sense to
stay in the market. The point is that the asset allocation decision and any
attempt at market timing are very much individual decisions that depend on
individual circumstances and preferences.


Insurance  Stocks


The material below reviews how insurance companies work and then reviews
data for our insurance company picks – a bit of a long story, I may move it to
the articles section later..


Property and liability (casualty) insurance stocks can be though of as being
two businesses. The first business is the insurance or “underwriting” business.
The second business consists of investing the insurance premiums that always
build up in an insurance company.


Profits on the insurance business itself are measured by the “combined ratio”
which is the ratio of the total of claims and operating expenses divided by the
insurance premiums related to a particular period of time. A combined ratio of
less than 100% means that the company is making a profit on its insurance


For each year an insurance company can only estimate its combined ratio
because it can only estimate what its ultimate claims pay-out will be for
accidents and claims related to that year. When a company reports its combined
ratio for each year we can break that ratio out into an “accident year” combined
ratio relating strictly to that year plus or minus an adjustment related to
prior years.


For example Kingsway reported a combined ratio of 97.2% for 2005, which is a
good ratio. However, Kingsway reports that its accident year combined ratio for
2005 was even better at 95.8% prior to recognizing a loss of 1.4% related to
prior years (this prior years adjustment is called unfavorable development).


On the one-hand a 95.8% combined ratio is excellent. On the other hand the
market gets nervous about the unfavorable development related to prior years.
Kingsway has had a history of unfavorable claim expense development and the
market wonders if it can trust that the accident year ratio for 2005 will really
turn out to be as good as 95.8% – or will Kingsway have unfavorable development
related to 2005?  Kingsway maintains that it has learned its lesson and
that it is now conservatively reserved. If so we should expect positive reserve
development in future years.


For some reason analysts usually focus largely on the reported combined ratio
even though it may be affected by prior year adjustments. I would prefer to
focus on the adjusted or accident year combined ratio, excluding prior year’s


My thesis on insurance has been that rate increases (particularly for
automobiles) probably over-shot the mark by 2003 and that we would now see
positive developments in relation to 2003, 2004 and 2005. To a large extent this
has been the case.


The other big business for insurance companies is the investment of their
equity and debt capital as well as the investment of un-paid insurance claims.
The balance sheet of a property insurance company will show a large liability
ear-marked for future payment of claims. This is often referred to as a
“reserve”. Most of this money is not actually owed on any particular claim.
Rather it is a pot of money set aside that is meant to be an estimate of the
amount that will eventually be paid out on claims incurred as of the balance
sheet date. Some of these claims may have not even been reported yet to the
insurance company but they still need to notionally set the money aside for


The pot of money that is notionally ear-marked for future payment of claims
is meanwhile invested in bonds and stocks to earn a cash yield. Insurance
companies count on this cash yield for much of their profit. In fact, in many
cases an insurance company that merely breaks even on its insurance operations
can still achieve an acceptable overall return on equity through its profits on


Typically an insurance company invests mostly in shorter term bonds although
it also usually has some funds in longer-term bonds, dividend paying stocks and
other stocks. Recently cash yields on such investments have been in the 3 to 5%
range. However this can translate into 6 to 15% return on equity given that the
pot of money that an insurance company has invested is often two to three times
(or more) larger than its common equity value. The leverage comes from investing
the money that is ear-marked for future claims payments and in some cases
additional leverage is created through debt on the balance sheet.


In addition to the cash yield on investments, insurance companies often have
capital gains on investment and occasional capital losses. They also typically
have some “unrealised” capital gains or losses since they are not always
required or allowed to mark their investments to market. These gains or losses
usually add to profits in the long run but are usually ignored by analysts in
the short term as they are so unpredictable.


With the above background, we can now take a look at some ratios for our
insurance company stock picks.


  % U.S. % Auto % Commercial. 2005 reported Combined Ratio 2005 Accident year Combined Ratio
Kingsway 70% 41% 53% 97.2% 95.8%
Northbridge 16% 38% 90% 92.9% 95.9%
ING Canada 0% 56% 44% 86.0% 92.2%

The table above reveals that Kingsway does most of its operations in the U.S.
while ING Canada has no exposure to the U.S. All else being equal I would prefer
a 100% Canadian exposure. We can also see that ING has the largest exposure to
automobile insurance (which I believe has been the most lucrative segment in
recent years). ING also has the least exposure to commercial insurance, which is
probably riskier than personal insurance.


The above table also shows that all three companies have good reported
combined ratios. They are all making money even before considering investment
cash yield and investment gains and losses. With a 97.2% combined ratio Kingsway
made 2.8% on its insurance (good but not exceptional). Meanwhile ING made an
incredible 14% on its insurance which extraordinarily good.


But we should also look at these figures after adjusting for retroactive
insurance profits related to prior years. On this basis the companies look a bit
more equal. Kingsway and Northbridge both made around 4.1% on insurance in 2005.
ING made 7.8% which is exceptional. However we also have to be aware that these
are only estimated figures. Kingsway has a habit of over-estimating its profits
and then faces negative retroactive adjustments later. ING and Northbridge have
more often under-estimated their profits and then had positive adjustments
later. But Kingsway claims it has reformed…


Based on the above table in isolation ING would look best.


  Price P/B Yield Interim P/E fiscal P/E adjusted Interim ROE fiscal ROE adjusted
Kingsway 22.25       1.37 1.1%      8.53          9.7 16.1% 15.0%
Northbridge 33.61       1.59 2.0%      8.42          8.6 18.8% 21.0%
ING Canada 52.26       2.29 1.9%      8.63        16.9 26.6% 16.7%

The above table shows that Kingsway is trading at only a 37% premium to book
value while ING is trading at a 129% premium. All three companies have very
attractive P/E ratios below 9. But these are distorted upward due to capital
gains and for Northbridge and ING, due to retroactive recognition of increased
profits that actually occurred in prior years. It is very difficult to precisely
adjust the figures, but our adjusted P/Es remain very attractive for Kingsway
and Northbridge but is somewhat high for ING.


On this basis, in isolation, Kingsway and Northbridge look quite good and
appear preferable to ING.


  Invested Money Book Equity Book value Leverage Market Cap Market Value Leverage Debt
Kingsway     3,398     925.5   3.67    1,271        2.67      416.5
Northbridge     2,593   1,080.3   2.40    1,713        1.51           –  
ING Canada     6,466   3,046.0   2.12    6,989        0.93      127.0

The above table reveals the leverage on investments. For every $1.00 in book
equity Kingsway has $3.67 in invested assets. All else being equal this is very
attractive. ING has “only” $2.12 in invested assets for each dollar of book
equity. All else being equal if both companies made the same on their insurance
operations, Kingsway would have a higher ROE since its cash yield on investments
is more leveraged. Partly this is due to Kingsway’s use of debt (which however
adds to risk) and I believe it would also be partly due to the fact that
Kingsway’s claims liabilities take longer to settle (They are able to hold onto
the money longer due to the nature of their business.


The leverage available to new investors is reduced because the shares trade
above book value. For every $1.00 invested in Kingsway, the investor effectively
owns $2.67 in invested assets. This is an attractive leverage. Due to the high
price to book ratio of ING, an investor owns $0.93 in invested assets.


Therefore it appears that an investor in ING is counting on growth and /or
higher profits on the insurance itself while an investor in Kingsway could
expect a reasonable return from the cash yield and needs a smaller boost from
growth or profit on the insurance. Northbridge is somewhere in the middle.


Based on this last table, Kingsway appears to be the most attractive.


Overall considering that insurance companies are inherently unpredictable and
have different exposures to weather impacts, I prefer to spread my insurance
investments across all three.


I believe that insurance companies should continue to make high profits on
their insurance operations particularly in automobile insurance. However, the
impact of storms and hurricanes is very unpredictable. Kingsway had little
exposure to hurricanes last year while Northbridge had some but Northbridge has
reduced its exposure for 2006. ING was unaffected by hurricanes last year but
would be affected if hurricanes or other storms hit Canada.


Due to the recent market downturn, these companies will likely have lower
unrealized gains at the end of June. They may also face realized losses on
investments. On the other hand rising interest rates are good for them in the
intermediate and long term in terms of their cash yields. They have generally
reduced the term of their bond investments and seem well positioned for higher
interest rates.


Overall Kingsway and Northbridge look quite attractive and ING also looks
like a Buy. In the long-run they should do well, but the short-term is less
certain. At this time I believe there is relatively less down-side risk in
Kingsway and so I see this stock as the best risk/reward ratio.


Ultimately, subscribers must decide for themselves which stocks to invest in.


May 21, 2006


Western Financial Group is
updated and rated Speculative Buy at $3.02. This is a small company with big
ambitions and is available at a reasonable price. I don’t see any near-term
reason to think that the price will jump. Instead it will probably be a longer
term performer. The price could be volatile in either direction. In the past 18
months the shares fell from $2.70 to $2.00 then rose to over $3.30 but then fell
back to about $3.00. Trading volume is up to about 60,000 shares per day and
there is recently more interest from small cap analysts. The company is
converting $10.5 million in debentures into 4.2  million shares (13% of the
existing share count) on June 30 this year . This could cause down-ward pressure
on the share price as these debt investors may not be interested in holding


May 20, 2006


Manulife Financial is updated and remains
rate Speculative Strong Buy at $72.83. With yet another quarter of growth over
20% it seems like somebody forgot to tell Manulife that a huge company doing
over $30 billion in revenue per year can’t grow fast. I call it speculative
because the accounting is a “black box”. But based on the P/E ratio of 17.1 it
is not pricing in all that much growth. It could certainly fall a bit if the
market continues down but in the long term it seems quite likely to do well. I
would like to add to my position in this stock.


May 19, 2006


Home Capital is updated for Q1
earnings and rated Weak Buy / Hold at $31.97. For the first time in over 10
years quarterly earnings fell. The stock price fell about 25% in response.
Perhaps this is an opportunity to buy it at a more reasonable price. But I
prefer to wait and see if growth resumes this quarter. It could be considered a
Speculative pick for more aggressive investors. (Our report is dated May 15,
there was a delay in getting it posted but the analysis was done May 15).


This was clearly a bad week. Our Picks lost ground but not as much as the
overall markets did. Performance figures are updated and still look quite strong
for the year to date.


May 17, 2006


While the drop in the market is scary, it is very difficult to guess if it
will keep dropping. For prudence reasons I would like to built up some cash and
may sell some smaller positions. At most I might trim some of my insurance
positions (maybe Northbridge) but I am not going to abandon these stocks when
they still have such strong earnings. Western Financial could drop just because
it is a small company and those tend to be more volatile. Listening to the
conference call Western is making steady progress but as a longer term play it
could well fall back if investors grow nervous due to overall market conditions.


The markets could also turn to the upside quickly… The Q1 earnings reports
were strong and the P/E on the DOW and S&P is lower than it has been in years.
That should limit the damage unless interest rates rise a lot more. Overall this
correction is a reminder that markets do not always go steadily up. We have been
a bit spoiled with strong markets for the past three and one half years.


May 16, 2006


Cognos fell hard today for the reasons I
mentioned yesterday. It could always fall further but then again it is a strong
company with no debt so I it may not fall any further. I would definitely be
interested in starting a position at this price. I would buy some and then wait
and see what happens, I would not take a large position all at once until we see
where it is going. However, I am about fully invested at the moment so not sure
I will be able to Buy any.


A nice recovery on the insurance stocks today.


May 15, 2006


I was surprised at the announcement that Sleeman’s was for sale. I did not
think John Sleeman would sell it. Also in some ways I am surprised it is worth
much to say Molson or Labatt. But maybe each will bid on it just to keep it out
of the hands of the other. I would have thought it would be better to stay as an
independent and go the Income Trust route. Some analysts think Sleeman’s could
be worth $19. It’s hard to say what it is worth to a “strategic buyer”. I have
no plans to Buy.


Cognos had a couple of troubling press releases. First they will be late
filing 2006 fiscal earnings with the Securities and Exchange Commission. It
appears to be a non-cash accounting debate but I imagine what the SEC wants to
do will lower the reported earnings. Also they hired a new VP for sales/
operations and did not explain if someone had left or been fired. I would not
buy the stock yet. But if it falls a lot a some point it should be great value.


Today was the third bad day in a row in the markets. That is scary even for
longer term investors. It was good to see the DOW up today because the DOW is a
much better broad market indicator than is the TSX index. I had mentioned under
May 10 that I thought moving more to cash would be a good idea. However, it is
always hard to decide what to sell and I did not end up selling anything.
Certainly our picks could continue to move lower since there is always that risk
in the market. However the TSX has fallen faster than our picks these past few
days. I am hopeful that things will look better the rest of this week. I tend to
look at things one stock at a time and will be adding more Q1 updates…


May 13, 2006


ING Canada is updated and rated Buy at
$52.40. The stock fell about 10% on its earnings release of Thursday. By any
reasonable standard I believe that the earnings were quite good. The company
estimates it made 3.5% on its insurance operations in 2006. Because insurance
companies often make most of their money on investments it used to be that just
breaking even on the actual insurance was considered pretty good. They would
have made around 5% absent some unusual expenses. Counting retroactive profit
from past years they reported 9.5% total profit on insurance operations which is
stellar. They also obtained a 4.8% pre-tax cash yield on their large investment
portfolio which is good. In addition there was very strong realised gains on
investment trading but that is usually considered as a one-time unsustainable


My basic thesis that auto insurance is highly profitable is intact for this
company. ING Canada gets 50% of its business from auto insurance. The company
has relatively little re-insurance with other companies. It has essentially no
foreign currency risk. It has very little debt. Overall this is probably the
highest quality property insurance company in Canada. The only problem is that
much of the quality is already reflected in the price and it does have a high
price to book multiple at 2.3. Given that the stock price fell on strong
earnings it seems the market was perhaps pricing in unrealistic short-term
earnings expectations.


Overall I am comfortable holding this insurance company along with the others
on this Site. ING provides higher quality but is relatively more expensive.
There is always a risk it can fall further but in the long-term I suspect it
will do well.


May 11, 2006


ING Canada fell almost 5% in spite of reporting excellent earnings. Partly
this probably reflects fears of lower income ahead. Also it probably represents
the fact that investors are generally feeling nervous about higher interest
rates. I’ll update my report on ING by Sunday.


Western Financial reported “okay” earnings. Not great but still progressing
in its growth plans. Also announced it will redeem convertible debentures which
will add to the share count. I would hae thought the shares might fall on this
report but they rose.


I note the Manulife CEO is selling a small portion of his shares to diversify.
I have sometimes overreacted to insider selling, but certainly it gives me less
confidence in holding the stock. I will update the Manulife report soon as well.


May 10, 2006


Some good gains today … Western Financial has fallen from its high of over
$3.40 to $3.05 to $3.09 today.  I already have a lot or would be tempted to
Buy here. This is really not that much volatility considering this is a small
cap stock. Volumes are lower now than when the stock was reaching its highs. I
look forward to the Q1 earnings report in the next few weeks and will likely
neither Buy nor Sell until that comes out. ING Canada reports tomorrow and I am
hoping for good things there…


Interest rates rose again today in the U.S. putting their Federal Funds rate
to 5% and consumer prime rates around 8%. The market has done well in the face
of these increases. When it comes to the general markets I am definitely worried
due to higher interest rates and higher energy costs. When it comes to oil and
commodity related stocks I can’t guess which way those will move.


The Canadian dollar has really jumped lately. I expect this to hurt many
Canadian companies that have operations or sales outside of Canada (Manulife is
an example). Companies that import goods to sell in Canada will be helped.
Canadian Tire is an example. American companies that do a lt of business in
Canada (Wendy’s is a prime example due to its 82% ownership of Tim Horton’s)
should be helped by the higher Canadian dollar as far as their U.S. share price
goes. Some of these currency impacts are hedged away in the short term but
hedges are usually only temporary. Even with currency pushing a stock in a given
direction, many other factors could cause the stock to move the opposite way.


Despite some danger signs I still am optimistic that InvestorsFriend’s stock
picks will do well on average. But if the market turns down it will be hard to
escape some damage. Therefore it may be prudent to move some funds out of stocks
and into cash especially for anyone who is fully invested in stocks and/or
bonds. Bonds will not do well if interest rates keep rising.


May 8, 2006


Kingsway was up nicely today, hopefully more to come as the recent drop in
price seems unjustified.


May 7, 2006


Telus is updated and remains rated (higher)
Buy at $45.95. I have switched to using the non-voting shares in the analysis as
those shares are a bit cheaper and in this widely held company the value of the
vote to a retail investor is approximately zero, in my opinion. The non-voting
shares exist so that Americans can hold a high proportion of the company without
violating Canadian voting ownership restrictions on telecommunications
companies. Buying Telus is basically a bet that their current huge momentum in
wireless sales will continue and that higher profits on wireless will outweigh
declining profits on the fixed wireline business.


May 6, 2006


Those who chose annual subscriptions through Paypal. I want to remind you
that as indicated in the subscription sign-up page,
the annual subscriptions do renew automatically on the renewal date, unless they
have been canceled. However, recognizing that a year is a long time and that in
some cases the renewal may not be wanted, simply notify me within four weeks of
an automatic renewal and if requested I will cancel the renewal and make a full
refund through PayPal. Unfortunately our system is not set up to issue reminders
when the renewal date is approaching, but you can see it by clicking “My
Account” when you log in.


Performance figures are updated. Some of the picks were quite volatile this
week but in the end there was only a small loss for the week.


Kingsway Financial is updated and rated
Speculative Strong Buy at CAN $22.36. Property and casualty insurance companies
are exceedingly difficult to analyze because of lumpy realized gains and losses
on (mostly) stock sales and because of very lumpy retroactive changes to claims
expenses of prior years which flow through the current year’s income statement.
I am attracted by the fact that the stock sells at 1.4 times book value and
appears to be earning about 15% on equity. My hope is that the claims reserves
for 2005 were too high (given the price increases of 2003 and 2004 and given
reluctance of people to make claims and given lower limits on injury claims for
Ontario). It’s less clear if that situation also applies in the U.S. Over the
years the company has produced strong earnings but the share price has been very


All else being equal I would prefer to invest in Canadian insurance
operations. Kingsway operates mostly in the U.S. which introduces currency risk
for Canadian investors.
I would also prefer to invest in personal standard auto insurance while Kingsway
is into mostly commercial and high-risk insurance. Overall Kingsway seems to be
well valued and I am comfortable with a large position in it but I am prepared
to accept near-term volatility. In the next few months I am hopeful that the company
will be buying back its shares and that the price will rise to at least $24. If
the company were to recognise retroactive lower claims expenses for 2004 or 2005
this would create an up-side potential but even if this occurs it might not be
until the end of this year. Higher interest rates hurt the investment value but
increase the investment income yield.


May 4, 2006


I was disappointed by the the drop in Kingsway Financial. Earnings were down
but insurance companies are usually judged on operating earnings and that figure
was up 11%. Clearly this sector of the market remains out of favor and perhaps
Kingsway is particularly out of favor. When I read the report and listened to
the conference call I thought it was a good quarter. In their report TD Bank
also thought it was a good quarter but they believe the stock only deserves a
price to operating earnings multiple of 10 and a price to book value ratio of
1.3. To me those kind of multiples look low. I added to my position today. Given
a current price to book value ratio of under 1.35, I don’t see why the stock
should fall. I would expect the company to now begin to buy back shares. Overall
it looks like this is going to require a lot of patience. I’ll update my report
by Sunday.


May 3, 2006


Kingsway Financial released earnings after the close of markets today. Net
income was down due to a small loss in investments sold. But operating profit
from insurance and from yield investments was up. Normally the market focuses on
operating earnings and so I would expect the price to rise on this news. However
there are always lots of factors to consider. I will wait and see how the market
reacts before I update my report but I would be prepared to buy tomorrow unless
it happens to jump too fast at the open. I continue to think of this as a solid
long term investment although I am not expecting it to move up very quickly. One
negative factor is the currency risk since it does most of its business in the
U.S. But I believe there also many positive factors including the strong current
profits and strong balance sheet.


I sold half of my New York Stock Exchange shares today. I still like it long
term but it’s not a stock I have evaluated (other than at a very high level for
reasons I have stated earlier), though I have made comments on it
earlier (search below using Control-F if interested). It was a speculative pick
that I made money on although I certainly missed selling it at the top. Given
the trend in our dollar and given that NYSE seemed to keep sliding I decided to
sell half and limit my exposure. For consistency I will also notionally sell
half in the Model Portfolio.


May 2, 2006


Based on our recent report, I added a few shares to my Northbridge position
on Monday. I note that Monday was a negative day in the markets but today was
positive. Strong earnings reports are so far holding the market up in the face
of higher interest rates and Higher energy prices. I would not be surprised to
see the overall market retreat. My hope is that the Buys and Strong Buys on this
site will continue to outperform the market. Perhaps tomorrow will be strong in
Canada based on the Federal budget. Also I am expecting more good earnings
reports in the next week or two.


April 30, 2006


I have reorganized the stock table above to show separately those stocks that
trade in the U.S. or in both Canada and the U.S. U.S. residents generally do not
have access to trade stocks on Toronto (there are special procedures and higher
costs involved). Therefore showing these stocks separately will allow any U.S.
subscribers to this site to see which stocks they can easily access. Some of the
other stocks also trade on “Pink Sheets” in the U.S.


Canadians will generally want to trade these stocks on the Toronto exchange
to avoid currency conversion charges. However some Canadians may have U.S.
dollar accounts and in that case it makes sense to trade the stocks on the New
York or NASDAQ exchange.


This Site will continue to focus on Canadian companies but will likely also
include more U.S. stocks. Canadian investors should be aware that the rise in
the Canadian dollar lowers the Canadian return when U.S. stock prices are
converted back to Canadian. For Canadians it is difficult to completely avoid
U.S currency risk. Some Canadian companies report in U.S. dollars. And some
large Canadian companies do most of their business in the U.S.  Currency
risk is driven mostly by where a company does business and not much by the
exchange that it trades on. Most U.S. based companies do most of their business
in U.S. dollars – as do some Canadian companies.


Thomson Corporation is updated and rated
Buy at U.S. $39.91 or Canadian $44.68. With a P/E of 27 it does not look like a
bargain stock. But I believe that it’s earnings are understated and the price to
free cash flow ratio at 20 may be more representative. I like that that it is in
the information business and I like the subscription based revenue model.
Customers are probably reluctant to switch to other products after they have
integrated Thomson products into their work. Possibly an entity like the New
York Stock Exchange would like to acquire its bond trading platform TradeWeb and
if so I suspect that would be at a large gain. Canadians face currency risk on
this stock even when we buy on Toronto because the great bulk of its revenue is
in U.S. dollars.


April 29, 2006


Northbridge Financial is updated and
rated Strong Buy at $32.60. While insurance companies are inherently risky, my
view is that a company which has earned over 20% on equity for the past three
years and which has a very long history of profitability and which trades at
1.54 times book (and just 1.30 times book adjusted for unrealized gains) is a
good bet.


In valuing Northbridge many analysts will discount realized gains on
investments entirely. That is in spite of the fact that it has had such gains in
each and every one of the past 20 years!


Analysts also worry that insurance prices are dropping in Canada. That is
true but the company indicates that prices are still more than high enough to
achieve its target of a 15% ROE. Analysts also worry about Northbridge’s
exposure to further losses from hurricanes. However, the company has stopped
writing the Marine wind policies on which most of those losses occurred. It
still has some exposure in 2006 for policies written in 2005 but the exposure is
declining. There certainly can be no guarantees but the figures suggest to me
that Northbridge is likely to be a good investment both in 2006 and in the


Note that I could have updated Northbridge on Thursday night after it
released the positive earnings report. But it would do little good for me to
rate it a Strong Buy at Thursday’s close of $31.09 given that the opening price
on Friday would be expected to already reflect to some degree the earnings
report. Some stock rating sites inflate their performance by resorting to such
tricks -rating stocks at prices which are not available even at the instant
their report is published.


My own portfolio was down just a bit this week as I lost ground on Wendy’s
and the New York Stock Exchange Group and some others but made gains on a number
of stocks as well. I will update the performance figures at the end of next


April 28, 2006


Northbridge Financial released very strong earnings after the market close.
The profitability on insurance (before profits on investments) continued to be
very high at 9%. I am not sure if it will go up tomorrow or not. Ordinarily I
would think it should, but from past experience analysts seem to be very
conservative on the stock. There will be a conference call tomorrow at 9:30 am
and we shall see which way it moves after that. If it is trading about unchanged
first thing tomorrow then I believe it would be attractive to Buy at that point.
So far it still appears to me that this company is very profitable and should
continue to be profitable. Even if the market is unexcited about it I believe
that the increase in book value through earnings will push the stock price up. I
will update our report over the weekend based on Friday’s closing price.


The TSX Group is updated as (lower) Buy at
$48.50. The Q1 earnings were tremendous. By some measures like price to book,
the stock is very expensive. But the ROE is huge and the P/E is high but perhaps
reasonable given the ROE. The company announced some fee reductions which caused
its stock price to drop. My sense is that Q2 earnings will be very good and
therefore I bought some shares today. But given the uncertainty my approach is
to average in, not taking too big a position.


April 27, 2006


I did buy a small amount of TSX Group today, my strategy would be to average
in since the market price may not yet have fully reacted to the news of lower
fees ahead.


April 26, 2006


The TSX Group reported extremely strong earnings today. But the stock fell
because the TSX is lowering some of its prices to be more competitive. I have
almost completed my update and will post it tomorrow night. I will be rating the
stock a Buy. But be aware of the concern about increasing competition. I may buy
some TSX stock tomorrow and I am even thinking of selling part of my NYSE shares
and buying the TSX to have some of each. I may do the same in the model
portfolio but have not yet decided.


I note the insurance picks are creeping up and I am hopeful this foretells
good earnings reports on the way.


April 25,2006


New York Stock Exchange, a stock which I have no rating on but which is in
the Model Portfolio (for reasons why, search below using control-F for
Archipelago), has been volatile and trending down after having delivered big
gains earlier. In retrospect perhaps I should have sold at higher prices and I
have indicated all along that this was speculative. I also own it personally. I
find myself unwilling to see this partly because (quite honestly) that would
make me feel worse about not selling earlier. Also I still really like the
potential of this stock in the long term. So I would not be surprised if it does
trend lower partly because the NYSE is about to sell more of this stock… Still
I will likely hold onto it.


I bought a bit more Western Financial today at the $3.21 level. I am not much
bothered by this pull-back because it did run up rapidly to the $3.40 level.
Hopefully, the Q1 earnings report will support the recent price rise and more,
but that remains to be seen.


We should have some earnings releases and updates by this weekend.


I did sell half my Cryptologic today, per my comment yesterday. I felt I
owned too much of what is fundamentally a more speculative stock. I will also
notionally sell it in the Model Portfolio
and replace that half with CN.



April 24, 2006


I note cryptologic fell today. A subscriber pointed out that there is a site
called www.cryptologicsucks.com
that has a major hate on for this company. I don’t know what to make of it,
maybe just a very disgruntled former licensee. Still I may lighten my position
in this stock tomorrow out of caution.


Click for a look at the chart of
Wal-Mart’s price versus its earnings per share growth. Clearly the market is
predicting some trouble or slow-down a Wal-Mart. It’s far from clear if the
market be be correct.


April 23, 2006


CNR is updated and rated Buy at $53.49. It
release very strong Q1 earnings last week. Possibly I am being a bit aggressive
calling it a Buy after its recent strong price increase, but the earnings growth
has really been strong. I should add it into the Model Portfolio but right now I
don’t have anything that I should really sell in the model so I will hold off
putting it into the model for now.


April 22, 2006


An exceptional week. I updated the Performance figures after Thursday. I
should have waited until after Friday since it was another good day. The Model
Portfolio composition is updated for the addition of Wal-Mart. My personal
portfolio composition is also updated. See links above.


Western Financial Group
has risen quite a bit lately. It seems to me that this was eventually to be
expected given that it had been trading near book value ($2.13) no so long ago.
However, it could well fall back from here probably temporarily since stocks do
not often rise in straight lines. The company might decide to take advantage of
the higher price to issue shares. While that would hurt the price, it would
probably be good for the company long-term and if they need the money it simply
makes sense to raise it when the share price is higher. I’m willing to accept
volatility and I am not planning to sell any shares in this. Having built my
position at lower prices, I also am not planning to buy at this price because I
probably have sufficient exposure at this point.


April 20, 2006


Wal-Mart is added as a new listing rated
Buy at $46.47. Look at a stock price chart of Wal-mart and you will not be
excited. The stock touched over $60 way back in early 2000 and again in early
2002 and early 2004 and is well down from that level. But check out the earnings
per share and revenues per share growth in our report. (The graph is a thing of
beauty!) The company has been growing earnings quite steadily even as its stock
gyrated to probably unjustified heights and then came back down. Sure, growth
will not likely be as strong in future as in past but it still seems to be
growing at a health pace. And it is now available at a pretty attractive P/E
around 17.5.


I don’t have immediate plans to buy it myself but I will notionally sell the
HUB International in the model portfolio and replace it with Wal-Mart at
tomorrow’s opening price.


Our Picks may have lost a little ground today, although some were up. But I
was pleased that any losses today were minor on a day when the TSX market was
down 1.4% and this was after several very strong days for these picks.


Google releases strong earnings after the close. I will not hazard any guess
as to whether this stock is a good investment and I have not done any analysis
of it. What I can’t believe is that analysts and the media are quoting their
earnings on a basis that excludes stock based compensation. They report $2.29
per share non-GAAP and actual GAAP earnings 15% lower at $1.95. The biggest part
of this is stock based compensation. For years companies argued that stock
option compensation was non-cash and somehow irrelevant. They LOST that argument
big time. In my view, the fact that Google is reporting on this basis at $2.29
means they just don’t get it. They may have a fantastic business model but it
scares me that they they don’t seem to understand that giving out stock options
like candy, is an expense. And it’s also scary that the business media is going
along with this. Remember the last time that this sort of pro-forma nonsense was
happening big-time was back just before the market crash of the early 2000’s.
It’s unbelievable how investors can fall for this again. I have no opinion on
the value of Google stock, but certainly this nonsense is not comforting.


The New York Stock Exchange Group is not a stock I cover, but I had picked
the predecessor stock Archipelago as a speculative Buy earlier this year. As an
update, I continue to hold NYSE but I have no rating on it at this time. They
just released earnings which were 34 cents per share on an adjusted (ex-items)
basis. Annualized this would be $1.36 per year in earnings. This implies a P/E
ratio of about 55. Also the price to book value ratio is about 6.6. Again I have
no rating on the stock but clearly stock is “pricing in” a lot of earnings
growth. I believe that the underlying business is in a very strong position and
likely has a certain amount of ability to increase prices. It also probably has
the ability to expand into bond trading and to do further partnerships or
acquisitions. Nevertheless I consider my own position in it to be rather


April 19, 2006


At the top of this page is a link to
how to use this page. At the
request of a subscriber I just added in there a ranking of how the ratings are
ordered from Strong Buy down to Strong Sell.


The ranking order is as follows:


(higher) Strong Buy


Strong Buy


(lower) Strong Buy


(higher) Buy




(lower) Buy


Weak Buy /Hold


Weak Sell / Hold




Strong Sell


The word a “Speculative” or
particularly ‘(highly) Speculative” at the front of the rating would indicate
more speculative… but all stocks can be considered speculative to some degree
especially if too large a position is held in one stock.



It was a nice day in the markets for our picks today. Nothing spectacular but a good
number of our picks were up and this is on top of a good day yesterday.
(Logically I should have a longer term outlook and not care about day to day but
let’s face it as internet connected investors most of us check our progress at
least daily).


It a cliché to say that we are in uncertain times but I know that while I am
pleased with the gains this week, my mood will turn somewhat fearful, if we get
a couple of down days. I think that matches the overall sentiment of the market.
We are happy to still ride this bull up but we know that the bull market will
end some time, and we know there are dangers lurking from higher interest rates
and a possible slowing economy, people getting into trouble with debt etc. I’m
certainly hoping that the stock picks here will weather any storm better than
most portfolios but at the same time I am just saying that I think the market
could very well turn or even lurch down at any time. So far it seems the Q1
earnings reports are keeping the market momentum going. (Also oil prices and
gold when it comes to Canada although high oil prices are bad for many


April 18, 2006


Forzani Group is updated and rated Weak
Sell at $15.60. It did have a strong Q4 and apparently a good start to Q1. But
it looks quite expensive especially since the price has already moved up
materially due to the strong Q4. Management has a bit of history of missing
targets. Maybe it will turn around but much of the turn-around potential already
seems to be baked into the price. I have largely lost interest in this stock and
plan to remove it from the Site soon to focus on other companies.


Based on my recent comments about Shaw Communications, I added to my position
in that stock on Monday. In order to raise cash I sold my SICO at $19.86 rather
than wait and get $20 (and avoid the commission) when the announced take-over at
$20 is completed.


April 17, 2006


The week has started off with my property insurance picks moving higher.
Western Financial was down which I would view as a buying opportunity. It was
announced after the market close that the CEO of Wendy’s has quit. It will be
interesting to see if the stock moves up on that news or down, I would think up
but, we shall see… It may tend to gyrate in the morning as investors try to
figure out if this is a good thing or a bad thing.


It seems like a consensus is building that long-term rates will keep rising
for a while at least. I certainly cannot be sure of that but if anyone is really
confident that this will happen then one way to trade on that would be to sell
short a 30 year Government Bond. I know this can be done through TD Waterhouse.
I view this as quite risky, but if an investor is strongly convinced that long
term interest rates will rise then this is one way to profit if long-term rates
do continue to rise. One tip, would be to try to negotiate the price at which
the bond is sold short. The big brokers profit by charging a bid-ask spread of
probably 1% or more for small trades but it may be possible to negotiate.



April 16, 2006


I have just sent out an email with a link to a new edition of our free
newsletter. If you did not get that email, you can link
to it here. The free newsletter is sent to a separate list, you can check if
your email is on that list by entering it in the box on our home page.


April 15, 2006


As long-term interest rates continue to move up, it is worth thinking about
what to do. Raising cash and trimming both equities and any longer term bonds
might be a good idea. Income Trusts and higher dividends stocks would likely be
hit earliest by interest rate increases. Stocks that have the potential for big
earnings gains even if the economy cools a bit should be better bets. It’s hard
to say where insurance stocks fit in that picture, on the one hand I expect
there profits to be strong and to be fairly recession resistant. But they would
likely face some losses on the market value of their bond and equity portfolios
later in the year if interests rates rise. But on the other hand their cash
yield on bonds and preferred shares are rising with higher interest rates. So
overall I still the insurance stocks as better than most stocks as interest
rates rise.


Brampton Brick is updated and remains rated Speculative Buy now at $13.85.
This company was added to this site only on January 22. While it does not seem
that exciting, it did move from $12 to $13.85. In the initial report I indicated
that there was a risk of a write-off of goodwill and this indeed happened with
the Q4 earnings release. It looks like the company is taking some actions to
improve earnings. The biggest risk here is probably the risk that housing
construction slows.


April 14, 2006


Shaw Communications is updated and rated
Buy at $28.49. It released strong earnings on Thursday morning, but the market
was unexcited by the figures. As we had expected earnings and cash flow were up.
Subscriber growth in terms of basic cable, digital cable, internet and the new
digital phone service were all very strong. This is a company that becomes more
profitable with scale and it is growing. I am very much attracted to the growing
profits and cash flows. However, the price / earnings ratio is very high and
there are reasons for caution as explained in our report. The accounting is very
complex and I spent more hours than usual studying the annual report and notes.
Overall I am very comfortable holding this stock and intend to buy more. I
believe this stock has a good chance of providing a 15 to 20% annual return or
better over the next two years and I see relatively little risk of down-side if
held for the next 12 months to 24 months (although it could certainly fall a few
dollars if the general market turns down – and as with all stocks there is
always some chance of a bigger decline).


April 11, 2006


I note that long-term interest rates have been moving up the ten-year Bank of
Canada bond yield has gone up to 4.40% today up from about 4.20% in most of
March. This is a negative factor for all stocks but particularly for Income
Trusts and higher dividend paying stocks. It’s also very negative for longer
term bonds which fall in price as interest rates rise.


These higher interest rates as well as high energy prices are definite
negative factors for the market. I was hoping that strong Q1 earnings would
overcome this negative factor, but that remains to be seen. I am considering
trimming some of my positions to build cash and protect against the down-side.
However, it is always challenging to decide which positions to trim. I will post
any trades I make to this Site.


It seems that the market is cautious on the property insurance companies
perhaps partly due to recent Tornados in the U.S. Given the mild winter we had,
and the strong markets, I believe that the insurance companies will generally
report very strong earnings for Q1. But the market may focus continue to focus
on storm risks. I believe ING
Canada and E-L Financial have
very little exposure to hurricanes as they operate strictly in Canada.


April 9, 2006


Clemex Technologies returns to the list
above rated (highly) Speculative Buy at $0.38. This stock disappointed me deeply
in the past with both losses and (unforgivably) big revenue declines. But they
appear to have cut costs way back and refocused on the core product and have
been profitable for the past five quarters. This is an extremely small company
(that really should never have gone public). It now appears to have good
potential, but due to past mistakes and volatility caution is warranted. Still,
it is not a bad pick for a small amount of speculative money.


April 8, 2006


Cognos is updated and rated Weak Buy /
Hold at $43.42. I was hoping it would rate higher as I do like the company. It
may have hidden value, but the valuation based on achieved earnings seems too
high. A recent decline in earnings seems to be turning around but still
management is projecting an earnings decline in the next 12 months. I would not
want to bet against the company but the timing does not seem right to buy this.


On Friday I added a small amount to my holdings in Western Financial Group.


April 6, 2006


This week I purchased some shares in
Manulife, based on our recent rating of (lower) Strong Buy.


Tonight I was listening to the conference call for
Western Financial Group. It
sounded like this company will continue to grow steadily. It can be volatile and
if it issues shares the price could certainly drop. At times in the past it has
had to issue shares below book value to finance growth. Now the shares are above
book value and so at least any share issue should be above book value and that
may help  avoid a price drop if shares are issued. (Issuing shares below
book value is unfortunate because it dilutes both earnings per share and book
value per share). But it appears that over the next few years this is likely to
continue to do well. I own a reasonable amount but I am tempted to buy more.


April 5, 2006


A big day today with many of our Stock Picks up. Most notably
SICO has a take-over offer at $20 (which is
acceptable to management / insiders that own 34% of the shares and so it jumped
42% to close at $19.82.  Our last rating on the Stock was “Buy” and it was
in the model portfolio as well as in my own portfolio. Our first rating on this
stock was (lower) Strong Buy back in July 2003 at $10.53.


The takeover offer is for cash. For small holdings like 100 or 200 shares I
would wait for the cash (although I suppose it could easily be 6 or 8 weeks or
more before we see the cash)  and get the full $20 and avoid the trading
charge. For somewhat larger holdings like 1000 shares a $29 trading charge is no
big deal and maybe it would be wise to sell at about $19.80. It also depends if
you intend to put the cash to work right away or just sit on it. It seems
remotely possible that at some point it would trade above $20 but then again
management has basically accepted the bid so there seems to no reason the bid
would increase. On occasion I have seen a stock trade above the offer when the
acquiring company is trying make sure they get enough shares. But today it
locked in pretty tight at $19.81…  Also to get the cash you have to
tender to the offer through your broker, but note that after you tender you
don’t get the cash until the deal goes through. There is always a small chance
that the deal will not proceed, that risk can be avoided by simply selling


April 3, 2006


There was possible good news about
Northbridge at the close of
markets today. A.M. Best the insurance company rating agency removed a negative
indicator that they had placed on Northbridge because of a problem at Odessey Re
which is controlled by FairFax Financial which also controls Northbridge.
Apparently not all of the problems of Odessey Re are yet resolved so I am
therefore not sure if this news will help Northbridge all that much. But it did
seem that it was partly the negative action by A.M. Best that had hurt
Northbridge recently so therefore this latest news should be beneficial. See the
news at


McKenzie Financial a large division of IGM
Financial just reported strong sales for March. I suspect IGM has had a good
first quarter.


April 1, 2006


The first quarter of the year is over and we will start seeing earnings
reports in about 3 weeks. I believe that the earnings reports will generally be
quite strong, which, in isolation, should be good for the market. However,
interest rate increases are starting to have an effect. The Government of Canada
10-year bond yield has moved up to 4.27% from lows that were well under 4%. This
increase and fears of further increases will tend to hold the market back. Also
higher energy prices and stalling real estate prices may cool the economy.
Still, the economy so far has remained strong. Overall, I am feeling somewhat
cautious about the market. But I hope to continue to do well by being invested
in stocks that represent good value and which generally have good prospects.


March 31, 2006


IGM Financial is updated and rated Buy at
$48.35.  This has been a great and steady performer.


March 28, 2006


Canadian Western Bank is updated and rated Buy
at $40.71.This has been a steadily growing bank. Profitability has increased
with growth. It’s move into auto insurance probably came at a good time and
appears to be successful.


Reitman’s is updated and rated
Speculative (higher) buy at $20.50. This also has been showing steady growth.


March 27, 2006


I am not sure why Shaw
cable has fallen back to about $27.70 (from about $30 recently). Possibly
the market is worried about more intense competition and maybe higher capital
spending. But I like the increasing profits and cashflow they have reported. In
early February there were rumors a take-over offer of $45. If there was any
truth to that (even though Shaw denies it) it gives me added comfort. I would
like to buy more at this price.


March 24, 2006


Tim Hortons IPO price was $27 Canadian, it opened at $36.21 and closed at
$33.10. A nice gain of 23% for those who obtained it at the IPO price. 29
million shares were sold in the IPO and there were 44 million shares traded
today. This indicates that probably most of the lucky institutions that obtained
it at the IPO, sold their shares already (talk about lack of commitment to a
stock!). Many of the shares that were sold then traded hands again during the
day. It’s hard to say how many of the shares are now owned by Canadians.


Wendy’s hardly budged with the strong opening for Tim Hortons and then
Wendy’s fell as Tim H. fell during the day. This suggests that the Wendy shares
as of yesterday were already “pricing in Tim H. at around CAN $32. When Tim fell
below that Wendy’s dropped.


Tim H. made $1.19 per share in 2005 but management indicates that on a
pro-forma basis (as if the new shares were added) this was $0.99. I adjust that
to $1.18 when a goodwill impairment is added back net of tax. There it appears
that Tim H. is now trading at 28 times earnings. High but perhaps not outrageous
for this high quality company.


It’s hard to say if the shares will now trend up. Certainly there should be a
demand from Canadian investors. However if Tim H. goes up, so will Wendy’s and
then many Wendy share holders might sell to cash out their gains in Wendy’s.


Each Wendy’s share “owns” about 1.35 Tim H. Shares currently at U.S.$28.17,
therefore the market appears to be saying that Wendy’s without Tim H. is worth
62.88-1.35*28.17=$24.85. Wendy’s shareholders will push for more value out of
Wendy’s such as by selling its Baja Fresh chain and perhaps by handing out the
cash just raised on the sale of Tim Horton shares.


I’m still hoping for some increase in Tim H. and Wendy’s as the Canadian
retail investor jumps in. But that is certainly speculative.


My insurance stocks have not done well lately – Part of the reason is that
Fairfax Financial (parent of Northbridge) has some serious accounting and
regulatory concerns to deal with. It seems the whole sector is being looked at
as more risky. On the plus side, there is no indication that the above average
profits in the industry will not continue. With recent price drops these stocks
sport quite low P/E ratios. So I remain optimistic about these stocks, while
acknowledging that the sector is a risky one by nature.


I will update the Performance figures for all the stocks at the end of next


March 23, 2006


The big story for tomorrow will be what the new Tim Hortons shares trade at.
Wendy’s based on its total earnings looks overvalued -using a normal P/E of 20
or lower. (That’s why my last rating on Wendy’s above is a low rating)  BUT
with Tim Horton’s now trading separately and with Wendy’s still owning some 82%
of Tim Hortons, Wendy’s now has to be valued based the fact that each Wendy’s
share now represents about 1.35 shares of Tim Hortons plus a share of Wendy’s
without Tim Hortons (including about $5.70 per share of extra cash just now
received from selling 18% of Tim Hortons). It’s hard to say what Wendy’s should
trade at absent Tim’s but I have heard figures of around $25 to $30. Assuming
$30 then with Tim’s at $23 U.S. Wendy’s would be worth $23 times 1.35 plus $30 =
$61. On that basis if Tim Hortons jumps to U.S. $30 tomorrow then Wendy’s would
be worth about $70.


Tomorrow for those who want Tim Hortons you could either buy it on the market
or Buy the Wendy’s (which will spin off Tim’s to you by December 31). In taxable
accounts there will be tax to pay on the Tim’s stock dividend so be careful
there.  Presumably Wendy’s and Tim Hortons will move together. Both up or
both down. I am hoping for both to go up. If Tim’s gets up into the mid-thirties
(in U.S. dollars) and Wendy’s is up accordingly then I will sell some Wendy’s to
lock in profit. I did buy some options on Wendy’s today so I need a noticeable
jump in Wendy’s to make money on those options.


Canadians will presumably be buying Tim Hortons tomorrow, but Americans might
decide to take profits and sell Wendy’s and as the two will move together the
selling of Wendy’s may prevent Tim’s from going too high.


March 22, 2006


Today brokers took orders for Tim Horton shares. A TD Waterhouse rep. told me
the book was open for only about 2 minutes in Canada. The shares were snapped up
immediately. They will announce the price tomorrow. The shares start to trade
Friday. While many commentators are cautious I suspect the shares will jump on
Friday. If that happens, Wendy’s should also jump somewhat on Friday. A
speculative play would be to buy Wendy’s tomorrow – but remember Wendy’s is
already up a LOT because of Tim Hortons IPO and there is only so much up-side
left. The really brave could buy call options on Wendy’s I am considering it
myself, but any money invested in call options has to be money a person is
prepared to lose 100% if the Wendy’s does not pop.  Whether or not it would
be a good idea to buy the Tim Hortons in the market cannot be known until they
start to trade on Friday.


Fairfax Financial got hammered today after a subpoena from the SEC. This is
the parent of Northbridge and so Northbridge could see further damage from this
before it is all over. I am not selling my Northbridge because so far I don’t
see why Northbridge should be damaged by this in the longer term



March 21, 2006


After a very strong week last week, and a good day yesterday, I lost
noticeable ground today on Wendy’s, NYSE Group and ING Canada. I am still
hopeful that Wendy’s will pop somewhat on Friday as Tim Hortons begins trading.
I added to my Wendy’s position today… just as a speculative play. I suspect
that ING Canada is having a strong quarter and so I am not worried about it in
the long term (although as always there are no guarantees)


Western Financial Group adopted a shareholders rights plan today. Essentially
this looks like an action to prevent a take-over. It’s probably a good sign in
that management is afraid that some other company would see the shares as
under-valued and mount a take-over offer. Short-term a takeover might be nice,
but I prefer to stick with current management for the long term. Basically this
shareholder rights plan appears to have no impact on shareholders, until and
unless a take-over offer materializes.


March 19, 2006


Bank of Nova Scotia
is updated and rated Weak Buy at $46.92


March 18, 2006


I have just sent an email to all paid subscribers reminding you to check for
updates. If you did not receive it, let me know (see my email link at the top of
this page), as it is probably getting marked as spam.


Alimentation Couch-Tard (the
owner of the Mac’s and Circle-K store chains) is updated and rated (lower) Buy
at $24.41. It has a great history and seems to be executing well on growth
plans. But it is not bargain-priced at this time. Formerly I called it
Speculative but on reflection it is not unusually speculative although it is
priced based on an assumption of continued growth.


March 17, 2006


The Thomson Corporation is updated
and remains rated Buy now at U.S.  $37.77 or CAN$43.68. With a P/E of 26 it
does not look cheap but I believe that earnings may be conservatively stated due
to amortization of intangibles (these are a lot like goodwill, which is not
amortized – except these intangibles are viewed to have finite lives, but in
fact may not be a wasting asset). It should do well as long as the stock market
and the general U.S. economy remains strong. It’s worth remembering that the
Thomson family are the richest family in Canada and they hold a big percentage
of their wealth in this company. Dare I suggest that the richest family in
Canada may be smarter than your average day-trader and may not be a bad group to
follow along with?


Late today A.M. Best announced that its ratings on Northbridge were
under review with negative implications. This was not directly related to
Northbridge but instead is related to OdyessyRe a re-insurance company that is
owned by FairFax Financial which also owns about 58% of Northbridge. The problem
at OdyessyRe relates to an accounting restatement at that company announced on
February 9 (as I learned today). This may explain why Northbridge has been sliding down of late. In
reviewing the re-insurance receivables of Northbridge it is not clear that it
has any exposure to OdysseyRe. Certainly it has some exposure to FairFax which
in turn owns most of OdysseyRe. As a result of the A.M. Best announcement we may
see Northbridge slip further on Monday. While I am concerned about the
situation, I am not planning to sell any Northbridge shares at this time. Since
FairFax lost money in 20005 and seems to be under some cloud of suspicion, I
would be glad if FairFax sold off its interest in Northbridge, but there is no
indication that this will happen anytime soon.


March 16, 2006


Performance is updated and is very good even
considering that the three Strong Buys are down on average. The 18 Buys are up
an average of 9.9%.


Northbridge has continued to slide down. Kingsway and ING Canada had done
well earlier this year but are weak lately. I still like these stocks and I added to my
position in Northbridge today. Yesterday, the Consumers Association of Canada
had a short press release “accusing” this industry of making record profits and
basically being too embarrassed to tally up the total as an industry. I believe
that is true as that is the reason I have been investing here for over two
years. Hopefully when the profit story becomes better known, more investors will
get interested in this out of favor industry.


Stantec is updated and remains rated
Buy at $39.79 It’s been a bit volatile lately. It is not exactly cheap but if
management keeps performing the way that they have in the past then this will be
a good long-term investment.


March 15, 2006


I note that Home Capital
unfortunately fell quite
a bit to $33.45 on an announcement that its earnings would be disappointing in
Q1 with lower securitization gains. On Feb 21, we updated our report rating it
Weak Buy at $41.85. On that date I indicated I had just sold my own shares. We
did not expect this fall (otherwise we would have called it a Sell)  In our report under quality of earnings we indicated
that securitization gains might not be sustainable. The company would also likely
be hit with loan losses if we get a housing recession. It’s been a great company
and so maybe it is a buying opportunity but I am reluctant to buy back in until
I see the Q1 report. If I held it a this point  would probably hold on.


March 14, 2006


Western Financial group is updated for 2005 earnings and rated Speculative
(higher) Buy at $2.70. At first glance it looks fairly valued rather than cheap.
But I believe it has excellent growth prospects and that earnings are somewhat
understated as it invests in the start-up of its Bank operation. I call it
Speculative due to the small size but actually barring some disaster it is seems
like a safe investment. I suspect that the customer base that it has built up
would allow it to be sold profitably to another financial institution at any
time and that marketability provides some safety to this investment. However it
could be volatile. In the past it has issued shares and that can easily
temporarily knock 15% of the price off the shares if it should occur again.


March 13, 2006


Western Financial Group released 2005 earnings today. I have not updated my
analysis but the earnings looked good. Earnings were up 53% while they were down
slightly on  a per share basis. I normally focus on the per share results.
However, in this case I think we have to understand why the shares were issued
and consider if more shares are likely to be issued. My sense is that the share
issue in 2005 was a necessary evil but eventually the company will grow without
share issues and will be a good investment. … But I still need to update my
analysis in the nest few days. The market was unexcited by the results – but
that is okay as it gives more time to build a position at a low price.


ING Cnada will become past of the TSX 60. Fundamentally this changes nothing,
but still it will likely help support the stock price.


NYX (formerly Archipelago had a great day today).


As a speculative short term pick, I added to my Wendy’s position today. My
hope is that the stock will rise somewhat soon after the Tim Horton’s IPO. At
that point I may sell half the Wendy’s to lock in gains and then keep the other
half until Wendy’s spits out my share of Tim Hortons to me.


March 11, 2006


Manulife Financial is updated and
upgraded to Speculative Strong Buy at $74.28 based on its strong 2005 results
and particularly the strong Q4. Over the past few years I have sometimes been
bullish on the company, in fact a few years ago I believed it was a “no-brainer”
at around $40,. But in 2005 I became concerned by its opaque accounting. In 2004
I was worried about the impact of the rise in our dollar and I remain perplexed
why that did not hurt it more. I still call it speculative because of concern
about the accounting and how it escaped problems due to our dollar and due to
lower interest rates. But given the tremendous profit and sales growth I am once
again bullish on it. I am definitely thinking of buying back into this stock. I
am also adding this to the model portfolio


The overall market as well as many of our picks were down a bit this week –
although some like Archipelago/ NYSE Group were certainly up. The model
portfolio as well as our Buys and my own stocks are all ahead of the market for
the year to date – and the TSX itself is up a healthy 5.0%. The Strong Buys are
down for the year but it should be noted that was a small group of only 3
stocks. I plan to update the performance figures next weekend. I usually update
at least every two weeks.


Regarding NorthBridge Financial I know of no reason other than pessimism on
the part of analysts for it to have dropped. See also comments below
particularly Feb 18 and Feb 24. I remain quite optimistic about the outlook for
the property and casualty insurance companies that we rate here. It seems to me
that in Canada we have had a mild winter and this should reduce car accidents.
Nevertheless, I believe I have always indicated that insurance stocks are risky
and can be unpredictable. I like to hold more than one of these to help spread
the risk. Although I have a very heavy exposure to this area, I am thinking
about adding to my position in Northbridge. As always subscribers invest at
their own risk. There are never any guarantees when it comes to investing in
stocks, particularly when it comes to looking at one individual stock, as
opposed to a portfolio of stocks.


March 9, 2006


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While is was disappointing to see a decline in ING Canada and Kingsway
Financial today, we must remember that even good stocks tend to have occasional


I read this morning that some investor group was pushing Telus to turn into
an Income Trust. While that may be unlikely, the very possibility is music to my


My NYX stock (rated a Buy in early January at $50 when it was called
Archipelago before it acquired the New York Stock Exchange in a reverse
take-over that left the NYSE seat holders an the majority owners of the new
company) had another interesting day, after the big gain to $80 yesterday, it
got as high as $88 today but then closed at $76.10. Clearly the market is still
feeling its way with this new company. While I expect volatility, my plan is to
hang on. It will be very difficult to value this stock until it has at least a
year of earnings under its belt. Therefore it has to be considered speculative,
but I like its potential.


March 8, 2006


The latest edition of the free newsletter has been posted,
see it here. You should receive a copy by email
soon as well.


In a big development today, Archipelago was renamed NYSE Group Inc. as
expected and began trading as NYX. This was as expected. In a nice surprise it
jumped 23% to day to U.S. $80. We rated this stock a Buy at $50 on January 2, so
this is a nice 60% gain. This gain today more than offset a decline in ING
Canada and Kingsway today.


With ING Canada now down noticeably from its recent high and with Archipelago
(now NYSE Group) now at a new high (by a wide margin) the question arises as to
whether to try to sell at the peak. In the case of ING, we last rated it a
(higher) Buy at $56. Therefore I am comfortable holding it at today’s price of
about $59. Perhaps I should regret not having at least trimmed when it was about
$62. But this is a strong company and quite often when I have tried to take
profits on such companies I have regretted it as the company often tends to
continue to make new highs even after pull-backs.


In the case of NYX I indicated all along that this was a speculative pick and
that I was not able to analyze it. Therefore I probably should take some profit.
But I really like the idea of holding a past of the New York Stock Exchange and
I am inclined to hold on. But I would not likely be a buyer at this point even
if I held none.


I am removing Archipelago from the stock list above given that the rating
there is now well out of date


March 7, 2006


I got hit with some declines today especially in Archipelago which is
certainly a volatile stock. Archipelago will soon be renamed New York Stock
Exchange Group. I bought it without being able to really analyze it for a
variety of reasons. I have  made money on it. Even though it seems to be
sinking now, I like the idea of owning a piece of the New York Stock Exchange
and so I will likely hang on to what I have. But I do consider this a
speculative pick. It was nice to see Kingsway going up today when many stocks
were falling.


Longer term interest rates have started to move up and this will be a drag on
the market. Bonds and especially those longer than two or three years will
automatically decline if/as interest rates rise.


March 5, 2006


Canada Bread is updated for Q4
earnings and upgraded to (lower ) Buy partly due to a recent price decline. It
has a great recent history of earnings growth except for a decline in Q4.


Trades – On Friday I added some shares to my Wendy’s position. I had
mentioned this as being speculative at the recent higher price of Wendy’s but I
just wanted a bit bigger position in case the Tim’s IPO goes really well. Further
to my note from Feb 19, I did put in an order to sell Alarmforce and those
shares have been sold. I mentioned on Feb 21 that I had placed an order to sell
some ING Canada if it got to $58. In a fortunate mistake, I made that a day
order and it expired and therefore I did not sell any ING Canada. Whenever I get
nervous I may reduce my position in some of my large holdings, even if I still
rate them as Strong Buys. But right now I am inclined to just hold. My personal
portfolio holdings have been updated at the link above the dated comment


March 4, 2006


Warren Buffett released this morning his latest letter to shareholders. This
is a must-read for those investors who happen to believe that it is a good idea
to understand business and how companies make money. When the world’s most
successful and respected investor shares his ideas, how can you afford not to
read it? See his latest letter at

www.berkshirehathaway.com (It would be a good idea to read some of the past
issues as well).


Performance is updated. This
past week saw some very satisfying gains indeed.


March 3, 2006


Cryptologic is updated for Q4
earnings and rated Speculative (lower) Strong Buy at U.S. $26.60 or CAN $30.27.
It appears to be reasonably valued given its strong profit growth. It is more
speculative and can be expected to be volatile in price. By (lower) Strong Buy I
mean that it is somewhere between a buy and a Strong Buy based on this analysis.
Q1 tends to be one of its stronger quarters so based on seasonality, this may be
a good time to buy.


March 2, 2006


Some very nice gains today…, ING Canada is at a record high. It was only a
couple of weeks ago it had fallen from $58 down to just over $51 but has now
rocketed up to $61. It does not look very cheap at this price but I am inclined
to held rather than sell. In fact I ha intended to sell some at $58 on the way
up but luckily I failed to  do so. If the mood strikes me I may take
partial profits at any time or I may just hang on to see where it goes. Even if
I take partial profits I will definitely still hold some.


I note that in Alberta we had an incredibly mild January and February. I
understand most of Canada was pretty mild with a lack of snow in the cities.
Therefore I expect a lower auto insurance claim rate in Q1. Even house fires may
be down due to warn weather. This should be good for the property insurance


Some news after the close today that Wendy’s will complete the sale of 100%
of Tim Horton’s by the end of 2006 and look at options for its Baja Fresh
division and look at ways to return cash to shareholders. All of this should
push Wendy’s up tomorrow.


March 1, 2006


It appears that the overall market is holding up very well. At the start of
this year I was hopeful that the general market would see another leg up on high
Q4 earnings. The TSX is not really a general market anymore as it is so heavily
influenced by oil and gas and other commodities that it cannot be expected to be
move with the general economy. I view the DOW as more tied into the general


Regarding the general economy it’s hard to be very optimistic in the face of
higher interest rates and higher energy costs for consumers and with housing
prices possibly starting to fall. Therefore I think investors have to be
cautious and perhaps move more towards cash and be ready to sell some stocks.
However, there will always be some bargain stocks.


This week some of my stocks have moved up including ING Canada and


I have been bullish on Telus and Shaw, in some ways Shaw seems like a stock
with little down-side risk and quite a bit of upside potential. But it does
worry me that Shaw recently started to heavily discount its telephone offering.
If these two get into a price war, customers will win and not investors. But so
far, I am still comfortable holding these two.


February 28, 2006


Our stock picks are doing well despite a flattish market. Definitely a lot of
volatility though.


Wendy’s announced the IPO price on Tim Hortons which values Tim Horton’s at
U.S. $3.67 billion or 55% of the total  Wendy’s value of $6.73 billion. I
have not looked at the Tim’s prospectus yet, but my sense is that the stock will
go higher as soon as it it is issued. That would push Wendy’s higher as well as
they will still own some 82.5% of Tim Hortons. A speculative play would be to
buy Wendy’s now and hope for a quick gain after the IPO. And if there is no gain
one could hold on to the Wendy’s and eventually collect Tim Horton shares when
the rest of Tims is spun off to the Wendy shareholders in about 1 year.


Canadian Tire is updated and
still rated Weak Buy at $64.99. This is a great company but seems to be fully
priced. I would not bet against it but I am also not a buyer at this price.


February 24, 2006


Friday finished out a good week. I’ll update the performance figures next
week. I’m away from the computer this weekend and so will have no updates.


Regarding Northbridge, I was listening to the conference call from last week
and noticed several things. Management just seemed incredibly boring to listen
to, they should probably show a little more enthusiasm for what they are doing.
At least one analyst was very concerned that the bad hurricane seasons of the
last two years will repeat again this year.  That seems quite pessimistic
to me, but I guess who knows given climate change. This may explain a large part
of the drop in Northbridge. The other frustration for analysts is that it seems
impossible to get a base level of earnings, they simply can’t predict how
profitable the business will be even long term. In this scenario they tend to
err on the conservative side. The unpredictability of earnings is one reason
that price to book value becomes more important for this sector. Given
reasonable price to book values and high reported earnings and a reasonable to
strong outlook, I like the sector. Northbridge indicated that while insurance
rates will not rise in 2006 (may fall) they should nevertheless be more than
adequate to achieve at least a 15% return on equity.


February 23, 2006


Northbridge was down over 3% today which hurts but which could be a buying
opportunity. Back on Nov. 17, I mentioned I was buying some EGI Financial at its
IPO. As it is yet another property insurance company and it is new I did not add
it to the Site. Tonight it is out with some pretty strong earnings. To me it is
one more confirmation that my faith in insurance companies these past two yeas
has been well placed. Since I have not analyzed it in depth I have no strong
opinion on the stock but I do hold it.


While Northbridge fell today, two of my speculative U.S. picks were up
nicely. Wendy’s was up almost 2% and Archipelago was up over 3% and has been
rising lately.


February 21, 2006


Home Capital is updated and rated
Weak Buy at $41.85. This company has a fantastic history of earnings per share
growth. The chart of annual earnings growth is a thing of beauty. But it seems
quite richly priced. The market s essentially assuming that the growth will not
slow down much and it always dangerous to pay prices that reflect over 20%
annual growth. Then again this company has delivered the goods for  a
number of years and I would not want to bet against it. Still, after a quick
recent run-up I sold my position in it. I put that money into Telus non-voting


Yesterday I also cleared out my small position in Quebecor (a stock I have
not featured on this Site for some years). I entered an order to sell a portion
of my ING Canada if it reaches $58. Also I entered an order buy a bit more
Western Financial Group if it falls to $2.60.</