Daily Updates 2010 – 2011

December 29, 2011


Fedex Corporation is updated and
rated Buy at $84.31. We last updated this 14 months ago on October 17m. 2010 and
called it a Weak Buy / Hold at $$89.62. That turned out to be a good rating.
Those who bought last year at about $90 would have been better off to wait until
now and buy at $84 (of course that was not entirely foreseeable). But it did
have a high P/E ratio of 20.4 last year. Now earnings are some 27% higher and
yet the price is a bit lower. Given the strong recovery in earnings it is
somewhat surprising that the price is actually lower. Clearly investors still
fear a new global recession. And perhaps that will happen. If you fear that you
should keep at least some money out of the market, ready to pounce on bargains
ahead. (Or perhaps use the money to stock your bunker with guns ammo, water and
food depending how much of a doomer you are. But meanwhile it seems wise to keep
at least some money in the markets. And Fedex is not a bad choice especially if
you think the global recovery will in fact continue.


I should perhaps point out that when we first added Fedex to this site back
in 2006 it was earning $6.00 per share, which is higher than today’s $5.56 and
we then thought it was a Buy at $113. Well that was wrong as we did not
anticipate it would over-pay for some acquisitions and also get hammered by a
recession. I believe also at that time its founder had retired but he is now
back running the company. If you had bought it at $113 and saw it had a future
despite the recession you might then have loaded up on it under $50 and even
very briefly under $40 in early 2009 when the financial skies seemed to be
falling all around us. Admittedly we called it a Weak Buy in April 2009. We
should perhaps have placed more emphasis on its historic earnings at that time
rather than its current earnings which were low at the time.


On this second last trading day of the year, markets did well.


Wells Fargo and Toll brothers were among the winners


Give a thought to Canadian National Railway
Company, which I updated yesterday.


I first introduced it to this Site on August 27, 1999 at $16.67 (adjusted for
stock splits). I rated it only Speculative Weak Buy. But I very soon thereafter
called it a Buy and over the years have often rated it a Buy and occasionally a
Strong Buy.


For the start of 2000 it was rated Buy at $38.05, but that is $12.68 adjusted
for stock splits (the price fell in the autumn of 1999)


CN is up 386% since it was added to this site in August 1999. And it has paid
a lot in dividends as well.


What else has CN done?


Its share count is actually DOWN 23% in the past ten years. Assets rose from
$12 billion at the end of 1998 to $27 billion today. Route miles are up from
17,000 at the end of 1998 to a recent 20,500. The employee count is little changed
over the years (indicating productivity gains). CN acquired a fairly large U.S.
rail carrier some years ago. (so much for the idea that Canadian companies can’t
compete in the U.S.)


In short, CN has done an absolutely tremendous job for its owners. It has
been very well managed indeed. These people know how to run a rail road. The
company has grown over the years but has not raised new equity. Instead it has
paid out dividends and bought back 23% of its shares. There will alwys be complaints
but I think it has done a good job for its customers as well.


99% of investors have little interest in a boring company like CN. But Bill
Gates has been a big owner of CN  for many years. Warren Buffett bought a
railway a couple years ago. (But what do they know?)


Maybe this is the company that Canada should be most proud of as opposed to
such flame outs as Bombardier, Nortel, and now (perhaps) Research in


If you look back at my daily comments on CN over the years I am sure you will
see it described as having to some degree monopoly characteristics.


At the end of the day, it was not that hard to see that a company like CN
would (probably) do well. It’s mostly short term thinking that prevents us from
always owning long term winners like this. It never seems to be the stock that
we expect will go up 50% in a hurry, but over time it chugs along nicely. Rail
may not be the fastest way to travel, (the road to riches) but it has proven


December 28, 2011


Canadian National Railway Company (CN)
is updated and rated Buy at CAN $78.65 or U.S. $76.40. In November 2101 we
called it a Buy at $66.74. Since then not too much has really changed. The price
is up by 18% and earnings are up by a similar amount. I will consider


U.S. markets were down about 1.2% while the TSX was down 1.7%.


I bought 1500 shares of Boston Pizza Royalty Income Fund today at $14. At
that time there were only about 300 shares offered at 13.99 and the last trade
was at $14. I bid $14.00 for 1500 shares and it went through instantly and I got
the $13.99 for the 300 that were offered at that price. It’s interesting to see
how that works. This is a thinly traded entity and yet I had no trouble at all
buying $21k worth at the same price as the last trade before me. It only traded
4700 shares today. Some investors (traders really) feel that they need to know
the second level quotes, the depth of the market. I find I get along perfectly
well without that and in fact such information would only be a distraction to
me. For example I would rather pay to avoid streaming-real-time quotes than
to GET streaming-real-time quotes.


December 26, 2011


Canadian Oil Sands
Limited is updated and rated Buy at $22.99. This company is always going to
have volatile earnings due to oil price fluctuations. On the basis of recent
earnings and oil prices, the stock is cheap at about 9 times earnings, and with
a 5.2% dividend yield. Earnings could easily decline with oil prices. But in the
long term this is likely to be a good investment. I will definitely consider
adding this stock to my portfolio.


December 24, 2011


Boston Pizza Income Royalties
Fund is updated and rate (higher) Buy at $14.18. This entity is not an
operating business. It collects a 4% royalty from Boston pizza restaurants
(which it does not own) and passes this on to unit holders. The distribution
should grow over time but only quite slowly.


On Friday I added to my Toll Brothers position.


December 22, 2011


Toll Brothers is updated
and rated Speculative Buy at U.S. $20.42. The stock could do quite well if the recent
improvements in the house building industry continue. I plan to add to my
position in this company.


It was another good day for our stock picks with most stocks up


December 22, 2011 (3:40 pm eastern)


Costco is updated and rated Weak
Sell at U.S. $ 83.63. Weak Sell means I would be inclined to sell or perhaps
hold. I would not be inclined to buy. If I held it I would also not be in any
panic to sell. It’s a great company but its greatness seems to be well priced
into its stock. I’d be more interested at about $70. But given its quality it
may continue to trade at a premium price.


As a shopper, I am a true believer in Costco. You will generally get one of
the lowest prices available. (Other retailers can beat it only with sales and
promotions). My understanding is that they NEVER mark anything up more than 15
or 20% (That may only apply in the U.S.). The only down-side is the temptation
to buy more than you need due to the bargains.


December 22, 2011 11:10 am eastern


I’ve sold my 1000 options to buy RIM at 16 expiring February 18. They sold
for 92 cents. RIM shares were down a litle today and it’s certainly not clear if
anything will happen to push RIM’s price up before February 18. I may add to my
position in the shares instead. I own 600 shares. See also my comment from
yesterday, just below.


December 21, 2011


It was a decent day in the markets. Wells Fargo was up 1.5%. Research
in Motion (RIM) rose almost 10%.


My RIM options have proven to be rather wildly volatile.


I purchased 2000 options at the open Monday morning at 70 cents each. These
have a strike price of U.S. 16 and expire February 18, 2012.


By the end of Monday they had fallen about 20% to about 55 cents (ouch). On
Tuesday they droped further to 47 cents meaning I was down 33% in two days. But
then today they jumped 117% to $1.02 so I was up 46% overall.


Clearly these are HIGHLY volatile and clearly they could expire worthless in


I sold half (1000) the February options today at $1.03 but reinvested this
into  400 options at strike price $17.50 at $2.52 per option that expire in
February 2013. After seeing how fast these options dropped in price on Monday
and Tuesday I was not that keen to hold them and so was glad to sell half. I
feel better about holding the 2013 options even though they were much more


It’s hard to say if RIM will get a quick take-over offer or the like and
absent some news the February 2012 options could easily plummet in price.


Possibly I am better off just sticking to stocks rather than options.


December 20, 2011


Better-than-expected home construction numbers in the U.S. as well as news
from the banking sector led stocks to a 337 or 2.9% gain.


Wells Fargo was up 4.7% and Toll
brothers was up 6.4%.


However Research in Motion continued to slide even on such a strong day. I
was hoping for a take-over offer but there is none so far. It would be good to
see them buy back shares. The founders could also buy some shares but then again
the vast majority of their wealth may already be in RIM stock. They sold some
shares for charity at the end of 2010 but sold no shares in 2011. So they are
feeling the pain both as managers under fire and as shareholders.


December 19, 2011


Markets fell today apparently due to the European government debt situation.


I bought 300 shares of Research in Motion this morning and now hold 600 shares.
Also I selected 2000 $16.00 options that expire February 19, 2012. In many ways
I would have preferred the options that expire about 13 months from now.
However, I decided to select the cheaper near-term options. The options in
particular are highly speculative and could easily expire worthless. If there is
a take-over offer for RIM by mid February I will probably have a good investment
(the options). Barring a take-over offer it would take a strong analyst endorsement
to get the share moving upward. At this time analysts seem to be decidedly
negative on the company. Possibly the company will buy some shares. If
management has faith in the company, then the company should definitely be
buying back shares. RIM fell about 4.3% today.


December 18, 2011


The next company to updated will be Costco. With a P/E of 25 it looks like we
would rate this a Sell or Weak Sell / hold. It’s a great business but just seems
too expensive. I actually think they have pricing power and could raise profits.
But there is no indication they will do so. If I owned it, I would sell.


As of about 11 pm eastern time on Sunday evening it looks like markets will
be weaker on Monday. I am looking forward to see if Research
in Motion will stop falling in price. I plan to buy some shares and possibly
options. I don’t want to over do it as this is a volatile stock.


December 17, 2011


Research in Motion
is updated and rated Speculative Strong Buy at U.S. $13.44 or $ CAN $13.97. The
share price has plummeted. Based on past earnings it looks extremely cheap.
However, earnings are expected to decline over the next year. There is certainly
risk here because the company relies on selling smart phones to consumers and
this can be a fickle market. 75 to 80% of the revenues are from selling phones
and only 20 to 25% of the revenue is recurring. Therefore sales and certainly
profits can decline rapidly if the products prove unpopular. Nevertheless, the
stock looks very cheap now. There are 75 million subscribers. RIM only gets an
average of roughly $4.75 per month per subscriber in recurring revenue. But
that’s over $50 per year and yet the company is selling at a price of about $93
per subscriber.


I suspect RIM is now an attractive take-over candidate. I would almost be
surprised if we don’t see a takeover offer very soon.


Still, the market price could continue to fall. Investment managers may sell
to avoid showing that they own this when they release their list of owned stocks
as of the end of December. Other investors may sell for tax loss reasons. But I
think there will also be some bargain hunters active as well.


I only own 300 shares and I suspect I will be buy more. I may even buy some
options. Again, it’s not without risk but this may qualify as a real
opportunity. Only time will tell. Buffett especially in his earlier days used to
buy shares that were prices well below what he thought they would be worth in a
take-over situation. This may be such a case.


One interesting point about options. If an offer were to come in at $20 or
whatever (perhaps that is a HUGE if) then the value of some options (especially
those with a strike price above $20) could actually decline because options are
more valuable when the stock price is more uncertain.  I just mention this because
the value of options can sometimes do strange things.


December 16, 2011


RIM shares were down almost 12% in Toronto. This definitely seems over-done.
At this price RIM could be a very attractive take-over candidate. With a market
value of $7 billion and annual revenues of close to $20 billion this would be
almost chump change for MicroSoft or Google to buy if they wanted it. Offers
could come at any time but would have to be at a significant premium. I will
update our report on RIM by Sunday.


December 15, 2011


The biggest news today was RIM reporting earnings after the close of regular
trading. The market did not like the outlook and RIM fell some 7% in after-hours
trading. On a trailing earnings basis RIM certainly looks cheap, very cheap. But
the market sees to have a belief that its sales are going to plummet. I’ll
update the report within a few days.


Before we panic about RIM. let’s remember that the collective
“genius” that is the market, is the same genius that thought in early
2008 that RIM was worth $140 per share. Whatever stumbles RIM has made I doubt
that it justifies a 90% drop in price. Of course the price in 2008 was, it now
seems wildly, optimistic. The “market” is ready to run off the
founders/managers of RIM. I have some trouble believing that these founders are
suddenly incompetent.


I heard some talk today that RIM could be the next Nortel. Well, no, not
exactly. Nortel had something that RIM does not. Actually a couple things. One
was debt, RIM has none. It’s hard to go bankrupt in the absence of debt. Nortel
also had massive amounts of goodwill and intangibles which turned out to be
close to worthless. RIM has quite modest goodwill. It does have a noticeable amount
of intangibles but nothing it can’t manage. ($2.5 billion against equity of $10


In other news there were hopeful signs for the U.S. economy including higher
profit at Fedex.


December 13, 2011


Markets started out on the up-tick today but ended up down.


It looks likes Canadians markets are definitely going to be down for the year
2011. As of Friday the Toronto market index was down over 10% this year. The
S&P 500 however was about flat and the DOW was up 5% for the year.


Right now it looks like the Buys on this Site will be about flat for the
year. Not great but it beats the TSX easily. And most of our stock picks are
Canadian. If we can beat the TSX most years then over time we will do well.


It would be nice to be up every year but it’s probably not realistic. To
borrow a saying from Warren Buffett, why should we expect stocks to be up every
time the earth circles the sun? They do tend to be up in the long term but
investors generally have to be willing to put up with volatility (code word for
losses) over certain unpredictable lengths of time.


December 12, 2011


The market was down today on fears regarding the situation in Europe. It does
seem that the situation may very continue to drag down North America markets.
The bigger question is whether this puts North America at risk of recession. I
really don’t know. What I do observe is that stocks appear to be cheap.
Therefore I am content to own stocks but would like to have some cash on hand in
case better bargains appear. Either way I am confident that owning stocks that
appear to be good value will turn out to be a good investment over the years,
although I cannot, of course, guarantee that.


FirstService preferred
shares report is updated and rated Buy at U.S. $25.


FirstService is updated and
rated Speculative (lower) Buy at $U.S.  $24.70 and CAN $ $25.43. The
company is 100% focused on real estate services and so it has suffered in the
past few years. Still its results have improved in 2011. It may be a good
speculative pick. I fully expect the company to continue to grow and earnings
per share could grow rapidly. Still, it could also face tough times and is not
without risk. The valuation does not look compelling at this time. The company
is heavily leveraged from the perspective of common share holders (it uses debt
and preferred shares) and the leverage could result in strong earnings per share
growth if things go well.


Canadian Western Bank
preferred shares report is updated and rated Sell at $27.30. These shares
illustrate the dangers of missing key information. These shares appear to have
an attractive yield of 6.6%. However they will almost certainly be redeemed in
April 2014 at $25 and considering that the yield is closer to 3.0%. The price
will likely slide gradually towards $25.


I sold 12% of my Wells Fargo shares on Friday to raise my cash position. It
remains my largest holding.


December 11, 2011


Canadian Western Bank
is updated and rated (lower) strong Buy at $25.75. This company has grown
rapidly in the past ten years and it seems reasonable to expect it to keep
growing. The stock is down 9% in 2011 despite higher earnings.


Alimentation Couche-Tard (U.S.
and Canadian convenience stores / gas stations – Mac’s, Circle K and other
names) is updated and rated (lower) strong Buy at $29.95. The company has been
growing by acquisition for over 30 years and it seems reasonable to expect
growth to continue. The stock is up 11% in 2011.


December 9 (7:50 am Mountain time)


After a week or so of gains on optimism about European financial crisis
meetings, the market fell yesterday — but are up just a little today. We had
continued bouts of optimism and pessimism and that will likely continue. Europe definitely
remains a risk that could drive stock prices lower. As always, it is hard to
know what to do. I like the stocks I hold but I don’t really like being about
100% invested as I am. I may trim some positions to raise cash.


December 7, 2011


It was another good day on the markets. Canadian
Tire was up 0.9% to $66.56. I trimmed my large position in this company a
little today. I’d like to trim my Wells Fargo position but have been waiting for
a higher price to do so.


Certainly there is a risk now that bad news will come out of Europe. There
has been a lot of hope riding on recent meeting in Europe and so any disappointing
news would no doubt see some of the recent market gains reversed.


I expect to update the reports for Canadian Western Bank and Alimentation
Couche-Tard by Sunday.


December 6, 2011


Stocks were mixed today but our picks seemed to be up a little overall. Canadian
Tire in particular did well. This company’s stock price has been up quite
steadily since September. On Tuesday evening futures were suggesting stocks
would open a little higher on Wednesday. But much can happen overnight.


December 5, 2011


With the markets up strongly today my thoughts did turn to take some money
off the table. Logically I should. But I suppose my greed emotion won out because
I did not trim any positions yet. As always it is really hard to say where the
markets will go in the short term. There are many conflicting signals. Even if I
do trim positions I will remain largely invested despite the risks. (There are
always risks in the market, always.)


Canadian Western Bank cam out after the close with good earnings to close out
their year. This is a good long term investment.


Recently it was disclosed that Warren Buffett’s Berkshire Hathaway is buying
the Omaha World Herald group of newspapers for $150 million. Critics pointed out
that Buffett has said the newspaper business is no longer a good business. Of course
the critics have not seen the financial statements for this particular newspaper.
None of the reports I read made the connection between the Peter Kiewit
Foundation that owns 20% of the newspaper and Buffett. Warren Buffett’s office
has been in Kiewit plaza since 1962 (several years before he took control of
Berkshire). Buffett has been associated with the late Peter Kiewit and his
companies for about 50 years.  So yes there are some special circumstances
here. I think we can expect Buffett to tell us in his next annual letter that he
expects to make at least some return on this investment and that yes he was sort
of rescuing the local newspaper when it needed a friendly buyer. Buffett said it
was one of the best managed newspapers in America. He would know. He likely did
not want to see someone come in and buy it and loot the place. You would think
by now people could give this man the benefit of the doubt. But no. First it’s
easy to grab a headline by being a critic of Buffett and second it really seems
to human nature especially among men to look for reasons to tear people down. We
love to see the mighty fall. Men hate to admit another man is better than them
in any important way. We are biologically programmed to resist that idea.


December 4, 2011


Stantec is updated for Q3 results
and rated Strong Buy at $26.50. I studied the annual report and noted that
management had very credible plans to continue to grow the company by
acquisition, as they have done for many years. While the short-term is uncertain
due to recession concerns there is little reason to think that the company will
not continue its success in the long term. I would be inclined to add to my
position at this price and particularly if the price dips. But I would likely
need to sell something else in order to add to the position here. So I have no
immediate plans to buy more.


As of about 8 pm eastern time on Sunday evening, markets look set to open
moderately higher on Monday morning.


December 1, 2011


Markets took a little breather today after yesterday’s gains.


We still see lots of conflicting signals. HUGE profit gains at two big
Canadian banks today. But U.S. first time jobless report was just a tad worse
than expected. Europe, who knows? Recession? yes,no, maybe so.


I continue to ride it out but looking to trim a little here and there on
rallys. Hoping to free up cash to either reduce my margin or put into new picks
as I update a number of reports in the next month.


November 30, 2011


A 4% gain on the markets today. It does seem over-done as the problems in
Europe are not solved. But maybe it was well justified just because stocks were
(and are) cheap. I trust we all understand that while we can rationally expect
stocks to rise in the long term we really can’t say where they go in the short
term. Those who cannot (emotionally and financially) bear losses should not be
in stocks. Stocks are no place for the faint of heart. But to the brave will (probably)
go the spoils (eventually).


I mentioned the banks being down-graded yesterday. The real wonder is why
bank debt EVER deserved ratings that were in the AAA range or close to it. I
have noted on this Site since its inception that banks operate with a sliver of
equity and that if poorly managed big losses are possible. That is not to say
they are not good investments. It is to say that there is always (at least) some
small chance of big losses in a bank investment. Banks are so highly leveraged
and owe so much money to depositors that governments have always needed to
provide deposit guarantees and to regulate banks lest they operate with too tiny
a sliver of equity. Debt investors only get paid AFTER depositors so if deposits
were risky enough to need in insurance how did it EVER make sense that the debt
would be AAA rated? It did not.


U.S. Bank regulators drank the Kool-Aide that said zero equity capital need
be set aside if a bank invested in government bonds. Even of many smaller
countries. And U.S. bank regulators allowed banks to operate with very tiny
slivers of equity indeed.


Bank management in turn abdicated their role as risk managers and said,
in effect, if the regulator says Greek bonds re risk free and if the regulator
says 4% equity is all that we need, then it must be so. It was not so.


Debt rating agencies also drank all the same Kool-Aide.


Now they down-grade and expect anyone to care?


And while I am talking banks and their problems…


State legislators passed laws that said customers could renegotiate out of
their fixed 30 year mortgages with minimal penalty if rates fell. The unintended
consequence there was that a bank could not afford to take that risk and were
forced to sell the mortgages to investors and therefore no longer had as much incentive
to care about credit quality.


Mortgage insurance practices at Fannie Mae and Freddy Mac assisted with the
selling of mortgages and added to the lack of caring about credit quality. With mortgage
insurance that was Freddy Mac and Fannie Mae’s worry.


congress got into the mix and said banks needed to give loans to minorities
in a given City at the same ratio of the population they gave mortgages to the
non-minority. But if minorities had worse credit and lower incomes this was not


The end result was a lot of unintended consequences and I guess blame enough
for all to share in.


The whole system spiraled out of control as easy credit and low interest
rates improved affordability but which pushed house prices up and higher house
prices meant no losses on foreclosures and the whole thing ratcheted up until
one day the house prices stopped rising when finally just about every bum on the
street had already been offered a house. There were no new buyers left. As soon
as house prices fell a little, losses on foreclosures rose, and delinquencies
rose,  and a vicious cycle started in reverse. My hope is that we are at,
near or past the bottom of that cycle now.


The U.S. Case Shiller home price index for September just came out yesterday
and showed a small drop, after five months of gains. This may have been affected
somewhat by the ridiculous situation in August regarding the debt ceiling
debacle in  the U.S. Stock markets were also very negative in September as
I recall. I would not be too quick to assume U.S. house prices will keep going
down. I believe they are well under replacement cost, even adjusting for
depreciation and age. That ultimately will correct itself.


November 30, 2011


Markets are set to rise at the open due to some coordinated central bank /
world bank moves (yawn). It seems doubtful that this really changes much but
will be the excitement of the day I guess.


S&P has downgraded numerous banks (yawn). Rating agencies rated banks way
too high for years and NOW they downgrade. They have little credibility. I never
thought that they were corrupt but it does seem their methods were and are


I expect to continue being very heavily invested. At the same time I am a bit
over invested right now (on margin, too concentrated in a few stocks) and so I
may trim modestly on rallies.


November 28, 2011


Last week it seemed like the markets were digging themselves into a hole.
Today we crawled back out to some degree.


I don’t have nay strong feelings about where markets are headed.  Stocks
still look cheap on average compared to their earnings.


November 27, 2011


As of about 10:15 pm eastern on Sunday evening, the futures suggest the DOW
will open about 200 points higher.


Reports indicate that shopping over the Black Friday weekend was very


November 25, 2011 (10:30 am eastern)


U.S. markets are up about 1% this morning. Which illustrates the point that
sometimes when the market goes down, the best advice might be “don’t
just do something; stand there!”


My approach to markets has never been to make fast panicky moves. I have
found that calculated moves made relatively slowly after thoughtful analysis has
worked for me. If you really could predict markets then clearly a process of
lighting fast darting in and out and from stock to stock would be best. Why you
could “simply” hold the ten highest rising stocks each day (or
just THE highest) and you would quickly make a fortune. This strategy suffers
from the “minor detail” of being totally impossible. Anyhow, my temperament
and my approach does not lend itself to the sort of sudden moves that are
associated with alternating bouts of complete panic and euphoria. But my
approach has served me well.


November 23, 2011


Another nasty day… As I understand Warren Buffett’s advice he would say,
look, don’t worry about a stock taht you hold and it might go down. That is
don’t worry about it is that is a good strong company and where you are confident
that when the market rises again that company will rebound. The stocks to worry
about are the one’s that could suffer a fatal blow. If a company goes bankrupt,
well that is it, it can’t live to fight another day. So be wary of companies
that carry too much debt. (It’s almost impossible to go bankrupt in the absence
of debt, though i am sure it ahs been done in cases of off balance sheet liabilities).


Actually right now we are seeing stocks go down that not only are not in any
mortal danger at all but which in fact are making ins some cases record profits.
The reports on this page always address the balance sheet and the debt. I encourage
subscribers to read the reports in detail. A stock rating in a word or three
cannot encapsulate everything that I say in a five page report.


For myself am not feeling worried. the markets can ALWAYS go down, but I feel
I AM holding strong companies that will do well over time. But of course, I can
make no guarantees.


I notice that Couche-Tard has
released good earnings yesterday and raised its dividend 20%. This is a
wonderfully managed company. A true Canadian success story. I have not gone
through the numbers but I suspect that if I updated this company it would remain
with a Buy rating, perhaps even (higher) Buy.


The Q3 loan
delinquency rates have just been released by the Federal Reserve. All the
figures are better. This is five quarters in a row of improvement. Somehow,
someway Americans are managing to pay their loans on time to a greater extent
than they were in the last 15 months. Yes, the delinquencies are still
relatively high, but they are improving. Hopefully, it’s not because the banks
have loaned people new money to pay old debts, thought at probably is a part of
it. The bottom line, is that this is a positive indicator. (But could someone
please alert the market about this so my Wells Fargo and Bank of America stocks
can go up!). Actually I am not sure the market pays much attention to these
quarterly figures because I believe there also exist monthly reports from other sources
that are a bit more up to date.


November 22, 2011


Markets were down just a little today. However, Canadian
Tire did well and was up 3%. Seeing that, I sold another 8% of my Canadian
Tire shares. That means I have sold a total of 21% of what I held. Be assured I
still really like Canadian Tire and have high hopes for it. But as I have
mentioned before I am very heavily exposed to a few stocks and that was my
largest holding. It is prudent for me to shave some off the top. It gives me
funds for other opportunities. Also I had added to Canadian Tire as its price
slipped in the past few months and it totally makes sense for me now to trim as
the price rises. You could say I had a core position and then I added on dips so
now I sell on blips. I am not sure what amount my core position would be but it
still makes up some 20% of my portfolio, so could trim a lot and yet still have
a heavy exposure to it.


When it comes to Wells Fargo it is going to take a rather “blip”
before I will be interested in selling. Seems like the market is trying to test
my nerve. It would sure be nice if they could announce a dividend increase, but
they would need permission from the FED and so that may not happen anytime soon.


You can expect to see a lot of updated reports on this Site, certainly by the
end of December, which is not so far off and hopefully sooner.


As I write this it is 11 pm Mountain time or 1 am Wednesday eastern time and
the futures suggest the Dow will open down 100 points. Well, a lot can change by
morning. Anyhow, no one ever said investing would be boring or without its bad


November 21, 2011


One could say there was good news and there was bad news in the markets
today. The bad news was that the markets were down. The good news was the same
(good for buyers).


Earnings continue to come in strong, HP reported better-than-expected earnings
after the close of regular trading.


Toll brothers is buying a
Seattle home builder.


November 20, 2011


As of Sunday evening, Dow futures were down about 90 points. This is on news
that the United States Debt Super Committee due out with action this week has probably
reached an impasse.


On top of that things do not appear to getting better in Europe.


Some would argue that we should get out of all equity markets and sit in
cash. And that may not be a bad idea.


Personally, I will likely stay mostly invested. I don’t know what is going to
happen with these world events. I do know I own some good profitable companies.
And I plan to keep owning them for the most part. I have no immediate plans to
sell anything, but that can change.


Walmart is updated and rated
(higher) Buy at $57.23. I spent quite a few hours readings its annual report. I
liked what I read and saw. The company has a simple mission “We save people
money so they can live better”. Low cost and low-price leadership has been
the modus operandi since day 1 with this company. I liked that the Chairman, S.
Robson Walton referred numerous times in his one page letter to his
“Dad”, the late founder, Sam Walton. It is a company that knows and
respects its own history. This is a huge company but it operates a relatively
simple business. They appear to have been disciplined in moving into other
countries. They do operate in 15 countries, but that leaves out many major
countries. (They did pull out of Germany some years ago when they could not find
success there).


It appears to me that this will be a good long-term investment. Some
subscribers might ask why not focus on smaller faster-growing companies? That is
a good point and this investment may not be what everyone is looking for. But
for myself and perhaps for many of you a stable, steady but slower growth
company like this may find a place in your portfolio.


I notice that Canadian Tire’s
shares closed at $61.52 on Friday after reaching recent highs over $64 earlier
last week. I would attribute that to just normal volatility and it certainly is
not something that concerns me.


November 17, 2011


It was another down day in the markets on Thursday with the Dow down 1.1% and
Toronto down 2.1%. The Europe situation was continuing to deteriorate.


However as of Thursday night I see that Greece’s new prime minister has
announced some tough reforms and urged France and Germany to take some actions
quickly. So, perhaps the markets will react positively to that.


November 16, 2011


The DOW was down 1.6% today or 191 points. Toronto down 55 points. Apparently
this was due to fears about the European situation. In other words it was what
has become a fairly typical day in the markets. 200 points up or down is just
not unusual.


Earlier in the day Canadian Tire was up about 1.4% and was at $64.39. I
decided with Canadian Tire up and the market mostly down, the time was ripe to
finally take a little money off the table so I sold some but it was only 11%
(Update that should have read 13%( of
what I held. Possibly it should have been more.


I quite stubbornly added to Canadian Tire, Wells Fargo and Melcor on dips and
got to the point where I could certainly be described as over-exposed to these
three stocks. So it does make some sense to trim a little when these stocks
rise. On the other hand I am very comfortable holding Canadian Tire and don’t
really want to cut it back too much.


November 15, 2011


Walmart reported earnings today. The earnings look good to me but the stock
dropped 2.4%. I plan to update the report on Walmart within the next week. I
suspect it will continue to be rated in the Buy range.


It’s looks to me like there will no quick solution to the problems in Europe.
That could certainly hit stock prices at any time. And even in the U.S. there is
a committee that is supposed to come up with spending cuts in the next couple of
weeks and may fail to do so. Again that could hit stocks. The thing is there is
ALWAYS something that could hit stocks negatively. But meanwhile holding high
quality stocks does tend to be rewarding over time. In some ways I would like to
reduce a few positions especially given I am using some leverage (borrowed
money). But overall I still see stocks as relatively cheap and so it’s hard to
pull the trigger on any sales.


November 14, 2011


It was revealed today that Warren Buffett’s Berkshire Hathaway bought some
$10.5 billion dollars worth of shares in IBM over the last six months or so.
This is a big purchase. Berkshire has total assets of $386 billion so this is
2.6% of its assets. Also this will be the third largest common stock position
after Coke and Wells Fargo.


It seems no one saw this coming. Buffett started buying in March and it was
kept a complete secret from the world until now. That is a classic Buffett
strategy he has ALWAYS kept secret what he is buying and reveals it only after
the buying is done or he lawfully has to reveal it.


A number of things about this stood out for me. Buffett said he got the idea
after reading the annual report. After reading the report he checked with the IT
departments at his own companies to understand how they work with a company like
IBM. He re-read a book buy a former IBM CEO. And within a very short period of
time he had decided to buy in a big way.


People just do not appreciate how hard Buffett has worked at investing all
his life, and still does. He reads annual reports regularly. He said he has read
the IBM annual report “probably every year for the last 50 years”! Who
among us has that kind of energy to read annual reports and monitor companies
for years and years like that? He said the same about Bank of America . He never
owned a share of it until he made a $5 billion investment in preferred shares earlier
this year. But he was in a position to make that investment because he read
their annual report every year. The point is the more I learn about Buffett, the
more I have to respect him. He has a razor sharp memory. His mind is a human
calculator. He has incredible discipline. He works incredibly hard. He works
incredibly fast. I have said before it makes sense to copy from the best. Slowly
very slowly over time I have tried to learn from him.


Meanwhile the market was doing its usual thing, dipping down a bit today and
worrying about Europe after having risen on Friday. Canadian Tire was a bright
spot, up about 1% today.


November 13, 2011


As of Sunday evening, the appointment of a new Prime Minister in Italy has
resulted in future markets suggesting a mildly positive opening for North
America stock markets on Monday (Dow projected to be up 63 points). Far east
markets were up as they reacted to this news and played catch-up regarding
Friday’s gains in North America.


November 11, 2011


Canadian Tire is updated and
rated (lower) strong Buy at $62.66. This is my largest holding and I am quite
comfortable holding it. It reported very good earnings numbers yesterday. The
acquisition of the Forzani Group stores has already started to increase its
earnings in just the first 6 weeks of ownership. The company only trades at 1.19
times book value and I suspect that it would be trading below book value if it
marked its real estate to market.


November 11, 2011 (2:55 eastern time)


Well, markets soared today on good news from Italy. I feel like we have seen
this movie before and of course the gains may or may not hold next week. I am
tempted to sell modest portions of some stocks here. But so far I am hanging


November 10, 2011 (7:13 am mountain time)


Canadian tire earnings are out this morning and are strong. Greece managed to
name a new prime minister. Futures are up over 100 points on the Dow. (Although
I start to wonder when the market will just lose faith in Europe).


November 9, 2011


Today was quite ugly in the markets. The market had been doing well and it
seems the assumption was that Greece and Italy would get new leaders. That may
still happen but it tuned quite farcical today with both countries seemingly
unable to appoint new leaders. The market now seems to be thinking that the
situation in Europe could get a lot worse. Financial markets always depend on
confidence and it is becoming hard to have any confidence in Europe. It’s hard
to say what impact a contagion of bankruptcies in Europe would have on the North
American economy. Obviously a negative impact, but how negative? The reality is that
we need to expect markets to continue to be a wild ride. Whatever happens, the
darker days will pass as they always do. But meanwhile it could get scary.


November 8, 2011


It was a lovely day in the markets for our stock picks.


Wells Fargo up 4.4%, Melcor up 4.0%. Also Toll Brothers up 7.4%.


Canadian Tire will report on Thursday. I am hoping they did well but there
will probably be some unusual expenses associated with the purchase of Forzani’s.
From what I can see the Canadian Tire stores and Mark’s are busy. I would think
Financial Services will have done well in terms of the credit card divisions.
There are lot of parts to the company. so we shall see on Thursday.


I saw some speculation about what stocks Warren Buffett may have been buying
in Q3 for Berkshire Hathaway. On possibility is home builder stocks or something
related to that. He has been steadfast in saying that home building will
recover. Another possibility is distressed rental real estate available at good
prices. The possibilities are endless. There were tons of bargains to choose
from especially in August.


November 6, 2011


Melcor Developments is updated and
rated (higher) Buy at $13.52. This is a rare case where book value is probably
the best indication of value. This is because earnings are very volatile and
include non-operating impacts that cannot be easily adjusted for. And the book
value is relatively accurate because about 40% of the assets (the investment
properties) are marked to market quarterly. The large land holdings at 46% of
assets are not marked to market but carried at the lower of cost (including capitalized
interest and development costs) and market. In this case the sahres are trading
at 79% of book value. This is effectively an opportunity to buy into a very successful
operation at a significant discount to book value. And not only can you buy at a
discount but you will own a company that has been buying some land and buildings
in the U.S. at relatively distressed prices. There is always a risk that market
value of the assets could decline but overall, this appears to be an excellent
investment opportunity.


Meanwhile in Europe… it appears certain  that the Greek Prime Minister
will resign by tomorrow and a coalation government will take over. I suspect the
market will react positively to this, but that may depend on who the new leader
is. I would hope it would be the current Finance Minister.


November 5, 2011


Berkshire Hathaway is updated and
rated Buy at $77.24. Earnings were released after the close on Friday and so we
have not yet seen the market reaction, if any.


Press coverage this weekend includes the predicable cheap and uninformed
shots at the loss in the derivative position related to option puts that Buffett
sold a few years ago. Unmentioned int he press coverage that I saw is the fact
taht with the strong stock market rally in October the mark-to-market non-cash
loss of September 30 had probably been largely gained back. Buffett expects to
make money on these options and that will be on top of the money made from
investing the approximate $5 billion cash premium he received when these options
were sold a few years ago. After 60 years of consistently successful investing
you would think that Buffett could be given the benefit of the doubt. In any
event the liability on the books for these equity-put derivatives is about $8
billion and Berkshire has equity of $160 billion so it’s got no chance of
putting Berkshire at any great risk even if Buffett is wrong and the stock
markets are lower in about 9 years than they are today.


Given the situation in Europe it is interesting to know if Berkshire has aby
exposure to bonds there. For foreign bonds Berkshire has a total of $13 billion,
this compared to its equity of $160 billion. There was no mention that any of
these are European, let alone the likes of Greece and Italy. My bet would be
that Buffett holds foreign bonds related to his German-based European
reinsurance business and also perhaps to diversify currency. I doubt he holds
any weaker European bonds and certainly not a material amount. One indication of
this is that the net position in foreign bonds had an unrealized gain on it at
September 3. Consider that Berkshire which has insurance operations in Europe
has a total of $13 billion in foreign bonds and is a company with $160 billion
in equity. Meanwhile the bozos at MF Global had some 6 billion of weaker
European country bonds and had equity of $1.3 billion. Hilarious.


Other than the loss in the derivative position most of the Berkshires
investments and companies are doing well and operating earnings were quite


In a couple of weeks Berkshire reveal what shares it bought and sold in Q3.
Buffett had already revealed that they were buying heavily in August. I had
thought perhaps adding to Wells Fargo at low prices. However the data reveal
that little was added to the financial category (about $400 million). But about
$7 billion of equities were purchased in the category of “Commercial,
industrial and other”. This would NOT count Lubrizol which is now wholly
owned. It will be interesting to see just what companies this rather massive
buying involved. The third category is consumer products so this was not the
likes of Kraft or McDonald’s.


November 3, 2011


Melcor releases a good earnings report today, after the close. Their building
lot sales are strong but not as strong as 2010. Their investment property
division is doing very well. They booked an accounting gain on the investment
property. I will update the report within a few days. This will continue to be
rated (higher) Buy or possibly Strong Buy. I feel very comfortable about my
investment in this company. It is my third largest holding.


The madness in Europe continues… Apparently the latest is the Greek Prime
Minister will resign tomorrow after he wins a confidence vote (usually, you
would expect he opposite, but nothing in Greece seems to be usual).


Some madness in America too, Bank of America will apparently issue shares
after promising not to, but only because it can use the proceeds to buy back
some its debt and preferred shares at bargain prices.


I expect Berkshire Hathaway will release earnings tomorrow, after the close.
It will be interesting what Buffett says about employment growth at his
companies. Most likely he will appear on CNBC or some such program on Monday.


November 3 (7:20 am Mountain time)


Markets were set to open up about 1%. Markets continue to
react to the news of the minute. An interest rate cut in Europe. Greek Prime
Minister rumored to resign. Market will look today and tomorrow for hopeful
signs from the G20 meetings. Meanwhile earnings continue to come in and are
mostly good news.


November 1


Today’s news from Greece, (and it started Monday night North America time, or
early Tuesday Greece time) was the shocker that Greece would hold a referendum
on the bail out. That was a surprise because it was thought that Greece would
benefit greatly from this deal. I had speculated in my posting here over the
weekend that some of the parties that were supposed to accept 50 cents might not
go through with it. It did not occur to me that Greece would fail to agree to a
deal where really they don’t even pay 50 cents. What they were going to do was
issue new 50 cent on the dollar bonds guaranteed by (in effect) the European
Union. But also Greece had agreed to austerity measures. That seemed Okay since
without some kind of a fix here they would be cut off from international
borrowing and would face austerity in any event.


So, it was rather strange that they need a referendum. But maybe it is a good
idea to get the Greeks to vote for it and to show their acceptance of the
inevitability of the austerity programs. Later in the day today, Tuesday the
news was that the referendums was canceled. But still later it was confirmed it
will happen. The Greece cabinet approved it.


I wonder what is next, it seems like every hour things are changing.


Anyhow, the whole mess along with the somewhat related MF Global bankruptcy
pulled stocks down today.


I had said last week I should have been trimming positions on
“blips” or rallies like we had last week. Well, maybe next rally…
But overall I will be staying pretty much fully invested. (Right now I am a bit
leveraged and so I would like to pull back to eliminate the leverage (sell some
stocks repay some money that was borrowed to invest)


Meanwhile I await with bated breath the earnings reports from such companies
as Melcor and Canadian Tire and Berkshire Hathaway and Wal-Mart.




October 31, 2011


It was interesting to hear today that an outfit called MF Broker has rather
suddenly gone bankrupt.


It was apparently a broker. Hmmm I said to myself why would a broker who is
supposed to be a middleman suddenly go broke? I would not expect an outfit like
that to have much debt.


So I took a look at its balance sheet as of June 30, 2011. So let’s see,
assets of $45.9 billion, Equity of $1.4 billion. Yikes that means assets were 33
times its equity. And that means a tiny 1% (update, oops that should say 3%) drop in assets could wipe out all


As far as debt, actual borrowings were under 1 billion. But there was $15
billion payable to customers. And about $26 billion in liabilities to repurchase
securities that had been sold with agreement to repurchase. On the asset side
was $11 billion in restricted cash and segregated securities. $12 billion in
securities “purchased under agreements to resell”. $12 billion in
securities owned, $5 billion in securities borrowed. $5 billion in receivables.
And 709 million in good old cash. I have little clue what all this means. I have
studied (in various sporadic academic courses and readings ) for over 20 years such things such things as
REPOs, securities sold with
agreement to repurchase or the opposite.  And I confess I have never really
been able to totally grasp it. It is complex stuff. This balance sheet is hard
to understand. But one thing is clear, it was 33 times leveraged and may have
been an accident waiting to happen.


This does not look like the balance sheet of a brokerage operation. I would
not expect a brokerage to take ownership of customer assets.


Looking at its balance sheet from prior years it has been highly leveraged
since at least March of 2007 and probably far earlier than that. High leverage
only makes sense when investing very safe assets. It’s not clear what happened
here. (Update Nov 1, news stories indicate that new management had taken increased
risks of late, so previously it was high leverage but risk was lower – I still
don’t get why a broker needs to be leveraged like that)


We can be reasonably sure that it had highly paid risk officers who gave
assurance that everything was fine.


Just last week it released earnings ($192 million loss) for the three months
ended September 30. That release indicated it had a  net long $6.3 billion
position in approximate 12 month debt of various weak European nations, mostly
Italy. It’s quite possible that it
was a panic and loss of confidence and exodus of customers that precipitated the
bankruptcy. It is hard to believe that a company with around $1.2 billion in
equity would allow itself to go $6 billion long of rather suspect European sovereign
debt. Then again, maybe it all would have worked out as this debt was going to
mature in 12 months. It appears the market panicked and they got caught is some
kind of liquidity squeeze.


So what are the lessons?


One lesson is always be wary of any company with extreme leverage. When I
started this web site in 1999 I said in my CIBC



“Financial institutions are in many ways extraordinarily risky. They typically have very low equity and therefore extraordinarily high leverage. This is offset by the fact that their assets are extremely liquid and they are required to manage risks very tightly. CIBC apparently has an excellent system in place to manage risks. However, if their risk management systems were to fail disastrously it would likely be possible to bankrupt the corporation.”



That warning seemed rather strange when I made it in February of 2000.
Canadian banks did not “blow up” but anything with high leverage
always has that potential. And my warning of this risk suddenly seemed to make
more sense when we started to see large American investment banks implode in


If a financial company is both highly leveraged and engaged in complex trades
then we should probably avoid it. Of course, until recently European sovereign
debt was considered very safe.


One way to partially protect ourselves is to never get over-exposed to any
single financial company that has high leverage.


Given this blow-up at MF Global, I am glad that I never place my money with
any of the internet brokers. My money is with TD Waterhouse. It may not have the
most exotic trading tools. Neither do i need those. And I always felt my money
was safe at the likes of TD Waterhouse. I personally never liked the idea of
sending my money to the likes of interactive brokers or really anyone but the
largest Canadian bank brokers. Those other brokers might be safe, but I saw no
reason to leave TD Waterhouse.


October 30, 2011


I added a new article comparing
what it is like to quit your job and own a business as opposed to keeping your
job ansd investing in stocks as a way of owning businesses.


Here is my rough understanding of the Greek situation and this voluntary
agreement of bankers to accept 50 cents on the dollar.


This is not a default by Greece. That’s because it is voluntary.


The Institute of International Finance
represents banks and certain others that own Greek debt. This group has agreed
that its members will accept 50 cents on the dollar in return for getting a guarantee
by the European Union or one or other of its various bodies.


I believe the logic is that if these parties don’t accept 50 cents they may
get less or nothing.


But it’s not clear to me that the Institute could actually bind any of its
members to this. I think each member of the institute would have to decide if it
will do this. There may be a lot of pressure but each member surely hs the right
to decide this on its own. One such pressure is that bank regulators could tell
the banks that the Greek bonds must be backed by bank capital. Usually sovereign
debt can be held by banks on a 100% leverage basis, they can fund it with 100%
depositor money and none of the banks own capital. This pressure if applied
would make it hard for banks to hold the Greek debt.


It seems to me that anyone who is not a member of this institute that holds
Greek debt will get a free ride here. The institute members by agreeing to 50
cents will improve Greece’s finances to the point where the other bond holders
migt now expect to quite possibly get the full dollar as agreed.


There is an interesting Stewardship of the Commons concept at work here. An
individual member of the Institute might wish to hold out and let all the others
take 50 cents. But if enough hold out  then the whole plan falls apart.




October 27, 2011


Well, Thursday was certainly a banner day for stocks.


I did not happen to see any articles that actually explain what the deal is
and which investors are voluntarily accepting 50 cents on the dollar for Greek
debt. I will take the market’s word for it that this is quite positive.


In other news the U.S. GDP is estimated to have grown at some 2.5% in Q3 and
new jobless claims were a little lower than expected. So much for talk of double
dip recession (for today at least).


With the market up, my thoughts turned today to possibly beginning to lighten
up on some shares. Especially Wells Fargo. I kept buying Wells on dips and at
some point I should sell some on blips.


I looked at selling some covered calls on Wells Fargo. But from my quick look
at the premium I might receive, I saw nothing that made any sense to me. Wells
closed at $27.07. This afternoon when it was trading around that level, I looked
and if I wanted to sell a covered call for $32 with an expire in November of
December it appeared I would get less than 10 cents per share for that. Makes no
sense to me. And higher prices covered calls of $35 that would remain open for
several years until January 2014 appeared to offer about $2.55. This is not even
remotely attractive to me. I am certainly not going to waste my time on a few
cents per share. And if I sold a covered Call for $2.55 at $35 that would remain
open for up to 15 months, I would eventually be faced with buying that back,
perhaps at a higher price. It simply makes no sense to me. I have invested in individual
stocks for 20 years now and fairly actively for at least 12 years. I have never
sold a covered call and it does not appear that has hurt me. I did buy a few
options on Wendy’s once just before it was going to spin off Tim Hortons and I
recall I lost money. I may try to go another 20 years without bothering with
options. From my perspective options are a specialized product and they would
clutter up my thinking and my account if I got into them. No, I don’t think I


However, what I really should do is enter some orders to sell at least some
Wells Fargo and perhaps some others at current prices or perhaps a couple
dollars above current prices. By almost any standard, I am over-exposed to Wells
Fargo, Canadian tire and Melcor and I probably should be selling some on blips.
But given that I think these stocks are attractive at these prices I am
reluctant to part with any just yet.




October 26, 2011


Update: Markets are set to rise on Thursday as a sort of bail-out for Greece
has been apparently announced. Some private investors to accept 50 cents on the
dollar… Dow futures up about 115 points as of 11:40 pm eastern time


The major news items moving markets continues to be a combination of Q3
earnings and developments in Europe.


Apparently certain European banks will be asked to raise more capital. This
could mean selling shares at today’s low prices which existing shareholders
would not like. Or, it might mean raising debt financing, which might be
preferable if the interest rate is not too high. Some debt may be lent by this
European Financial Stability fund and I assume that would be at a low interest


As far as Greek debt I am not at all clear what the proposal is. Vaguely I
think it might be that the banks accept 50 cents on the dollar for Greek bonds
in the hopes that this helps out Greece and the remaining Greek debt would not
be defaulted on (well not yet at least).


Visa was out with a 14% increase in earnings. (Gee, who’d a thunk a
largely-unregulated-as-to-price semi-monopoly financial toll booth company would
have a big earnings gain…duh…I guess a lot of people thought it, it fell in
after hours trading so people must have expected even more).


I received the following question by email and thought the answer might be of
interest to others as well.


Question: What is the difference between CTC and CTC.a?



It’s a good question, especially given that Canadian Tire’s  CTC
shares are trading at $69.00 while its CTC.a sshares are at $59.80.


trades about 600 shares per day while CTC.a trades 228,000 per day. 


CTC are the voting shares. CTC.a are non-voting.


The founding family Martha Billes and son Owen Billes own 61.4% of the
voting. The Dealer’s holding company owns 20.5%, The deferred profit sharing
plan owns 12.2%. That accounts for 94.1%.


I believe there may other branches of the founding family that own these
shares as well. That does not leave many voting shares left trading…


There are only 3.4 million voting shares and there are 78 million
non-voting CTC.a shares.


The two Billes own only about 2 million CTC.a shares and so would
certainly not have control of Canadian Tire without this dual class share


Investment firm, Jarislowsky Fraser owns 12.8% of the non-voting shares
and no one else owns more than 10%.


My understanding from reading the annual report and Proxy Circular is that
there is no benefit to owning the CTC shares other than the right to vote. (And
since the Billes control the vote, that seems of little to no value.). In the
event of a take-over offer for the voting shares, the same price has to offered
to the non-voting share owners.


My recollection from my MBA days in the mid and later 80’s is that there
was a huge legal battle at one time and the law was made that the non-voting
shares must get the same offer as the voting shares in the event of a change of
control. It was called the coat-tail provision.


All in all, I don’t see why the voting shares should trade for a higher
price. In a number of other cases in Canada with dual class shares there is
little price difference. So I don’t know why the big difference has developed


In buying the voting shares I believe there is a risk that one of these
days the CTC.a shares will get the vote and then the premium would be gone.


In theory I think I should be very much against the existence of the dual
class shares.


However, the company seems well run and there has been stability. Perhaps
it is not such a bad thing…



October 25, 2011


There did not seem to be much good news today… poor earnings reports… Dow
down 207 points. U.S. markets down about 2%. Toronto down 0.4%. A bright spot
was Canadian Tire up a little and now getting close to $60.


Canadian earnings reports are starting to come in and we shall see what
tiding those bring.


I wonder if there are any Canadian Companies that Buffett might be interested
in acquiring given prices seem reasobale.


Firstly he far prefers private companies and not publicly traded companies,
although he occasionally goes taht route.


I wonder if Bombardier would ever be of interest (given its low share price).
It has the family running it and Buffett has often bought family controlled
companies. I suspect he would like the idea of their planes and trains, but the
industry may be far too competitive and far too involved with government
interference for his tastes. Canadian Tire is a possibility given what I think
is a low stock price and its solid history including its credit card business.
Shaw Communications is a possibility. Also Alimentation Couche-Tard, but it may
be expensive. He would like CN or CP but that could be problematic given he
already owns Burlington Northern and also they may be too expensive. As far as
private companies, I am really not aware of them. Overall, I guess I would not
hold my breath waiting for Buffett to announce any big Canadian acquisitions.


October 24, 2011


Monday was a strong day in the markets with the TSX up 1.8% and U.S. markets
up about 1%.


The news that Caterpillar has very strong earnings (up 44% in the quarter on
surging sales) and a strong out look for 2012 (up to 20% sales growth) is
encouraging. Also Fed Ex announced it will hire a lot more temporary workers
this Christmas compared to last year as it expects shipment volumes to be up
12%. Not exactly the recession doom and gloom that has been talked about so


October 23, 2011


Shaw Communications is
updated and rated (higher) Buy at $20.40. Note the attractive 4.5% dividend


October 20, 2011


It was another day with lots of news. Interestingly it seemed that the
killing of Moammar Gadhafi was greeted with something of a yawn. Perhaps because
it had been totally expected. Other news included that new jobless benefit
claims in the U.S. fell only very slightly this week.


Shaw Communications was out with earnings this morning. I will update the
report for Shaw within a few days. Microsoft released earnings after hours. It
appears that most of the earnings releases today were higher than expected (the
analysts had under estimated the earnings and or revenue).


October 19, 2011


I don’t usually have much patience for the notion that markets are so awfully
volatile today compared to the apst or that things are so bad “these
days”. The implication is that the past was wonderfully benign and
wonderful. In fact in general almost all the time things feel uncertain.
Volatility is the normal thing in markets.


But admittedly it does feel even more volatile of late. Today we had the Canadian
stock market down 1.7% and my U.S. banks got hit again. However Wal-mart and Canadian
Tire did well…


Let me return to my comment about companies “missing” analyst


In fact the reality is quite the opposite. It was the analysts who were WRONG
in their forecasts of the companies earnings. Most companies do NOT forecast
their own earnings and they certainly don’t promise to meet the expectations of
analysts. Companies earn what they earn and the results do tend to be lumpy and unpredictable
from quarter to quarter even for companies that are growing fairly steadily over
the years.


So, it was not Apple that “missed” earnings, it was the analysts
that “missed”.


If Apple stock was bid up due to too high analyst earnings expectations then
yes it is perfectly correct that the stock should fall. But Apple did not miss
anything, Apple grew its earnings by some 74% year over year as I understand it.
I don’t have any opinion on Apple as an investment. I just point out that there
is ridiculous focus on analyst earnings estimates and that the press has it
backwards in reporting who missed. Companies should studiously IGNORE analyst
earnings estimates, and simply go ahead and make money and grow. They should
spend a LOT less time talking to analysts. If they do that the stock price will


October 18, 2011


Wells Fargo is updated and is
rated Strong Buy at $25.86.


Wells Fargo rose 5.9% recovering most but not all of yesterday’s 8.4% drop.
Perhaps analysts had a chance to take a closer look at the earnings release. The
movement in Well’s share price goes to show that day-to-day volatility can be
severe but at least sometimes if fairly meaningless. In the end, the performance
of the bank will determine its share price over the years. In the meantime it is
guesses about the future that drive this stock (and all stocks) up and down.


Right now there is a HUGE focus on which companies are meeting or missing
analyst expectations. This is really unfortunate. The fact is with all the
moving parts no company should be expected to grow at extremely steady rates or
meet analyst expectations (guesses). Most companies have enough unusual items
that move around that even the CFO should have a hard time guessing where the
earnings will come in. Yet we expect companies to do that. The scary part really
is when they DO meet analyst expectations exactly. When that happens is
that because the analysts were so very clever in their forecasts? is it because
the company whispered the number in their ears? or, most scary of all, is it because
the company massaged the books to “make” the numbers?


More emphasis should be put on the outlook and the longer term outlook and a
bit less emphasis should be put on whether the quarterly earnings missed by a
penny or three, which would often amount to rounding errors.


In any event today bought another round of earnings, some that beat estimates
and some like Apple that missed.


Apparently later today markets were lifted by rumors of progress from Europe.


As always we shall see what tomorrow brings. (And then the day after
tomorrow we will forget about tomorrow and so on with ever too much focus on the
minutia and news of the moment and too little focus on the bigger picture and
the longer term, but such is life in the markets. In the end erratic behavior in
the market is to be taken advantage of and not to be feared).


October 17, 2011


The Dow was down 2.1% today. Toronto was down 1.3%.


Wells Fargo dropped 8.4% after releasing earnings. The share price decline is
disappointing. I have read the earnings release and it looked quite positive to
me. Earnings were up 21% year-over-year. Much of its business is growing but
there are some parts that declined. There are a lot of moving parts including
lumpy items like gains on securities and other mark-to-market gains or losses that
jump around each quarter.


So yes, it was disappointing see see an 8.4% price drop. I was certainly
hoping for a price increase. However such is the nature of the market.


We could still see a good recovery in Wells before year end if the European
situation is looking better and/or we get a general rise in the market. Also
there is the possibility of a dividend increase.


Meanwhile, I look at the fact that we have a huge and successful bank trading
at (just) book value. It is earning an ROE of 11.9%. If it can keep chugging along
doing that then its share price would eventually sort of pull itself up by its
own bootstraps as book values rises over time. And at some point (which could be
in a day, a month, a year or who knows how long) when confidence picks up we
should see a multiple expansion whereby it returns to trading at say 1.5 times
book value.


Sure there are always risks, but this bank looks like good value to me. I
have never seen any suggestion that it owns any Greek bonds. On the other hand
it does own “trading” assets and I don’t know exactly what those are.
So some Greek bonds are a possibility, but I would be very surprised if it was
anything material if they have any at all.


Wells Fargo bought Wachovia at a fire sale price and is almost finished
integrating it. I am expecting its revenues to begin to grow again and its
earnings to continue grow.


October 17 (prior to market open)


Wells Fargo is out with earnings that rose 21% from the prior year.
Apparently this was lower than the increase forcast by (guessed at?) by
analysts. The stock was down almost 5% in pre-market (oxymoron?) trading.


At a quick look the earnings appeared good to me. Progress continues. The
company appears to be trading at roughly 10 times earnings.


It’s interesting that the market still places much faith in analyst earnings
estimates. Anyone involved in any large organization would likely agree that it
is hard to predict the bottom line quarter to quarter as expenses and revenues
can be unpredictable. Years ago analysts could predict a quarterly earnings
number because management basically whispered the number in their ear. That was
always illegal but now the practice is rare. Company earnings are highly secret
until released. Any whispering of earnings before they are released would risk
jail time for aiding insider trading. So, my point is I don’t know why stocks
would trade based on insider earnings.


Given that Wells is making progress and trading at some 10 times earnings
this 5% drop in pre-market trading (again an oxymoron, that may constitute institutionalized
insider trading) may not hold. (The stock may rise as investors begin to digest
the earnings report in more detail).


October 16, 2011


Another company Omni-Lite Industries
has been added to our table above and is rated Speculative Buy at $1.60. Note
that it is a micro-cap company with a total equity market value of only about
$20 million. It may suffer from low trading volumes. Be cautious in placing Buys
or Sells for thinly traded stocks because the price can be quite volatile and
you can disadvantage yourself by trying to trade more than is offered or wanted
in the market at a given time. This is a high-tech manufacturing company and
appears to be a good company available at a good price. It definitely worth
considering. I am not sure that I will buy any due to lack of cash in my
accounts at the moment.


Kinder Morgan in the Unites States had announced a take-over offer for
El-Paso valued at $21 billion in equity or $38 billion counting debt. It appears
that the premium to the recent share price is about 37%. I don’t know what kind
of multiple of earnings or book value is being paid. However, this transaction
certainly indicates that the corporate take-over market is still in operation.
My sense is that many (perhaps most) stocks are trading at prices that make them
attractive take-overs. This sort of activity is a positive indicator for stock


UPDATE: Kinder Morgan is paying almost $27 per share. The company made $1.00
per share in 2010 and that was after two years of losses. The company has a book
value of around $8 per share. It would be very difficult to understand all the
aspects of the value of EL-Paso and what it is worth. About half its assets are
oil and gas properties and thiose do tend to be worth lots more than book value.
And some would argue that this company needs to vbe valued on cash flow and not
earnings.  But to me, the point is, on the face of it, this is an EXPENSIVE
transaction. EL-Paso is richly valued here. Meanwhile stocks in general are
cheap and trading on average closer to 14 times earnings rather than the 27
times paid here. This type of transaction gives me added comfort that stocks are
(on average) a good investment at current prices.


October 13, 2011


Financials got whacked today… And just when I was getting used to making
money most everyday.


Google was out with strong earnings after the close. Google’s revenues cone
from advertising and so this shows that businesses are spending on advertising.


Hopefully some more good Q3 earnings reports will come in tomorrow and next


October 12, 2011


Another strong day on the markets. The somewhat disappointing results from
Alco were brushed aside as PepsiCo came in with a good earnings report and the
outlook in Europe apparently brightened. I still expect developments in Europe
to alternative send the market into fits of despair and euphoria, and who know
to what degree in either direction.


I bought stocks fairly steadily on dips since around mid-August. Now I wonder
if I should trim positions just a little as they rise. So far I am not much
tempted to do so. But given I have quite large exposures to several stocks I
might trim them back a little if prices continue to rise. It might be a
reasonable strategy, sell on rallies and buy on dips. But I’m not sure it makes
sense to get into all that trading unless one had a very large portfolio (say
several million). And it might be okay if done on a very mechanical basis,
without thought or emotion. For me I would find it hard to be both holding and
selling. Sort of like sucking and blowing at the same time (whatever that means)
Not very satisfactory intellectually. So I may just hold my positions until and
unless something starts to look over-valued.


Given I am thinking of maybe trimming positions as stocks rise, another
thought is to sell covered calls now. If the price rises and a portion of my
stocks are sold, I would still benefit from the higher price on the remainder of
the stocks, plus collect the premium for selling the covered call. I have never
done that before. I think I would prefer to wait until after the Q3 earnings
come out. I’d hate to sell covered calls just before a (possibly) good earnings


October 11, 2011


This week has started off with strong gains on the markets. Tomorrow is
expected to start out to the downside becasue Slovakia did not approve some
matter associated with bailing out Greece.


WE are also into earnings season. Alcoa is out with earnings that are higher
than last year but lower than last quarter and apparently lower than expected.
The Market may begin to focus on earnings reports although developmests related
to the debt problems in Europe seem likely to dominate.


Meanwhile, I figure is we buy or hold stocks now when they seem cheap, that
will likely work out well in the long term. We have no control over world
events. But we can control which stocks we buy or sell and when.


October 9, 2011


The latest edition of the free newsletter
has just been sent out.


A number of articles in the Special
Reports (item 2 in the list just below the stock table above) have been
updated. This includes an update to our list of Global
ETFs. Almost every country looks reasonably cheap compared to earnings at
this time.


October 6, 2011


There was a lot of positive news today. A welcome respite from all of the
gloom and worry.


Wells Fargo up 3.6%, Bank of America up 8.8%. Canadian Tire up 3.3%. Melcor
up 5.8% and the company has been buying back shares.


There was report that big U.S. retailers had revenue growth of 5.5% this
September versus last year September. This story seemed to down-play the growth
suggesting it was due to price-cutting. Well, if prices were cut then IO guess
volume was up even more than 5.5% This looks like very good growth to me
considering how many people are spouting off about how terrible the economy is.






But will tomorrow (Friday) bring? In large part that may depend on the jobs
report due out tomorrow. I believe it is a monthly report. Expectations are for
it to be weak. If it is weak we will probably see the markets lurch down. But if
there is any sign of life in the thing that could be quite positive.


October 5, 2011


Markets continue to worry about Europe and Greek debt. Good or bad news of
that front will likely continue to send markets up or down respectively and
fairly violently.


There is some speculation that some large U.S. banks have
“exposure” to Greek debt. In particular Morgan Stanley. That may be
true, but that should have no direct impact on Wells Fargo or perhaps even Bank
of America (though I am less sure about it). The Investment Banks including
Morgan Stanley, JP Morgan and Goldman Sachs are primarily in businesses other
than traditional banking and money management. Investment Banks traditionally
acted as intermediaries to assist corporations to issue shares and to issue
debt. They also offer brokerage services and wealth management. And they trade
for their own account.


In recent years Investment Banks entered the business of buying and selling
derivatives including credit default swaps. Their primary business was certainly
not traditional banking in the sense of taking in deposits and making loans to
businesses and individuals.


These days Wells Fargo and Bank of America are also in the brokerage business
and do some investment banking. But I am reasonably certain that Wells Fargo is
not much into the business of buying and (especially) selling derivatives (they
would buy some for hedging purposes to be sure). And most or all of the traditional
big Investment Banks legally turned themselves into depository banks in 2008 in
order to access FED money. Still, Wells Fargo is definitely not primarily an
Investment Bank and I doubt that it has any material exposure to Greek Bonds.
Bank of America, I am less sure about but I would not expect that it has much
direct exposure.


Costco came out with a strong sales and earnings increase today.


October 4, 2011


Nothing to See Here?


It was a bit of an epic day for volatility in the U.S. markets. The Dow was
down over 200 points much of the day but roared back in the final hour to finish
up 153 points. Oil, I believe was down a couple dollars at times but finished up
a couple dollars in the end.


Apparently some modicum of potentially good news about banks from Europe
drove the market higher in the last hour. Well, whatever, no one really knows
where stock prices are headed, especially in the short term. Tomorrow the market
will focus on whatever new bits of news float by.


The key is to buy the best bargains you are aware of and are comfortable
holding. If you do that and the company grows its earnings, the stock price will
eventually follow. If corporate earnings (and their future potential) are the
substance of a company, its market price is more of a mere shadow. Too may of us
are far too fixated on the constantly flickering shadows. It may be best to
relax and think about companies rather than share prices.


October 3, 2011


I bought some shares of Stantec today. (updated yesterday)


I have added The Brick Inc. to
the list of stocks above. rated Speculative Buy at $2.35. It has been in something
of a recovery mode after incurring losses a couple of years ago and after
switching to corporate form. It used to be an Income Trust. It looks like an
okay investment. However, I would be inclined to wait and see its Q3 report in


Markets fell again today. It does not feel like a good time to be in the
markets. But, while things could get worse, I believe stocks are actually
attractively valued at this time. Patience and bravery will likely be rewarded though
perhaps not immediately.


U.S. banks in particular declined on fears of Greece debt and contagion. But
its not really clear that Wells Fargo
for example has any exposure at all to that debt.


Not all the news is bad…


The market today chose to ignore some good news such as a manufacturing index
that has apparently risen every month for 26 months now.


The price of oil has declined. This is positive for the U.S. economy.


Canadians bought a lot more cars in September. In the end the economy is
driven by the action of ordinary people working hard to buy things and then
working hard to pay for them.


Interest rates are at record lows. Bad for savers, but good for the profits
of corporations and good for stock prices.


Tomorrow as always is another day. We shall see where the markets take us
tomorrow… and the rest of the year.


October 2, 2011


Stantec is updated and is rated
Strong Buy at $23.35. It is certainly possible that its outlook will weaken due
to the possible recession in the U.S. On the other hand any effort to
build  jobs through government infrastructure spending will help it. The
bottom line is that the stock looks cheap. It should be a good long term
investment. A possible strategy would be to buy some now and then see how the Q3
report and outlook looks early in November.


Stantec was one of the first companies ever reviewed on this Site. Back in
September of 1999 we rated it Stron Buy at a (split adjusted) price of $2.50 per
share. The price is now 834% higher than that. The price has been volatile over
the years and it has not always been rated a Buy on this site. I don’t believe
we have rated it a Strong Buy any time in the past ten years until today. I plan
to buy some.


September 30 9:10 am eastern


Today is the last day of the third quarter as well as the last day of the
week. At the opening it appears stocks will be down.


Many investors decry volatility and manipulation. In reality if we can get
some idea of what companies are really worth by looking at fundamental data then
we can buy when stocks are manipulated down or fall on excessive general fear.
Volatility is the friend of the intelligent investor. (Though it may not always
feel that way).


September 28, 2011 


Our article that analyses whether or not the
overall Toronto Stock Index is fairly valued or not has been updated. The
TSX looks fairly valued at this time. Our last update on march 11 had indicated
that it looked 20% over-valued. This analysis is not supposed to be a short term
signal but rather is a long term indication of value. Still, it indicated the
market was over-valued in march and the TSX market has fallen considerably since


Today was of course a down day in the market. Given that stocks look to be
good value value. I am not going to worry about these dips. It’s the nature of
markets that the scariest looking markets are often the best bargains. Of course
the bargains could get even better before the market turns around. That is
simply the nature of the beast.


The lower price of oil should be helpful to the North American economy. And
the somewhat  lower Canadian dollar is helpful to many (although not all) Canadian


September 27, 2011


It was a strong day in the markets. Markets were very strong most of the day
but then declined to more modest gains. I expect markets to continue to react relatively
violently up and down with each bit of news. Futures tonight suggest the market
will open modestly lower tomorrow. Next week or the week after the market will
begin to focus on third quarter earnings reports. These will probably be good,
but the key is will they be as good as expected?


The Case Shiller home price index out today showed that U.S. home prices have
increased slightly in July for the fourth month in a row. However, on a
seasonally adjusted basis they were about flat in the latest reported month
(July). I am not sure id seasonal adjustments should really apply given the vast
changes in U.S. house prices these past few years.


September 26, 2011


Warren Buffett / Berkshire Hathaway announced today that its
Board had authorized management to buy back shares at a maximum price of 10%
above book value. 


I had speculated on September 6 (see below) that this might
happen. I am not sure I had ever in the 11 year history of this site speculated
that Buffett / Berkshire might buy back shares. If I did, it would have been
probably 2008 or eraly 2009 when Berkshire briefly  fell to or below book
value. I have studied Buffett enough now to have at least some small insight
into how he thinks and it is gratifying that I was able to correctly speculate
this action at this time.


Buffett has said before that in certain circumstances share
buy backs can be the best use of cash. But he has also pointed out that many
corporate share buy backs are completely irrational. Companies that buy back
shares to offse teh dilution of options are acting irrationally. A share
buy-back either is or is not good use of cash. The fact that options were issued
has nothing to do with it.


Buffett’s press release in a couple sentences contained a huge
amount of wisdom.


Our Board of Directors has authorized Berkshire


Hathaway to repurchase Class A and Class B shares of Berkshire
at prices no higher than a 10%


premium over the then-current book value of the shares. In the
opinion of our Board and


management, the underlying businesses of Berkshire are worth
considerably more than this


amount, though any such estimate is necessarily imprecise. If we
are correct in our opinion,


repurchases will enhance the per-share intrinsic value of
Berkshire shares, benefiting


shareholders who retain their interest.



The repurchase program is expected to continue


indefinitely and the amount of purchases will depend entirely
upon the levels of cash available,


the attractiveness of investment and business opportunities
either at hand or on the horizon, and


the degree of discount from management’s estimate of intrinsic
value. The repurchase program


does not obligate Berkshire to repurchase any dollar amount or
number of Class A or Class B




Absolutely everything in this press release is 100%
consistent with Buffett has said about rational share repurchase programs over
the years.


I read a number of shoddy opinions on this today that
contained various errors about this and expressed surprise at this announcement.
This should not have been a surprise. Buffett / Berkshire has not previously
bought back shares. But in part that was because those shares have seldom traded
near or below book value over the past 25 or more years.


Many of the analysts commenting today do not even seem to have
a clue as to the difference between book (accounting) value and intrinsic (true)


Some analysts wrote that share buy backs are equivalent to a
dividend. This is simply not true, not from the perspective of the company, the
selling shareholders, or the continuing shareholders. Buffett makes no real
distinction between the perspective of the company and the continuing
shareholders. He runs the company and always has on behalf of its shareholders
especially long term shareholders who have no plans to sell.


In other news it was of course a strong day on the markets.
Wells Fargo and Canadian Tire did well. 




September 25, 2011


Microsoft is updated and rated
Strong Buy at $25.06. There are no guarantees but this looks like an excellent
company available at a very attractive price.


On Friday a piece of news caught my attention. This news indicated that
American credit card delinquencies have not only declined from the high levels
of two years ago but they are a t record lows. In the midst of all the gloom and
doom it turns out people are managing to do a better job of paying their credit
bard bills than ever. This bodes well for Wells Fargo. I certainly expect (but
cannot guarantee) that Wells Fargo
will report a strong quarter in Q3. I expect higher profits due to lower loan
losses. They may show a negative growth (shrinkage) in the amount of loans and
they may show lower net interest margins. But barring some unusual write-offs I
think profit growth will be strong.


Here is the story about better credit card delinquencies:




September 22, 2011


Markets are down almost 20% from their peak values of earlier this year. Once
they cross 20% we will be told we are officially in a bear market. I find it
kind of odd to conclude at minus 20% that we are in a bear market. I would say
instead that it shows that we have been in a bear market since the last peak. No
one knew for sure that we were. And no one knows for sure where markets go from
here. So I find the idea of hanging a bear market label on the market now to be
of little use. If we had known for sure back at the peak that we would fall 20%
then of course we could have stepped aside. But we did not know then that it
would fall 20% and we don’t know now where it will head next.


My approach will always be to buy when stocks (actually companies) look to be
good value based on a rational analysis and sell if they look too expensive. And
I will generally buy and sell one stock at a time.


In that vein I bought a bit more Melcor


Right now markets are focused on government actions. It will be a relief to
get to the middle of October when the market can be more focused on corporate


After the close today Nike came out with a 15% increase in earnings – this
was higher than expected. It’s an indication that the economy still has some
strength in it. Rumors of the death of the economy are greatly exaggerated.


September 22, 2010 (9:25am eastern)


Just prior to the opening of trading it looks like the market will drop
another 2.5% or so at the opening. It is said that the markets are alternately
ruled by fear and greed. Clearly fear is in the drivers seat right now.


This sort of think is characteristic of equity markets. Those who truly can’t
stomach these events really should not be in the market.


Personally. I have lived through many of these kind of days and a few bear
markets and came out okay in the end. I can make no guarantees but I do expect
to come out of this okay as well although it can certainly get much worse before
it gets better.




September 21, 2011


North American stock markets tumbled 2 to 3% on Wednesday after the FED came
out with negative comments on the economy and announced it would sell short-term
bonds to buy long-term bonds. It seems “the market” does not believe
this bond buying will stimulate the economy.


So this is nasty for those invested in stocks. We might wish we had sold
earlier perhaps with a view to buying bargains at some point.


In any event there are some positives to consider.


Luckily the economy mostly takes care of itself and will survive with or
without whatever tricks the FED or the government gets up to. Sure, business is
slower than we would like but the economy has not exactly ground to a halt. Most
companies are still making excellent profits.


At about 12:30 am Thursday morning eastern time, futures markets suggest the
DOW will open down another 50 points.


While it seems painful now, indications are that stocks are worth buying and
worth holding at this point.


Remember, the people who own the businesses in your community are not likely
to be panicking and selling their businesses. So why should we panic and sell
our shares in businesses?


Wells Fargo and Bank of
America (as well as Citi) had their credit ratings down-graded by Moody’s today,
on the basis that they feel it is less likely that the government would rescue
these banks if they ran into trouble. Hmmm well if I though Wells Fargo was in
any danger of needing a rescue I would not own it in the first place. (Wells
Fargo got TARP money in 2008, but it never asked for it and it never needed it
and it repaid it).


The Canadian dollar declined to just under par. That is a good thing. We
would probably be better off as a Country if it was closer to 90 cents.


September 20, 2011


Microsoft has raised its dividend by 25%, after the close today. Dividend
yield is still only 3% or so but still this is a positive signal. Amid the gloom
most companies are still making money.


Markets went higher today on hoped for an announcement tomorrow of some sort
of FED stimulus. Gains were strong at one point today but later petered


Canadian Tire made a nice 2.8% increase today. Visa
was up over 3% today and is now at almost $93 after having slipped under $80
in mid-August. As I have said about this company before, it’s hard to keep a
good monopoly down. Sadly I had sold my VISA at about $87 in the tense time
leading up to the debt ceiling situation and had not bought it back when it
fell. Ahh well, I remain confident that my big bets on Melcor, Canadian Tire and
Wells Fargo will pay off.


September 19, 2011


At the moment it appears that bad news from Europe and Greece is going to
pull the market down this week. But who knows?, these things can change rapidly.


Tonight Barry Allan on Lang and O’Leary was suggesting that Greek bonds will
default and will pay out less than 20 cents on the dollar. Just a few years ago
all the bank regulators thought those bonds had zero risk. As I
wrote back in about 2001, this whole notion that risk can be measured and
that we can talk about risk-adjusted assets or risk-adjusted returns is so much
nonsense. Certainly the European banks and their regulators measured the risk
wrongly. It’s astounding that Greece was lent so much money that they can
perhaps only pay back 20 cents on the dollar.


Greek bonds were deemed safe by Standard and Poors. I read the Standard and
Poors report that down-graded the United States debt. It struck me as very
superficial. They focused mostly on debt to GDP ratios and on the political
gongshow. Those are two very valid points. But they did not mention that a
higher debt to GDP ratio is reasonable at low interest rates. They did not look
at the interest payments as a percent of the revenue. They did not mention much
if anything about the fact that a large portion of the United States government
debt is owed to other government entities including notably the social security
fund. They did not attempt to show any kind of balance sheet. Oh, and they did
not even mention the ability of the United States to print money and the
implications of that. On that basis I conclude their report on the United States
was superficial at best. The United States may indeed deserve a downgrade. But
the standard and poors report did not do any kind of proper analysis in my


See for your self.


United States of America Long-Term Rating Lowered To ‘AA+’ On Political Risks And Rising Debt


Burden; Outlook Negative


Canadian Tire has a book value
per share of $50.25 and trades at $57.00 or 13% above book value. This company
in the past four quarters has made a return on equity of 10.2%. So, one estimate
of what you might earn from buying Canadian Tire shares is 10.2/1.13 or 9.0%. If
the company has earnings of 9% of the share price and if as in the case of
Canadian Tire 1.9% comes to you as dividends then an amount equal to 7.1% is
retained then the book value grows each year by 7.1% of the share price. If the
price to book value multiple were to stay at 1.13 then you would realize your
9.0% return as 1.9% in dividends and 7.1% in share price gain. Historically,
Canadian Tire has traded well above 1 times book value and on that basis a (beneficial)
increase in the price to book value ratio seems more likely than a decrease.


Another way to look at book value is; what kind of assets are we getting for
our $57? Well, pretty solid assets, Canadian Tire’s assets (prior to the recent
Forzani’s purchase) are 60% current assets (mostly credit card receivables from
customers, inventories, trade receivables and cash). Another 28% of the assets
are property and equipment. The rest is mostly long-term receivables. There is
only a tiny amount of purchased goodwill (about a half of one percent of the
assets, this from the Mark’s Work Wear House acquisition). They own 70% of the
Canadian Tire Store buildings. (Mark’s locations may be primarily leased). Given
that the Canadian Tire store lands and buildings were bought or built over a
period of some years, I would expect that the market value of these stores if
quite a bit higher than book value.


Consider that Target has recently paid $1825 million to acquire the leasehold
rights for up to 220 Zellers locations. This amount paid may provide some clue
as to the value of the Canadian Tire stores. I searched for information on
exactly what it is they are getting for that money. Astoundingly, I could not
find anything on that. I searched the transcript of the two analyst conference
calls after this purchase and no analysts even asked what they are getting for
the money.  This works out to $8.3 million just for the right to take over
the leases!!! That is astounding. They won’t own these stores. A possible
explanation for this is that Zellers had locked in leases for many years at low
prices. Maybe, but it would take a LOT of years at a very low price to justify
$8.3 million per store. And actually it’s clear that many of the locations are
marginal. Target only plans to actually use about 135 locations and will
re-lease the marginal ones or re-sell the lease rights. And, by my experience
the Zellers locations are not prime locations. They tend to be in older malls.
To my knowledge Zellers does not have the big free standing stores that would be
most attractive. I don’t think they are in the newer retail power centers.


Canadian Tire has 487 stores. Not all of these are the larger ones but
many are. I would suspect that these stores, 70% and 30% leased would be far
more valuable than the Zellers locations. My point is, Canadian Tire appears to
have very solid assets that are almost certainly worth a large premium over book
value and yet you can buy their shares at just 1.13 times book value. Perhaps
the purchase of Forzani’s changes this a little as they are paying a large
premium over book vale to get the Forzani locations. But again if Forzani’s was
worth very substantially more than book value, this is another indication that
the Canadian Tire stores are worth much more than book value. It’s always possible
that their credit card receivables are a problem and are worth less than book
value. But I see no indication of this. The Mark’s operation faces stiff
competition and it might not be worth any more than its book value, if that.
But, Mark’s represents only 9% of earnings, so that does not change the equation




September 18, 2011




There is ALWAYS plenty to worry about when you invest money in stocks. There
are always some analysts predicting a stock market crash. Right now now of the
monsters that are said to be lurking include:


1. Defaults by European countries causing a crisis at European banks which in
turn could turn into a world wide credit crisis.


2. U.S. could ultimately default on its huge debts causing perhaps a


3. U.S. could print massive amounts of money to pay off foreign dents causing
massive inflation.


4. Global growth could slow to about zero or less due to aging populations in
the developed countries. And it said that stocks will not offer a good return
without economic growth.


5. Energy shortages could curtail growth.


I could go on moving from the possible to the absurd, world nuclear war,
world-wide pandemics, end of the world, attack by aliens from outer space. There
is never any shortage of things to worry about.


To be flippant, I could just point out that life is indeed risky. Meanwhile
we still need to get on with living and investing.


Today, let me address a couple of specific points that “bears” have


A professor Gary Shilling has popularized the use of a 10-year P/E in place of
the regular P/E. This is the stock price divided by the average earnings from
the last 10 years. Naturally, given growth, the average earnings over 10 years
tend to be lower than the most recent year’s earnings and so automatically this
10-year P/E is on average lower than the regular P/E. The idea behind the
10-year P/E/ is that it insure we get a more normalised earnings figure. Regular
P/Es can appear high simply due to a temporary drop in earnings. And a regular
P/E can appear attractively low based on a spike in earnings.


Most of what I have read suggest the P/E 10 is still at the higher end of the
range suggesting stocks are expensive.


I calculated today the P/E 10 on the Dow Jones Industrial Average and I found
it is below its historic average. That would suggest stocks are cheaper than


My data indicates the average PE 10 on the DOW since 1938
is 19.8 and we are sitting at 16.8.



So, stocks are cheaper than average. The lowest P/E 10 was
8.9 at the end of 1981. The biggest peak by far was (surprise it was 1999) at
43.0. The second highest peak was 1965 at 26.0. (it accurately signaled stocks
were over-priced). The data here would seem to suggest that on a cyclic P/E
basis the stock market is cheaper than average but by far not as cheap as 1981.
However, considering that the 10-year bond yield in 1981 was something like 16%
and today it is 2%, an argument could be made that stocks are indeed very cheap.


Many bears suggest that if economic growth is zero then stocks must fall.


Well, maybe. But I am not convinced that is the case. In a
zero growth economy, some companies still grow. Also the non-growing companies
can stop investing for growth and can increase their dividends. Or dividend
buy-backs may increase earnings per share. Growth in the economy does make it
easier to make money in stocks. But zero growth does NOT mean that companies
stop earning money.


As always there are no guarantees in the market. But on
many measures stocks look cheap to me. I am not going to be scared away. But
each person’s tolerance for risks varys and investors must remember that you are
grown ups. Invest at your own risk.


September 16, 2011


Decent gains in the market today, especially for financials.


I am sitting tight, not selling or buying. (except I have an order to add a
bit to Melcor).


September 15, 2011 (9:10 am eastern), (from Cranbrook B.C.)


Markets were strong on Wednesday. In particular a strong gain
for Canadian Tire. Although world financial events are a risk, I do feel good
about owning Canadian Tire as well as in particular Wells Fargo and certainly


September 13, 2011


Canadian Western Bank
is updated and rated (higher) Buy at $27.50. They just keep chugging along with
nice growth almost every year. This is one of the very first companies that I
ever had on this site and it is up 457% since I first looked at it and rated it
a Strong Buy on August 5, 1999. Investors would have done well buying and
holding. But in particular there were times like 2008 where its price dropped a
lot. Going forward it should continue to gain over the years although the share
price can certainly decline with recessions or credit crisis as we recently saw.


Futures are indicating a negative day in the markets tomorrow. If we can get
through September without too much damage from the Greece and Europe situation I
do expect many of Q3 earnings reports to come in strong. It’s always possible
though that we will see stocks drop a lot more yet before an ultimate recovery.
That is ALWAYS the case. In this game we do tend to get rewarded longer term for
holding good companies but not without pain along the way (witness Canadian
Western Bank, even it fell horribly in 2008/2009 – like around 70% peak to
trough but it recovered). Good companies do grow over the years…


September 12, 2011


On Sunday night I wondered if Monday would bring market losses or would it be
market gains. The answer came today, at first losses (although a few stocks
including Canadian Tire did well all day) but at the end of the day a late surge
and a gain for the day in the U.S. (Canada remained with losses due mostly to
Gold companies).


The roller coaster continues. The late rally today was apparently due to a rumor
that China will invest in Italian debt. Whatever. This is all just noise in the
end. Most of these world events can indeed push stock prices down in the short
term. But long term will not have a lot of impact on the value of Canadian Tire
and Wells Fargo and most companies like that.


Strange things are happening. Apparently the amount to insure a $10 million
Greek five year bond is over $5 million. I wonder what Buffett would think of
those odds. AIG got crushed selling bond default insurance, but they charged I
believe a fraction of a penny on the dollar. Even if Greek default is likely,
getting paid 50 cents on the dollar to insure Greek debt might be a very decent
bet. (The thought is any default would not result in a total loss, the defaulted
Greek bonds would likely pay out at some amount on the dollar.) Not sure Buffett
would take that on. I am sure though that he would be criticized if he did.
Hopefully Greece can find some assets to sell off and pay down some debt. (Privatize
highways and anything else the government owns, sell some government buildings.
One does what one must. If one is honorable that is)


September 11, 2011


But Where Will We Be Tomorrow…?


Futures on late Sunday night suggest the markets will open down another 80
points on the DOW. But a lot can chance by morning.


September 10, 2011


On Friday stocks fell hard on fears that Greece will default on its debt
causing losses for various banks and generally creating havoc in the world
financial system and possible the world economy.


On Saturday Greece’s Prime Minister vowed that the country will not default
on its debts.


I have just updated our article that calculates
the fair value of The Dow Jones Industrial Average based on its earnings and
assuming that the earnings can grow at 5% per year and assuming that a normal
P/E for the DOW after a ten-year holding period is 15 and assuming that
investors require an 8% annual return. On that basis, the DOW appears to be
about 15% under-valued at this time. Meanwhile on a similar basis the S&P
500 (which has a higher P/E ratio)  appears to be about 3% under-valued.


Clearly we are getting mixed messages.


Based on current earnings and earnings projections for the DOW and the
S&P 500, stocks appear to be a safe long-term investment.


On the other hand we see warnings of various disaster on the world financial
scene that could throw North America into recession and cause the earnings to


If we consider a ten year horizon stocks would appear to be attractive unless
we get a severe recession and no significant recovery from recession for some


Government bonds meanwhile offer a paltry 2% return for a ten year term.
Bonds have essentially been priced to yield unreasonably low returns for some
years now. However as yields have fallen even further, bonds have given
unexpected capital gains. These surprise capital gains must surely come to an
end soon. Mathematically, the remaining possible gains on a 10-year bond are now
small. If the ten year government yield falls from 2% to 1%, that would create a
capital gain of only about 10%. It seems inconceivable that investors would
drive the yield on government bonds down to 1%. It was also inconceivable that
they (or someone) would drive the yields down to 2%, but they did.


To borrow an argument from, Warren Buffett, stocks appear to be priced to
earn in the range of 8% per year on average over the years (and certainly that
would be a very bumpy 8%, with losses some years) while a ten year government
bond held to maturity WILL earn 2%. You have to be very pessimistic to believe
that stocks will not out perform bonds over the next ten years.


Stock investors are no doubt feeling quite shell shocked. And there may be
more shocks ahead. In all probability those stock investors who can withstand
the risk will be rewarded (at least eventually) for hanging on.


Hopefully there will be better news out of Europe next week. And by
mid-October we will see the Q3 earnings reports which are expected to show that
large companies for the most part are continuing to earn good profits.


I have also updated the composition of my own
portfolio. I have a lot riding on the performance of Wells Fargo and
Canadian Tire.


September 8, 2011


Tomorrow Friday, markets will react to Obama’s jobs speech to congress ands
the senate which he made Thursday Night. As of 11:40 pm eastern futures are
indicating a mildly positive reaction. The market’s reaction will also depend on
whether or not the Republicans indicate an agreement to move quickly on Obama’s stimulus
and job creation ideas.


So short, term we keep getting bounced around with each bit of news. The
longer term picture is that stocks are cheap compared to their earnings and
especially considering today’s low interest rates. Therefore it is likely (but
no guaranteed) that stocks will provide a good return over the next few years.


September 6, 2011 


Well, today did not turn out so bad after all. Sure the DOW was down 100
points. But last night the futures suggested it would be down over 200 points
and at one point today it was down just over 300 points.


I’ve spent almost all I reasonably can and in retrospect I went back into the
market too quickly (I had cut back my equity exposure in early August) and
should have kept more powder dry. Such is life. But I think things will work out
well for me. But not necessarily without scary moments along the way.


I was looking at Berkshire Hathaway
today. The A shares trades at $102,575 . (The B shares at 1 1500th of that). By
the way, these A shares are the same shares that were about $15 when Buffett
bought up a controlling position in Berkshire and proceeded to turn a textile
company into an investment company. The book value of Berkshire was $98,850 at
the end of Q2. So, Berkshire is trading not much over book value. Buffett has
indicated he believes it is worth substantially more than book value. So, it is
always possible that we could, for the first time, see Berkshire buy back some
of its own shares. Then again that never happened in 2008 when Berkshire fell
hard and I suspect was below book value. But Buffett has said he considered
buying back shares at that time.


Basically, I am certain we will see Buffett continue to put money to work. He
will always maintain a large cash position as a cushion in case cash is needed.
But with the excess amount of cash, Buffett will be looking to buy companies at
bargain prices. And failing that he just might buy back some shares. He has
always said that buying back shares should be done if that is the best use of
the money. However, perhaps Buffett will have no trouble finding comapnies to
buy that are more attractive than Berkshire’s own shares. These days Berkshire
is so huge that it seems to stuggle to earn even a 10% ROE, although the goal is
closer to 15%. If Buffett can find acquisitions that earn more on investment
than he expects Berkshire to earn then he will not buy Berkshire shares at book


What will tomorrow bring? Who knows, but as of 11:37 pm eastern time, the
futures are suggesting the Dow will open about 50 points higher than its close
today. We shall see.


September 5, 2011


So let’s see the long weekend is about over and apparently markets will start
off to the down-side on Tuesday (following European markets down).


As of 9:30 pm the futures were suggesting the DOW would be down about 234
points at the open. We shall see these things can change in either direction by


Well, no one ever promised markets would never go down, did they?


Some will see this as a sign to run for the hills and dump stocks. Others
will see it as a buying opportunity. If markets continue down then clearly the
first group would have been right. At some point the second group will be


I’ve been in the camp that figured it was good to buy on the way down. On
Friday I added a bit more Melcor and some Bank of America.


Here in Edmonton things certainly seem prosperous. On Saturday I drove to
Costco (which was packed with shoppers) along the way I passed by lots of brand
new commercial buildings.


The price of oil was down $2.50 to $84 today. This cheaper oil has a stimulus
effect on the economy.


Tonight all the news seems bad but who knows what the economic reports will
bring this week and this month and this fall. It will not be all bad news.


September 2, 2011 9:30 am eastern


Markets were set to open down because the U.S. created no net jobs in August.
This seems to be out lot, markets continue to lurch down and up on each new bit
of news.


Shaw Communications announced
it will not enter the cell phone business. Overall, that seems like a good
decision to me. It’s an intensely competitive business. Shaw may or may not face
some write-offs if it disposes of its wireless spectrum. Shaw’s year end was at
the end of August and we will know more when it reports its annual results. I
was regretting that I had sold my Shaw shares in early August and then bought
back only a few. Right now I will take a wait and see attitude. However I might nibble
at it if the price went under $20.


Melcor announced it will buy back
shares and opined that its shares are under-valued. I agree, they are and I may
buy more.


August 31, 2011


It was a decent day in the markets. In particular, Wells Fargo was up 2.8%.


At the moment I am basically sitting tight, neither buying nor selling.


August 31, 2011 7:28 am eastern


(Apologies for a lack of the daily comments Monday and
Tuesday evening, I was traveling without internet access.)


Couche-Tard reported a strong
earnings increase yesterday but apparently failed to meet analyst expectations
and the share price fell. It’s  a great company and held up very well
through the darker days of August.


It was nice to see Canadian Tire up over 5% on Monday and a bit more Tuesday.


Looks like my fears
about Sino-Forest which I expressed way back in 2005 (and with recent link
on home page) were indeed well founded.


August 28, 2011


Canadian Tire is updated and
rated Strong Buy at $52.40. Simply put it looks quite attractive to buy this at
just 4% over book value and at a P/E of 10.5. There are certainly no guarantees
and there are always reasons to hesitate buying (financial world could blow up,
stiff competition, slower growth, recession, overall market could decline and
other fears). But the company looks like it is priced quite attractively. I am
very comfortable owning and buying these shares.


August 25, 2011


My article on the valuation
of the S&P 500 index is updated. It suggests that the S&P 500 is now
about fairly valued. Our prior update of this article in February had suggested
the index was about 13% over-valued.


Our analysis suggests that the S&P 500 will return an average of some 6
to 10% per year over the next decade (with some years certainly being negative).
We assume investors require a return in that range. Given a 10-year U.S. bond
yield of 2.2%, it may be that investors require substantially less than 8%. In
that case perhaps the S&P 500 is under-valued. Perhaps our assumed earnings
growth rate of 5% is too high. But any way I look at it, the index appears to be
far more attractive than investing in U.S. ten year bonds.


August 25, 2011 (12:40pm eastern)


Warren Buffett’s $5 billion investments in Bank of America preferred shares
and 10-year common share warrants should not come as a shock to anyone. This is
exactly the type of investment Buffett made in late 2008 in Goldman Sachs, and
General Electric. Many analysts following Bank of America were probably thinking
about this scenario since it would seem a good fit for Buffett (though only
Buffett gets to judge what is REALLY a good fit).


Bank of America shares were driven down mostly on fears that it would be
forced to raise equity capital at a low stock price. Now, the shares are up on
news that it has raised preferred share capital. It has in effect alos raised
equity capital since part of the money it received is for warrants to buy
shares. It has in fact agreed to sell Berkshire a  LOT of shares at a low


Buffett has also said he was buying (un-named) shares in August. I suspect
that included Wells Fargo. He is seeing bargains out there. Who will be proven
right? the market (the average investor) or Warren Buffett?


Canadian Tire was down again yesterday even as the market rallied. I
certainly don’t see the justification for the decline. Time will tell.


August 23, 2011


A strong day in the markets. It seems to be a case of “get in, sit down,
buckle up, shut up, and hang on tight”. We are likely to get to where we
want to be (higher markets) but with a seriously bumpy ride.


I have been on holidays but plan to get back to more updates soon. No
shortage of bargains out there.


Market is hoping Fed will give us QE3 on Friday. It’s time they stopped such meddling!


While many predict doom, I figure: Big companies are not about to stop making
money any time soon. These big companies are cheaper (in relation to earnings
and book value) than they have been in many years (save near the 2009 lows).
Buying these companies now is likely to work out well. If they make money, we as
owners will eventually share in that.


August 22, 2011 


Markets started this week off with a small rise. As of Monday night futures
indicated it might open about even tomorrow.


The Fed chair will apparently make some speech at Jackson Hole Texas this
week and it was hoped it might include QE3 to stimulate the economy. Warren
Buffett has pointed out that the massive U.S. deficit is already a stimulus
though it is not called that.


It is beyond me why the Fed or the U.S. government should take much concern
with stock market values. Government should stick to doing its own job,
investors don’t need any help figuring out what to pay for stocks.


Mortgage delinquencies improved a little in Q2 on a non-seasonally adjusted




On a seasonally adjusted basis they were a bit worse but it makes no sense to
seasonally adjust these figures. That’s because the recent delinquencies are
massively higher than they were a few years ago and so there is no reliable data
to see the seasonality. (The raw data moves vastly overwhelm the old seasonal


Fear seems to be the main emotion in the market. At some point optimism and
greed will return.


Treasury bond yields are at stupidly low levels due to fear. Do we investors
really think a 10-year Treasury at 2.1% will do better than buying corporations
that have dividend yields higher than that and earnings yields vastly higher?


August 22, 2011 9:05 eastern


About 25 minutes before the opening of trading, the futures suggested the DOW
would open 150 points higher. Most stocks look cheap but various threats of
recession and European financial crisis will likely keep the market very


Buffett believes that housing starts currently at 600k per year will recover
to 1000k per year or more and that will increase employment significantly. See
lengthy Buffett transcript from a recent appearance on Charlie Rose show.




August 19, 2011 (7:25 eastern)


The Dow was predicted by the futures to open about another 150 points


Oil is down to $80. At some point the lower oil price, if maintained, will
act as a stimulus to the economy. My assumption is that we are not into a credit
crisis like 2008 and that markets are unlikely to fall like they did in 2008 (of
course their no guarantees). Success will likely come from buying stocks when
they are cheap. They do seem cheap now. The question is will they be even
cheaper later? I don’t think anyone really knows. My approach has been to buy on
the dips. (I bought a bit more Wells Fargo yesterday and placed an order below
the market price for more Melcor). It seems I may have bought too early in
recent weeks. Such is life. I expect the market to continue to roil up and down
with the latest bit of news.


Futures data




August 18, 2011 9:25 am eastern


Markets were set to open down 250 points on the Dow due to the latest
unemployment and inflation numbers. This seems typical of market action lately,
a relatively violent reaction to each bit of news.


Melcor, this week announced the
sale of one of its newer investment properties that it had built in Edmonton,
the Market at Mcgrath. The price was $34.5 million and they will have $15
million cash after paying of the mortgage. It seems clear that they got a nice
gain on the sale versus what they built it for. However with the new IFRS
accounting the market value gain was already recognized retroactively on January
1 with the switch to IFRS. Overall this looks moderately positive. Melcor is
selling a building at what may be the top of the real estate market or certainly
into a strong real estate market. They can then re-deploy this cash into cheaper
assets such as the apartments they have been buying in Texas. While there is
always the risk that Melcor’s lands will drop in value, I like the company and I
have been buying on recent dips.


August 17, 2011


Filings this week revealed that Warren Buffett’s Berkshire Hathaway had
bought more shares of Wells Fargo. This
was in Q2, before the recent sharp price drop in Wells Fargo. Presumably he
would also have been buying in August as the price dropped.  I bought a few
more shares yesterday.


Yesterday about the only stock I have that was up noticeably was Walmart.
Canadian Tire was down yesterday and I was tempted to buy more. I may do so


U.S. housing starts in July were down slightly from June but up about 10%
from the prior year. A separate report said the builders remain cautious in
their outlooks. Buffett has said that when housing starts recover that is when
the unemployment rate will drop.


As interest rates continued to plummet in the U.S. refinancings are up. This
is good for the banks who make fees on this and who typically have either sold
the mortgage or hedged the risk so they do not suffer from the lower interest
rate. This refinancing could also release more money for U.S. consumers. The
30-year fixed rate in the U.S. is just 4.32% all-in. That seems incredibly low
for a 30-year rate. The 15 year fixed rate is 3.50%. Which is comparable I
believe to the five year rate in Canada.




August 16, 2011 8:42 eastern time


Walmart earnings came out and were good. Housing stocks fell less than
expected. German GDP worse than expected.


Just another day, I suppose, when the market will roil around reacting to the
latest bit of news.


I am traveling in the Maritimes until close to the end of August and then
will get back to more frequent updates of companies.




August 15, 2011 (8:10 am eastern)


Markets appear set to open higher this morning.


Perhaps things will settle down this week. Lower oil prices should be viewed
as very positive for the economy.


Every time we get a sharp market decline it feels like the end of the financial
world. Afterwards we realize it was at some point an investment opportunity.


August 11, 2011


To paraphrase Alice, things are getting curiouser and curiouser. The Red Queen
said she sometimes believed up to six impossible things before breakfast. In
recent weeks we had some impossible things happening. Downgrade of U.S.
bonds – promptly followed by a sharp increase in price in those bonds instead of
a decrease. Talk of the demise of the U.S. dollar. Bans on short selling in
Europe. Bond market pricing in zero inflation even as there is talk of the need
to inflate away the debt. Talk of paying down debt while never raising taxes.
Markets going down 500 points, then up 500 the next day and then down 500.
Reports today of lower jobless claims just when everyone had seemed to agree the
U.S. economy was finished. Curiouser and curiouser indeed.


It was nice to see markets rise today. Canadian Tire earnings were disappointing
although its sales were good.


It would be great if we could finish off the week on an up note tomorrow. But
right now the futures suggest a modestly down day. But many news items will
happen between now and the end of trading tomorrow.


August 11, 2011 8:45 am eastern


We should see companies dive in and buy back shares at bargain prices. Some
like Bank of America are not in a position to do so. But Wells Fargo and many
others are in a position to do this.


Canadian Tire earnings are out and are mixed news. Earnings are down 14% but
sales are up 5% and credit card receivable loan performance is improved. Given
the recent share price decline, this report looks like the share price decline
was over-done. We shall see how the market reacts. ROE is still pretty good at
around 9% and you can buy it not much over book value. That is attractive in our
very low interest rate world.


August 11, 2011 7:45am eastern


As of about 7:40 am eastern time markets appear set to open slightly to the
down side.


If it is any comfort, the following two articles show that 1. Steep market
losses are not uncommon and have happened to basically every equity investor
both in the savings phase and in retirement and 2. In spite of episodes of steep
losses, equity investors have done well over the years. The current crisis
always seems worse than past ones. The end of the financial world has been
predicted many times in the past century and yet we have had huge progress over


Gains and Losses
during Savings phase 30-year periods starting each year from 1926 to 1981


Equity Value during Retirement
phase 30-year periods starting each year from 1926 to 1981


August 10, 2011


The U.S. markets suffered more stiff losses around 4% while the TSX was up


The way I look at this is: Of course I would have been better off selling out
two weeks ago. But that option is not open. I think about where the market might
be in five years and I figure it will be higher. And it won’t really matter how
it gets there, in a straight line or (more realistically) in a very volatile
fashion. I can use the volatility to try to buy at the lower prices and
ultimately in five years the market will be where it will be. Volatility can
actually work to the advantage of investors.


I am already heavily invested in Wells Fargo but could not resist adding more
today. I also bought some Berkshire.


As of about  8 pm eastern, the futures markets are up 44 points for the
DOW. But that may be meaningless as last night they were up a similar amount but
were down 250 points by the opening this morning.


U.S. ten-year bond yields are down around 2.1% which seems a completely
abysmal return. Yet, everyone who invested in these bonds in the past few years
has made capital gains as the interest rates fell. That really can’t keep up
forever but Japan has shown us that maybe 1% could be the floor. That seems
unthinkable but perhaps not impossible.


I am looking forward to Canadian Tire’s earnings out tomorrow. Hoping for
good news.


Buffett (Berkshire Hathaway) sold $2 billion in bonds today. They already
have tons of cash so the implications seems to be that Buffett will be putting
money to work in equities. He did not borrow money at 2 and 3% to stick it in
short treasury’s at 0%.


August 9, 2011


It was interesting today that markets were up most of the day
but after the Fed announcement that low interest rates would continue and
signaled that it would take action as needed to spur the economy, the market
first fell sharply but then rose very sharply. At first it looked like the
market was reacting negatively to news that the Fed would basically do more of
what it has been doing but ultimately this was viewed as positive.


It would be an understatement to predict that markets are likely
to continue to be skittish, jumoing up or down with each morsel of news.


A book I was reading today made the argument that there need
really be no particular casue for a stock market crash. Instead at times markets
become over-valued and in that case almost anything can trigger a decline. In
this case the market seemed cheap on an earnings basis. It seems the market has
declined on the basis that earnings will head lower.  That being the case.
if we can get a bit of good economic news we may see markets tur n more


Another market of concern is the Canadian housing market.
Prices seem too high. Low interest rates support this. Still prices that require
buyers to take mortgages of three and four times annual incomes (or more)
suggest a market that is overvalued. In that situation almost anything COULD
trigger a slide in house prices. On the other hand if there is no trigger house
prices could stay high.


Canadian Tire will release earnings on Thursday and I will
certainly be eager to see that report.


August 8, 2011


Well, that was certainly ugly. Dow down 5.5%, S&P 500 down 6.7%, Toronto
stock index down 4.3%.


In hindsight we all would have liked to get out of the market about two weeks
ago and to have stayed out.


But that’s wishful thinking. Where does the market go from here? The fact is
no one knows. The Fed meets the next two days and may have announcements that
will spark some recovery. Or maybe we keep sliding.


Anyone in the stock market should have been prepared to stomach this sort of
thing. It’s basically a fact of life in the market.


I am certainly not going to be selling at this point. Admittedly, I bought
too soon last week when the debt ceiling crisis was resolved. I can’t change
that now. What I can do is continue to buy at these lower prices and certainly
not sell.


But that is just me, I have always said that for a variety of reasons I have
a high capacity to handle risk. Basically, I am never going to starve no matter
what happens to stocks and I can financially afford risks. Also I have developed
a stomach for it over the years having survived several gut-wrenching downturns
in the past.


One of the strangest things today was that the yield on U.S. Treasuries rose
quite significantly today. This suggests that investors still view the U.S.
dollar and the U.S. government as safe. What investors appear worried about is
recession. They appear to have no fear of inflation. But who knows if the market
is right?


It will be interesting to watch Buffett’s moves. He has never had Berkshire
buy back its own shares but I suspect that could happen this time. On the other
hand with markets down he may choose to buy companies at good prices.


We should be seeing lots of big companies buy back their own shares. Many
companies have cash and their own shares will be viewed as a good investment.


August 7, 2011


As of about mid-night eastern time, the futures markets indicate the DOW down
258 points or 2.25%. That will no-doubt change in one direction or the other by
the open and of course it is likely to be a volatile day in the markets.


I have updated my personal portfolio. I had
sold stocks the week before last as the debt ceiling crisis intensified. When
that was resolved last week, I bought stocks. In hindsight I should have waited.


But I still feel that I own a group of companies that are making good
earnings. As long as the companies can keep making money the stock price will
eventually reflect that.


Over the weekend, Warren Buffett’s Berkshire Hathaway has come out with a
$3.25 billion dollar bid to buy another insurance company. What Buffett likes
about insurance companies is that there is an ability to invest the insurance
premiums often for years on average before the premiums are paid out as
insurance claims. In other words, as usual Buffett is buying as others despair
and is positioning to buy more.


For all the talk about the WHOLE world being hopelessly in debt, we don’t
actually owe any money to Martians or anything. The world is fabulously wealthy.
Many people don’t believe it, but one man’s debt or one country’s debt is
another man’s or another institution’s or another county’s savings. If some
debts are defaulted on that amounts in the first instance to a redistribution of
wealth from creditor/saver to borrower, it does not in the first instance
destroy any real wealth. It is true however that events like that wobble the
economy and can disrupt the production of new real wealth (goods and services).


August 6, 2011


It’s anyone’s guess how the markets will react to the
down-grade of the U.S. by Standard and Poors. 


The ten-year U.S. Treasury rose a little on Friday to 2.56%
but that is still down from 3.0% about 10 days ago. Lower U.S. bond yields were
certainly a strange reaction to a threatened downgrade.


Warren Buffett’s Berkshire Hathaway reported
second quarter earnings yesterday after the close of trading. Berkshire is
having a weak but not a terrible year. Insurance operations are still making
money on investments but are just under break-even on the actual insurance. This
is due to various catastrophes including earthquakes and storms around the
world. Most of the businesses of Berkshire are improving but the housing and
construction related businesses continue to suffer. Berkshire is trading now at
just 10% over book value. This is a buying opportunity. I am not updating the
full rating and report. We last rated it (lower) Buy at $80.21. I suspect the
rating would be Buy at the current price of $71.25. I may add to my position in
this company.


August 4, 2011


Well then… markets certainly took a beating today…


Clearly I was too early in buying back into this market earlier this week.
Well, that is life in the markets. Today I was buying Canadian Tire, Melcor, and
Wells Fargo. I did not get the lowest prices of the day. I always say
markets are unpredictable. Many will say now that they saw this coming. That’s
easy to say after-the-fact. If it was so obvious that the market was going to
tank, why did it rise yesterday?


My feeling is that stocks are at good prices and I take bargains when they
are available. It’s always the case that there might be better bargains
tomorrow, or not. Life is like that.


At the moment (11:30pm eastern, futures are showing markets to be flat). But
then again I believe that last evening futures were predicting markets to rise
today. “Stuff” happens.


Meanwhile interest rates are ratcheting ever lower. The yield on a 10-year
Treasury has fallen to 2.46% today down from 3.0% a week ago. Bond investors
make capital gains as interest rates fall. On a perpetual bond the gains would
approach infinite as interests rates fell toward zero. But on a ten year bond
the gains are limited. The gain on a ten year dropping from 3% to 2.5% is just
4.4%.  If I buy a bond now that pays 2.5% for ten years then the maximum
possible capital gain if interest rates immediately plummet to zero is 25%.
Meanwhile if rates double to 5% my capital loss is 19.3%. I just don’t see where
they is much upside left any more in ten year government bonds (how low can
interest rates get) but there is lots of downside.


Why have interest rates fallen? It seems institutions were just keen to buy
bonds. Also the Fed was in the market this last week buying bonds, not a huge
amount but perhaps enough to have some impact in driving interest rates down.


well, it has not been a dull week, we shall see what tomorrow brings to close
out the week.


August 3, 2011


Markets were down well over 1% earlier today but ultimately ended the day up
slightly. I used the dip to increase my equity exposure. I bought back the Melcor
shares I had sold last week. And I bought some Toll
brothers. Visa was up 4.7% today, I
am probably going to regret I ever sold that one. Shaw Communications held up
very well over the past week and I never got a chance to buy back much of


Many analysts seem to fear a recession and a major market decline. I don’t
recall these analysts telling us to sell 10 days ago and now they warn us to
sell AFTER the market has fallen. They may be right, the market certainly could
decline a lot, but I plan to stay close to fully invested.


Back in the 70’s Buffett was buying (whole) companies at 10 times earnings.
This was when long-term government bonds were yielding perhaps 7% and headed for
over 14%. Now we can buy companies at around 10 times earnings or not much higher in many
cases at a time when long-term government bonds yield earn less that 4%. On that
basis stocks seem cheaper now than they did in the late 70’s. Back then the
economy was also weak and Business Week ran a famously wrong cover story about
the “death of equities”.


Everyone agrees we should buy low and sell high. Yet with each dip of the
market people find it harder instead of easier to buy.


August 2, 2011


I was surprised to see the markets down so much today. This was on poor
economic news. I was actually happy to see the declines.


My default position and normal approach is to stay close to 100% invested.
But last week I reduced my equity exposure by a fair amount. This decline gives
me the chance to  buy back in and if I do so I will be better off than had
I merely rode out this situation, fully invested. I am not sure how fast I will
move back to a fully invested position. It is always nice to keep some cash for
future opportunities.


I added a fair amount to my Canadian Tire position on the dip today. I also
bought back some more Wells Fargo. I also bought some Bank of America. I had
mentioned under July 26 that I had taken a quick look at Bank of America and
thought it would be a good investment. I have not in any way fully analyzed the
company. I don’t know if I will be adding it to the stock list above or


Now that the debt ceiling crisis is out of the way I suspect markets will
continue the usual pattern of roiling about with each new bit of news. Markets
are always highly unpredictable in the short term but they do tend to offer good
returns over the longer term.


While stocks were going down, long-term U.S. government bonds remain highly
popular. In the past few days investors have bid up the price of the 10-year U.S.
bond and its yield has fallen to 2.66% from about 3.0% just a couple of weeks
ago. It seem counter intuitive that investors would bid the yield of these bonds
down at a time when the debt rating of the United States is under consideration
for a downgrade. By buying these bonds, investors are implicitly indicating that
they view the risk of default as near zero and also that they expect little in
the way of inflation.


August 1, 12:55 eastern


Wow, I got a late start today and saw the Dow was down 100 points having
opened up well over 100 points. I nailed that with my comment yesterday. Okay
now may be a time to dip in a toe. I just bought back some Shaw Communications.
Canadians can still trade today anything that trades in the U.S. I imagine
stocks rally if the bills are passed. I think I will be cautious though and not
rush to get back to fully invested. Nothing wrong with holding onto some cash to
keep my options open.


P.S. five minutes after posting this I bought back some of the Wells Fargo. Was
going to do a bit more Shaw Communications too but realized it is more expensive
than when I sold of Friday. So what? that is irrelevant. Still I decided not to


July 31, 2011 11:56 eastern time


Dow futures are up 177 points on the indication that the debt
ceiling bill will be passed tomorrow. I think we will see volatility tomorrow as
the votes are not passed yet and there could be some nervous moments yet. 


Melcor is updated and rated
(higher) Buy at $15.71. This is a solid company with a long history of good
albeit volatile profits. And it is available at 89% of book value.


July 31, 2011 6:15 eastern time


Stock market futures have opened euphorically to the upside on expectation of
a debt ceiling deal. Dow futures were up 174 points. I suspect that we will see
lots of volatility this week. Market will probably be higher by end of week. But
I don’t think dramatically higher. (And that assumes the debt ceiling deal does
indeed get done)  Maybe I never should have moved much to cash but I don’t
regret that. I think I can find some bargains to put it into.


Check Stock futures here:




July 31, 2011 (3:45 eastern)


You may wonder, why doesn’t the United States simply print money to pay it’s
bills, rather than borrow money to pay the bills, and so avoid the debt ceiling
that way?


Well one reason might be that printing money causes inflation. But that is
not the reason in this case. The debt ceiling ia an EMERGENCY. They would print
money if they could to avoid that ceiling.


The problem is they WRONGLY count printed money or its electronic equivalent
as debt of the FED and of the United States Government.


It used to be that a dollar bill carried with it the promise it would be
redeemed in gold. And perhaps even a precise and fixed amount of gold. In those
days a dollar bill was a debt because it had to be redeemed in gold.


But that promise was removed around 1971.


The United States does not promise to redeem its money for Gold. In fn fact
it does not promise to redeem its money for anything.


United States money is legal tender and must be accepted for payments of
debts owed to the federal government or anyone else.


But it simply is not debt of the federal government in any real sense. It
pays no interest. It is certainly not owed to anyone in particular. They need
never redeem it. It can circulate forever. The amount in circulation tends to
grow with economy. If it is debt, it is certainly not debt as we know it. In
fact, it is not debt.


The amount of the $14 trillion in debt that is represented by Federal Reserve
notes (money) is about $1 trillion.


This is seen in the Fed’s balance sheet.




If the United States simply recognized (the reality) that Federal Reserve
notes (money) should not be counted as part of the debt (because it simply is
not a debt, if it was, who is it owed to?) they would be well below the debt


Now the house and congress would NOT want to do this becasue it would meant
the President could have money printed at will. But as a solution to this crisis
it works.


(They could later enact a money printing ceiling).


There, I have just given a great solution to the debt ceiling crisis. If only
the President would see my solution.


July 30, 2011


The debt ceiling issue remains unresolved as of Saturday at 2 pm eastern
time. The markets were down noticeably this week. Given the lack of progress and
the lack of cooperation and the warnings of dire consequences, the wonder is
that the market did not fall a lot harder this week. We certainly had ample opportunity
to get out of the market if we wished.


Last weekend (Saturday 23rd) and also on on Monday evening the 25th I talked
about the prudence of reducing my exposure to equities and I mentioned that as
of then I thought the market would not pop much if the debt issue was settled (because,
as of then, it had not declined much due to the risk) and I feared the market
could dive if the debt ceiling issue were not resolved. I then followed up by
selling stocks four of the five days this past week. This was not a comment on
the individual stocks but on the market overall. I even wondered if I should
have just sold everything and sat in cash until the issue was settled.


On Friday morning I posted the following note on the login page: UPDATED
NOTE: Friday July 29 at 11 am eastern: Note I sold all my Shaw Communication
shares today. Just wanted to get more into cash. I had a profit on these and it
was just the name I was most willing to sell. I still like the company but
simply decided to move more into cash due to this debt ceiling business.


I ended up over the week reducing my equity exposure from close to 100% down
to about 66%.


By the end of Friday Shaw’s shares had risen 20 cents to $21.58 whereas I
sold when they were down about 20 cents to about $21.18. On that basis I would
have done better not to sell. But the my goal was to raise cash and so I have no
regrets there.


This whole business will turn into an opportunity at some point. And maybe
the opportunity was to buy of Friday. Possibly the debt issue will be settled by
Monday morning and the market will open much  higher and I will be sitting
with 34% of my funds in cash and wishing I had not sold so much. Well, even in
that scenario, I don’t feel too bad becasue at least now I have lots of cash to
look for the best opportunities.


And, if the debt issue is not a done deal by Monday morning, I expect the
market to drop somewhat further.


Either way I have no fears for the long-term. The stocks I hold, I am sure
will be good investments and there are always lots more good investments out


It’s interesting to note what is happening in U.S. Treasury yields over the
past week or so. The yield on 1 months bills rose from (effectively zero)
0.01% to 0.16% (still barely above zero). The yield on 10-year treasuries fell
from about 3.00% to 2.82%. You can see these here http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield


It seems idiotic to me that in reaction to this debt crisis institutional
investors have driven the yield on the 10-year notes down. When Greece and other
countries face a debt crisis, their yields or interest rates soar. Sure, the
markjet is confident aht the U.S will pay it’s debts. But shouldn’t it be a bit
less confident than it was a week ago, a month ago? And shouldn’t it worry about
inflation if the U.S. decides to print money to pay off the debt?


And what about the rise in the yield on the short-tem money. Okay that is in
the right direction at least. But let’s look at this. Previously at 0.01%
interest the interest on $10 million in a 30 day bill was $1000 in a year of
less than a $100 in a month. This is completely laughable as a return but the
reason people accepted it was that if you had $10 million in cash you had to
park it someplace and banks don’t guarantee deposits that large so you put it in
T-bills just for the safe-keeping. You did not put your $10 million in there to
collect a $1000 per year or $83 per month.


And now the rate is 0.16%. So now you will get $1,333 per month on your $10
million. To the extent that people fear a temporary delay in collecting back
their $10 million, this $1,333 seems small compensation. I would say a few institutional
investors decided they would risk keeping their money in a bank or moved it to
corporate commercial paper.


We should not assume that these treasury yields are in any way rational. The
institutions that invest in these are creatures of habit (and they are often mandated
to invest in these “safe” bonds) and they may find it difficult to
switch to alternatives on short notice. We could see yields change a lot in the
months ahead as the institutions adjust to a new reality (one where the U.S.
treasury can no longer be blindly trusted to meet its obligations no matter




July 28, 2011


The U.S. market rose this morning on good economic reports and earnings but
ultimately was down about 0.5% on nervousness over this debt ceiling


Thursday night the Republican controlled House of Representatives was
preparing (after some delays) to vote on a Bill which in any event the
Democratic controlled Senate was threatening to vote down.  And it is not
even clear that it will pass the House.


I understand the Treasury department will release contingency plans tomorrow
regarding how it will proceed if August 2 comes without a raise in the debt


It seems to me that this could get ugly in a hurry. I probably should have
sold some stocks today but I did not.


As I have tried to explain, I like all the stocks I hold – so all else equal
I would not be selling. But on the other hand in this scenario it is prudent for
me to trim my overall allocation to the market which is still around 82%. By
cutting that back I would have more cash to bargain hunt when the time seems
right for that.


As of Thursday night at 9:35 eastern time the futures indicate the market
should open unchanged. However , by morning that will change in one direction or
the other.


It’s interesting to think what might happen if they don’t get the debt ceiling
raised. Let’s assume the debt interest will be paid. Cuts have to come from
someplace. I would imagine they would send home something in the order of a
million federal workers. That would not exactly inspire confidence would it?
Let’s hope we don’t find out what.


July 27, 2011


The Dow was down 1.6% today. The S&P 500 and the Toronto market were each
down 2.0%. It seems that the market is finally starting to get a little more
nervous about this debt ceiling issue (although there was also other economic
news today that contributed to the decline).


I sold some more Wells Fargo today and also yesterday I neglected to mention
I had sold a little of my Melcor shares. All of this gets me to about 82%
invested, down from close to 100%. So it’s not the case that I am abandoning the
market. Far from it. I just wanted to reduce my risk a little and also generate
some cash to buy when this debt ceiling situation is resolved.


Melcor was out with earnings after the close. Net income and revenue were
down significantly. However this is a cyclic company and earnings tend to be
lumpy. The company expressed optimism for the remainder of this year.


Visa was also out with earnings and its earnings were up significantly and also
modestly beat expectations.


I’m tempted to add to my Canadian Tire position but will likely wait for its
earnings release.


One of the very biggest long term variables in the markets is interest rates.
We currently are at historic lows on interest rates. They have not been this low
(save for a few months here and there in recent years) in 50 years. Interest
rates are below the long term averages that stretch back hundreds of years. They
are near or below rates that prevailed when inflation was not expected and money
was on a Gold standard.  I don’t think this is justified. Why are
institutions investing in government bonds at a time when governments are
heavily in debt and some are defaulting? I suspect that before two many years
pass (and possible it will be very soon) interest rates will start to rise. I
know that central reserve banks try to keep rates low. But I think when (not if
but when) institutions stop investing in government bonds then long-term rates
will rise. However, stock markets don’t seem too vulnerable to that given that
stocks are not at high P/E ratios. Stocks seem quite cheap compared to bonds.


July 26, 2011


And so the debt ceiling debacle continues. The politicians bicker. (or fiddle
while Washington “burns”)


The stock market is still yawning at the situation and the Dow was down only
0.7% and the S&P 500 only 0.4%. Interest rates on U.S. debt actually
declined a bit.


I hope the markets are right and this debt ceiling issue is not about to turn


If it were not for the debt ceiling / default / U.S. credit downgrade threat
I would be inclined to be 100% invested in stocks or even borrow additional
money to invest.


But with this stupid situation it’s hard to know what to do. I sold just a
few more shares today of Wells Fargo and then decided to hang tight. Possibly I
will sell a little more of something tomorrow.


In terms of Stocks to Buy.


I like Canadian Tire. I am waiting for its earnings to come out. I figure it
may have been hurt by a poor Spring. But then again its credit card portfolio
which is huge should show good results. And the higher Canadian dollar should
help it especially in Q3.


I took a quick look at Bank of America today. It looks to have a lot of
potential. It is trading at about half of book value per share and about 75% of
tangible book value. It has been reporting losses after certain goodwill
write-downs and some expenses to settle sub-prime mortgage issues. So it looks
good. But it is also highly complex. I suspect it will be a good investment at
the recent price of $10.00. Perhaps very good.


I took quite a detailed look at Brookfield Asset Management. It’s a type of conglomerate. It
seems like a very strong company very well managed. However I ultimately
concluded that it was not a good fit for this site. The reasons include the
complexity and the fact that net income does not seem to do a good job of being
representative of its true economic earnings. The company itself estimates its
own intrinsic value adn I believe indicates this intrinsic value is a little
above the share price. Their accounting is complex with a lot of mark to market
valuation and also lots of minority interests which complicates matters. Overall
I can’t see a good basis to value it and one might be just as well off to take
the company’s word for its value.




July 25, 2011


I posted the following two days ago:


idea of selling a good chunk of our equities on Monday (assuming the market is
not down much on Monday) is a reasonable and prudent thought.


As it turned out the debt ceiling issue was not resolved today but
the market declined only a tiny amount. Certainly that was a chance to reduce
positions for those who wanted to. 


As I posted to the login page earlier today:


Note July 25 – 11:40 am eastern markets holding up well in face of
U.S. debt ceiling issue. I sold my Visa and Constellation software just to have
some cash in case the market takes a dive this week. I should sell some of my
large Wells Fargo Position just to be prudent but have not so far. I reserve the
right to sell stocks at any time without prior notice.


After posting that I did also sell some of my Wells Fargo.


Well now it is just 11:30 pm eastern time and where do we stand?


The unfolding debt ceiling debacle is not comforting. 


I watched Obama’s speech and the follow-up by the democratic house
speaker. None of this gave any great hope for a speedy agreement.


So what might happen? Well I don’t claim to know. If it keeps up I
suspect they will announce they found enough money to keep going for a while
after August 2. But they might start to lay off government workers. (Federal
Aviation Authority is already partly shut down due to some similar legislative
impasse. While I don’t think they will default on debt any time soon, they could
certainly get a debt down grade at any minute. Why should S&P keep the AAA
credit rating in the face of this nonsense. S&P should probably downgrade
them immediately. And hang the consequences. They clearly deserve a downgrade
that is not S&Ps fault.


I have sometimes said never underestimate the sheer stupidity of some
people and this should be a case in point.


The first pay cheques cut should be the politician’s and that should
be immediate. 


And what to do about stock investments?


If politician’s don’t get their job done it seems clear that stocks
will fall, at least temporarily.


I don’t think this is a
matter of which stocks to sell and which to hold. This is more a matter of what
asset allocation should a person have in the market?
I have always said
the asset allocation decision is a very personal decision and not one that I
give advice on. Personally, I am normally close to 100% in stocks. But that is
not for everyone.


Looking at my own situation I am now about 90% invested. So what
should I do? As much as like the stocks I own, should I reduce my exposure
across the board and re-evaluate after this debt ceiling matter settles out.
That seems logical to me. It seems to me its only a sort of emotional attachment
to my stocks and a fear of missing out on gains that would stop me from reducing
my positions quite substantially and standing aside for now. Should the lure of
those gains outweigh a fear of what is happening here?


How much might the market “pop” if the debt ceiling issue
is resolved? Well it should pop some but really it has never declined to reflect
the debt ceiling issue so why should it pop much?


One of the advantages of being invested in equities and especially as
I am mostly in just a few stocks, is I can exit the market or change stocks
quickly if I wish. 


In conclusion, I am not sure what I will do tomorrow but I may sell down some
positions across the board just to be prudent and cut my risks.


July 24, 2011


As of close to mid-night Sunday night, markets are set to open down on Monday
morning. Futures were indicating 133 points down or about 1% down on the Dow.


See the latest here:




The Hong Kong market was down almost 1%. Australia down 1.3%, Japan down
0.8%, China marker was down 2%.


Markets seem set to roil on news and it may be mostly to the down-side. Then
again if it looks like a debt ceiling deal or solution is at hand, markets will
rise. It will not be a boring week.


July 23, 2011


The United States government is clearly playing with fire on its debt ceiling
issue. So far the bond market is yawning. But we could see U.S. treasury yields
start to rise next week and stock markets start to crumble. I am about 100%
invested. But I am taking a chance there. We have at least some small chance
that the U.S. government is about to blow its brains out here. Given that, the
idea of selling a good chunk of our equities on Monday (assuming the market is
not down much on Monday) is a reasonable and prudent thought. I don’t think I
will, but I reserve the right to do so on impulse. My hope is that we get a
positive indication from the government before Monday morning. But this is
certainly a nail biter. Either way, the market is likely to be higher in a year
but if they fail to raise the debt ceiling it’s going to be a bumpy ride.


Wells Fargo is updated and
rated Speculative Strong Buy at $29.14. As a bank and given the direct ties to
the economy and given the penalties it faces from regulators due to the sub
prime crisis, we rate it speculative. But barring a default on U.S. debt we
don’t think there is a lot of downside here (but we make no guarantees). We
think it could easily go into the $40 range within a year but again we certainly
make no guarantees of that. Canadians face currency risk if the Canadian dollar
continues to rise. I have 24% of my portfolio invested in this one company. That
is no-doubt a risky and aggressive stance on my part. It was partly out of stubbornness
that I added to my holdings as the share price declined at various times.


My having $206k at risk in one stock will be deemed very risky indeed by
many. On the other hand people with approximately zero net worth blithely take
on mortgages of $250k. And people with limited net worth buy $200k condos on
speculation. I am I really such a risk taker in that context?


July 21, 2011


Yesterday it was in the news that OPTI Canada was being bought out by a
Chinese company. This was a distressed company that had been trying to commercialize
an oil sands operation at Long Lake. The shares had been halted recently at
about 12 cents . They had once traded at over $20.00.


Unfortunately the common shareholders are only going to get about 12 cents.
But I believe the bonds are are basically getting 100 cents on the dollar, or
more. Some bonds are being bought up immediately at a premium. Others are being
assumed by the company. So it looks to me that these bonds would no be trading
at full face value or higher.


What is interesting is that back in February a subscriber asked me about this
company. I did not know really anything about it but I looked at the financials
and I was intrigued that the bonds were trading at 49 cents on the dollar. As I
noted to that subscriber at the time, I tried to buy some through TD Waterhouse
and they simply said no, they don’t deal in them and were not willing to get
them for me. I think I was told that I would have to buy $100k face value. I was
thinking of investing up to $30k but might have gone $50k for $100k face at 50 cents
on the dollar. I figured that the bonds would quite likely get paid off just
given their balance sheet and the fact that oil sands have value.


That was a nice 100% gain for anyone who managed to buy some OPTI debt at
around 50 cents on the dollar. Well, maybe it is a good that it traded thinly,
for the most part it was the long-time holders of this debt who after some scary
months are seeing the bonds come back to full value, which most of them probably


The point is that sometimes distressed bonds like this can offer wonderful
opportunities. (Not without risk of course) Unfortunately this does not seem
like a space that is easy or even possible for most retail investors to get


But it all seems so obvious now that I should have pursued this with another


Another example may be occurring right now. I understood the Greek government
bonds were recently trading at huge discounts to face value with all the talk of
default there. Well now it seems there is some kind of rescue package and it
sounds to me like those Greek Bonds will be heading back close to full face
value. Again though I highly doubt I could have bought through TD Waterhouse.
(And I honestly never considered doing so).


Meanwhile stocks had another good day due to this Greek rescue plan and also
due to strong earnings.


TMX Group has announced that its management will hold talks with the maple
Group. I suspect the TMX Shares will be up at the open tomorrow. But maybe not,
share owners are going to be skeptical about tendering their shares to Maple at
$50 when that buy offer is conditional on competition board approval of merging
with their major competitor. But maybe TMX will try some maneuver to get it share
price to rise on its own without Maple such as raise the dividend. I had sold my
TMX shares at a good profit at the time of the London Stock Exchange offer
because I (rightly) predicted that would never fly. If I still held I would hold
on to see what happens with Maple. I would not tender to Maple since the I
believe ties up your money. Your shares would go into limbo conditionally sold
to Maple but you don’t expect to get the cash for months and the deal has a good
chance to fail, so no way would I tender to Maple.


July 20, 2011


Q2 earnings are continuing to come in with most being quite strong.


Nothing exciting happened for our stock picks today although Wells Fargo was
up a bit more. Everywhere you turn the news and opinions are divergent. Many
claim the next recession is around the corner. Others claim the markets will be
up up and away. My view is that the market will be higher in five years and ten
years. It will have unpredictable bumps along the way but it will be higher over
the longer term. So I am in, for the long haul.


July 19, 2011


Well today, Tuesday, the Dow had it best move upwards this year, up 1.6%, the
S&P 500 was also up 1.6% while Toronto was up 0.6%. As with the down move
yesterday, this is both good and bad news. It’s good to see our portfolios rise.
But it’s bad to see that we can’t buy now at yesterday’s lower prices. (But
cheer up, a market crash is always possible). Wells Fargo was up 5.7% after
posting strong earnings. I suspect that if I were to update it now, it would
still rate (higher) Buy or better.


Warren Buffett has always taught to treat your stock investments as if you
were really buying a part of a business. Most investors focus WAY too much on
the price changes and way too little on the earnings and other characteristics
of the businesses they own.


These days Berkshire Hathaway mostly owns whole businesses rather than just
shares. Years ago when Buffett’s Berkshire owned mostly shares he used to
provide something called “look-through” earnings. Accounting rules
meant on shares the company owned Berkshire reported the dividends received as
earnings but could not report its full share of earnings of the companies it
owned shares in. But Buffett used to report that higher figure as look-through


Based on Buffett’s advice I have calculated my share of revenues, earnings
and dividends for the portfolio of companies I own. This is not easy to do but I
am able to do it because of all the data I keep as I analyze companies.


Many people might suggest it is quite gauche or impolite to talk about the
value of my portfolio. But since I am in the business of providing investment
advice (albeit generic advice and not customized to any one person), I think
it’s fair for you as my customers to know how much I have invested. Starting
last year I provided a graph on the home page of this site with the value of my
portfolio which I will update annually.


As of the end of last week my portfolio value was $842,000. Of this about
$30,000 is borrowed money as I borrowed to fund TSFA and RRSP contributions. To
me, this seems like a lot of money. It has taken me (together with my wife)
about 23 years to build this up. Given my age (51) it’s a good portfolio but by
some standards is not huge. For example many people (well some people at least)
have second houses, cottages or businesses worth this amount or more and
certainly some people our age have much bigger savings than this.


The great majority of the funds are in RRSP and RESP accounts. The breakdown
of the portfolio by stock is provided here. The breakdown was as of June 18
but it has not changed much since then.


Following Buffett I can think of this portfolio as not just a group of stocks
but rather as my own sort of mini conglomerate.


The stats for my mini portfolioare:


Market Value $842,000.


Cost to me  $305,000 (contributed to the investment accounts over 23
years, dollar weighted average age is 7 years)


My share of Annual Earnings $59,004  (P/E ratio is 842,000/59,004 or


My annual dividends $17,169  (2.0% dividend yield)


My share of annual revenue $784,000


To summarize, I can think of the portfolio of shares I own as being like a
small business. It has revenues of $784,000 per year. It sends me $17,169 in
dividends per year. My share of the earnings is $59,004 but I can’t get my hands
on most of that as the companies in my mini-conglomerate keep most of the
earnings to reinvest for growth. The value of my business is $842,000. I paid
$305,000 as my original cost for it over a period of 23 years. On average my
money has been invested for seven years and has gown 842/305 = 144% including
reinvested dividends.


In a future newsletter I am going to discuss the similarities and differences
between owning this mini-conglomerate type of business through the stock market
as compared to owning an actual small business. In a nutshell the small business
would be a lot more time consuming. (Probably all consuming) It might be a lot
more or a lot less profitable. It would be far harder to sell. But I could hire
my friends and family if I wanted (and the business was large enough) and I
would have the bragging rights and “psychic” income of being able to
point to a bona-fide business. In affect a small business requires you to be
both owner and manager/operator while a stock investment means you are just the
owner, you don’t have to (or get to, depending on your perspective) manage the
businesses you own. Warren Buffett has quoted Benjamin Graham as saying,
“investing is most intelligent, when it is most business-like”. In
other words it is a very good idea to think of your investments as being a
mini-conglomerate. (Warning, any technical traders who for some reason come
across this will be completely baffled since to them a stock is a squiggly line
on a screen, not a business).


Thoughts welcome as shawn@investorsfriend.com


July 18, 2011


I could describe today’s market as there was good news and there was bad
news. Markets were down noticeably. That is bad if you need to sell shares now
but good news if you are buying.


My guess is that markets will continue to roil and my go lower before this
debt ceiling issue is resolved int eh U.S. However I do expect the issue to be
settled and the market to then have some bounce. But that is only my
expectation. If the President and Congress mess this up then clearly markets
would take a tumble. There are always risks in the market. Long term I am
confident that owning stocks will provide a good return but not without ups and


I took the opportunity today to buy more Wells Fargo.
Admittedly, I am over-exposed to this company. Perhaps I am getting too
emotionally attached to it.


Wells Fargo will release earnings tomorrow, Tuesday and I am hopeful the
results will be good.


July 17, 2011


Alimentation Couche-Tard is
updated and rated Buy at $29.48. This large convenience store operator is in an unglamorous
industry and has done very well over the years.


July 14, 2011


Most stocks were down today as the market’s gyrations continue. The U.S.
government interest rates remain very low despite talk of the debt limit not
being increased and threats of credit downgrades from the credit rating


It’s interesting to think about these credit rating agencies. They started
out many years ago as just being a service that rated debt. The debt rating was
useful so that each investor did not have to do his own work. However they have
become in may ways too successful for their own good. They became all powerful.
A credit downgrade can ruin a company or even a country. So the problem is now
they become afraid to act because of the consequences. They would probably have
already downgraded the U.S. if not for the fact that the consequences would be
so severe.


I am sitting tight at the moment waiting for the Q2 earnings to come in.
Waiting to see if the U.S. debt ceiling issue is solved. If markets do crash
(that is always a risk) I plan to invest new money from dividends as they come
in, future savings and from at least some borrowed money. No matter what happens
I am very confident my wealth in the market will continue to grow over the years
(though not in a straight line certainly).


July 13, 2011


Markets gyrated up this morning on comments that the Fed would undertake more
easing if needed. That upbeat mood lasted only a few hours and then markets gave
back a lot of the gains.


Markets will do what they will… my focus will be on looking at individual
companies. Q2 earnings will start rolling in very soon.


July 12, 2011


On the U.S. debt ceiling front it is interesting to note that
the yield on the U.S. debt rather than going up due to this risk has come down.
So far the market views the U.S. debt as sort of immune to the problems in
Europe, the threat by credit rating s to down-grade the U.S. debt rating and the
debt ceiling issue. I hope the market is correct. If the market ever decides
that the U.S. credit is risky, that would be a real disaster. So far, the U.S.
bonds contiune to be seen as one of THE safest possible investments. And not
only does the market see zero risk of getting paid back your money on a U.S.
bond, it sees very little inflation. Witness the 10-year bond at 2.92%. Of
course, in part that bond yield has been pushed down by the Fed. But still
plenty of big investors are voluntarily accepting that rate which implicitly
indicates they see little inflation. I hope they are right. 


A winner for us today was Alimentation Couche-Tard, It was up 6.3% to $29.85
after announcing good earnings and a dividend increase. Our last
update for this one was December 4, when we rated it a Buy at $25.49. It’s
been a great company over the years.  I hope to update the report for this
one with the next five days. I am quite annoyed that they released earnings
during trading hours. That is apparently legal but is not (in my opinion) fair
ball, for reasons that I have explained previously, and I will be taking them to
task for that. They ignored me when I complained about this alst year and so I
will likely have to file a complaint about this with the regulator. As
documented on my investor advocate page
I believe I was responsible for most companies in Canada changing their
practices to no longer release earnings during trading hours after I complained
to the regulator about two years ago.


July 11, 2011


This week has started off quite negatively with Toronto down 1.4%, the Dow
down 1.2% and the S&P 500 down 1.8%. This is probably just a continuation of
the tendency the market has had for quite some time to gyrate up and down on the
latest news or worry.


On this weakness my order to buy yet more Wells Fargo got triggered at
$27.51. I am just about 100% invested and I may take the last of my cash to buy
some Toll brothers. I usually tend to see more things to buy than I have cash. I
am taking a risk because certainly there is a risk that this financial crisis
returns with contagion from Europe and also the ridiculous U.S. debt ceiling
issue. There are always risks in the market.


Perhaps the market can soon turn its attention to the Q2 earnings. Alcoa has
kicked off the Q2 earnings season after the close today. It had very strong
earnings but apparently just a shade  lower than expected.


July 9, 2011


RioCan Real Estate Investment Trust is
added to the list above but rated only Weak Buy / Hold at $26.00. While the 5.3%
yield seems attractive, there may not be much basis to expect much growth in the
distribution. And the unit price could easily decline if long term interest
rates rise. It seems to me that if you are looking for yield then you want a
realtively fixed income and you are probably not willing to take a large risk of
a capital loss in return for yield. It seems to me that there are preferred
shares which will rate rest within five years that provide better protection against
a loss in price and provide just as much or more yield. And preferred shares are
eligible for the dividend tax credit.


You may wonder why I would add this company if it is not rated Buy or better.
Well, I could not really know the rating until after I did the analysis. Having
done the analysis I may as well add it to the site. Also I know one or more
subscribers have asked to have this Trust added. Also I enjoy analyzing new
companies and learning about them. It’s a good company, it just does not look
like a great investment at the moment.


The Preferred shares of RioCan
are also added and rated Buy at $25.70.


Speaking of RioCan and REITs, a subscriber has emailed me and asked if I have
looked at “Private Reits”. I believe this refers to various projects
that raise money through offering memorandums in the “exempt” market
(they are exempt from filing a full prospectus as long as they qualify). These
are not listed on exchanges. They are not quite “private” since they
do raise money from the public. Sometimes you have to be an accredited investor.
You would not be able to buy these through a discount broker. I believe that you
usually have to go through a smaller investment dealer for these. Minimum
amounts may be $10,000, $25,000 or even $100,000.


The subscriber sent the following links:






The short answer to the subscriber’s question was no I have not looked at
these. Basically I am kept busy with what is on the list above. Approximately
100% of my investments are included in the list above. (I don’t hold everything
in the list above). A link to my portfolio breakdown is given above.


However, I wondered if any of you subscribers have had good experience with
investing in real estate projects in the exempt market. I am not talking about
totally private projects. Rather projects where you invest under some kind of
offering memorandum but you deal with a small outfit and not real estate shares
or bonds that you can buy through a discount broker.


If you are well experienced with this such as having done several investments
over a period of years I would be interested in your thoughts and any suggested
companies to deal with. I can share the results here. But I will not be
commenting on these investments. It would take a lot of due diligence for me to
have any opinion. My practice has always been to refrain from offering ANY
opinion unless I have done a certain minimum amount of diligence (no one should
ever claim they have done FULL due diligence, it is an impossible task and a
meaningless term that implies some sort of guarantee and I never make guarantees,
nor can any honest person make guarantees on investments.)


You can email me at shawn@investorsfriend.com


July 7, 2011


I mentioned under July 3 that I am looking at RioCan. I will add this to the
list in part becasue the list could use more high yield type stocks.


My analysis is not yet complete. In particular I have not yet looked at the
growth which I understand is strong.


So far, I have completed the value ratios. To me, it looks expensive.


Firstly its price to book is 1.53. Oftenm price to book means little or
nothing. But in this case with the switch to International Financial Accounting
Standards, book value has been adjusted upwards to reflect the market value of
all their properties. So it appears as a new shareholder we would be buying
buildings at a 53% premium to book value. Now, there is reason to pay some
premium given that we may expect RioCan to be able to continue to grow in a
fashion that is additive to distributions per unit. And maybe we think real
estate values will rise with the economic recovery. Also RioCan did pick up some
U.S. properties during the recession. But the price they paid in terms of the
“capitalization rate” did not strike me as bargain basement. Overall I
am troubled by the need to pay a 53% premium to book value for these shares.


Looking at the P/E ratio it appears to be 34 times earnings after adjusting
(deducting) recent large gains on income taxes and adjusting for some small
gains on property sales and a small asset impairment charge. Now, real estate
investors will be quick to point out that in real estate the amortization or
depreciation charge may not be a real expense. Buildings may appreciate in value
even as they age. And RioCan indicates that tenants are responsible for some
capital costs to maintain buildings. But still 34 times earnings seems very


Also price to free cash flow based on 2010 is about 21 times by my
calculation. So that is not cheap either even if you substitute that for P/E.


And finally the yield at 5.3% is nominally attractive but then again, this
yield involves paying out more than 100% of earnings and is close to 100% of
available cash flow. The danger is that by paying us the depreciation they are
in effect just handing back our own money to some extent. Regular corporations
pay dividends out of earnings and retain the depreciation amount to replace
assets and also retain some earnings. Here they give all the earnings and most
of the depreciation back as yield and in that situation I would like to see
higher than 5.3%.


So so far, my interest is not piqued but perhaps after I graph the growth…


Warren Buffett was interviewed on CNBC this morning. His comments were upbeat
and optimistic. Everyone should read these comments. http://www.cnbc.com/id/43671706/
Some of you may remember some commercials from maybe 15 years ago about a financial
advisor. It was something like “when E. F. Hutton speaks, people
listen”. Well when Warren Buffett speaks, I listen. And frankly, I don’t
have much time for anyone who who does not see the wisdom in listening to the
world’s most successful investor.


The market meanwhile was kind to us today with the Dow up 93 points or three
quarters of one percent. Melcor was up 4.4%. But Melcor is so thinly traded that
this 4.4% is really just random noise – but even though it is noise, it makes a
most pleasing sound.


We shall see what the ‘morrow brings to close out the week. That will hinge
mostly on employment data due out tomorrow morning.


July 7 10:50 am eastern time


Markets are off to a strong start today. Yesterday with Wells
Fargo down somewhat I found myself in a defiant mood and placed an order to buy
a few more shares if it dips to $27.51. That looked quite possible yesterday
morning but the stock has no recovered to $28.79. Based on recent trends I would
think it had a good Q2 operationally. The wild card is how much it has to pay in
penalties to the government(s) regarding the whole mortgage mess. Also new rules
require it to operate with less leverage and that dampens profits. I am hoping
that we can some get clarity on these wild card issues and then the stock may
rise somewhat.


July 5, 2011


There are many ways of “predicting” the markets that I studiously
ignore. One of these would be the Presidential Election cycle. I have no use for
such a method of predicting the overall market. Besides which I invest in
indicvidual stocks and not the overall market.


According to this Presidential cycle the markets will do well in the final
year of Obama’s first term in office. I believe the rational for this is that a
President facing re-election often doles out more government spending to
stimulate the economy. But this year may be different. The United States is
looking at cutting back government spending to deal with its deficit. so even if
I were inclined to be excited by the presidential cycle, there are reasons to
think it might fissle this time.


However markets could still continue to do well as the economy emerges from
recession. Generally I stay close to 100% invested at all times and that has
served me well over the years although with certainly some down years mixed in.


July 4, 2011


A quiet day in the markets with the U.S. markets closed. In Canada the TSX
did play catch-up to some extent to catch up with the gains the U.S. markets
made on Friday when the Canadian markets were closed. Shaw Communications and
Canadian Tire unfortunately did not want to play catch-up and instead both
declined moderately today.


July 3, 2011


On Monday I expect the Canadian market to play catch-up to the
U.S. market which rose on Friday. As of 11pm eastern on Sunday night indications
were that the U.S. markets would be stable and if so this should allow for the
Catch-up day in Canada. (Not that this matters in the long-term, but it is
always nice to a good day in the markets).


I may add Rio Can Real Estate Investment Trust to the list. I thought it
might be good to add as a higher yield investment. Also it seems like a relatively
simple business and one we can all relate to since it owns the real estate for a
lot of the stores we shop in. However a preliminary look indicates that the
yield is not very attractive  (about 5.3%). It has a lot of accounting
complexities . In particular the switch to IFRS accounting for this company is
going to make any comparisons to past earnings quite difficult.


I think in the past it may have benefited from the ability to issue new units
at ever higher multiples of book value. That kind of party eventually ends. It
may seem that we can count on its cash distributions as being “real”.
But then again the cash distributions exceed net income typically and we may
want to consider to what extent (if any) is some of the cash a return OF our own
money rather than a return ON our money.


Clearly there were times when this was a great investment. My preliminary
sense is that this is not the time. However, I have not yet completed the


July 2, 2011


Canada Day was a good day in the markets. The Dow and the S&P 500 were
each up about 1.4%. Barring negative news over the weekend, the Toronto market
should play catch-up on Monday. Markets were also up on June 30. So it was a
good couple of days for our stocks.


Shaw Communications
is updated and rated Speculative (higher) Buy at $21.99. I call it
speculative  just because there is a fear that it will be hurt by competition
from Telus. Of course, all stocks are speculative to some degree. But I am
comfortable holding Shaw (I have 14% of my portfolio in this company).


June 29, 2011


There was some excitement in the market for us today…


The London Stock Exchange “merger” with TMX Group (it was really a
takeover) proposal is dead on arrival. The TMX shares closed up 1.5% to $44.20
on this news. This clears the way now for the Maple group to try to get their takeover
done at their offer price of about $50 which I believe was to include $40 in
cash and $10 in Maple shares and I believed hat because some investors would opt
for 100% Maple shares it is possible that TMX shareholders who opted for maximum
cash might get the whole $50 in cash. Anyhow the market is signaling that this
deal is far from certain. I believe the Maple deal faces significant hurdles.
However the TMX may well be worth the $44.20 even if it is never sold. So a strategy
of buying TMX at $44.20 and hoping for the Maple buy out might not be too bad of
a strategy. Worse case the deal will fail, TMX shares would probably slide to
high 30’s (maybe lower) but would ultimately recover I suspect.


Visa inc. had a fantastic day and
was up 15% to $86.57 on news that the U.S. rules on debit card fees will not be
as negative to Visa (and MasterCard et. al, as first feared). Our recent update
on Visa rated it (lower) Strong Buy at $79.41. While I am not updating the
rating I would think that it still represents good value at this higher price. I
have said before that Visa is effectively a monopoly (in that almost every
merchant is effectively forced to accept Visa) and I have said that “you
can’t keep a good monopoly down” (a monopoly that is unregulated as to
price that is, and Visa is large ly unregulated as to price on its credit card operations).


Shaw Communications was up 1.5% on its earnings report. I thought it could go
more than that but the market frets about losses of some cable customers to
Telus and seems focused on the risks of this company. Also Shaw does have a high
P/E. I like it but it never seems to be a screaming buy.


Greece passed its austerity measures Wednesday. This bodes well for strong
markets on Thursday.


June 29, 2011 9:10 am eastern time (20 minutes before the
opening of trading)


Shaw Communications reported earnings this morning. The results are available
at the following link:




The results appear to be excellent. Market reaction this morning and today
will depend on the extent to which these results beat or fell short of
expectations. I would think they beat expectations. They did lose a few basic
cable customers (some 14,000) out of 2.4 million whereas in past years they were
growing. But overall I would expect the sahre price to rise today. We shall see.


June 28, 2011


It was a strong day in the markets. I am not aware of any particular news
that drove that.


There are signs of progress on the banking front such as an indication that
Bank of America will settle some kind of large fine (like $8.5 billion that is
rumored) related to the whole sub-primes mess. It would be good to get this out
of the way and hopefully this will be good for Wells Fargo too, even if it faces
a large fine (but hopefully not too large).


Tomorrow morning I hope to take a quick look at Shaw Communication’s earnings
and post some quick thoughts on that. It will be interesting to see how its
subscriber count is going.


June 27, 2011


Another day in the markets… As usual there was news about Greece. This time
positive. France has agreed to “roll-over” its Greek bonds. In other
words when it comes time for Greece to pay off some bonds that France owns,
France will lend Greece the money to pay off the maturing bonds. Bernie Madoff
must be wondering why it’s okay for government to pay off old investors with the
money from new investments rather than from any productive activity.


Bank stocks rose on news that regulations that is mildly draconian will not
be quite as draconian as thought.


Our top performing stock pick today was (of all things) Microsoft, up 3.7%.


All in all it was yet another day when the noise to signal ratio was high.
(Lot’s of noise and almost random movement)


June 26, 2011


I took a look tonight at where the futures are indicating the U.S. market
will open on Monday. Up, down or sideways. Unfortunately, I have never been able
to make any sense of it. They give two figures one for the index and future and
one for the fair value.


So as I write this they show the DOW futures down 30 points to 11,851 from
Friday’s index close of 12,050. That is interesting, especially since 12,050
minus 11851 is 199, not 30! Then again the DOW actually closed at 11935, so if
it opens at 11,851 that would be a decline of 84 points.


Then there is the fair value figure which suggests that the fair value which
closed at 11978 will fall to 11851 or a decline of 127. Well, at least the basic
math is correct there.


So what is this telling me about where the Dow is expected to open on Monday
based on these figures. It beats me. Anyhow it changes all the time and I am
just as happy to wait and see where it opens on Monday. About the only time this
futures thing seems of value is when there is huge news and markets are set to
open hundreds of points up or down.


Here is a link to the CNBC futures page. Perhaps you can make sense of it.




In other news on Wednesday, Shaw Communications will report earnings. I look
forward to that and hope that Telus has not beat them up too much with Optic T.V.


June 23, 2011


North American markets at one point today were down about 2% but ended the
day down about 0.5%. Negative market news included forecasts of slower economic growth
and a report that more people sought unemployment insurance in the U.S. Later
today it was positive news on the Greece front that helped markets recover. As
almost always seems to be the case the markets roil up and down with each bit of
news, up today down tomorrow. I am not sure that anyone has much basis to
suggest a predictable trend.


The price if oil is down to about $92. That hurts the oil stocks but is good
news overall for the economy. Today the news was that 60 million barrels will be
released from emergency stocks by the International Energy Agency. This pushed
oil down several dollars. Which is a bit surprising when you consider that 60
million barrels is less than a day’s worth of consumption. World oil consumption
per day is about 80 million barrels. This is the thing with commodities.
They  can rise sharply on any sign of shortage and can crash down at any
hind of over-supply.


June 22, 2011


There were developments in the bids for the TMX Group today.


The LSE merger proposal has added a $4 special dividend. This looks a bit
preposterous to me since the deal is taht after a successful merger but the
former TMX shareholders and the existing LSE shareholders would get about the
same dividend $4 per share for TMX and 84.1 pence for the LSE. Apparently this
is about the same dividend for both groups and considering the merger ratio (how
many LSE shares the TMX shareholders get which I understand is 2.9963)


This seems preposterous because it is merely a special dividend to pay out
money from the merged entity to its shareholders. TMX shareholders will
effectively receive $4.00 of money they already own. This in no way adds $4.00
to the value of this offer and it is mis-leading for anyone to suggest it does.
It does not appear that the TMX group  claims this to be a $4.00 adder to
the offer. They let the media report that misleading idea.


I am disappointed with the TMX Group regarding this whole affair for a number
of reasons.


The TMX came out and said that the Maple offer is not the best from the point
of view of shareholders,


Thomas Kloet, Chief Executive Officer of TMX Group made the following


“The Board and senior management believe that the agreed merger with LSEG
will deliver the most value for shareholders, market participants and a broad
array of stakeholders.


Well the TMX Board may have a responsibility to consider market participants
and stakeholders. But current shareholders don’t have to consider that. Current
shareholders under the Maple offer will get at least 70% and quite possibly 100%
of the offer in CASH. If they get 100% in cash they will not be shareholders of
Maple. They then have no reason to care about the considerations of what the TMX
will look like after the merger. How competitive it is . How leveraged it is. I
don’t think the TMX Board has properly advised its shareholders of whether the
Maple offer is better for those shareholders who prefer cash. They do however
make the very sound point that the Maple Group faces large regulatory


The LSE offer is to be paid entirely in shares of the LSE and is therefore
quite different.


Late Wednesday the Maple Group upped its offer to $50 and indicated an
average 80% of that would be paid in cash. It seems to me that sine some
shareholders will opt for Maple shares, those who want all cash might just get
all cash.


Absent consideration of having to pay capital gains tax, the ability to
receive $50 cash seems superior to the LSE offer. Now, perhaps a TMX shareholder
would be better off to take LSE shares since those might be worth a lot more
than $50 in some years. But that is pure speculation and if an investor wanted
LSE shares he could buy them.


On the other hand there is absolutely no certainty that the Maple bid would
ever be allowed to proceed.


This is a tough call to know what will happen. Personally I would be happy to
see the whole matter droped and let TMX Group continue on as is.


June 21, 2011


At about this point it might be nice to have a boring day in the markets…
Maybe tomorrow…


Today (Tuesday) markets were up strongly. Our newest stock pick Research in
Motion, which was added to the list above on Sunday,  was up 10%, more than
making up for the 7% loss on Monday.


Suspected fraud Sino-Forest closed down 27% but at one point today was down
over 50%. At $1.99 is it a good speculation? That is hard to say. If this is all
just false allegations then of course it would be a great investment at $1.99.
But if there are serious problems with its financials then even though it has
cash and certainly some assets it may be tied up fighting about this for years.
It simply seems like a pure speculation at this point.


Meanwhile the government in Greece survived a confidence vote and so that is
a positive for the markets.


In Canada, Harper got tough with the postal union. I would not be surprised
if he soon looks at ways to cut  spending on federal government employees.




June 20, 2011


Markets did well today. However my own portfolio suffered as Wells Fargo was
down moderately. Constellation software was down 4% to $67.51 and this is now
down from recent highs of $78.00.


Research in Motion continued to go down today. I bought a few shares.


Sino Forest continues to slip as the market is afraid it is a fraud. If it is
not  a fraud it certainly seems to have done a good job of looking like


June 19, 2011


I have added Research
in Motion to the list above. It is rated Speculative Strong Buy at $27.75. A
subscriber asked about whether it made sense to keep holding this stock given
its very negative market sentiment of late. I decided that since this is such a
high profile Canadian company and given that its price is down to perhaps
bargain territory it might be a good candidate for this site. I was also keen to
read its financial reports to get an understanding of the company – which I previously
lacked. As most subscribers have likely noted, the methodology on this Site relies
heavily on past earnings performance data. What we like to find are companies
with winning companies that are available at reasonable prices. We don’t claim
to be able to predict the future. But we have found that in most cases winners
tend to keep on winning. In the case of RIM, the shine is off its winning ways.
But that does not necessarily mean it is about to crater. It looks like very
good value. This is my first look at the company and I expect to  improve
my insight in future updates. I should also mention that I am not a smart phone
use and not an Apple user and so I am certainly not tuned into the latest
fashions and functionality in smart phones and smart “pads”. I may buy
some shares in this company.


June 18, 2011


I have updated the composition of my personal
portfolio. I have a 95% exposure to common equity and just 5% to cash. It
happens that as a result of the stocks I own I have a heavy weighting to retail
and financial with about 30% in each of those. Since I pick stocks individually
and don’t target particular allocations to sectors this allocation for financial
and retail is a result of my stock picks and not the other way around. (I did
not set out to target financial or retail sectors).


This is a good time to mention as well that this site provides individual
stock picks and not portfolio planning. Users should select stocks from the list
above on an ala-carte basis. It makes sense to choose higher rated stocks from
the list above (assuming the rating still appears to be current given its date,
the stock price and events since the date of the rating) that sort of resonate
with you as being good choices and that you believe fit into your portfolio. In
buying the higher rated stocks above it makes sense to try to do so closer to
the time the rating was assigned. For example if we update the rating on a stock
to Strong Buy it makes sense to buy it based on that rating at that time rather
than to buy it six months later when things may have changed.


June 16, 2011


Constellation Software has fallen back. In particular today it was down 5% to
$70.75. Not on heavy volume. It may just be volatility. Or it may signal that
confidence if fading that restructuring or sale that has driven the stock up so
much this year may not happen. I had sold 1/3rd of my shares near the highs and
now I rather wish I had sold half. Well, I know I talked about the risk that
this could drop in price if the “deal” does not materialize. We shall
see. It is unfortunately a case where there is little “visibility”. We
will know if something good or something bad happens only after it happens.
“event driven investing is the name for investing in this on the basis of
the hoped for “deal”. We had rated it a (lower) Strong Buy at $51.40
based on business as usual considerations. Then when it later announced it was
looking at strategic options it became more of an event driven investment.


Today the maple Acquisition group published a full page advertisement to
encourage TMX shareholder to vote agaisnt eh London Stock Exchange deal. I was
disturbed that the letter failed to make any mention whatsoever of the fact that
the Maple offer is conditional upon passing certain regulatory hurdles. Yes, this
already well known but I don’t think it is right for them to issue a full page
letter like that and imply that their $48 (about which more in a moment) is
actually going to be available to shareholders with any degree of certainty.
Secondly I think it is unfair to tout their offer as being a $48 value without
immediately mentioning that an average of 30% will be in shares of Maple rather
than in cash. I think it is possible that a shareholder who elects the maximum
cash option will get the $48 in cash. But it is possible it could be as as low
as $33.60 in cash.


I wrote an email to Maple and told them of my concerns. They were gracious
enough to respond fairly quickly but as expected defended their letter and
pointed out that the extra disclosure I referred to was all available on line
and in their offering circular. But my opinion stands. It is just very disappointing
to see a group like that issue such a letter and leave out the few additional
words that would have reminded shareholders that the $48 offer is conditional
and is not all cash. If they acquire the TMX Maple would then be responsible for
many regulatory functions that the TSX exchange carries out. So to have a
potential regulator behave in what seems a shabby fashion is disappointing.


Also I would note that while the letter was mostly directed to shareholders
it also seemed to be designed to gather support for their proposal from the
public. Most shareholders who favor this deal probably just want to get their
$48 in cash and move on. These shareholders would then care little about the
future of the company, they are being asked to sell out after all. If as a
shareholder you were more interested in owning Maple shares you could elect for
maximum shares and minimum cash. Other than the sponsors of Maple I don’t see
who would want to do that. (Although I suppose a taxable investor with a big
gain on Maple might take that route).


I listened again tonight to the Sino-Forest conference call and got a better
understanding. Some of the disclosures that are disturbing are that much of the
revenue flows directly into new tree purchases so that they never get the cash,
just more trees. They refuse to identify their customers, their Authorized Intermediaries
not even the exact locations of the trees. They say this is all competitively
secret.  This certainly is not comforting.


Sino makes a contingent liability for income tax in case it would not be paid
by the Authorized Intermediaries.


In general management sounded quite sincere in their responses (although I
was surprised at a lack of emotion and outrage)


In the Q and A they could not really answer how many hectares they planted in
Q1 other than they are on plan.


There was a comment that the cash in part was in many individual bank


A question about whether they had ever collapsed one of their British Virgin
Island companies and paid the tax and whether they have accrued for such tax,
seemed to go unanswered, albeit the fellow asked two questions at once and it
seemed they missed this question.


A question about whether banks were expressing concern got cut off at the end
and they simply moved on even though certainly most of the question was heard.


They explained that on a convertible debt they would give up the option and
to pay in cash and would pay in shares assuming the shares were in the money
(high enough). This would prevent the volatility in earnings they stated. This
sounded totally backward, I would think it is the option to pay in shares that
causes the volatility not the option to pay in cash. If this was a mistake it
was repeated several times in the explanation.


In the final analysis we still don’t
know if it is a fraud but it certainly has enough “red” flags to make
China proud.


There was a big acquisition announced after the close. Capital One will buy
ING Direct USA for $9 billion. I think this is an indication of the returning
strength of U.S. financial institutions. Credit losses are down especially on
credit cards. I don’t have really any feeling if $9 billion is a good price, but
certainly it sounds like a large number and shows that both the buyer and the
seller here are financially healthy.


Regarding Berkshire Hathaway, it should be obvious that this will be a bad
quarter given all the tornados and floods which will cause big insurance losses
I presume. Also they will likely have a non-cash mark to market loss on the big
put options they sold on stock index futures. Finally, the economy has not
improved as expected.


June 15, 2011


Today the market took back it’s gains of yesterday and more. It goes to show
that the stock market is not a place where we can expect tranquility. Instead we
can expect but are not guaranteed a good return over the years albeit a volatile


Regarding Sino-Forest, I reviewed today the independent report on the
valuation of its forest. Unfortunately, this report is almost comical (were it
not such a serious matter) in its insistence that the reader cannot rely on its
information to be valid, much less hold the authors responsible. The report
indicates it relied on information from Sino Forest as to the size of the
forest. They did obtain a few sample maps (hand drawn!) and checked that out and
that small sample did check out physically.


I also have come to understand that when Sino-Forest sells standing timer it
may not actually receive the cash, instead its agents use the cash to buy more
forest area. This certainly seems an odd arrangement. I checked back the
quarterly reports from the last few years and found that Sino Forest always
seems to buy more forest than it sells. That may be reasonable as it wants to
grow. But it does seem odd that it never seems to receive cash instead the cash
goes to buy new forest each and every quarter apparently before Sino even gets the
cash. It appears cash drops every quarter except when they raise new equity or


I have not seen anything to prove this is a fraud but the nature of of its
operations and the way it buys forest with the money from sales and the way its
independent forest consultant does not verify that it checked the existence of
the forest to any great degree certainly does not provide much comfort.


While one might be tempted to throw some speculative money at this stock,
that would seem to be a pure gamble. At the moment I am not at all tempted to
gamble on it.




June 15, 2011, 7:35 am




Sino-Forest is set to open to the downside.


A Financial post article claims investors are spooked now by the explanation
yesterday of how complex the company is. I send the following note this morning
to the author of that article:


You indicate they don’t want to release the exact locations of the
plantations. I listened much of the call but I missed that statement. Oh dear! I
was wondering what they can’t release aerial or satellite photos marked with
where the trees are, perhaps time elapsed showing the cycle of before and after
logging (though that may be hard to see if not clear cutting) also showing the




We still don’t have evidence it is a fraud but it sure is murky.




I will try to take a look if they ever show a quarter where they make a
lot of revenue or collect a lot of receivables but did not buy new trees and
therefore cash rose. There may be such quarters which would be a positive
indicator. If not and all sales always disappear into new forest buys than that
would sort of smell.




I know they do have cash so that is a positive sign unless it call came
from stock and bond sales and not ever from operations.





June 14, 2011


Stocks were strong today with the TSX up 1.2% and the Dow up 1.0%. Canadian
Tire had a particularly strong day, up 4.2%.




Sino-Forest reported Q1 results today. There was no reason to think it would
not show a profit despite the fraud allegations. Although it reported an
accounting loss, that was due to a fluctuation in the value of a convertible
debt liability which in turn was related to the share price. That appears to be
an item that should adjusted for. On an adjusted basis the company had strong


Nevertheless the stock price ended up plunging another 33% with the loss
accelerating near the close.


It’s really hard to say if this company is above board or not.


A couple of odd things in the financial reports. First for some reason they
listed their main asset, the trees they own on leased plantations as current
assets. Second almost all of the trees they sold this quarter were standing
timber. I have no familiarity whatsoever with this but it is interesting that
someone would buy all these trees but just buy them on the stump and not take
delivery of the trees. Some quarters they have sold a lot more logs and leases
standing timber. But his latest quarter there was almost no sale of logs from
the forests but it was almost all standing timber. They explained this as due to
the rainy season in Q1 but the prior year Q1 they did sell a lot of logs…


It was a quarter where they also bought a lot of new trees. So we don’t see
cash build up this quarter, instead we see it decease. Of course it may not be a
fraud. But if one wanted to promote a fraud, it might be easy here. They say
they sold trees and but they don’t have to show the cash piling up because they
say they bought more trees with the money.


In recent quarters it appears they no longer disclose how many trees sold
from planted trees. Back in 2009 they disclosed this and it showed what seems
like very little sales of planted trees, $10 million out of total sales of $954
million. They have been planting trees to my understanding since about 1994.
They stated over the years that at least in some areas the trees would grow in
just 5 to 7 years. So why are more of the sales not from planted trees? When I
asked about this in 2005 my recollection is I was told the trees had only been
started to be planted around year 1999 or 2000, but that contradicted earlier
annual reports. Maybe that was an honest mistake but it really gave me pause at
the time.  I now hear that many of the trees they are selling are only 6 to
16 inch diameter (so not especially large) despite being 25 to 50 years old. In
that case maybe this explains the slow sales of planted trees, maybe they on
average take a lot longer to grow than 5 to seven years.


They mention that they accrue for income taxes of some of their customers but
don’t have to pay the taxes. It is just a contingency in case the customer
(Authorized Intermediary) does not pay. This seems strange and complex. My
recollection however is that this has been the case on the balance sheet for
many many years so at least they appear to be consistent.


Listening on the conference call, I could not get any reading from the
voices. They sounded sort of business as usual. I would have expected to hear
lots of emotion and outrage in the voices. Or maybe fear.


Whether or not it is worth taking a “flyer” on Sino-Forest at this
point is very hard to say. It would be an outright gamble. But maybe it would
pay off. If you do want to gamble you could also consider the Options that


To see a list of available options, go to the following link and
choose “equity options” and scroll down to Sino-Forest.




You will notice that options are available that expire as soon as this month
( around June 20, I believe) and as late as January. You should notice too that
the bid / ask spreads are HUGE. Meaning it would be easy to over-pay. Personally
I leave options to the experts, I think they are hard to understand. Any money
you put into buying Call options you should think of as like buying lottery
ticket. You hope to win, but you might to lose all your money.




TMX Group.


I was surprised to see the TMX shares down 1.2% to $43.64 on a day when
markets were so strong. This despite that the maple offer is said to be worth
$48 per share and shareholders who elect cash will get at least 70% cash and possibly
100% cash given some shareholders such as the bank sponsors of Maple would
presumably take 100% shares of Maple. The explanation would appear to be that
the market is not convinced that the Maple bid will be accepted (which required
the rejection of the LSE offer) and that the competition bureau will approve it.
Perhaps investors assume the LSE offer will go through and according to Maple as
I understand it their $48 offer is said to be 24% higher than the LSE bid. This
would imply the LSE offer (at the LSE stock price of Friday June 10) is only
about $39. If so, that explains why the TMX share price is not up near $48. If
in fact the LSE offer is only worth 439 then it seems silly to buy TMX in the
hopes of getting the LSE offer, in that case it would be better to sell now and
maybe buy some LSE shares.


To buy these shares at this time seems a speculation that the Maple bid would
go though or that LSE would raise its bid.


June 13, 2011


The Maple Group has formalized its offer for the TMX. Nominally, there
appears to be an offer to receive $48 for each TMX share. However if all shareholders
were to elect the cash option then it would be prorated and you would receive instead
$33.60 per share with the rest received as shares of Maple. Given that the
financial institutions that are sponsoring this already own shares and would
want Maple shares then I expect a large block of shares would elect 100% Maple
shares. This would mean that ordinary shareholders might expect to possibly get
the full $48 in cash or pretty close to it.


The Maple Group spends a lot of time talking about how their offer is better
for Canada or will create a stronger and more profitable TMX going forward. I
view that as relatively irrelevant. If, as I hope shareholders can basically
receive the full amount in cash then they won’t own any of the new TMX and so
who cares what the profit of new TMX will be? If I were relatively certain that
the $48 should be received, I would buy now at $44.19 and make a fairly quick
gain as the money would be received (I understand) in August. The main barrier
to receiving this $48 per share appears to be the need for approval from the
competition bureau.


I am deeply concerned that Maple Group in its information released today has
totally down-played the fact that its offer is subject to regulatory approvals.
The presentation says:



Offer for TMX not conditional on acquisitions of CDS and
Alpha, but conditional on receiving regulatory

for acquisitions of CDS and Alpha



That looks like a statement intended to mislead. what should be
highlighted is that the offer is conditional on being allowed to acquire Alpha.
It’s hard to imagine why the competition bureau would allow this and allow the
TSX to once again be an absolute monopoly.


Given all the uncertainty I am not
planning to buy any shares in TMX despite this conditional $48 offer.


I think it could be bought certainly as a speculation. Given two buyers are
fighting over, the offer price could rise.


If the Maple Group were to remove the condition requiring competition bureau
approval before the purchase will go ahead then I think the share price could
jump to $48. But there is no indication that they would buy without the approval
to combine in Alpha.


As to the LSE offer. I think it is a take-over and not really a merger and it
might not be allowed to go ahead. The LSE offer is NOT about merging the
exchanges. One company would own both LSE and TSX but these would remain separate
exchanges regulated in each country. It seems to me that the value of the LSE
offer is harder to determine. It’s hard to know what the value of the LSE shares
will be. In the case of Maple investors can probably assume that they will get
something close to $48 in cash – if that is, IF the regulators would allow it to
go ahead.


My guess is that unless something changes the LSE bid will be voted down by


In other news, Wells Fargo recovered some ground with a 2.4% gain despite a
weak day in the markets.


The Toronto market lost ground as oil fell to about $97. Overall I think
lower oil prices are good for most stocks although obviously bad for the oil


June 12, 2011


As of 10 pm eastern time, futures data indicate that markets will open
moderately to the upside, tomorrow, Monday.


The latest edition of our free newsletter
has been sent out.


June 10, 2011


Stocks are starting off today Friday with losses. During periods like this I
try to take comfort that the stocks I own are money makers and generally do not
have high P/E ratios. Those kind of stocks, on average, tend to do fair perhaps
better than average during downturns and rarely suffer very large collapses. The
market is a place that requires patience, confidence, the financial ability to
sustain at least temporary losses and the emotional ability to sustain losses.
This is always the case although during certain bull markets it may seem that
losses are not a concern. They always are a definite possibility. For me, this
downturn does not shake my long term confidence that owning money making corporations
bough at reasonable prices will pay off over the years.


June 8, 2011


I don’t know what is going to happen with Sino-Forest. Will they prove to be
honest or a fraud? How long will it take to resolve?


If you wanted to bet that it will turn out to be honest you could buy shares
or options. To see a list of available options, go to the following link and
choose “equity options” and scroll down to Sino-Forest.




You will notice that options are available that expire as soon as this month
( around June 20, I believe) and as late as January. You should notice too that
the bid / ask spreads are HUGE. Meaning it would be easy to over-pay. Personally
I leave options to the experts, I think they are hard to understand. Any money
you put into buying Call options you should think of as like buying lottery
ticket. You hope to win, but you expect to lose all your money.


In other developments the markets continue to be weak. Wells Fargo is down to
$25.36. This is due to a weak outlook for housing and the economy. I continue to
think this company will do well before too long but as always there are no guarantees
of that. The next important piece of data will not likely come until it reports
Q2 earnings around the end of July. My hope is that it will show continued
improvement in profits and lower loss provisions.


June 8, 2011 9:30am eastern


An Analyst at Dundee has come out strongly in support of Sino-Forest and
indicated that the Muddy Waters report is crap. It certainly could be true that
the company is totally above board despite its complexity. This seems like a
binary situation. Either it is worth closer the the former $20 or closer to
zero. I was just reading that Michael Lewis said in the Big Short that these
kind of situations can be lucrative if you can buy a long term option on the
company called a LEAP.


The LEAPs tend to be under-priced in these binary situations he said. I don’t
know if LEAPS exist for Sino-Forest.


June 6, 2011


Constellation Software was among the few stocks that rose today. This is up
about 50% to $77.62 since it was rated (lower) Strong Buy at $51.40 on February
5. As explained in updates below it rose sharply after it announced it was
looking at strategic alternatives which were thought o include selling out the
company at a premium. Given that there is risk that no such takeover will occur
I finally decided to sell 200 of my 600 shares to reduce my risk. I also entered
an order to sell 100 more if it hits $80.


June 5, 2011


I have just added Toll
Brothers Inc. to the list of stocks in the table above. We rate it
Speculative Buy at $21.03. My thought process in adding this company is that I
wanted to find a stock that would benefit when U.S. house prices eventually
increase. Ideally, I would want a small company that has raised money to buy up
foreclosed houses and rent them out or perhaps better to buy up options to buy
such houses. But I don’t know of any such companies. Toll Brothers will benefit
as a house builder if the market recovers. Also it is sitting on land that
should increase in value at some point. Overall, Toll does not seem to be any
screaming buy and there are certainly risks. But if you think that U.S. house
prices will eventually rebound and if you are looking for a stock that would benefit
on the upside, Toll Brothers may fit the bill. I was pleasantly surprised to see
that Toll Brothers has a reasonable strong balance sheet after this debacle. The
fact that it is able to operate at break even after about an 80% decline in its
revenues is a testament to the company. I like (but don’t love) the price the
book value at 1.4. Basically the Toll brothers started a company in 1967 and it
grew to be very successful before this housing crash. If earnings can recover,
the fact that we are able to buy in at 1.4 times book value will turn out to be
a good investment. most successful companies trade at price to book values that
are much higher than that although these ratios vary by industry and a lower
price to book value is certainly no guarantee it is a good investment. I am not
sure if I will buy any shares or  not. In part this is because i am almost
100% invested as it is. (very little cash).


June 2, 2011


There startling news today about a company I used to have on this site,


It has been accused of being a total fraud with an estimated value of about




I hope none of you own it and if you do, I fear it may go to zero. What an
awful situation.


A couple of things come to mind. First something that is not really important
but which I can’t help saying. Basically. “I told you so”… Well not
exactly. I never said it was fraud. But I did say I did not trust management. I
sold over 5 years ago and never looked at it again because I did not trust the
company. Some details of why were posted here. Scroll to the bottom and click
older comments and then do control-F and search for Sino and you will see I
stated some worries and lack of trust. But certainly I never said it was a fraud
although I did not trust management. I thought I said somewhere along the line
that I would not be surprised if it were a fraud but I can’t find where I
said that so that may be a fabricated memory. Update June 5: I have now found an
old email from November 13, 2005, where one of you was asking why I sold and I
said “what if Sino just possibly is some kind of fraud or is
hiding something”. 
And how many companies have I even suggested
might be a fraud over the 12 years I have been doing this Web Site? That I can
think of… none.


Another thing that comes to mind is if this was a fraud, where were our regulators
and the auditors? I mean I smelled a bit of a rat here years ago, so why not the


The company who accuses this company of being a fraud are short the stock. I
have zero problem with that. Every day people who own a stock sing its praises
and exaggerate its outlook. This is almost never questioned unless it is out
right pump and dump. Buy and praise never seems to be questioned. Buying Apple
and saying it is going to $1000 is seldom if ever questioned. Seems to be
acceptable behavior. If these guys identified that this was a worthless beast
then they had every right to short it and then tell the world why they think it
is a fraud. Of course they better be right. One can’t run around accusing
companies of being frauds unless there is a strong basis for the belief. If it
is worthless that is very sad, but that is it. If it is worthless and a fraud it
should never be allowed to trade again.


In other news Moody’s is reviewing Wells Fargo and some other banks for a
possible credit rating downgrade. I have a problem taking any credit ratting
agency seriously. These are the same guys who gave banks high credit ratings
when they were running with say 3% common equity. Now they have closer to 9%
common equity and NOW these guys want to downgrade. Frankly I don’t understand
how or why banks were EVER given very high credit ratings. They have always been
highly leveraged. I always consider banks to be risky. I certainly like Wells
Fargo but I NEVER said it was without risk. If house pries are indeed still
going down and if the jobs don’t come back then Wells Fargo certainly will not
be helped by that. But, still I have placed my bet with them. Time will tell.




June 1, 2011


Well it was a nasty day on the markets on Wednesday with the Dow down 2.2%
and the Toronto market down 2.0%. This was blamed on weak economic reports
including weaker manufacturing and jobs data. Also there was yesterday’s lower
U.S. house price report.


Our Wells Fargo got clobbered, down 5.0% and Canadian Tire was down 4.5%.


I don’t think it is really possible to know if this sort of thing is the
start of a trend or not. Based on earnings U.S. stocks in general seem
attractive as does Canadian Tire . In general investing requires one to take
risks and to put up with volatility. As an investor for over 20 years, this sort
of day really does not bother me much although obviously if it continued that
would not feel good.


May 31, 2011


Reitman’s reported poor earnings after the close today. They blame it mostly
on poor weather. Also a weak consumer demand due to higher gasoline prices. A
stronger Canadian dollar lowered their costs but was not enough to offset the
weak demand and the lower prices they were forced to charge. May was the first
month of the next quarter and it was also quite weak which they again blame on
weather. This could be temporary but overall this is not a stock that interests
me at the moment. This is a chain that Target could hurt, although that is still
about two years away. My sense is that their niche ids serving customers who
want more customer service, hard to find sizes, and more unique styles. With
markups that average close to 200% they seem to be a high cost operation. The
high dollar also drives its customer across the border into the U.S. Cloths are probably
one of the most popular things to buy cross border.


A store like Canadian Tire in contrast seems to be helped by a high Canadian
dollar (lowers its costs similar to Reitmans) and what we purchase there is
often bulkier or on an as needed basis and not as likely to be purchased cross


Our stock picks did quite well today. Most of them were up. In part this was
due to the strong U.S. market today. But also Canadian Tire and Shaw, for
example had a good day. Our gains in U.S. stocks were partly offset by a higher
Canadian dollar.


The latest Case Shiller index of U.S. house prices came out today and had
another decline. This is in contrast to Home Builders who are reporting slightly
rising prices. My sense is that  U.S. home prices have over-shot to the
down-side in many Cities. But it is difficult top turn the trend around since
lower prices begat lower prices (due to people waiting and due to more people
going into negative equity and more desperation sales). But at some point the
bargain hunters will step in..


May 30, 2011


Not too much happened on the markets today, given the U.S. markets were
closed. First quarter GDP growth figures came out for Canada and were strong at
about 1% or 3.9% annualized. that is real growth after inflation. Unfortunately
it is expected that Q2 will be slower due to supply disruptions to the auto
industry associated with the Japanese earthquake.


Bank of Canada will comment on interest rates on Tuesday morning and may even
increase interest rates but the betting the rate will be left as is. The market
will be interested in any sign that interest rates will rise soon.


I am now taking a look at Toll Brothers the luxury U.S. house builder. I am
interested in any company that might benefit a lot from the eventual stabilization
of the U.S. house price situation and the eventual rise in prices. Toll Brothers
is probably not the one with the most upside but it appears to look good from a
risk reward perspective (at first glance). But I have not completed the analysis


May 26, 2011


It was a moderately positive day for our stock picks. Various
earnings reports coming to the market appear to be mostly quite positive. I am
feeling good about owning stocks even though I know that negative news can
always be lurking around the corner.


May 25, 2011


Tim Hortons announced that its CEO and a 20 year veteran, Don
has left the company immediately. The former CEO who has been
serving as executive Chairman will take over on an interim basis. Apparently Don
had been told that the company would like to transition to a new CEO after some
period of time. Understandably it appears Don told them to stuff it. This
appears to be a case where former CEO Paul House never really let go of the
reins. If House had been really serious about making Don the CEO several years
ago, House would never have retained the executive Chairman role. He would have
been just the non-executive chair and handed over the reins.


In the press release, I would almost say Don was damned with relatively faint




This may be no big deal for Tim Hortons but at the very least it was poorly
handled. At worse it could indicate major conflicts regarding the proper
strategy for the company.


There was not much happening with our stocks picks although Canadian National
Railway was up 2.1% and Constellation software recovered the ground it lost
yesterday and closed up 3.1% to another new high. But it continues to trade on
thin volumes which makes it vulnerable to a decline if someone decides to try to
sell a larger number of shares.


May 24, 2011


Not too much excitement in the markets today. There were modest declines
based on fears of the European debt crisis.


I just saw a headline that seems like
good news for Wells Fargo.


The headline was “NEW YORK (AP) — Late payments on credit cards fell to
their lowest level in 15 years during
the first three months of 2011, TransUnion said Tuesday.”


That seems shocking and frankly unbelievable. With all the debt people have
taken on and with the higher unemployment. How can credit card delinquencies be
at a 15 year low! They are reported to be at 0.74%,


Read the full press release here





This prompted me to check my usual source for this information. On my Links
page is a link to quarterly loan delinquencies reported by the Fed. It would
have been just recently updated by the Fed for Q1.


Looking at that data for the 100 largest banks on a seasonally adjusted basis
Q1 credit card delinquencies are back to levels not
seen since 2005.
Q1 was at 3.83% ( I believe that is an annualized figure
which may explain why TransUnion has it so much lower at 0.74%). Q 1 last year
was a lot higher at 5.81% and 2009 Q1 was at 6.63%.


And what about mortgages (on a seasonally adjusted basis)?


The Fed data shows mortgage 90 delinquencies at 11.39%. Unfortunately these
are still at dangerously high levels and have declined only modestly since Q1
2010 and actually rose a little since Q4. (in contrast this figure was 1.40% in
Q1 2005 so it rose incredibly in the financial recession.)


Here is a link to this data:




Checking charge offs (polite word for write offs) rates rather than


Mortgage write-offs have continued to decline as have those for credit cards.
Interestingly the actual charge off rates on mortgages are “only”
1.82% (still miles and miles higher than normal conditions, like 0.07% in Q1
2005). For credit cards the write-offs are at 7.32%. so it seems on real estate
the write-offs are way lower than the delinquency rate while on credit cards
they are actually higher. The reason being that on real estate the loan is
secured. (At least that is part of the reason).


The mortgage write-off data is here:




So this is a mixed picture. The cynics would say many  people stopped
paying their mortgage and started paying down the credit card instead. The bank
is going to take the house anyhow.


So it’s not a total good news story, but I think these lower credit card
delinquencies are a welcome surprise and bode well for Wells


What about Canada?


Mortgage delinquencies are reported here:




These are 30-day delinquencies and so are not comparable to those 90 day U.S.
figures. The Canadian figures rose somewhat with the recession but overall
remained remarkably low.


The latest figures from the banks of credit card delinquencies are from
October 2010 and show modest declines. They show delinquency at 1.16% and
charge-offs at 4.30% annualized. Not that much different from the U.S. using the
Trans Union figure In fact the Canadian 90-day delinquency on credit cards seems
to be higher than in the U.S. However the charge offs at 4.30% are lower than
the U.S. where they are at 7.32% . However, it is hard to compare figures from
two countries with different sources, they may not be comparable.


May 23, 2011


Staples is updated and rated Buy at
$16.71. We had rated it Buy at $22.92 at the start of this year and it has
fallen 27%. Most of the decline was after it released Q1 results last week and
lowered guidance from 25% earnings per share growth this year to about 10%. The
market has reacted very negatively to the lower outlook, but the reaction may be
over done.


The stock market was closed today in Canada. However the U.S. was open and
the Dow was down 1% and the S&P 500 was down 1.2%. Wells Fargo is down to
$27.53. It may be hard to get excited about this stock which has not performed
well lately, but it does look like good value, although of course there is no guarantee.


May 22, 2011


Telus is updated and rated Buy at
$50.70. This stock is up about 16% since we rated it a Buy at the end of last


May 19, 2011


Thursday was a good day for our stock picks. Notably, Shaw Communications as
up 1.8% and Canadian Tire was up 2.0% and Constellation software up another 2.1%
(although again Constellation is very thinly traded).


I plan to have some updated reports and ratings over the next few days.


May 18, 2011


One of my occasional activities is to act as an investor advocate or
activist. Tonight I felt compelled to send a letter of complaint to the
Investment Industry Regulatory Association asking them to investigate what
appears to me to be inadequate disclosure by the TMX Group regarding the
conditional take-over proposal by the Maple Group.


On Saturday the TMX group advised
of a proposed takeover offer but did not state the price offered. Based on
that press release I had thought that the conditional proposal did not state the
exact price. Since then, the TMX Group has told me that they were aware of the
proposed price.


On Sunday the Maple Group released
terms of the proposed offer and indicated it wwas $48 per share which might
be all cash for some shareholders depending on how many shareholders opted for
Maple Group shares in place of cash. The absolute minimum cash would be $33.52
under the proposal the rest in Maple shares.


I was not immediately aware of that Sunday press release. In fact I found it
only tonight by searching. TMX Group made no effort to further disseminate the
news about the price offered.


Now this proposal is conditional on a number of things and I am highly
skeptical it will go through. Nevertheless I think it was incumbent on the TMX
Group to release the price offered in its statement on Saturday and failing that
to post the Maple press release to the TMX web site on Sunday and to press
release it under the TMX name for proper distribution.


As far as the TMX shares themselves. They could be bought on speculation that
this deal will happen. But I sold my shares and I don’t wish to speculate on
this deal happening. I was happy to get my $44.10 and move on.


A couple of years ago I complained about companies issuing earnings releases
during the middle of the trading day. As a result of my complaint the practice
has been very sharply curtailed. This is detailed on my page that described my
activities in this area of activism:




In other news the markets were strong today. Our stock picks benefited in
particular from modest increases in the price for Canadian Tire and Shaw


May 17 10:21am  eastern


Yesterday’s good news was Wells Fargo rising 3%. The TMX Group closed down
modestly yesterday to $43.37. Therefore it so far appears that the market shares
my skepticism that the banks will be able to buy the TMX Group and combine the
Aplha exchange with the TSX exchange. But this company will no doubt fluctuate
as the market comes to understand the probability of the deal going through. The
Financial Post indicated the deal was for $48 and there are reports a formal
offer was made after the initial TMX statement. But no price was indicated by
the TMX and no release regarding the formal offer. Also TMX indicated the offer
was partly equity which is confusing. Equity in what? At the moment there
appears to be an appalling lack of disclosure from TMX but I don’t have all the
facts on that.


May 16 2011 


Oil and the Canadian dollar were both down today. I think this is good news
for the economy overall.


As expected the TMX Group was up today (see my post of May 14). My remaining
shares were sold at the open at $44.10 based on my order to sell if it reached
$43.00. The shares traded as high as $45.26 just after the open but then trended
down and closed at $44.05. So my sale at $44.10 seems like a good trade. It may
tend to trade down now as people consider whether the proposed buy-out would be
allowed. Or if it looks like the deal will proceed the stock could certainly
trade higher.


Constellation software was up 5% today. However this was on very thin volume.
On Tuesday last week it announced that some of its insiders have canceled
plans under which they were systematically and automatically selling shares over
time. The prices at which they were going to sell systematically were generally
somewhat higher than the current price. The market did not seem to react to that
news last week and it is not clear if today’s rise was related to that
news.  I must admit I have no clear idea how to take the news about
insiders canceling their systematic sales plans. Insiders could
possibly be accused of insider trading no matter what they do. This is probably positive but it may not be. Perhaps they are scared the price will drop back if
no sale of the company occurs and they would be accused of selling at too high a
price. Two weeks ago the company reported good earnings results for Q1.


A reasonable strategy for those with big gains on Constellation might be to
sell half to protect against the risk that its restructuring will not happen.


May 14, 2011


The TMX Group announced today Saturday that it has received a non-binding
proposal to buy the company from a group of banks and pension funds.


On this news the TMX shares will presumably rise on Monday. The shares closed
Friday at $41.75. I had sold most of my shares at about $45 and $43 when the
proposed merger with the London Stock Exchange was announced. But I still have
some. I have an order in to sell at $43. I will leave that order in place and
hope the stock opens higher on Monday.


The banks and pension funds condition their offer on Alpha a newer stock
exchange competitor that the banks own being allowed by regulators to merge with
the new TMX Group.


This bank proposal looks ridiculous to me. I have often described the Toronto
Stock Exchange as being a near-monopoly. It used to be essentially a monopoly
and even with the introduction of competitor exchanges, every large company is
Canada is virtually forced to list on the TSX. And analysts have no real choice
but to buy their data services.


It seems preposterous to think that the competition bureau would allow the
TSX exchange to merge with its main competitor.


But I suppose anything is possible.


May 12, 2011


It was a good day for our stock picks. Most notably, Canadian Tire was up
2.1% after releasing good earnings. Stocks have certainly been volatile lately.
Anyone who likes to invest simply with the trend is certainly getting confused
signals. But volatile markets are the friend of the value investor.


May 12, 2011 (just prior to opening of trade)


Canadian Tire has reported good Q1 earnings. There was mention that it would
have been better save for bad weather. I believe the good earnings growth of 13%
was about as expected.


Yesterday oil prices and stocks fell. I believe lower oil prices are good for
the economy and for most stocks.


Canada’s exports reported yesterday are surprisingly strong in the face of
our high dolalr. But I do worry that certain manufacturers are getting crushed
by the high dollar.


May 10, 2011


Most of our stock picks did well today. Most notably Canadian Tire up 2.6%.
Canadian Tire will release earnings on Thursday morning. Hopefully the earnings
and outlook will be strong enough to keep the momentum going.


May 9, 2011


Canadian Tire prior to the opening of trading on Monday announced that it has
made a friendly offer to purchase the Forzani Group for $771 million (500 stores
banners include Sportcheck, Sport Mart, Forzani’s, Sports Experts and others).
The market has greeted the news positively. I don’t have any basis to know if it
is a good deal or not. But Canadian Tire has its experience in purchasing Mark’s
Work Wearhouse a few years ago and it should be capable of knowing a fair price
to pay. Ofthen when acquisitions are made the buying company’s shares decline on
the news and so it was good to see Canadian tire rise on the news.


Other stocks that did well today for us included Melcor Developments and
Constellation Software.


May 7, 2011


Berkshire Hathaway is updated and
rated (lower) Buy at $80.21. I would be inclined to rate it higher but looking
at the numbers and all the factors it seems like (lower) Buy is the right rating
at this price. I think it will do reasonably well long term but just does not
seem to be particularly under-valued at this time.


May 6, 2011


Visa is updated and rated (lower)
Strong Buy at $79.41. Visa seems to be good value given its growth and its
dominant position.


May 6, 2011 12:55 pm eastern time


A subscriber emailed and asked my opinion on Constellation
Software, Buy, Sell or Hold. Constellation was added to our list on February
11 this year and rated (lower) Strong Buy at $51.40. The price then rose quickly
and it announced it was looking at strategic alternatives and the price is now
about $68 for a quick 32% gain. It also paid an annual  dividend of $2.00
so the total gain was about 36% for those that bought at around $51.


It’s difficult to evaluate now because of the uncertainty of this strategic


Our report indicated, among many other things:


Estimated present value per share: We
calculate  $54.50 if adjusted
earnings per share grow for 5 years at the more conservative rate of 10% and the
shares can then be sold at a P/E of 13 and $96.52 if adjusted earnings per share
grow at the more optimistic rate of 20% for 5 years and the shares can then be
sold at a P/E of 15. Both estimates use an 8% required rate of return. 20%
growth may be optimistic but the company has been growing in excess of that


I read a recent report from an analyst
who was in this stock much earlier that it may be sold to another company and
that it may be worth around $100. (But I saw no information that any buyer has
offered any price).


I have a fairly large position and am
holding. But I recognize that is a risk. If the strategic option to sell the
company falls through then the price could certainly drop. 


My feeling is that if one is nervous
holding it then sell and take the gain.


Emotion comes into play. I find it
difficult to sell now at $68 if there is some chance it will be bought out at a
much higher price. 


If I did not own it I might buy a small
amount. As a current holder of a large position (about 5% of my portfolio), I am
not going to buy more.


The bottom line is that because of the strategic
alternatives being studied this stock is particularly hard to predict. It is
certainly not without risk.




May 5, 2011


While markets were down today a few of our stock picks were better behaved.
Canadian Tire regained some ground. The lower Canadian dollar did much to ease
the pain for those with U.S. stocks. My own portfolio was flat on the day which
seemed pretty good on such a negative day. I am hoping oil continues to slide as
that will be good for consumer confidence.


I am working to update the report on Visa. Ya gotta love a monopoly like


May 4, 2011 


It was another down day in the markets and this time our Stock Picks did not
escape. One saving grace was the decline in the Canadian dollar today which
helps Canadians that have U.S. investments. Hopefully the lower oil prices can
continue and will start to boost confidence. I am sure it gets tiring for me to
continue to say that Canadian Tire and Wells Fargo are good buys at these
prices, but I do think that. I am definitely intend to be hang in in with these


May 3, 2011


The TSX was down 242 points or 1.74% today. The Dow was about flat and the
S&P 500 was down 0.3%. So on that kind of a day it was nice to see some of
our higher rated stocks do pretty well. Wells Fargo and Walmart were up. I was
not pleased to see Canadian Tire down almost $1.00. I wondered if it was some
kind of signal that the upcoming earnings on May 12 were not that good. But then
again it may have been just the overall weakness in the Canadian market today. I
added another 100 shares to my position today. Q1 is never a strong quarter for
retail but I was hoping they would report a Q1 that was better than last year. I
figured the high Canadian dollar would help lower their costs. However if they
partly pass on the lower costs to customers then they might report lower revenue
and higher profit. I was thinking their credit card operation should be doing
okay given the modest economic recovery. Usually my strategy is to buy stocks
soon after earnings come out, if I can, rather than just prior to them coming
out. By buying prior to earnings come out I am taking more of a chance.


Earnings continue to come in strong. Standard and Poors is projecting that
GAAP earnings on the S&P 500 will come in at nearly $95 this year, up 23%
from the $77 in 2010. On an operating earnings basis they project an increase of
11% to about $93. This projected $93 earnings on the S&P 500 would be a
forward P/E of 1357/93 = 14.6, which seems relatively attractive given today’s
very low interest rates. The point is, this seems at least moderately positive
for stock prices.


May 2, 2011


So.. we have a Conservative majority in Canada. I am a conservative by nature
though I am no fan of Harper’s… This Conservative majority is probably the
best outcome for investors. They will continue to spend WAY too much but still
less than the NDP would like to spend. The Canadian dollar is already up on the
news tonight.


Today markets were volatile but mostly ended without much change. I am
waiting now to see what the Q1 earnings reports look like… They are coming in


May 1, 2011


Warren Buffett held his annual meeting and 5 hour question and answer period
on Saturday. Based on reports of the meeting I understand that he stated that
U.S. banks will not be as profitable as they once were (due to lower leverage)
but that Wells Fargo and U.S. Bancor (both of which Berkshire has investments
in) are two of the very best. I understand Berkshire added moderately to its
position in Wells Fargo during Q1.


Buffett also indicated that he would consider Microsoft as a value investment
but considers that Berkshire should not invest in it due to Buffett’s close
relationship with Bill Gates.


Berkshire Hathaway reported that it lost money on insurance underwriting in
Q1 due primarily to the Japan disaster. That is not a surprise, this is the
business Berkshire is in.


April 28, 2011


Microsoft reported very strong earnings today. Still the stock fell on the
news in after hours trading. Despite the strong profit the market fears that
Microsoft will increasingly lose out to competitors.


In general, stock markets continue to do well based on strong earnings.


For the next few days, until Sunday, I am on the road (in Banff) attending a
course in corporate governance and Board member functions.


April 27, 2011


Berkshire Hathaway’s audit committee has come out with a report on the David
Sokol “insider trading” issue. It slams Sokol pretty hard and absolves
Buffett totally. I imagine Sokol will want to sue Berkshire over the matter. A
messy situation. Very unfortunate. Buffett has sung the praises of Sokol for
years and Sokol still owns a valuable piece of Mid-America, a company of which
Berkshire owns about 90%. This should put the issue pretty much to rest except
for court fights that will go on in the background.


There will still be lots of chirping on this issue and how Buffett handled
it. But despite the chirping I think it is pretty much a dead issue from the
Berkshire perspective. Sokol did wrong and then he resigned. Berkshire and
Buffett did nothing wrong.


Berkshire indicates that Sokol made an improper gain by buying shares ahead
of Berkshire’s takeover offer for Lubrizol.


Here is the Berkshire report on the matter.




In other news the markets continue to chug along and I feel good about the
stocks I own and about owning stocks in general.


April 26, 2011


The latest (February) Case-Shiller index of United States home prices by City
came out today. Some headlines indicated it was down 3.3%. But that was down
3.3% from a year ago. So the notion that U.S. house prices were down another
3.3% in February is false. In fact, in February the index was down 1.1% from January.
And, on a seasonally adjusted basis to correct for normal seasonal fluctuations
is house prices, they were down 0.2% or basically unchanged. So beware
misleading headlines. The fact is the data suggest that U.S. house prices have
changed very little on average in the last few months.


In other good news, corporate earnings continue to come in mostly with
positive surprises.


Overall the outlook for stock markets seems good at the moment.


Stocks had a strong day today.


A notable laggard today was Canadian Tire down 1.4% despite a strong day in
the markets in general. I don’t know the reason for that or why the company is
lagging. It is certainly possible that “the market” knows bad news is
coming. But I look at the fact that this is a company that earns good profits,
and has a strong history and it is selling at only about 1.2 times book value. I
would expect its earnings to rise in 2011 and I think the high Canadian dollar
will help in that cause. Maybe I am wrong, maybe it will report big losses
on  its credit card operations. There are always maybes. Always risks. But
meanwhile I like this company as a probable quite good investment over the next
12 months. In the Spring of 2009 stocks were at bargain levels. At some point if
we are to make strong gains we must take a deep breath and pounce on what
appears to be a bargain. To the bold will go the spoils. Not to the reckless,
but to the bold. And yes the bold will suffer some setbacks. The bold will win
the war but not every battle. In conclusion, I own Canadian Tire, I feel very
good about owning it and would consider adding to my position. But I recognize
that there are always risks.


Canadian Tire will not release earnings until its annual meeting on May 12.
Presumably the company will keep a tight lid on results until then.


April 25, 2011


I saw today where the new Wells Fargo CFO has bought 10,000 shares at $28.54.
A positive sign (maybe). However as a Board member he may have been required to
buy shares. Many companies have adopted the well-intentioned rule that Board
members own shares. Unfortunately that means when they buy we don’t know if it
is because they think the shares are cheap or they just have to. Particularly
stupid are those many Boards that a) set a requirement for members to own shares
and then b) give the members the shares. Instead they might want to think in
terms of electing people to the Board that already own shares. You know, owners.
But anyhow, I do think Wells Fargo will turn out to be a very decent investment
over the next 12 months (though I will never guarantee such things).


U.S. new house sales in March rose compared to February and prices rose too.
(Albeit to an average of only $213,800). Existing houses remain in glut
conditions but there is a scarcity now of new homes for sale. I believe that the
indications are that we are at the bottom of the price range for U.S.


April 23, 2011


Wells Fargo is updated and
rated (higher) Buy at $28.54. The stock price fell after it released Q1 earnings
this week. The earnings were actually quite good. However the market has fixated
on the recent decline in revenues. Wells explained that revenues declined as
they exited certain of the riskiest lending that led to the credit crisis and revenues
are also down in consumer mortgages. Most of Wells Fargo’s business segments are
growing. By my calculations, the profits and profit growth trend at Wells Fargo
justify rating this stock as a (higher) Buy.  If the figures are to be
believed, analysts project that earnings will grow by about 45% in the next two
years (Forward P/E projection for December 2012 is 8.0). My conclusion that it
is a (higher) Buy does not rely on growth being that high.


Wells Fargo is my biggest holding. I am very comfortable owning it and have
added to my position on dips. I am comforted by the fact that Warren Buffett
owns a large position in the company and has spoken favorably about the company
and its prospects.


It is possible, but not guaranteed, that Wells Fargo could benefit in two
ways by the end of  this year. First its earnings are expected to rise.
Second, with the higher earnings and a possible dividend increase the P/E ratio
could rise. If both of those things happen, then the stock price would rise
quite noticeably.


April 20, 2011


Markets had a very strong day with the Dow up 1.5% and the Toronto index up
1.2%. However Wells Fargo was down 4.1%. Due to my own heavy weighting to Wells
Fargo, I felt like the market had a party but I was no invited. That’s okay my
turn will come.


Wells Fargo is a very large company. It is complex due to how large it is and
its different divisions. The market apparently focused on the revenue being own
in it mortgage business. The market was unimpressed by what appeared to be a
very strong quarter in terms of profits and a host of sales figures in most of
its various businesses. I listened to the conference call tonight and based on
what I heard I remain very optimistic about the outlook for this company. I
added to my position today.


In affect the reason for the existence of my efforts here is that sometimes
the market under-values some shares at times. My goal is to find some of those
cases. Ideally they would soar soon after I identify them. But that is not
realistic. The old saying is “value will out”. If, as I believe, Wells
Fargo is destined to outperform, that will happen at some point (and I don’t
think it will be all that long). Patience is a requirement of value investment.
Over time and over a number stocks, patience tends to be rewarded. That is not
to suggest that there is ever any guarantee in regards especially to any one
particular stock.


April 20, 9:07 am eastern (before the bell)


Wells Fargo looks set to open down about 50 cents to $29.50. This despite
what looks like a good earnings report. I would not be surprised to see it rise
alter today but we shall see.


April 19, 2011


Markets recovered a bit of ground on Tuesday. Of particular interest to me
was Wells Fargo up 1.9%. Wells reports earnings tomorrow morning. I am hopeful
of a good result particularly that bad loans will be not so bad. But there may
be other one-time hits, so we shall see what the morning brings.


The TMX Group has been creeping up, now at about $40. I had sold most of my shares
at about $45 and $43 when the proposed merger with the London Stock Exchange was
announced. I entered an order to Sell if these hit $43. If the shares were to
“pop” suddenly to above $43 on good news about the merger, it is possible
I would get a higher price than $43. If the news came during a time markets were
closed (as it is supposed to) and the stock popped at the opening to above $43,
then my shares would sell at the higher price. On the other hand if the stock
reaches $43 and then climbs above that during trading hours, I would be sold as
it reached $43.


April 18, 2011


Stock markets declined today due to Standard and Poors warning that it might
downgrade the United State’s credit outlook to negative. I won’t pretend to know
much about these matters. Then again I am not sure that the S&P analysts do


It’s hard to imagine that the United States would ever default on its debt
given that 1. It has huge powers of taxation and 2. It can print money at will.
What S&P probably should be warning long term bond investors about is the
possible inflation that may be caused by high deficits and money printing.
Investors are almost sure to get their money back in 30 years but what a dollar
will buy then is another question. But for sure this move by S&P is a
warning to the government to get its deficits under control.


It was nice to see that one of the few stocks that were up today was
Shaw Communications.


April 17, 2011


Shaw Communications
is updated and rated Speculative (higher) Buy at $19.16. Based on its earnings,
Shaw looks like a good investment and it is cheaper in relation to earnings than
it has been in years (save possibly at the depths of the 2008/2009 market
crash). I have added the word Speculative to its rating due to the uncertain
impact of technology and competition with Telus. All stocks are speculative to
some degree. But the possibility of a radical change in technology or a radical
increase in competition and lower prices makes Shaw more speculative that
appeared to be the case previously. Still, it looks like a good investment.
There are always risks. If we avoid all risks we will never invest in stocks.


On Friday I added to my position in Wells Fargo based on the reasons
mentioned in my last posting here and based on a further price dip on


April 14, 2011


My Shaw Communications and my Wells Fargo dropped again today. The poor
market sentiment on Shaw is not likely to change for the better unless it gets
another quarter or two of good results under its belt. The media segment in
particular offers upside. But the market seems focused on the risks of cable competition
and what will happen with Shaw’s wireless initiative. I certainly can’t offer guarantees
but the company looks well priced to me. But that does not mean the market is
going to recognize that anytime soon. But if profits keep growing, eventually
the share price will follow. But the other possibility is a profit decline due
to competition. This is the nature of investing in stocks. It is not a sure
thing. I note that TD Securities has a $25 target on the stock and rates it a


It may have been out of stubbornness as much as anything, but I added to my
Shaw position today. Well at least I have the courage of my convictions, as


Wells Fargo on the other hand could get a boost from its Q1 earnings out in a
week or so. I have strong hopes that for this company the earnings growth could
push us nicely higher by year end. I note that an article in Fortune magazine is
predicting that U.S. house prices will soon be on the rise. In particular new
houses, because of how few are now being built. That would certainly be a
positive development for Wells Fargo.


April 13, 2011


Our Canadian
ETF article is now updated. This article has a huge amount of information
and includes about 100 links back to more detailed or updated information. If
you want to grab an ETF for oil sands exposure or the equity market or bonds or
even Gold and Silver you may find it here. I don’t include all the Canadian ETFs
because there has recently been an explosion of new ones. Most of the ETFs here
are based on an index for which I have fundamental data like the P/E ratio. I
may add a few more ETFs if there are any on the BMO series that are in sectors I
don’t have AND which have fundamental data available for the index. You can find
many sites talking about Canadian ETFs but I don’t know of any other web page
where you can get a reasonably comprehensive list and where you can also see the
P/E ratios and dividend yields of the funds.


As far as commodity ETFs I give you the trading symbols. But there are no
fundamentals and I have no special clue which way commodities are headed. That
is not my game.


It was a bad day for our Stock Picks. Shaw Communications was down 3.4% and
Wells Fargo was down 2.3%. These are two of my own largest positions and so my
portfolio took a hit there. Canadian Tire however was up 1.2%.


Shaw Communications earnings were good but the market always focuses on the
future. Shaw is slowing its investment in wireless (cell phones) and this adds
uncertainty. Shaw has lost 0.6% of its cable TV customers in the quarter due to
competition. This is not that many given that we know that Telus is gaining
customers on its TV offering. But the market worries that a small leak can
become large. Meanwhile Telus is still gaining phone customers and converting
basic cable customers to digital. Overall the value ratios for Shaw look pretty
good. The price to book ratio is still not low at 2.85 but it is the lowest it
has been in years. The Price /Earnings ratio is reasonable at 14.3 and again is
the lowest in years (with the possible exception of the depths of the 2009
market crash). The return on equity is excellent at 21%. The dividend yield is
certainly attractive at 4.6%. I have started to update the report on this
company and that is not complete. But I believe I will continue to rate this
somewhere in the Strong Buy range.


Wells Fargo declined, probably that was because the FED has indicated that
all the big banks will have to reimburse some customers for improper
foreclosures. And in addition to that there will be fines. It appears that the
company has not yet commented on this matter. So that means uncertainty.
However, the underlying earnings power of Wells Fargo will likely be maintained.
There are never any guarantees but I continue to think that this company and
stock will do well.


April 13, 2011 9:20 am eastern


Reviewing the financial results for Shaw Communications, before the opening
of trading… The results look quite good to me. Yes, they did lose some 13,000
basic cable customers due to competition. But earnings were still up double
digits. We shall see how the market reacts.


April 12, 2011


It was another down day for the TSX index and for most of our stock picks as
well. Walmart bucked the trend, it was up 1.1%.


Shaw Communications will be out with earnings Wednesday morning. I expect it
will have lost some cable customers to Telus. I am hoping the earnings will be
good, but we shall see…


I am in the progress of updating my Canadian
Exchange Traded Fund article. The equity part is updated and the fixed
income and Gold/commodity sections will be updated in the next few days.


April 11, 2011


It was reported today that PIMCO, the largest bond fund in existence is now
shorting U.S. Treasuries instead of buying. It would certainly be bad news if
there really was a dearth of buyers for those bonds. But so far the yields on
the bonds remain very low. I will watch these yields and if they rise
significantly that would signal inflation and a weaker U.S. dollar and would likely
be bad for stocks. So far it seems someone is still buying those bonds at low
yields. (4.64% for 30 years). People point to Gold prices as an idication that
the market fears inflation. A more direct indicator is the long treasury


On a day when the TSX was down 212 points (1.5%) and the Dow was flat and the
S&P 500 was down a little, our stock picks were mostly up.


As subscribers know, I don’t follow a huge number of stocks. What I do follow
has been enough for us to do well over the years. Right now, one of the stocks
that I am most confident is a good value is Canadian Tire. I offer no guarantees.
But of the stocks I follow that is one that comes to mind. It is not likely to
shoot higher but I think it will turn out to be a good investment.


April 7, 2011


Costco was up almost 4% today as its sales
rose more than expected. The stock does not look cheap but it is definitely a
great business. Most of our stocks picks were down a little today. The Q1
earnings reports will soon start rolling in and I will be updating some of the
reports for those. Within the next week I plan to update my article of the
valuation of selected  Exchange Traded Funds.


April 6, 2011


Canadian Tire was down about 3% today after announcing the impact that the
switch to IFRS accounting will have on its earnings and book value. The impact
did not look that large to me. On this dip I added to my position in Canadian
Tire. While there are many variables, one thing working in the companies favor
is our high dollar. In isolation, that factor will be good for its


One news story today appeared to suggest that Constellation Software may be
put up for sale because a couple of its competitors have sold recently at high
prices. If so that is positive. It’s hard to say what will happen here. This
development with Constellation (strategic review announced) adds to the risk. I
considered selling some shares today but decided to wait. Partly this is because
it is a thin trader and it might be viewed as unfair for me to sell without
announcing it first. I may sell some or even all or I may just hold as the mood
strikes me. The fact is this is a tough call.


April 5, 2011


Someone was asking me if this issue with Dave Sokol leaving Berkshire
Hathaway and the subsequent drop in the stock price was an opportunity to buy.
Well, I would say that I had last rated Berkshire a Buy at $79.40 on December
30. It subsequently got as high as $87.65 on the strength of a good Q4 report
and markets in general that were strong. Now it has dipped on this news. The way
I analyse stocks the resignation of Sokol would not change my rating at all. It
seems to me that Sokol was a great CEO of a large company Mid America and also
NetJets. But he operated in the HUGE shadow of Buffett. It does not surprise me
that a man like that would want to move on and make his own mark. The surprising
thing is how rarely anyone leaves Buffett. Sokol was a great asset for Berkshire
so his departure is a negative. But Berkshire has huge bench strength and not
much will change. As far as the fact that Sokol owned shares in a company he
suggested Buffett buy, well that looks bad. But if that was improper, well Sokol
is gone now, so I don’t see that as a big deal for Berkshire.


Constellation software had yet another good day today. Given it is now at
$66.98 whereas I had last rated it a (lower) Stron Buy at $51.40 on February 5,
my rating is now out of date due to the price movement. I don’t have any basis
for what I would rate it at today until I update it again, which I plan to do
after its next earnings release. I continue to hold the shares I bought at
around that $51 price. In a cryptic news release Monday morning the company said
it undertaking a strategic review with the idea of enhancing shareholder value.
That is too cryptic for me to get any meaning out of. It seems odd given the share
price is up so nicely.


With the Canadian dollar over $1.03 U.S., I am tempted to transfer some money
into U.S. dollars. I find it hard to understand how the Canadian economy (at
least the manufacturing and tourist part) can compete with the dollar this high.
It may keep going up. On the other hand American dollars are relatively a
bargain now compared to any time in the past 35 years save a brief period a
couple years ago when it briefly soared above this level.


April 2, 2011


A good day on the markets Friday. In particular Canadian Tire was up nicely
this week. The latest U.S. unemployment rate at 8.8% down from an expected 8.9%
is encouraging. I’ll get back to updating the individual reports by April 20.


I am in Florida. I know many of you subscribers are retirees and some of may
be in a position to consider a vacation home here. (Obviously, this is not for
everyone, but certainly some of you…)


I was at universal studios yesterday. Jam packed. The new Harry Potter
attraction was at capacity all day. Had to book a time to return later in the


About $260 for the four of us (without express passes and food is extra) and
the place was jam packed!


Malls are busy.


In Dick’s Sporting Goods there were a few things on sale in the Golf
section but nothing on huge markdown.


The subdivisions look prosperous where I am (Riverview, just south of Tampa,
Summerfield subdivision).


Restaurants are busy… Highways are busy…


In short, rumors of the demise of Florida are greatly exaggerated.


Retirees who wish to spend months in Florida in winter: Florida is calling
your name. Opportunity knocks.


Sure, houses may fall further, may still be falling. But that should be
basically immaterial to anyone buying to keep as a retirement home. Prices are
cheap now and the opportunity is in front of us. Tomorrow, who knows?


Houses are on for basically half the former price here. And the Canadian
dollar is a lot stronger than it used to be. Houses in Florida are definitely
more affordable for Canadians than they have been in at least 15 years. In fact
as a multiple of the average Canadian income or in comparison to the cost of a
house in Canada, Florida houses have probably never been cheaper.


As I mentioned, I have a sister who is a real estate agent in Tampa. If you
have a serious interest she may be able to help you. If you just have a casual
interest she can perhaps recommend some web sites for you to browse.


March 31, 2011


Most of our stock picks were down today, Canadian Tire was an exception. Far
east markets are up modestly in Friday trading.


The developments at Berkshire are a bit troubling. The securities Commission
always takes it very seriously when there is any hint of trading on inside
information in advance of a takeover offer. This should not affect Berkshire
long term but still it does not pass the smell test…


March 30, 2011


As expected, today was a strong day in the markets. I am not sure what to
make of constellation software up about 25% in two months since it first
appeared on this site. I like the company but would be more cautious at this
price. Meanwhile I have not sold any shares to lock in this gain.


There was a strange development at Berkshire Hathaway with the resignation of
one of Buffett’s heir apparents. While Buffett explained what he knew in a press
release, it is rather odd. Once in a while I suppose one of these top managers
gets tired of working in the immense shadow of the great man.


March 30, 2010 7:35 am eastern


Yesterday stock indexes were up modestly and today is setting up for positive
gains as well. Far East stocks are up overnight and there is a positive U.S.
private sector jobs report out.


I will be getting back to updating our stock reports within three weeks. For
now I am mostly sitting tight. (Any trades will be mentioned here and usually in


March 28, 2011


Most everything was down today. One exception was Constellation
Software. Another exception was Visa.
There were a few other exceptions as well.


March 26, 2011


I am in Florida this next week. (Tampa). If any of you are retired and visit
Florida in winters, you know that stories of vacant houses are a little exaggerated.
At least from what I see. Nicer neighborhoods remain great places to own a home.
A few foreclosed homes, yes. But not that many.


So far the economy looks not so bad here, we went golfing today and the
course was busy, as one little indication. Most of the golfers were locals.


Houses are on for basically half the former price here. And the Canadian
dollar is a lot stronger than it used to be. Houses in Florida are definitely
more affordable for Canadians than they have been in at least 15 years. In fact
as a multiple of the average Canadian income or in comparison to the cost of a
house in Canada, Florida houses have probably never been cheaper.


Two of my relatives have bought houses in Tampa in the past several months
and are extremely happy with them. My sister, a dual citizen, has lived in
Tampa, Florida for years. These days she is selling houses here.


Tomorrow we are off to watch the final round of the the Arnold Palmer Golf
Tournament in Orlando. All the big names are here.


March 24, 2011


Most of our stock picks were up today. As of later Thursday night the far
east markets are up. Therefore it seems likely that stocks will do well on
Friday. I do worry what the profit situation will be at Shaw, how many customers
they will have lost to Telus. I am not prepared to either buy or sell Shaw at
the moment until I see the earnings report next month.


March 23, 2011


An interesting news story today was that Shaw Communications is down sizing
by 500 employees. Apparently a gcost cutting move as a reaction to competition.
I have rated the company highly in spite of the fact that it would lose some
customers to Telus Optic TV. It remains to be seen how much pain Telus will
inflict. Shaw will release earnings around April 8 (based on last year April 9).
A Financial Post story indicates that investors will see the job cuts as good
news. Well maybe… On the other hand it could be taken as a negative signal.
Shaw does not appear to have made a press release.


March 22, 2011


A quieter day in the markets.


Canadian Tire gave back some of its gains from yesterday. I have a lot of
this already or I would consider buying. Melcor slipped to $15.75. I like the
company and would consider buying if I did not already own a lot of it. One
strategy, if you are interested but not too hot to trot. Go with a “stink
bid” somewhat lower than $15.75 and see what happens over the next 30 days
(bids last a maximum of 30 days before they expire). Same applies to any stock
but especially the thinner traded stocks.


I have not bought or sold much recently. I am nearly fully invested in
equities with only a little cash in my accounts. I also have some borrowing
capacity in the tank if markets should decide to tank. (buying opportunity).
Unless something changes I intend to remain close to fully invested.


Of the stocks that I hold, there are none
that I am too interested in selling. If I did sell anything it would likely be
just part of one or two of these positions. Reasons to sell would be to raise
cash and reduce risk or iif I saw something I liked better.


March 21, 2011


Monday saw a strong start for the markets for this week. Most
notable in terms of our Stock Picks was Canadian Tire up about 3%. There are
never any guarantees but I like the chances for this stock to rise.


As of Monday evening (Tuesday in Japan) the Nikkie is up a surprising
4%. They don’t appear to be making much progress with the nuclear reactors and
so I was surprised to see the market rise like that. 


March 20, 2011


On Friday morning the U.S. Federal Government cleared the way for several
U.S. banks to increase or partially restore their dividends towards pre-crisis
levels. Wells Fargo wasted no time and by mid-day announced an increase from 5
cents per quarter to 12 cents. This is still below the amount it is allowed to
go to. But it is a start. Market reaction was rather muted probably because this
had been expected and because this may have been at the low end of expectations.
Possibly tomorrow Monday, the market will have digested this news a little further.
Wells Fargo will release first quarter earnings on April 20. I expect Wells to
continue to do better although it may have setbacks as well with loan losses.
The share price should rise as its earnings improve.


As of just after midnight eastern time (which I call Sunday night –
especially since it is still Sunday here in Alberta) but which certain
rule-following people may insist on calling Monday morning) the Japanese market
(where we can all agree it is already Monday is up about 2.5%.


Not that it matters at all in the long run, but hopefully this will be a good
week in the markets.


I will resume the cycle of updates for the individuals companies by around
April 20. Earlier in April I plan a major update to the ETF articles giving
updated P/E ratios for selected Canadian and world ETFs.


March 17, 2011


Analysts are predicting that certain banks including Wells Fargo will be
cleared tomorrow (Friday) to increase their dividends and that these banks may
announce same as soon as Monday. That would seem to be good news. however, since
it was anticipated it may already be reflected in the stock price. But I suspect
it would cause a pop in the share price, we shall see.


In other news, the markets were up about 1.5% today. (Nothing unusual to see
it up or down that amount… yawn…)


March 17, 2011 (10:22 am Eastern)


The market “uncertainty” continues. (So what else is new markets
are ALWAYS uncertain.) Any apparent certainty would be an illusion. I placed an
order yesterday to buy a little more of the Japanese ETY EWJ if it drops back to
$9.25. It had not dropped this week as much as the Japanese market but that may
have been to the rise in the value of the Japanese currency. So buying this is a
bet on the Japanese market rising and its currency not falling. As of now EWJ is
at $10.05. Hopefully the nuclear plants in Japan will not get any worse and if
so EWJ may never drop back to $9.25.


March 15, 2011


On Tuesday North America markets opened the day down a noticeable amount
(roughly 3%) but climbed through the day and closed down only about 1%. I
considered buying some of the Japanese fund EWJ. However this ETF did not seem
to be down anything close to what the actual Japanese market is down and so I
did not make that buy.


As of Tuesday evening in North America, Wednesday morning in Japan, the
NIKKIE is up almost 5%.


Until the nuclear meltdown threat is resolved, the market direction is
anyone’s guess.


March 14, 2011


Stock markets were down a little in North America on Monday. About a half
percent. So no big deal. Tuesday could be a bigger slide. As of about 1 am
eastern time on Tuesday, the Japanese market is down a further 12% to 8500 on
the Nikkie.


If you decide to go bargain hunting in Japan you can buy the Exchange Traded
Fund EWJ on the U.S. markets. I have a small amount of this and am tempted to
add to that.


Perhaps on Tuesday there will be lots of bargains around.


If I had a lot of cash I would be tempted to buy but would want to do so
slowly. Markets are never predictable and so it usually does not pay to get in
too much of a hurry.


March 12, 2011


My article on understanding
the Canadian economy is updated.


Within a week or two I hope to update our Exchange Traded Fund reference
articles. In regards to Canadian Exchange Traded funds. I wanted to wait until
most of the companies had reported earnings. I am not sure how fast the earnings
are reflected in the P/E ratios by segment that I obtain from the TMX web site.


March 11, 2011


Well a bit of a recovery on Friday from yesterday’s losses.


I have updated my calculation of the valuation
of the overall Toronto Stock Index. It came out showing that the Toronto
stock exchange seems to be over-valued. It has a trailing P/E of 19.2, which is
somewhat high. Even after adjusting the trailing earnings up somewhat to reflect
that the trailing earnings are affected by recession, the adjusted trialing P/E
is is still 18.2, which using conservative assumption of growth seems too high.
However, keep in mind that the Toronto index is so heavily weighted by commodity
stocks that its earnings are volatile and so the trailing earnings may not be
that representative of where earnings will be in the next few years. So while
this article is on the negative side, it is not a definitive statement and we
should be careful not to place too much weight on it. And even if this
over-valuation is true, the article still suggests that the Toronto market will
earn an investor and average of almost 6% per year over the next ten years. Not
great, but not a disaster.


March 10, 2011


The U.S. and Canadian stock markets were all down about 1.9% today.  So
not a good day in the market, but not exactly anything unusual. What is next? As
always, nobody knows.


Our Stock picks were not down as much as the market. Couche-Tard managed to
increase 2.5% on this down day, as it released good earnings.


What is that saying? “Get in, sit down, buckle up, hang on and enjoy the
ride”. It does have some scary moments but eventually the market tends to
get you further along on your journey to wealth.


Regarding Melcor. I was wondering how long it would take Yahoo to update its
earnings per share for the earnings out a couple days ago. Checking to day they
have a bizarre figure in their for earnings and so a bizzare P/E ratios shows


For years Yahoo never used to show P/E ratios for Canadian stocks although
Globe Investor did. Just recently I see P/e ratios showing up for most Canadian
stocks on Yahoo. that is progress. Hopefully the P/E on Melcor will get
corrected, but i won’t hold my breath on that.


March 9, 2011


Well, Melcor was up a nickel today… volume was only 9,000 shares which is
the average for this stock.


It amazes me that a company can announce earnings for Q4 that were 90 cents
this year versus 33 cents last year or 173% increase and the stock does not
move. Possible reasons include that no body saw the earnings release. This is
not a company that has any large following. Another reason would be that this
news was anticipated already. Which in turn could be explained by investors with
crystal balls, or someone inside leaked that the results were good. I just don’t
know… well maybe by tomorrow, the good earnings news will filter into the
stock price.


For example right now Yahoo shows the P/E at 17.76. Based on the earnings
just released that should soon update to jut under 11. I am inclined to keep my
shares given these earnings and given that the outlook seemed to be reasonably


Meanwhile Walmart and Wells Fargo were up about 1% each today…


With Canadian Tire down today I added another 100 shares to my position. I
even managed to catch very close to the low price for the day.


The TMX group has fallen back to $39 on fears the merger with London Stock exchange
will not happen. I had played the merger announcement fairly well selling almost
half my shares at just under $45 and another batch at $43 the day the merger was
announced but hedged my bets by keeping what worked out to 27% of my shares. As
the price falls here I may be tempted to nibble back into this as it may be
worth $39 without the merger.


Forbes has released the latest list of the world’s richest 1,140 people. The
cut-=off for the list was $1 billion.




Carlos Slim of Mexico is number 1 at $74 billion, Bill Gates number 2 at $56
billion and Buffett is number 3 at $50 billion.


The Walton family, the founding family of Walmart would be number 1 at $90
billion if they were counted as one family rather than as four separate entries
on the list.


Many interesting names on the list, I am sure.


I notice 3 members of the Mars family with $10 billion each. Chocolate bars,
who knew?


Canadian names I noticed include first the Thompson Family in spot number 17
with 423 billion


Galen Weston and family  (Loblaws) at $7.1 billion


Jim Pattison $5.8 billion.


James and Arthur Irving $3.5 billion.


Charles Bronfman (Seagram fortune) $2 billion


Daryl Katz (Rexal drugs) $2.0 billion


Chip Wilsen (lulu lemon founder ) $1.9 billion


James Ballsillie (RIM) $1.8 billin


Frank Stronach (Magna) $1.7 billion


Gerald Schwartz (of Onex an investment conglomerate) $1 billion




I notice Charlie Munger, Buffett’s partner slumming it down there at just 1


Oprah Winfry and Donald Trump are tied at $2.7 billlion…


I notice a Herb Allen $1 billion or so  (a friend of Buffett’s and Paul
Allen $13 billion Microsoft co-founder on the list…( hmmm I must check if i am
related to either…)


One of the great myths out there is that “all the great fortunes of the
world were made in real estate’. That story originates at least as far back as
Andrew Carnegie 100 years ago. If it were true then, it is not true now. Very
few entries ion this list indicate anything to do with real estate as the source
of the wealth. banking seemed to be one of the most common sources for the
wealth. In terms of the top 50 richest people, real estate is the source in only
two cases and none in the top 20.


March 8, 2011


It was a good day for our stock picks… U.S. markets were up about 1% while
the Toronto stock index was down 0.6%.


Of most notice and importance to me was Wells Fargo up 2.5%.


After the close of trading Melcor released excellent earnings and a reasonably
good outlook. I would think the stock will be up tomorrow on this news but that
is hard to say. The stock seems to have already anticipated that the earnings
would be good and so perhaps all of this good news was already priced into the
stock. Also Melcor is not heavily followed or traded and that will affect how
the stock price reacts.


If the stock rises I may lighten up my position somewhat.


It appears thtat the full financial statements were not yet released so that
could dampen any price reaction.


March 7, 2011


Monday started out with a surprising rise in markets. However by end of day
the Dow and S&P 500 were down about 0.7% and the Toronto market was down
1.1%. Canadian Tire was down 1.9%
and I continue to think this company is a good investment.


March 6, 2011


As of late Sunday / early Monday, oil is up to $106 as Libya turmoil deepens.
So I expect markets will be down noticeably on Monday morning. Ahh well, never a
dull moment. Those unprepared to stomach volatility should not be in the market.
I will still sleep soundly tonight. As I always do.


Our article on the valuation of the Dow Jones
Industrial Average is updated. Based on the earnings achieved in 2010 it
appears that the Dow is about fairly valued. To adapt an old saying, when it
comes to high stock market valuations, high earnings will “cover up a
multitude of sins”. In other words if stocks indexes were looking too high
at times in the past year or so, robust earnings growth has negated that


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March 3, 2011


The market surprised with a 1.6% increase in the Dow today. that was based on
positive job numbers in the U.S.  Particularly notable from my perspective
was Wells Fargo up 2.7%, Visa up 2.5% and Constellation Software up 2.1%.


Melcor as well was up by 2.7% although on very thin volume. Last year they
released earnings in the first few days of March, so perhaps we will see their
earnings tomorrow. I am still tempted to sell some especially if I can get $16
or more.


The emotional tug-of-war goes something like this… I I sell I might miss
out on further gains if the earnings and outlook ae quite good and in that case
I could only blame myself. If I hold on and the earnings so happen to be bad or
the outlook and the stock falls, well I would regret not selling but in that
case I could at least lay some of the blame on the company for giving poor
earnings. I think this is the sort of emotional battle that we all go through as


After hours, Walmart increased its dividend by 21%. The stock was only up
marginally at 0.75% after hours so the market might not get too excited about
this. Basically it seems like a lot of people have written Walmart off as too
slow growing at this time. But I thought it looked reasonable cheap… As
always, time will tell. (and by time I means months and a year or two, not


March 2, 2011


Most companies have now reported their Q4 earnings. Therefore the biggest
driver of stock prices in the next 6 weeks or so will likely be various economic
reports rather than individual company earnings reports.


Canadian Tire showed some life today, up 1.1%. It should benefit from the
higher Canadian dollar as most of its products are purchased from suppliers in
U.S. dollars.


Melcor shares have been up recently and I look forward to its earnings report
which will likely be out very shortly.


March 1, 2011


Markets were down today due the Middle East situation. Tomorrow (Wednesday)
morning, Warren Buffett will be on CNBC’s Squawk Box for about 3 hours. I
believe this starts at a6 am Eastern. Buffett’s comments will be mostly upbeat
and perhaps that can provide some lift to the market. But it is always the case
that markets go down as well as up and we have to be able to take our lumps if
we want to be around for the long term gains.


February 28, 2011


A positive day for the markets, the Dow was up 0.8% and the TSX up 0.6%.
However the S&P 500 was only up 0.2%.


Berkshire Hathaway was up almost 3% after releasing good earnings on Saturday
morning. Melcor was up almost 4% to $15.85 although , as usual, that was on thin
volume. I came close to placing an order to sell some of my Melcor shares this
morning when I saw it at $15.50. This would be to reduce my risk and build some
cash. However I decided to hold off. I will likely wait for their earnings
release. What may be more important is their outlook. I worry that housing
starts could drop. On the other hand with high oil prices maybe Alberta will
continue to boom along.


The Canadian dollar was up today and now sits at about $1.03 U.S.
Obviously it could go higher, especially with talk of higher interest rates in
Canada. But it’s also clear that it could slip back down. The high dollar makes
it ever easier for Canadians to shop in the U.S. for everything including
houses, cloths, cars and even stocks. The cross border shopping should act as
some kind of a break on the rise in the Canadian dollar. It won’t go up forever.


February 27, 2011


The S&P 500
valuation article mentioned yesterday is revised in one section as I
received, from Standards and Poors,  this Sunday morning the correct Price
to book ratio on the S&P 500. I then calculated that the S&P 500
companies are earning an ROE of about 14%.


February 26, 2011


The latest of
Warren Buffett’s annual letters to shareholders was issued this morning.
This is must-read material. It’s a bout 26 pages. Do yourself a a favor, print
it and read it carefully. It paints an optimistic picture for Berkshire and for
the economy.


Our popular S&P 500
valuation article has been updated and with some added analysis.


February 24, 2011


Stocks were down moderately today. Oil prices dropped slightly and so it
appears that the market reaction to the Libya situation may have stabilized.


February 22, 2011


No good news in the market averages today. The Dow was down 1.4%, the S&P
500 was down 2.1% and even Toronto despite oil and Gold being up was down 1.1%.
This of course triggered by the trouble in Libya.


Well at least it is good news for freedom and democracy and that is good for
markets in the longer term.


The latest Case Shiller house price index is out and shows U.S. house prices
dropped again in December.


Wells Fargo is under pressure due to that news and probably the uncertainty
as to why its CFO resigned. I expect Wells Fargo to eventually pull itself up by
its own bootstraps, by which I mean I expect it to post higher earnings and then
the share price to rise.


Walmart fell as it reported somewhat disappointing Q4 same store sales and
its outlook looked a little soft. Actually its earnings were up 27% and that was
just a bit more than expected. It is trading at under 13 times earnings which
seems not too bad for what is still a world-class retailer. I’m tempted to buy
on weakness.


I did buy 100 share each of Berkshire Hathaway and Canadian Tire today. I
figure I can’t buy low unless I do buy low. Maybe I should wait for lower
prices. But he who always waits for lower prices may never end up buying.


Hopefully the situation in Libya will resolve itself quickly…


February 21, 2011


I am thinking of selling some or possibly even all of my Melcor Development
shares. My last update was Speculative Buy at $13.89 and they have traded as
high as about $15.50. So I though I might sell just to raise some cash and lower
my risks. However, I suspect they will report a good Q4 and so maybe I will wait
until that report is in. What will really count is their outlook. If they start
to see a housing slowdown in Alberta then the stock price could decline.


Possibly. I will add to my Berkshire Hathaway position in anticipation of a
good Q4 report. Buffett’s derivative position on the stock exchanges will have
gained in value in Q4 and then gained more in 2011. Most of his companies have probably
done well. The wild card is the insurance segment which may have been hit by
various weather events around the world.


February 19, 2011


As previously mentioned, I recently received the updated total return figures
(before and after inflation) from Ibbotson Associates – the well-regarded
Stocks, Bonds, Bills and Inflation yearbook.


I purchase this reference book every two years and use it to update a number
of articles regarding past stock and bond market returns. Some of these articles
I first created in 2001 and have been updating at least every two years since


Before I get to the updated articles, here is an important announcement that
may be of interest to some of you:


Back in late 2007 I began to offer for the first time the option to subscribe
for three or five years. A link to those options has been sitting just above
these daily comments since then, though I seldom mention it.


At that time I also came up with a lifetime subscription offer. I think it
was a fairly compelling offer. In fact I was not sure I wanted many people to
take me up on the deal. Seven of you took that deal and I then took that offer
down. I don’t think I ever mentioned it again. Until now. It’s been over three
years since that offer was open. For a limited time, I am opening that offer
back up. If you are interested,
the details are here. I reserve the right to close down this offer at any


Now back to our regular programming…


This year there is one new article
that arranges the data to show the impact of “Time In The Market”.
It shows what happened to investments that have been in the market for 1 year, 2
years, 3 years etc. all the way back to 85 years in the market.


See also our updated article on the historical
Performance of Stocks


Two important articles are updated for 2009 and 2010 data. These articles
compare returns on a 100% stocks approach versus a traditional balanced portfolio approach
over 30 year savings periods and over 30-year retirement periods.


Most comparisons of this kind rely on simulation data and make assumptions

about future average returns and the standard deviation of returns. Often
inflation is ignored. I am always very skeptical about those monte carlo
simulations. They rely on assumptions. My approach simply graphs stock and
balanced fund returns based on actual past returns. I look at each of the 56
possible 30-year savings or retirement periods from 1926 to 1955 all the way
through to 1981 – 2010 and graph the actual returns. I use inflation-corrected
or real returns to show the results in constant purchasing power dollars. To be
sure, my analysis contains assumptions as well. It assumes it was possible to
invest in the S&P 500 index or a government bond index or to replicate it
closely enough. It also assumes a tax-free savings account and ignores
transaction costs. I assume all investments are  made on January 1 each
year, monthly or daily data would pick up more extreme results. Even with those
assumptions, I believe the past data is very educational. Whether or not past data
can predict the future is a much more debatable point. But we should at least
know how an all-stocks approach has done compared to a balanced approach in the


Here are the
results for savings, 100% equity versus a traditional balanced approach.


And for the retirement
results, 100% equity versus balanced.


These articles are well worth reading closely.


The 100% stocks approach almost always “wins” but comes at the cost
of horrific volatility. And keep in mind you only have one life and so a even small
chance of losing with stocks may still be too much of a chance to take.


February 17, 2011


Another strong day in the markets. Gains for CN, Canadian Western Bank,
Canadian Tire, Constellation Software… Wells Fargo declined a little. It would
be nice if we could get clarity on why the CFO left and move forward.


Markets have now risen to the point that an average investor has about broken
even since the start of 2008. Not great but at least people got back to even. My
own account has gains of about 25% since the start of 2008 mostly because I
managed to lose a lot less than the market in 2008 by doing some trading. It’s
interesting that the mainstream business press is just now excited about stocks
and probably a lot of people who sat out the recovery will get back in


February 16, 2011


The markets had a good day but a number of our stock picks were down. Wells
Fargo continues to suffer from worries about its CFO left and what it means.
Shaw Communications was down a bit more. Canadian Tire was up. Melcor too, but
that was on very thin volume.


February 15, 2011


Shaw communications fell 2.1% on an analyst downgrade. Well that is the
nature of markets some think a stock will rise and some see it falling and they
meet in the middle and a price is decided. And if bearish news arises the stock
falls and vie versa. Nothing new there. I tend to pay zero attention to various analyst upgrades and downgrades on stocks. So far that attitude has served me
well. There are thousands of analysts but not many I would trust. I trust my own
analysis. It’s not guaranteed but at least I understand it.


A report today suggested that the Wells Fargo CFO who left suddenly a week or
so ago left because the company was too aggressive in its accounting. Well,
maybe so. I suppose I should worry a bit about Wells Fargo. Clearly a CFO
leaving suddenly like that is a large Red Flag. However the company stated
clearly that the departure gad nothing to do with its financial reporting. Also
Warren Buffet added to Berkshire’s position in this stock in Q4. So, while the
departure of the CFO is scary, i am sticking with the stock.


February 14, 2011


My two big retail stocks, Walmart and Canadian Tire were down today.
Apparently Walmart was downgraded by some analyst or other. Both of these stocks
look like good investments. I added to my position in Canadian Tire today.


Overall, I am feeling confident about the markets given where earnings are
and that the economy appears to continue to recover. Things can change very fast
and those who can’t stomach losses should not be in the market. But right now I
feel confident.


February 13, 2011


My article that looks at the data on whether
or not stocks are really riskier than bonds for long-term investors is
updated for the 2009 and 2010 year-end data.


February 11. 2011


I have updated the composition of my own
portfolio to reflect recent trades.


February 10, 2011


I just received from Ibbotson Associates, a division of Morningstar the
updated “index” data for a dollar invested in 1926 in each of the
S&P 500, U.S. government bonds, U.S. treasury bills and for inflation. This
is proprietary data and they release it each year in a yearbook that they charge
$180 for. I buy it every two years. I just used it to update my
graphs of the performance of stocks versus bonds over various periods of time
going back to 1926. This year I added the performance of Gold to the graphs
and I also added how the value of an actual paper dollar has fallen with inflation.
This is must-read material. Please feel free to share it with anyone you think
might be interested.


The developments in Egypt are likely to be negative for markets on Friday.
Stock futures are currently down about 27 points on the Dow as at 10:30 pm


We lost some ground today as Walmart
was down due to an analyst downgrade. I continue to see it as a good value. Canadian
Tire was down after releasing good earnings that were not quite as high as
expected. This company also looks like good value.


February 9, 2011


The so-called proposed merger between the TMX Group and the London Stock
Exchange was confirmed today. It is subject to various approvals. In reality it
is a takeover of the TMX by the LSE given that TMX shareholders are getting LSE
shares and the TMX shares will disappear. And given that the LSE shareholders
will own 55% of the combined entity.


I said last night that my inclination would be to sell all my shares if the
market reception was positive or at least sell half. It turned out the shares
were up about 11% to about $45 at the open. I hedged my bets by selling only
half my shares. The shares then started trending down as the market digested the
news. I ended up selling more shares but I retain 27% of the shares I had.


I have made money since my cost of the shares was only $32.65. (I believe I
purchased the shares within the last nine months). So as an investor I am happy
with what is happening here.


However, as a self-appointed shareholder rights activist I am perturbed at
how the announcement was handled. The initial press release yesterday at 5:19pm
eastern time indicated that discussions were advanced and that the possible
merger would “contemplate an exchange ratio close to the current
market capitalization of London Stock Exchange Group plc and TMX Group
Inc”. Clearly the discussions were more than advanced as it was only 9
hours later at 2:25 eastern time that it was announced and confirmed. And this
morning, the respective CEOs had a joint news conference in Toronto and the
respective chairs had a joint conference in London. It appears the deal was
announced as planed (it does not appear to be a case where a deal had to be
announced early due to a news leak). The announced deal indicated that TMX
shareholders would get 2.9963 LSE shares per share of the TMX and that this
meant they would get 45% of the combined entity. It appears that the TMX is
getting a bit more than its proportion of the two separate market caps, but this
was not discussed in the release.


Meanwhile the TMX had also announced Q4 earnings at 2:00 am eastern.


It was also announced that there would be a conference call at 9:30 am
Toronto time. There seemed to be little or nothing of substance in the call, at
least not for shareholders. the focus seemed to be on platitudes about growth
and excellence and also soothing words about how various operations would remain
centered in Toronto, Montreal and Calkgary.


LSE shares opened for trading at 8 a.m. London time which was 3:00 am eastern
and the price was up about 11% on the news.


With all of this news to digest, I would have thought that the shares should
be halted on both exchanges until after the news conference.


The shares of each company opened about 11% higher but ended the day with the
TMX up 6.4% and the LSE up only 3.1%. Clearly, there was a lot to digest and it
took time to digest. The LSE shares had held up well but plunged near their
close at about 11:30 am eastern time.


The fact that it was styled as a merger when in fact it is a takeover is


I intend to sell my few remaining TMX shares. I set an order to sell at $45,
if I can get that and I may decide to sell lower than that. I am selling mostly
because I have no idea what the combined company is worth. Both the TMX and the
LSE have risen in price very significantly in the past six months. This may have
been driven by rumors of the merger. Therefore the up-side in earnings due to
the merger may already be priced into the shares. There is considerable risk
that the deal could fall through. So I will sell. I may be missing out on upside
associated with any competing bid.  And I may miss out on the future growth
of the company. But I prefer to cash out and invest in companies that I have analyzed
rather than speculate on this one.


In other news, the NYSE Euronext exchange coincidently announced today that
it will merge with the German stock exchange. Unfortunately it had announced
poor earnings yesterday or the day before and I sold my shares yesterday. The
shares rose 14% today. So, I missed an opportunity there by selling. Such is


In other news Wells Fargo fell about 3% on the sudden departure of its CFO
that I mentioned in yesterday’s comment. No further information has emerged.
It’s hard to say but given that the company has said this has nothing to do with
its financials, this departure will likely have no long-term impact.


So, it was an eventful day in the markets. Perhaps tomorrow we can have a
boring day…


February 8, 2011


We had a nice day in the markets. In particular Wells Fargo was up 2.3%, Canadian
Tire up 1%, the TMX Group up 1% and Visa was up 0.9%.


On the other hand the NYSE Euronext, owner of the New York Stock Exchange was
down 1% after releasing disappointing earnings. This is a stock that I own but
which is not longer included in our table above. I therefore decided to sell it because,
I don’t intend to analyse it, the news looked negative and I simply don’t have
much emotional attachment to it. (Though I did like the idea of owning a piece
of the New York Stock Exchange). By selling it I can also make sure that the I
own virtually only stocks that are the table above.


News of interest today included: The Chief Financial Officer of Wells Fargo
is “retiring” on a sudden basis and leaving the company immediately
for unexplained reasons. That is bad news because he was well respected and had
a long history with the company and because of the lack of explanation. The good
news is that Wells Fargo says the reason had nothing to do with the company’s
financial condition or financial reporting. The stock fell over 2% in
after-hours trading. The company indicates that this retirement was for personal
reasons and that Atkins turned 60 this week. The company has already named a
long-time executive as the new CFO. Overall, this may not be a negative
situation but the stock will likely be down on the news in regular trading on


In other news the TMX Group is in negotiations to merge with the London Stock
Exchange. Apparently the new company will be owned in portion to the current
market value of the TMX and the LSE. The equity capitalization of the TMX is
about $2.8 billion Cnadian and of the London Stock Exchange is 2.4 billion British
pounds or roughly $3.8 billion Canadian. This means that the combined entity
would initially be mostly (61%) owned by the current London Stock Exchange
Shareholders. Management describes it as more a merger of equals. That may
simply mean that the executives will drawn from both companies.


Drawing on Warren Buffett’s teachings I would observe that a TMX shareholder
is going to end up exchanging his share of the TMX for a a new entity that is
about 39% TMX and 61% London Stock Exchange by value. The question for a TMX
shareholder is when he gives up 61% of the TMX is the 39% of the LSE that he
receives worth the loss of 61% of the TMX? According to current market values it
is exactly a fair trade. But this deal could be favorable to the TMX shareholder
if in fact the LSE is under-valued in the market compared to the TMX (If vice
versa it could be a bad deal for the TMX shareholder). And the deal could be
good for both groups of shareholders if it will result in a lot of synergies and
cost savings. Personally, I doubt that it will have many synergies.  I
don’t have any clue as to the valuation of the London Stock Exchange. Therefore
my inclination is to sell my TMX shares tomorrow (Wednesday).
the market will greet the news warmly and the TMX shares will rise tomorrow and
if they do I believe I will sell all my shares, or at least half of them.


One possibility is that this news would put the TMX “in play” and
could attract other bidders. I suppose if there is some indication of that
immediately tomorrow then it might be worth holding on even if the shares rise
in price.


Also today, Melcor indicated that it has raised $40 million in 6 year
debentures at 6.25%. They are convertible at $18.51. I view that news as neither
positive nor negative. It seems like a reasonable cost of money.


February 7, 2011


Our Stock Picks did well today. A number of them were up 1% or so and there
were very few that were down.


U.S. stocks have risen as earnings reports came in strong. Many Canadian
companies have not yet reported Q4 earnings but will be doing so shortly.


I put about 3.5% of my portfolio into Constellation Software Inc. today,
which I indicated on Friday evening that I would do. That uses up most of my
Canadian cash position.


February 4, 2011


Constellation Software Inc.
is added as a new company to the table above and rated (lower) Strong Buy at
$CAN $51.40. Jason
Donville, an analyst that I know and respect recently rated this stock as
his top pick. After readings its financials and running it through my evaluation
system, I agree it is a strong company and looks like a good investment. I was
particularly impressed with the CEO’s letter to shareholders from last March
which was unusually candid and very rational.  It does trade somewhat
thinly so be aware of that. I plan to buy shares on Monday.


Meanwhile markets ended the week quietly. Today the situation in Egypt seems
to be improving. Strong earnings have continue to roll in from U.S. companies.
Many Canadian companies will report earnings next week. All in all, it seems
like we have reason to be optimistic although one never knows in the markets.


February 3, 2011


Despite the Egypt situation markets were strong today. But I think we can
expect markets to continue to lurch around and certainly the Egypt situation
could send the market down. Maybe the groundhog knows, but I admit I don’t.


Our notable winner today was Canadian Tire up 2.6%. I expect it will report a
good Q4 in its retail operations. It’s credit card operations are less
predictable… The high Canadian dollar will be helpful to Canadian Tire as it
imports much of its goods.


February 2, 2011


Today was groundhog day. I don’t put much faith in a rodent’s weather
predictions but I suspect they are fully as accurate as most predictors of the
general market. Warren Buffett has always maintained that he can’t predict where
the market will head in the next 6 weeks, but over periods of more like 6 years
he tends to be confident it will rise. And he just focuses on owning good
companies at reasonable prices. I try to follow that strategy.


Whether the next six weeks feature brutal winter weather or not, we can be
confident Summer will arrive. Similarly in stocks we have good times and bad.
The difference in stocks is the length and severity of the seasons are extremely
unpredictable. But in stocks we do know that good times don’t last for ever and
neither do bad times and we can be confident that over time the good times in
the market will occur more often than the bad times. Well, perhaps such
ramblings are about as useful as groundhog predictions…. It always easy to
predict a weather and stock markets – after the storm or its opposite has
already passed, that is.


Markets were generally negative today giving back a little bit of yesterday’s
big gains.


I sold my Walgreen today on which I had a gain of about 45%. Also its price
was not as attractive as Canadian Tire or Walmart. And for whatever reason I
never  seem to have much emotional attachment to that company perhaps
because it is not in Canada. I put some of the proceeds into adding to my
Canadian Tire position.


February 1, 2011


Today turned out to be an exceptionally strong day in the markets. The TSX
and Dow were each up about 1.2%. The S&P 500 was up 1.7%. A number of our
Stock Picks were up 2% or more including Berkshire, Wells Fargo (3.1%) TMX
Group, Canadian Tire and Walgreen (4.4%). If I were to pick one of those to add
to it would be Canadian Tire. I may sell my Walgreen to take profit and because
it is not one of our higher rated stocks at this point.


The Canadian dollar rose by a full cent which does hurt the value of American
stocks when converted into Canadian dollars. (I know most although not all
subscribers are Canadians). But if you think of these U.S. investments as money
that is more or less permanently allocated to U.S. investments (to be ultimately
spent in the U.S.) than the change in the currency really does not matter. A U.S.
$ is still worth A U.S. $1.00 in the U.S. unchanged by changes in the exchange
rate with Canada.


January 31, 2011


With the events in Egypt I understood markets had been expected to fall on
Monday (although with oil predicted to rise). As it turned out oils rose but
stock markets rose as well.


Wells Fargo was the notable winner among our stock picks.


Walmart and Canadian
Tire both fell. I am tempted to add to my positions in those two.


January 27, 2011


Melcor was up 3% today to $15.00
However that is on thin volume and is perhaps just noise. Still, if so, it’s a
pleasant sound. On January 10 it was $13.50. Due to the small trading volume it
is relatively volatile. It is the type of stock where putting in an order below
market can be advantageous. You can use the volatility to advantage. In contrast
on a large volume stock, it is probably only going to bounce down on down market
days (which is okay) or due to some bad news about the stock. Generally for
larger cap high volume stocks, if I want the stock I would simply Buy. For more
volatile thin traders I might try an order somewhat under the market price. (The
risk is that it does not bounce down but instead slips upward and I miss the
chance to Buy). Anytime I am very ambivalent about buying a stock I might put an
order below market. Or, more often, I just don’t buy. Why buy when ambivalent?


Markets are being driven this week by various economic reports as well as by
earnings reports. As usual each report can cause the market to lurch up or down
depending if the report or earnings is/are better than or worse than expected.


January 26, 2011


The Toronto stock market index finally had a strong day, up 206 points or
1.55%. The Dow was about flat and the S&P 500 was up 0.4%. The stocks that I
hold did not do anything of particular note today. CN
reported strong earnings, increased its dividend by 20% and predicted double
digit earnings growth for the year – but was up only moderating – indicating
that strong earnings had been anticipated. It’s a stock worth considering.


January 25, 2011


U.S. markets were down most of the day but rallied near the end of the day to
finish about flat. Toronto did not participate in the rally and was down 0.7% on
the day.


A bright spot was Walmart up 2.2%
to $57.26. Walmart the company has strongly outperformed Wal-Mart the stock over
the past decade or so and lately the stock has been playing a bit of catch-up.


January 24, 2011


It was a good day on the markets with the Dow up 0.9%. Most of our stock
picks did well…


Very early Tuesday morning the futures are suggesting the U.S. market will
open in positive territory.


January 23, 2011


Wells Fargo is updated and
remains rated (higher) Buy at $32.51. It had a very strong Q4 in comparison to a
weak Q4 in 2009. I expect it to continue to increase earnings in 2011. It’s
dividend was cut drastically during the financial crisis and I expect it will
increase its dividend sharply within the next 3 to 6 months. It requires
regulator approval to do that.


January 20, 2011


Another bad day for the Canadian market. TSX was down 0.8%. Dow Jones was
ended about flat. Our stock picks did okay thanks to Wal-Mart up  1.7%. And
Visa was up 2.3% to $70.69, but early today was at $67.51. I guess perhaps I
should have pounced when I saw it was down this morning. But it is always hard
to pounce on a stock that is down. None of us are immune from fear.


January 19, 2011


Wells Fargo reported earnings this morning. To me, the earnings report looks
good. However the stock dropped 2% today. For the stock market the issue was not
whether the earnings were good, but rather were they better than expected.
Presumably then they were not quite as good as the market had expected. I
continue to have faith in this investment. I will likely update the report on this
company by Sunday. The stock could rise in the next few months if it is allowed
to raise its dividend. On the other hand a deterioration in the economy or in
the stock markets overall would be negative for the stock price.


Most of our stock picks were down today… Neither Rome nor our wealth was
built in a day…


January 18, 2011


It was a generally good day for our stock picks on Tuesday. One exception was
Wells Fargo down 0.8%. Year end earnings reports are coming in now and will tend
to drive market direction.


January 17, 2011


Not too much happened in the market today. (At least as regards the Stock
Picks here – to my knowledge). U.S. markets were closed.


Canadian Tire was down 1.6% to
$64.25. It had reached a recent high of $68.93. Our last update was (lower)
Strong Buy at $61.05 (meaning we rated it better than (higher) Buy but not as good
as Strong Buy.) Perhaps think of it as Strong Buy (minus). In any event our
reports are several pages long and subscribers here should read our reports
rather than relying simply on the rating. It’s hard to distill all the factors
down to just a rating. We do distill it and that helps to show which of our
stocks is higher rated than another. But the rating does not replace the several
page long report.


I would think Canadian Tire at $64.25 is a buying opportunity. No guarantees
of course (ever) but that is what I would conclude.


January 13, 2011


I was holding my breath a little as I checked the Shaw Communications
earnings release which came out in the middle of the trading day today. I have
only glanced at the report but it looked okay especially with the 5% dividend
increase. Their net earnings were down but that seemed mostly due to the
acquisition of the Can West media business and various one-time charges
associated with that.


They did lose 7,500 or 0.3% of their basic cable customers. But that seems a
pretty tiny loss given that Telus now has a competitive product. Meanwhile they
gained 19,000 internet customers and almost 50,000 phone customers. And 62,000
more cable customers switched to digital. To my mind they royally kicked Telus’
butt these last few years stealing away phone customers. And so far have lost
only a few cable customers (so far anyhow). I do worry that a vicious price war
could develop but so far things seem to be A-okay. And the media business
appears to be quite profitable. So, while there are no guarantees, I continue to
think Shaw will be a good investment. It definitely languished last year and
hopefully this will be a better year. The uncertainty is their entry into the
cell phone market… How will they do in that market? We won’t know until next
year it seems.


Shaw shares were up about 2% today, on a day when markets in general were
down. I am hopeful of a further rise tomorrow as analysts digest the earnings news.
(hopefully no indigestion…)


Wells Fargo also offers no guarantee. I think it has both a lot more
potential upside than Shaw but also has more possible downside. Banks can really
sink on bad news whereas Shaw is unlikely to have any serious problems. I am
tempted to add even more to my Wells Fargo in the hopes that St. Dividend soon
will here.


January 12, 2011


Well that is more like it. The market was kind to our stock picks today.
Every single stock that I own was up. I am not sure that that has ever happened


It’s interesting to observe my own emotions around market volatility. If the
market goes down a few days in a row, I may have a passing thought about buying,
but emotionally I have more thoughts along the lines of “maybe I am too
heavily exposed to equities”. When the market is up my emotions tend to
forget my fears. I find I can somewhat overcome the emotional thoughts by looking
at the ratings on the stocks I hold. If my ratings tell me its a Buy I usually
will resist any urge to sell.


Although our Stock picks were up today, the higher Canadian dollar hurts me.


But then again does it really? Why should I measure my portfolio strictly in Canadian
dollars? I know that at some point in my life (for example this Spring Break)
and certainly in retirement, I will be spending U.S. dollars. So it actually
makes sense to segregate part of my portfolio into U.S. dollars and concern
myself with its value in U.S. dollars and not with its value in Canadian


I have no special insight into whether the Canadian dollar will continue to
rise. I do have a belief that the Canadian manufacturing economy is already
struggling mightily with a dollar over 90 cents let alone over par. So there
should be some pressure to get it back down. I also believe that most Canadian
investors will spend some money in the U.S. in retirement and that therefore
some U.S. investments is a good idea. And I note that while I don’t know where
the Cnadian dollar will go, I know where it has been. Where it has been is well
under par for the last 35 years save a few minor excursions above par in the
past few years. On that basis American assets are (massively) “on
sale” for Canadians and so I would not want to get too cute about waiting
for an even higher Cnadian dollar if I wanted to buy U.S. stocks. If I wanted to
add to my U.S. stocks I would start now.


While I am on the subject. Was the Canadian dollar really “low”
when it was at 80 cents? Well it was certainly “lower” than now. But
was it low then or is it high now? We can’t conclude it was low simply because
it was at 80 cents. It is a different currency and there is no fundamental
reason it should be at par at any given time. If the Cnadian dollar were truly
low at 80 cents then it would mean that at that time labor  was cheaper in Canada
than in the U.S. (and for that matter Big Macs). My understanding is that costs
to manufacture in Canada were not lower than the U.S. even when the dollar was
at 80 cents. I believe our minimum wages were higher in our dollar, off setting
the apparently low dollar. Certainly Big Macs and Hotel rooms were not cheaper
in Canada. One could pay $100 Canadian at that time to convert to buy $80 U.S.
dollars and go across the border and find that cloths, beer, gasoline. cigarettes
and lots of other things were so much cheaper on the U.S. side that $80 U.S.
tended to buy more in the U.S. than did $100 Canadian buy in Canada.


And what of now? We have a dollar at par. Is it high or is it just where it
should be. Well it almost goes without saying that $100 U.S. will buy a LOT more
in the U.S. than will $100 Canadian buy in Canada. Our wages at least for the
working class are definitely higher than in the U.S. as are rents, utilities,
beer, gasoline, cars, books and just about everything. I conclude from that that
our dollar now is “high”. I don’t accept the glib argument that it was
“low” before. Canadian manufacturers often cannot compete with U.S. manufacturers
right now. The U.S. manufacturer has the cost advantage when our dollar is at 90
cents, and definitely has a completive advantage when the Canadian dollar is at


The value of that story? Be careful about investing in a company that faces
its expenses in Canada but exports to the United States. Instead, favor
something like Canadian Tire and Reitman’s
that buy goods in U.S. dollars and sell in Canada.


January 11, 2011


I did not note anything of particular interest in the markets today. I am
more or less in a wait and see what happens phase at this time. Id did notice
Shaw will release earnings at 11:00 am on Thursday rather than before the close.
That could be a signal that the Shaw earnings will contain nothing too dramatic.


January 10, 2011


Generally a negative day in the markets. In particular
Melcor was down 3% to $13.50.


Walgreen is up 5% in this brand
new year. I may just decide to sell out of that to raise some cash and take
profits especially if it keeps going up.


Alcoa was out with strong earnings after the close. The first company to
report 2010 earnings. It’s amazing that they can get their financials done so incredibly
fast after the end of the year. Perhaps these strong earnings will be taken as a
postive sign for the economy.


Shaw Communications will
be out with earnings on Thursday morning. It has had some strange things going
on including the departure of its CEO who was given a boost to his already
obscene pension. Last week it was reported that the head of their nascent future
wireless phone division is leaving. With that and with more competition from
Telus it’s hard to know what will be in the earnings report. Over the years my
strategy has been to buy after earnings news is out. Since our whole approach is
to analyse and then see if it is a buy or sell, I would not normally adopt a
strategy of buying in anticipation the news will be good. So although it is
tempting to buy, the safer strategy with news imminent is to see what the news
looks like on Thursday.


On the other hand nothing wrong with buying now… If I did buy now  (I
already have a lot) I would buy with the intent to possibly buy even more on
Thursday if that looked like a good plan (say modest bad news on Thursday but
the stock sinks more than warranted).


January 8, 2011


The latest edition of our free newsletter is
now available.


January 7, 2011


After what seems like quite a long string of positive days, my own portfolio
took a small drubbing today with Wells Fargo and Canadian Tire each down about


Also the Canadian dollar rose which hurts all my U.S. investments when measured
in Canadian dollars. A good reminder that portfolios do go down as well as up.
And of course when it comes to portfolio size, the bigger it is, the harder it
does fall. (1% of 10,000 is nothing, 1% of a million is $10,000…, nice when
it’s rising, not so nice on the the down days).


I added some new cash to my accounts reflect the new year for RRSP, RESP and
TFSA. My strategy has always been to maximize these tax subsidized investments
and I am willing to borrow if necessary to top those up every year. Admittedly
though it is tough to find the cash to maximize those and that is even with a
small RRSP allowed investment. For those without pension plans it is would be virtually
impossible for most people to maximize their RRSP room at some 18% of earned
income and then TFSA and and RESP. If anyone can come close to maximizing these
over their career they should have a good portfolio as they approach retirement.


I am not sure  that I should be in any hurry to invest that added cash.
On the one hand I am motivated to take the chance and try to grow my portfolio
as fast as possible. (Grow it while the growing seems to be good). On the other
hand, it’s nice to save some cash or at least borrowing power in case of a
market decline.


January 6, 2011


A weak day in the markets generally and for most of our Stock Picks.


An interesting exception, Microsoft was up 2.9%, also Visa was up 1.5% and
Couche-Tard was up 1.5%


Melcor fell down close to $14 from recent highs of $15. This is a very thinly
traded stock and so that kind of price change is probably just normal random


Tim Hortons hit a high of $42.65 today. Seeing that I made a quick decision
to Sell my position there.  I sold at the market but the price had dropped
a little so I got $42.43. I had bought Tim Hortons at $31.78 about a year ago
(as noted under February 28 below). I had sold half on November 17 at $38.66. My
last update was “Weak Buy” on November 11 at $38.07. So although I really
like the company to the point where I sometimes think, how can I NOT own this
company, I decided to sell that one given the price and the low rating. Everything else I own
at the moment  is rated at least Buy (plus a little bit of stuff not


I may start to think about selling some positions to raise some cash and
protect against declines. But given what I hold it will be very hard to decide
what to Sell. Perhaps an across the Board trim would make sense or a buying a
Bear ETF if I do get nervous…


January 5, 2011


It was a good day for our Stock Picks with Wells Fargo up another 2.3%. On
the other hand Canadian Tire was down 2%.


January 4, 2011


The Canadian markets were down slightly today. U.S. markets were mixed Dow up
slightly S&P 500 down slightly.


But most of our stock picks were up. Most notably TMX group up 3.0%. At some
point my thoughts will turn to locking in some gains but for now I am content to
stay fully invested.


The Canadian dollar was also down a little today which helps those of us with
U.S. stocks. Most predictions appear to call for a higher Canadian dollar but as
I have written many times, I don’t think the Canadian economy will do well with
a higher dollar. I don’t claim to be able to predict the dollar. I simply
observe that it is at 35year highs (save a few weeks above this level a couple
year ago). I am comfortable holding U.S. investments and buying U.S. investments
when the Canadian dollar is this high.


January 3, 2011


The Canadian Stock markets were closed today. However the American markets
were open and have jumped out of the gate into the new year with about a 1%
rise. Wells Fargo was up almost 2% as large banks responded to certain positive
news regarding Bank of America.


Market indexes have given us significant gains since last August. Recent
gains are in fact unsustainable. In the long run, stock prices will trend up
roughly at the rate of expansion in the economy. Therefore gains like 12% in 5
months can’t continue indefinitely. Market indexes will at times outperform the
economy and at other times will lag.


You will probably hear a hundred times this year that (American) stocks
failed to rise over the first decade of the 2000’s. That is true. In fact the
S&P 500 index is down about 17% from its level of January 1, 2000. However,
what you will rarely, if ever hear is that the earnings on the S&P 500 have
risen by about 46% in the first 11 years of this decade.


So why are stock prices down if earnings are up? Basically the companies have
done their job and increased their earnings, but why are stock prices down?
Mathematically its because the price / earnings ratios are down dramatically.
Investors during the late 90’s were irrationally exuberant and bid stock prices
up to unsustainable levels.


It is completely erroneous to conclude that stocks will not make money going
forward just because they failed to make money between the two rather arbitrary
points in time being January 1, 2000 and December 31, 2010. Investors in early
2000 looked at the strong stock price gains of the 1990’s. Forgetting that those
stock price gains had far out striped the underlying earnings gains of the 90’s
investors erroneously expected the strong stock market price gains to continue.
They were wrong.


It may be that stock prices will fail to rise or may fall in the next five or
ten years. If so, it is not too likely that this will be caused (as it was in
the last 11 years) primarily by a decline in P/E ratios. Rather it would almost
have to be caused primarily by a decline in earnings or at least by very anemic
growth in earnings.


If you expect big companies to show declining or flat earnings then you
should expect stock prices (say the S&P 500 index) to drop. In that scenario
we would likely see at least some further decline in P/E ratios and stock prices
could certainly drop significantly in that scenario.


If however, you believe that the economy will continue to grow and that
companies will continue to increase their earnings then you should not be
expecting stock indexes to fall over the next five to ten years.




January 2, 2011


I have updated the composition of my own
portfolio to show the percentage of my portfolio in each stock that I own.


January 1, 2011


Walgreen Company is updated and
rated Buy at $38.96


The ratings for the start of 2011 are almost complete. But I may have a few
more changes before trading resumes.


I have raised the rating on Shaw
Communications slightly from (higher) Buy to (lower) Strong Buy. I expect it
is losing cable customers to Telus but overall is still growing revenue. There
is potential for good gains on its recently purchased television stations this
year. So, as always, no guarantees but I like the prospects here.


Canadian Western Bank
is updated and rated (higher) Buy at $28.36.


December 31, 2010


Well, the trading year for 2010 has quietly finished. The Canadian Stock
market returned an average of 14.4% in Capital gains (does not count dividends).
The U.S. markets were a little lower but also managed double digits. This was a
very good return especially on top of the strong gains in 2009. Thank you all
for being our customer and reading my thoughts in 2010. May we enjoy many more
happy returns in the years ahead.


Here is a link to how all the individual stocks
from January 1 fared over the year.


December 30, 2010


Berkshire Hathaway is updated and
rated Buy at $79.40.


Groupe Aeroplan is updated and
rated Speculative Weak Buy at $13.76. This company has achieved huge growth in
revenue on a per share basis. That alone, indicates it may have potential to
grow earnings per share at a high rate. But a right now the earnings are not
high, even on an adjusted basis. Various accounting issues make it almost
impossible to analyse. Therefore we would not buy it. Perhaps the implementation
of International Financial Accounting when it reports Q1 will clarify matters.


December 29, 2010


Time to Clean up our Stock List


This is a good time of year for me to review the list of
stocks above and see what can be culled. By removing a few stocks I can free up
some time to look for new ideas. In two cases noted just below, there is no
choice since they are being “bought out” and soon will no longer
trade. Most of the companies on this Site I have been following for years. There
is a benefit and an efficiency in that as I become reasonably deeply familiar
with these companies. Certainly I will not be dropping the higher rated stocks
but there is a need to clean a few off the list from time to time.  


I have also removed Target because we already have Walmart and
it has not had that much interest from subscribers. 


I have removed Dalsa Inc. from the list above. The Company is in the process
of being bought out at $18.28 per share. The stock price today is $18.18. It had
traded at $14.50 just prior to the takeover. It started the year at $7.62 and we
had rated it a Sell.   This stock first appeared on this Site as a
Speculative Buy at $11.90 in April 2002. The Stock subsequently reached over
$22. Earnings have been quite volatile. Earnings were close to zero in 2009 and
I thought it was going to continue to have low earnings due to the high Canadian
dollar. (It faces costs in Canada but exports most of its products.) The
earnings ended up recovering strongly in 2010. In all honestly, I was
consistently off on the ratings of this company. I always liked the technology
and until high dollar hammered its earnings in 2009 I had faith in it. Obviously
I gave up faith too early. (I did mention in the August update where we rated it
a Speculative (lower) Buy at $10.125 that it “could possibly benefit from a
takeover offer at some point given its technology”.)


Western Financial Group is also removed from the list above. It too received
at takeover offer. It is now trading at $4.11 per share and the take-over offer
is at $4.15 and is supported by management. Just prior to the offer it was
trading at about $2.50. This company had volatile earnings with only modest
growth in earnings per share in recent years. This company first appeared on
this Site rated Speculative Buy at $2.71 in September 2004. It subsequently
traded as high as about $6.00. I had liked its core business model of acquiring
small private rural insurance brokerage offices and rolling them into a publicly
traded company. But I was unsure of the wisdom of its move into banking where it
appears to face competitive disadvantages. I was also dismayed at its constant
issuing of shares and convertible debt and convertible preferred shares. This
would cause the diluted share count to balloon whenever the share price rose. It
had also often issues shares below book value. I was dismayed by management’s
focus on the top line or even on earnings but with little or no focus on
earnings per share or growing book value per share. I had lost faith in
management and was going to remove it from this Site in any event. Now, it looks
like management has lost faith in itself. Dreams of building it into a large
Western Financial company are dashed. At least with price of $4.15 most
long-term investors will have made at least a modest return. The offer price is
about 11% over book value and book value consisted of about 20% retained
earnings and 80% original invested money. (This is only approximate based on the
June balance sheet and the final figures would depend on final 2010 earnings and
on the number of shares converted from debt and pre shares due to this sale).
Overall I would judge the history of the company to be a very modest success
from the point of view of the common shareholders. Not much money was made for
the common shareholders over its history.


I have also removed its preference shares from this Site. The company made
more money for it preference and debt investors than it ever did for its commons


I bought some Microsoft shares
today based on our updated report of yesterday.


Today was a reasonably good day in the markets. Canadian Tire was
particularly strong, up 2.0%. Melcor was up 3% but that is not really reliable.
It is thinly traded and was down most of the day. So its price can often jumps
around by 3% in a day but that is fairly meaningless due to the small volume


Staples is updated and rated Buy at


December 28, 2010


Telus is updated and rated Buy at
$43.85 (the non-voting shares). Management is projecting strong growth in Q4 and
through 2011.


Microsoft is updated and rated
Strong Buy at $28.07. I intend to buy some. Markets appear to be cruising to a
mostly uneventful end of trading for this calendar year. But, as always, that
could change at any moment.


December 23, 2010


I will likely be offline until around Tuesday. Then I plan to get cracking on
some updates to be ready for the start of trading for the new year. It’s not
that I plan to shuffle my portfolio. Just that I want to get the ratings on the
stock picks as up to date as I can mostly for the purpose of tracking the annual
calendar year performance of our Stock Picks.


Most stocks were relatively flat today. Tomorrow should be a quiet day. But
one never knows. The news never quite sleeps anymore. I would be happy to see
stocks finish the year at current levels.


December 22, 2010


It was yet another good day in the markets. Most notably Walgreen Company was
up 5.5% after announcing better than expected earnings. Wells Fargo also went up
a little more. Walmart was down a
little which I would view as a buying opportunity.


With the market up so much lately it is probably time to consider taking
profits or protecting gains. For example one could buy a bear ETF or double bear
ETF. Personally I have had poor luck with those. I suppose really they are meant
as insurance and I should be glad when they don’t pay off. I would probably Sell
something rather than use a bear ETF. At the moment I have not felt ready to
Sell anything and am instead inclined to let things ride. But, as always, that
is a risk. If you are interested in symbols for bear ETFs, start


December 21, 2010


Markets fairly roared ahead today. Our winners of note included Wells Fargo
and Couche-Tard.


FirstService Corporation is
updated and rated Weak Buy / Hold at U.S. $28.36 (this was yesterday’s price, it
closed today at $28.59). This is well-run company and I think it could do well
in future. However, the value ratios and many other factors that we consider are
not showing it to be a Buy at this time. If it ends up doing better than
expected, that is not really all that important. The reason for that is that I
don’t hold it, and I suspect few of you hold it. What really matters is how the
stocks we hold do. Stocks we don’t hold are missed opportunities if they rise
much higher than expected. But in investing there will always be an infinite number
of missed opportunities. The best we can do is focus on the stocks we hold so I
won’t worry too much if it turns out the rating on this one is lower than
perhaps it ought to have been.


Perhaps of more interest is the Fist
Service Preferred shares. These are updated and rated Buy at $24.75 to yield
7.1%. They would take a loss if interest rates rise sharply but overall may be a
reasonable place to park money.


December 20, 2010


A reasonably good day for our stock picks. Additionally the Canadian dollar
was down which helps Canadians in their ownership of U.S. stocks. Winners today
included the TMX Group (recall
many had written it off as suffering from too much competition but we stuck with
it). Visa recovered somewhat today. On the other hand Walmart was down 1.2%.
None of these moves are really anything other than sort of noise on a single day
basis. But over time (weeks and months and years) things have gone our way and
that is what counts, not the daily noise.


The next update will be for FirstService and will include the preferred
shares. Both the common and the preferred are up a lot in the past year or so.


December 19, 2010


eBay is updated and rated Weak Buy /
Hold at $29.82. The stock is up 39% since we rated it a Speculative Buy back on
May 21. Given the sharp rise in price the stock does not look attractive at this
time. Still, it could continue to rise and has been showing strong earnings


Bombardier is updated and rated Weak
Buy / Hold at $4.78. It’s a very interesting company. But is seems to operate in
a very tough industry. It has potential. However, at this time I would not be a
buyer. At my last update in June it looked like a reasonable investment. However
its business has declined in 2010 even as most companies were recovering from
the recession.


The Preferred shares of
Bombardier are updated and rated Buy at $23.00.


December 16, 2010


It was a decent day in the markets for our Stock Picks. And
after regular trading a couple of big-name companies released strong earnings.
Lately I have been sitting tight. Not buying and not selling. Just hoping to see
a bit of growth most days.


Visa however took a
nasty tumble after indications that the fees it can charge on debt cards will be
dramatically lowered. Visa closed down 13% at $67.19 I am placing an order to
buy at $68. If it opens below $68 I should get the opening price. If it opens
above $68 my order will not be filled. We should hope and pray that Visa slides
down a lot lower because I think that would just be a long-term buying


December 15, 2010


Returning from a rare off-line day I see markets were down. One bright spot
was Canadian Tire up a little more today.


Visa was down a hefty 4.6% today. Perhaps a buying opportunity…


Always remembers stock markets never move in straight lines. Nor are they
predicable in the short run. Stock investing takes mental toughness.


December 14, 2010


The latest edition of our free investment
newsletter is available. Some unusual topics this time including an analysis
of long-term interest rates and an indication  of whether investors expect
the U.S. dollar to “crater”. A discussion of whether the high price of
Gold is a signal that the U.S. dollar will falter and some interesting charts
that show the extent to which Gold is or is not a store of value in terms of its
purchasing power in U.S. dollars.


U.S. stocks did well today. Our stock picks however were not as strong given
a small decline in Wells Fargo.


Generally it seems that the economic news has been more favorable than
negative and so hopefully stocks will cruise through to year end. Not that year
end really matters at all but like many people I do track my gains on an annual
basis. I am happy with my gains this year and so if we ended off at this level I
would be happy with that.


December 13, 2010


This first day of the week was relatively uneventful for our stock picks.


One interesting story is that The Great Atlantic and Pacific Tea company is
going bankrupt. This historic company was created in 1859. Operating its A&P
grocery stores it eventually became the largest grocer in the Unite States and
was , at one time, second in stock market value only to General Motors. I
imagine the history of this company would be quite interesting.


But why did it go broke? I strongly suspect it has to come down to poor
management. This is not a case like a buggy whip manufacturer where its product
became obsolete. And unlike General Motors it would not have suffered from
import competition.  It’s demise almost certainly comes down to poor
management. Perhaps a failure to upgrade its stores years ago or to invest in
the proper logistics and computerization.


Grocery retailing is a competitive business. A business like that needs good
management. Warren Buffett has written extensively in his annual letters about
the importance of investing in companies with the best of management. He writes
that the best companies with huge competitive advantages can be ran by mediocre
management and will still do okay. But businesses in very competitive fields
need truly excellent (and trustworthy) managers. I will be trying to focus a
little more on management in the stock reports as they are updated. However, it
is not easy to tell from the financial statements if a company made money due to
good management or simply because of some lack of competition.


December 12, 2010


Walmart is updated and rated
(higher) Buy at $54.28.  Subscribers who are interested in this stock (or
any other) should read our entire report in order to understand the basis for
our rating and the data and assumptions involved. This company represents 10.5%
of my equity portfolio (9.9% of my total portfolio). Still I may add modestly to
this position to put to work some U.S. dollars that I hold. Or I may wait to see
if something more compelling turns up as I update the various companies over the
next 3 weeks.


December 9, 2010


Wells Fargo and Canadian Tire were winners again today. I could get used to


I’ll have some updated reports by Sunday.


December 8, 2010


Stocks in general did not do well today with the TSX down 0.74%.


But  two of our highest Stock picks had an excellent day.


Wells Fargo was up 3.16% and Canadian
Tire was up 2%. There are absolutely no guarantees (EVER!) but I would feel
very comfortable buying shares in these two at these prices if I did not already
have a large position in each. And of course one can try to cute and wait for a
pullback of a dollar or two but to me that is not that wise. If you like these
and have money to invest it is probably best to buy at least some rather than
waiting for a dip of a small amount. IF on the other hand you decide you won’t
buy unless they dip 10% or more, that is fine, at least the dip would be
worthwhile. But in that case you would be prepared for the fact that the dip
might never come. But who knows? maybe the market will crash and they will down
25% soon. That is always the risk in the markets. What Warren Buffett teaches
ins that short term dips don’t matter than much anyhow. IF you are confident
that Canadian Tire which has been growing for around 80 years is likely to be
bigger and more profitable in 10 years then why not just buy and settle in? If
it dips 10% either buy more or just hit the snooze button and say call me in two
years… If you are going to panic every time a stock you own dips 10% or even
30% then you probably don’t have the stomach and or the risk capacity to be in
stocks in the first place.


Some politician in the U.S. was saying “Never let a crisis go to
waste”. The same goes for stocks. How many people let the 2008 and early
2009 stock market crash (crisis) go to waste? In the Spring of 2009 I was
suggesting that if there ever was a time to borrow to invest that was it. I also
said of course that there were no guarantees. But man, was that an opportunity.
If you are young you should probably pray for another crisis like that.


And what is today’s opportunity? Quite possibly it is houses in the U.S. They
continue to be super cheap. That will not always be the case. Sure they may not
be at bottom yet. He who insists on seeing the bottom probably never pulls the
trigger. The spoils do not go to the meek. Neither to the rash. The smart old
buck bides his time, but then acts at the right time, and gets the doe.


December 7, 2010


Stocks did not do much today…


Of more interest (so to speak) were bonds. The yield on 10-year US. treasuries
as up about 20 basis points to 3.15% today (Tuesday) from 2.95% on Monday. This
rate was at a low point of around 2.50% in October. So this is a bit of a rise
in a short period. This rate is still at historically low levels. But it is a
rate to watch. The Fed is trying to keep rates low and yet this rate is rising.


At some point if “the market” ever decides it is nervous about all
that U.S. debt then this rate could go up fairly sharply to much higher levels.
If that happens stocks will be hurt. But long-term bonds if that happens would
be crushed. Cash would be king. There are probably no alarm bells here yet, just
some volatility in rates.


Canadian Western Bank had a strong day after announcing good earnings. I did
not happen to own it myself although it is rated (higher) Buy above. Oh well, I
can’t own ’em all. That one along with lots more is on my list to update by the
end of this month.


One other stock that did okay today was Walmart. It will likely be our next updated
report. Maybe I will “spend” my U.S. cash by investing in Walmart. But
first I will need to update the analysis.


December 6, 2010


It was a good day on the markets with Toronto up 97 points or 0.74%. The Dow
was down modestly.


Canadian Tire was up 29 cents after having been down by $1.00. I view dips on
Canadian Tire as buying opportunities. I am not buying at this time since I gorged
on it back on November 15, and since I have essentially no Canadian dollars
available to buy.


January is coming up and that means couples who can afford it should be
looking to add $5000 to each of their Tax Free Savings Accounts. And those with
pre-college kids can look to add $2500 per kid to those RESP accounts. And then
there are the RRSP contributions to make by February 28.


It’s a LOT of money to come up with.


Here is a bit of information on how I managed to save about $250,000 over the
past 22 years.


The first thing that made this possible was that my wife and I have good
jobs. If you are barely (or not even) making ends meet then saving money is just
not going to happen.


The simple strategy that I have had as far as investing for the past 22 years
is to simply make sure I scrape up enough to take advantage of the maximum
allowed in RRSP and RESP contributions. It’s not easy. Some years I have skipped
(but made it up later) and in the early years I borrowed money to do it. But I
made sure I took advantage of these two tax shelters. Now we have the Tax Free
Savings Account. RRSP contributions max out at 18% of income. There is no way I
would have maxed out anything close to that. Because we have pension plans our
contributions allowed were relatively small. But on one occasion I received a
severance and was allowed to roll an extra $14,000 into my RRSP, which I
promptly did. Similarly my wife received a small severance and again we rolled
whatever was allowed into her RRSP. On two occasions my wife also received
“pay equity” money from the federal government and for whatever reason
we were allowed to roll that into her RRSP. It was not a huge amount but it was
certainly nothing to sneeze at . Most people getting those funds no doubt spent
it. We were fortunate to be in a position where we did not need to spend it and
we had the discipline not to blow it on a trip or whatever.


Another key to our ability to save was we bought a house that was less
expensive than we could have. We paid that off relatively quickly and this then
made saving easier. We avoided the temptation to trade up but have done


Frankly, if that Tax Free Savings Account had been around for the last 20
years at $5000 per year times two, there is no way I would have been able to maximize
that. And that is despite having two good incomes coming in.


I am not about to preach at people to save. But, for those not yet retired,
if you can do it, try to find the money to max out your RRSP, your RESP (if
applicable) and your Tax Free Savings Account. If you can do that you will be
saving a LOT of money and if invested wisely it will soon add up to a nice


With all these tax sheltered plans I imagine that the vast majority of people
and especially those under age 65, have little or no need to be investing in
stocks in a taxable account. I can’t imagine how more than a few percentage of
people would have excess funds to invest after maxing out the tax sheltered


I expect to buy more stocks in January when I contribute to these savings
accounts. In part, I will borrow to do that. For the rest of December I may hang
tight with my portfolio, not selling anything. But that is always subject to
change as I analyse various companies. I do have a bit of U.S. cash and may put
that to work during December.


December 5, 2010


I have updated the composition of my own


December 4, 2010


Canadian Oil Sands Trust
is updated and rated Weak Buy / Hold at $25.05. With the recent higher oil
prices combined with the 12% drop in price that occurred yesterday, I had
thought this would now look like a Buy. It will have a strong Q4 and perhaps that
could cause a share price rise in late January. But based on management’s
projections, 2011 looks weak. Unless you assume oil prices of at least $90 it is
difficult to justify buying. (management is assuming $80 and even at that 2011
looks weak) However if you believe that oil prices will rise sharply within a
few years then this will be a good investment. If the stock price heads down
again on Monday I would consider nibbling at it.


December 3, 2010


Alimentation Couche-Tard is
updated and rated Buy at $25.49. This seems to be a very well managed company
and is available at a reasonable price. It has an excellent history of growth.


December 2, 2010


Markets were strong again today. The Dow was up 1%. More importantly, one of
our favorite stocks, Wells Fargo
was up 4.5%. (This one could have a long way to go yet – although there are, as
always, no guarantees of that and even if it does rise, it won’t be in a
straight line). As we have seen so many times before, these things are
unpredictable in the short term. In the long term however, it seems somewhat
predictable that certain stocks will do well.


Some of the gain today in Wells Fargo was offset by a large gain in the Canadian
dollar. I have no idea where the Cnadian dollar will go next. I do observe that
it is at a very high level compared to where it has been over the last 35 years.
And I don’t believe the Canadian economy can withstand it going much higher.
However, if oil prices go higher, the Canadian dollar tends to go higher.


December 1, 2010


Today was a very strong day in the markets, the Dow was up 2.3%, and the TSX
was up 1.5%. The most notable gain for our Stock Picks was
Canadian Tire up 4.5% to $66.42. I still like it at this price.


November 30, 2010


U.S. markets were down and Canadian markets up today. Overall our stocks
picks did okay especially considering that the Canadian dollar fell which helps Canadians
invested in companies that earn most of their money in the U.S. (And that is
true whether the stock is listed in Canada or the U.S., its the place of
earnings that matters not the stock exchange or the currency it is listed in).
Winners today included the TMX Group and Canadian Tire.


Markets are holding up well considering the turmoil in Europe regarding the
bail-out of Ireland. It would be nice to think that we could get out of the
market before any large drop that might occur. The reality is that those drops
are basically impossible to predict. I have tended to ride out the ups and downs
of the market and have found that over time I do just fine with that method,
especially as I try to sell stocks that seem too high and buy stocks that seem
like better bargains. I will never get all of those calls right but if I can get
over half of those calls right I can beat the market. And over a period of many
years the market itself will do okay so if you can beat the market even by a
little you tend to do pretty good.


When I started this site in June 1999, everyone was looking at the 90’s and
predicting stocks would give them 15% a year without even trying. That was impossible.
Now in 2010, people look at the last ten years and seem to think stocks will
give nothing. A more realistic view is that company earnings will grow along
with the economy perhaps 4 to 5% in nominal (after inflation dollars) add 2% for
dividends and you are looking at 6 to 7% from stocks, more if the economy grows
a little faster. And then if we can beat the market by a few points then maybe
10% is not unreasonable to shoot for. But there are no guarantees and also
returns are never steady year to year. It tends to be a pattern more suggestive
of two steps forwards and one step backward.


November 29, 2010


Markets were down a little today. Meanwhile our Stock Picks did well with
Wells Fargo up 2% apparently on rumors that it will be among the first of the
big U.S. banks to increase its dividend.


November 28, 2010


Boston Pizza Income Trust is
updated and rated Speculative (lower) Buy at $13.78. The yield is about 7.4%
(nominally it is 10.0% but distributions will be reduced due to 26.5% taxation
starting January). It seems like a reasonable although not compelling
investment. It might be best to wait and see what happens to the price when the
lower Distribution for January (or maybe it will be February) is announced.
Possibly the cut will be less than 26.5% as the Fund may take the opportunity to
increase the distribution (before considering the cut for tax reasons to partially
offset the 26.5% reduction).


November 25, 2010


An unusual day in the markets given that U.S. markets were closed. Canada was
up modestly.


I note that Shaw Communications has renewed its share buy-back program. All
indications are that the company views its shares as being under-valued. I agree
with that.


November 24, 201


Despite the concerns about Europe (Ireland, Spain Portugal, Greece) the
market was strong today.


I heard a report yesterday that the Q3 earnings for the S&P 500 companies
were at a record high. So that is good news. With earnings at record high and
interest rates at record lows that should put stocks at record highs – except
for one fact. Growth.  Growth in earnings is expected to be poor at best, negative
at worse. But overall it does not seem like a time to be overly fearful of the
markets. But that always depends on an individual’s circumstances. For a variety
of reasons, I have a high capacity to absorb financial risks. I could suffer a
large loss in my investments and while I would be very sad, my lifestyle would
not change and in retirement I would not be eating dog food. In addition to that
I have developed a fairly large emotional tolerance for losses. I have gone
through two market crashes and suffered painful losses but have seen all that
money recovered relatively quickly both times. Others may have a low capacity to
absorb risk and/or a low emotional tolerance for risk. I like to think I can
help you decide where to invest the portion of your money that is devoted to
stocks (which stocks to buy – although at your own risk). But given that it is
such an individual decision, I can’t help with what percentage of your assets to
have in stocks. I run near 100% stocks, but that is definitely not suitable for


November 23, 2010


Markets were down again today on concerns about various European countries
with financial problems. If you are wondering whether this will lead to a market
melt-down and if you should therefore get out of the market, the fact is I don’t
know. I have developed some skills in looking at individual companies. And I
have a strong track record. But I don’t claim to have any skills in predicting
world financial disasters like that. I am not sure anyone can predict it but
certainly I can’t.


I did express the opinion yesterday that those problems would not likely
affect the amount of coffee and donuts sold in Canada. Well with one day down
and a thousand or so to go, my prediction is good so far as Tim
Hortons was up ever so slightly today despite the TSX being down 1.0% and
the DOW down 1.3%. A bigger winner was Couche-Tard
up 2.7% as it released good earnings. I will likely update the report on
Couche-Tard by this Sunday. Another winner was the TMX


November 22, 2010


Markets were weak today due to worries about the credit ratings of certain
European countries. I am not going to worry much about that. I’ll focus on individual
company earnings. (The problems in Europe are unlikely to impact coffee and
donut sales in Canada for example). And when it comes to economic data I would
worry more about the high Canadian dollar and high unemployment in Canada as
opposed to what is happening in Ireland. The events in Europe might affect us
but they are basically unpredictable.


November 18, 2010


A good day in the markets. But when the markets go up because Ireland is
getting a bail out, that hardly seems like truly good news. The market was
simply relieved that bigger trouble had been averted.


November 17, 2010


My main holdings were down today. Wells Fargo, Wal-mart. Canadian Tire
managed another little gain today. Wells Fargo is under pressure due to the
economy in general and due tot he foreclosure lawsuits that all the banks are
facing. So it seems it will be a long haul there, bank stocks will continue to
wobble and it could be some time before a nice recovery sets in (and of course
there is no guarantee that will ever happen, though I certainly expect it will).
Earnings season in the U.S. is over now and it should be economic news that will
be the big driver of U.S. markets until the next earnings season starts.


Well world economic news is basically unpredictable and is certainly
uncontrollable. So I am not going to worry too much about that. Instead I
continue to try to own good companies that are going to be around come what may.
Good times or bad. certainly Wal Mart is going to be with us and Costco. Wells
Fargo  most likely as well though as a bank it is highly leveraged by
nature and so one can never say never (die) when it comes to a bank. In Canada I
don’t see Tim Hortons disappearing come what may. Canadian Tire too is not likely
to disappear under almost any believable scenario. So that is just a couple of
the quality names that I own and feel comfortable owning (though admittedly I
lightened up on Tim Hortons recently due to its seemingly high price).


There will be lots more updates in the coming weeks, as in by the end of this
year- just six weeks away now. Yikes. This Christmas thing always seems to come
along so fast.


November 16, 2010


Markets reminded us today that they do go down as well as up. Dow was down
1.6% and TSX down 1%. Canadian Tire managed to eke out a gain of a couple cents.
It’s not much much but it is good performance on a bad day. Other Stocks that
were up included Walmart and Tim Hortons and Telus and very little else that we
follow here was up..


With Wells Fargo down in the last few days and now at $27.19,  I entered
an order to buy still more of it if it goes down to $25.50.


My large U.S. position was helpful today as the approximate 1.2 cent fall in
the Cnadian dollar gives a boost to my U.S. stocks when measured in Canadian


November 15, 2010


I added fairly heavily to my position in Canadian Tire today. It is now my
fourth or fifth largest position with roughly 10% of my portfolio in this
company. I mentioned it is my highest rates stock so I basically took all the
Canadian cash in my accounts and bought Canadian Tire today.


Stocks today had a moderately good day. markets were strong mid-day but slipped
to modest gains by the end of the day.


Interesting news tonight is that Buffett / Berkshire has added 16 million
shares to its Wells Fargo Position. At the end of 2009 it owned 334 million
shares so maybe he just wanted to round it off to an even 350 million. In any
event Buffett / Berkshire was selling shares in some companies so glad to see he
was buying Wells Fargo.


November 14, 2010


Canadian Tire is updated and
rated (lower) Strong Buy at $61.05. At the moment it is our highest rated stock.
It’s one of my larger holdings and I may add to my holdings. There are no guarantees
but it appears to be a good investment.


November 11, 2010


Melcor is updated and rated
Speculative Buy at $13.89. It is cyclic and if housing starts fall and/or
housing building lot prices fall then its earnings would suffer. However,
overall the opportunity to buy this company at 1.22 times is book value seems
attractive. The company indicated that Q4 was expected to be strong. This is one
of my largest holdings and I have no plans to sell.


Tim Hortons is updated and
rated Weak Buy at Canadian $39.07 or U.S. $38.83. This is clearly a great
company. It may be worth buying on the theory that it is better to buy a great
company at a fair price than a poor company even at a bargain price. However the
P/E of 19 may be rich given its growth rate.


Stock Buy backs do not impress me unless the stock is bought back at a
bargain price and management did not even address whether that is the case or
not. They are doing it primary to increase short term earnings per share to
offset teh loss of the earnings from the bakery operation that they are selling.
But at a P/E of 19, is this the best use of the money?


Given that there are higher rated investments than this one on our list and
given that I own it in an RRSP account and don’t have to worry about taxes, I
may sell half or even possibly all of my holdings.


One interesting strategy may be to sell it on New York. I will then get U.S. dollars
without paying a foreign exchange fee. TD Waterhouse allows me to put these U.S.
dollars into a U.S. money market account. Given the strong Canadian dollar it
may be logical to receive the funds in U.S. dollars.


November 11(12:26 pm eastern time)


Markets are down today. Whether that is the start of any trend I don’t have
any ability to predict. (Does anyone?) I focus on investment one stock at a
time. Those who are more nervous about stock markets can always consider taking
profits, lightening up their overall exposure to the markets.


A story in the Financial Post caught my eye this morning. Smart Technologies
was down 33% to $8.90. It only started trading earlier this year and was one of
Canada’s largest Initial Public Offerings (IPOs) raising $660 million U.S. dollars
at an offered price of $17 U.S.


It also caught my eye when it had that Initial Public Offering. It caught my
eye as an example of something I would NOT invest in.


What IO said on July 15 (you can confirm this below) was:



There was a big Initial Public Offer in Canada today. Smart Technologies.
The part that caught my interest is that most of the money raised (I think it
was about 70%) will go to the existing owners not to the company. To me
that is a danger sign
, the original owners were in large measure selling
out. If they were super confident in the company I think they would have just
sold enough shares to get the money the company needs and held on to most of
their stake. But the fact they were able to do this large IPO shows that
investors are eager to buy. It is also good for the TSX
which collects juicy fees on every IPO. (emphasis added)



Some things at least are moderately predictable. I have no interest in this
company and know nothing about it except I see how the IPO went, who the money
went to (mostly not the company) and how it has done since.


Canadian Tire shot up in price today after releasing strong earnings and a
big dividend increase . It’s now at $62.33. We last updated it in April calling
it a (higher) Buy at $55.70. The big price rise is all the more impressive on a
day when markets are down in general. We will update our report on this company
soon. (We have a backlog given all the earnings releases and our goal of
updating as many as possible for the start of the new year)


November 9, 2010


Today, the market took back some of our recent gains. Wells Fargo was down
3.1%. Such is life in the markets, we never know the short term pattern of
movements. In the end what really counts is the longer term gains.


I have been spending time reading once again Warren Buffett’s annual letters
to shareholders. I just finished 1995 and am working my way back to the 2009
letter. Some interesting facts from the 1995 latter are that back when was 21
years old and fresh from his college graduation (From Columbia University in New
York where he was taught by Benjamin Graham) he was working at his father’s
brokerage business in Omaha. He had amassed some $20,000 from investments of his
earlier savings especially savings from his earnings on several very large
newspaper delivery routes that he had in Washington D.C. where the family had
lived for a time while his father was a congressman. This is equivalent to about
$170,000 in today’s money so a veritable fortune for a new college graduate. And
what is very interesting is that fully 65% of this was invested in just one
stock, none other than GEICO which he would later own in its entirety through
Berkshire Hathaway. In the mid 1960’s he put not only 40% of his own money but
40% of his partnership’s money into a single stock – American Express. Clearly
Buffett has never hewed to conventional wisdom. And given his aversion to losing
money you can be absolutely sure that he did not view the big allocations to
those single stocks as risky. He would have been extremely sure that he was
getting a bargain price.


Berkshire Hathaway is a much different company today than it was in the 80’s
and 90’s. Not only is the size now much larger but the composition of the assets
is vastly different. In 1995, its stock portfolio represented 73% of the book
value of its assets and 128% of the equity. By then it already owned quite a stable
of businesses in addition to the stocks. But as of the end of 2009, stocks
represented only 19% of the assets and 43% of the equity. So, even though the
stock portfolio is still significant, it is not the over-whelming item that it
once was. There are a number of implications to this. It means that while in
1995 most of Berkshire’s assets were valued at market value, that is not the
case today. Back when Berkshire was a sort of mutual fund structured as a corporation
should not have expected the stock to trade all that much above book value. Berkshire
today has about 35% of its assets recorded at old historical values that greatly
under-state the true value of those assets today. Therefore it is logical that
Berkshire should trade at a higher multiple to book today than it did in 1995. I
suspect that is not the case. Investors were very exuberant about Berkshire in
1995 and not so much today.


I plan to update our analysis on Berkshire within the next week or two.


November 8, 2010


It was a good day in the markets with Toronto up 1.0% although the Dow was
down 0.3%. Wells Fargo slipped, but only 0.6%, which is okay given how much it
rose Thursday and Friday. There are still lots of Canadian earnings reports to
come in. Canadian Tire Reports earnings tomorrow (Tuesday) and Tim Hortons on Thursday.


November 6, 2010


Costco  is updated and rated Weak Buy
at $65.40  This is a great company with strong competitive advantages in
terms of its low costs. It operates with 13% gross margins versus Wal-Mart at
25% and yet still makes good profits. It unfortunately seems to be too highly
priced though. Possibly it will be a good investment because it can probably
increase profits substantially almost at will by simply raising prices 1% or so
which we think it could easily do. But it pursues a dogged low price approach.
Overall although we really like the company, the stock seems too rich unless
they ratchet up the profits. It’s worth keeping an eye on. We would be buyers if
it it fell to $50 or $55. Meanwhile, we advise shopping at Costco. Quite simply
Costco is the most efficient retail operation around. It has great prices
because of its low costs. As much as we might like to support smaller retailers
and will sometimes do so, we simply can’t argue with the efficiency of


November 5, 2010


Well it was a rip roaring day for Wells Fargo (one of our top picks and the
largest holding in my own portfolio) which was
up 6.4%, on top of yesterday’s 3.8%. The gains since September 1 have been very


November 4, 2010


It was a big day on the markets with the TSX up 1.6% and the DOW up 2.0%.
Among the many winners were Wells Fargo up 3.8% and the TMX Group up 3.3% and
Walgreen up 2.2%. These are noticeable gains in a world where people would
mostly be grateful to get 7% or so out of the stock market in an average


After the close, Melcor reported earnings that seemed reasonably good. They
were a little lower than last year. But the company said this was due to pending
sales that would close in Q4. And anyhow the company earnings have always been
somewhat lumpy and so the fact that they are lower than last year is not necessarily
of concern.


Their CFO has resigned, but this was announced back on August 10 and he
stayed on until October 31 and so it was a friendly departure and would not seem
to be any cause for concern.


So where to from here? Well in reality nobody knows. And for long-term
investors it’s not really of much consequence what the markets do in the next
month or year, it is the longer term that really matters to your wealth. At the
moment I am not looking to reduce my stock exposure even though I have almost a
100% equity exposure. Many factors allow me to take that risk, not the least of
which is that I have a good income and will be continuing to buy stocks over the
years. So if prices drop, there is a silver lining in that I get to buy cheaper.


November 3, 2010


The market rose modestly after the U.S. Federal Reserve Board said it would
budget some $600 billion to buy back U.S. government bonds. I (somewhat vaguely)
understand that the Fed effectively “prints” electronic money to do
this. I understand that one of the major impacts of this would be banks and
institutions selling bonds and receiving cash. The hope is taht banks with more
cash will lend out that cash and institutions with cash will spend the cash (perhaps
buying stocks). And all of this will stimulate the economy. It will also probably
drive down the interest rates on U.S. government debt making it cheaper for the
U.S. government to issue new debt.


The part that is particularly hard to understand is why there are any other
buyers left for long-term U.S. government debt. Why does China want to buy more
U.S. 10-year bonds at a today’s interest rate of 2.57%. Given that China’s
currency is generally expected to rise against the U.S. dollar over ten years
this seems guaranteed to be a poor investment. Why does China not sell its U.S.
treasuries or at least stop buying and instead take that cash and buy more
tangible things like U.S. office towers, Exxon, Wal-Mart, (parts of ) Potash
Corporation, the Canadian oil sands and on and on? If they did that what would
happen to treasury yields (leap?) and the U.S. dollar (crash?).


Well, I don’t have the answers to that. Buffett advises staying within one’s
circle of competence – stepping over one-foot hurdles instead of trying to
high-jump over the seven footers. To that end the next update on this Site will
be for Costco which is a relatively simple business.


Regarding the market today, the most notable moves as far as our stock picks
go were Wells Fargo and Walgreen up 2% each. Recently Wal-Mart has also done
well. If anyone things that the obvious lesson from that is to buy companies
starting with the letter “W”, well, then I don’t think I can ever help
those people.


November 2, 2010


U.S. stocks did well today. Republicans, it appears regained control of the
House of Representatives and picked up seats in the Senate. This is considered
positive for stocks. The bigger news will come tomorrow as we see how much money
the Fed decides to print up. We do live in strange times… Meanwhile though the
likes of Wal-Mart continues to make more money and it’s not clear that will


November 1, 2010


Canadian National Railway is updated and
rated Buy at $66.74. It has staged a remarkable recovery in earnings after
suffering a decline in 2009.


This should be a bumpy week in the markets. Tomorrow night we will get the
results of the U.S. mid-term elections. On Wednesday, the Fed will clarify its
intentions on quantitative easing, i.e. buying back government bonds, i.e.
printing money since it does not have to have any actual money to buy the bonds.
(I don’t don’t claim to really understand that process). On top of that there
will no-doubt be some economic reports coming out as well earnings reports. In
case that is not enough, there always exists the wildcard factor of a terrorist
act occurring at any time and threatening world trade and travel. As always the
markets are no place for the very timid. Those with the courage to ride however
will usually, despite occasional major scares, emerge in good shape ultimately.


October 30, 2010


Visa is updated and rated Buy at
$78.16. Don’t leave home without it…


October 29, 2010


TMX Group (owner of Canada’s
big stock and derivative exchanges) is updated and rated Speculative (higher)
Buy at $33.92. We have continued to have a Buy rating on TMX Group even when
others feared it would crash and burn due to competition. (Actually we never
much care what anyone else thinks – OK except for warren Buffett and a few
choice people like that -, we do our own analysis and we very seldom even read
any other analysis). Our last update was May 1, 2010 (see below)  and we
called it Speculative Buy at $29.04 so we are up 17% since then and have also
collected the dividend. It’s not without risk but has continued so far to be a
strong company. I am comfortable owning it (Then again I have developed a good
tolerance for risk and especially for volatility over the years). And,
Admittedly the stock is only up about 2% since we called it a Buy on January 1
this year. But… it is up 135% (which again excludes dividends) from the (split
adjusted) $14.43 price that we introduced it to this site seven years ago at on
October 3, 2003 as a Buy.


So much for those who say Buy and Hold is dead, this TMX would have been a
great buy and hold from last 2003 even if yes it did have some bumps along the
way to add excitement to the ride and try to shake loose those with weaker
convictions or weaker stomachs. And sure it would have been even better to have
sold at the top and bought back in at the bottom – a good strategy for those who
can see the future I guess. Admittedly, on this site we were still bullish on it
near the top, for example January 1 2008 called it a Speculative Buy at $52.80
and it fell 52% that ugly year – well at least we got the Speculative part


Our summary posted to this page back in 2003, October 3 (it’s below on our
older comments page) included the sentence “In my opinion this company has
the features of a great company, given what appears to be a near-monopoly
position in Canada. Also it is the type of business that can grow without much
capital spending, so it tends to generate substantial free cash flow.”
Remember that sentence is not current that is 2003.


October 28, 2010


A big mover today was Visa down 4.3%. That basically just goes to show that
stocks can always be volatile. They certainly don’t always move upwards. Stocks
are inherently hard to predict. But if we pick stocks on a rational basis buying
good companies at good prices we will tend to do well over time. Volatility is
actually the friend of the rational investor. It provides opportunities to buy
at better prices. Not every stock that dips is a bargain of course, the trick is
to analyze stocks (really companies) rationally and buy accordingly.


October 27, 2010


On average stocks were down today…


But TMX Group was up 1.8% (and that is on top of gains earlier this week).
TMX rose because it released strong earnings and raised its dividend. The
Canadian dollar was down today which helps those holding U.S. stocks.


Visa released strong earnings after the close…but it was only a tiny amount
higher than expected…


Wells Fargo admitted it had not dome affidavits correctly in 55,000 foreclosure
cases and would submit new affidavits on those. It’s hard to say if this is
material news or not. Wells Fargo continues to maintain that the foreclosures
were correct in substance even if even if all the procedures were not followed
in every case.


Most likely stocks will continue to bounce around with each bit of bad news
and good news. That is the nature of markets most of the time. A lot of noise
and not that much signal.


October 26, 2010


Today’s notable gainer for us was Wal Mart. Other than that nothing happened
in the market today that particularly caught my attention. Well, boring can be
good. Actually most of what happens in the market on any day is
“noise” as opposed to “signal”. The Canadian Q3 earnings
repots are starting to pour in now and we will have some updated reports to
reflect that.


October 25, 2010


Stock market indexes rose today. In particular, TMX Group was up 3.8%
reportedly on speculation that stock exchanges are take-over candidates. Like I
have said about this company before. it’s hard to keep a good (arguably partial)
monopoly down. Similarly Visa has been rising. TMX Group will report earnings on


October 24, 2010


Wells Fargo is updated and rated
Speculative (higher) Buy at $26.11. It just reported a good quarter. Banks can
be risky given house price declines, recession and the foreclosure debacle in
the United States. But Wells Fargo appears to be very well managed and has done
better than other banks. Assuming that the economy continues to recover it is entirely
possible to imagine this investment doing quite well over the next few years. I
will consider adding to my position.


October 23, 2010


Shaw Communications
is updated and rated (higher) Buy at $22.12. The company continues to do very
well. The price is up 15% since our last update and therefore our rating is down
a little (previously was (lower) Strong Buy) but is still a high rating. There
are risks of competition as it moves forward but overall it looks like a good


October 21, 2010


Toronto stocks were down 0.4% today while the Dow was up a similar amount.
Our stock picks were mostly up. It’s certainly been a nice sting of good days. I
probably should turn my attention to taking some partial profits and may do so
at any time. I’ll let you know in advance unless it is just something that I
suddenly decide to do without. Like anyone else I am susceptible to emotion and impulsive
buys and sells at times. But mostly I try to proceed in a much more deliberate
fashion with buys and sells based on analysis and forethought. I will not
however sell shares in the likes of Melcor without posting my intention
here  first since that is such a thinly traded stock. Any of us could move
the market at least slightly on that stock. On the other hand none of us is
about to move the market on the likes of Wells Fargo (unless that is, my dream
has come true and Warren Buffett is a secret subscriber to this Site. Not!).


With the market doing so well, I have been updating the chart of my own stock
portfolios growth on our home page. It’s looking good.
Again though I must keep in mind that markets do not move up in straight lines.
It’s always a game of fits and starts and backslides. Still, we have definitely
climbed over time.


October 20, 2010


Well Well Well…. I see Wells
Fargo came through this morning with good earnings and the stock rose 4.3%.
Melcor and Visa were other winners today. I’ll update the Wells Fargo report by
Sunday. There are always risks especially with banks and the foreclosure fraud
situation and loan losses and the recession, but I think Wells will be a good
long term investment. I was speaking to a wise and successful older
entrepreneur/investor the other day and he mentioned how throughout his life
people had often tried to (sometimes with success) to talk him out of various
investments. That is always the way, some people will only ever see risks. I am
not suggesting anyone be reckless, but it’s a fact to the bold will go the


I should not get over confident however. In the short term the market can
always provide a dose of humility. But over time it has certainly treated me


October 19, 2010


I mentioned yesterday that daily fluctuations are not that important.
Yesterday the market gaveth, today it tooketh away. The Dow was down 1.5% today
(at noon Edmonton time had been down 2%). TSX was down 0.8%. But some of our
stock picks did okay, Shaw was up a little. Melcor was up. For Canadians the decline
in our dollar today was a benefit in regards to your U.S. stocks. So not that
bad of a day for us.


Tomorrow (Wednesday) Wells Fargo reports earnings before the open. Bank of
America had a huge one-time charge today due to credit card legislation changes.
Presumably that will also be the case for Wells Fargo but hopefully “the
market” already expects that. Wells might rise if it can report reduced
credit losses.


Lots more earnings reports will be rolling in and I am planning to update
some of our reports and ratings based on that.


October 18, 2010


Over the weekend as I contemplated this weeks’ stock price movements, I
steeled myself against what I thought might be another drop in my Wells Fargo
shares. I resolved to buy more shares if it dipped. Instead, Citi Group reported
higher earnings and bank share rose. Wells Fargo was up 5.5%. Most other stocks
were up as well. Shaw Communications was up 2.4%. Melcor was up 4.6%. This sort
of thing is really just noise. It’s long term gains that matter not daily
fluctuations. Still one can’t help but get a warm feeling on a day like


October 17, 2010


FedEx is updated and rated Weak Sell
/ Hold at $89.62. It has staged a very strong recovery in earnings compared to
last hear when its profits were hammered by the recession and competition. It
does seem well managed and has a bright future. The price however seems a little
high. It’s Q1 earnings report from September was headline catching. But the
companies own projections show that Q2 and the next few quarters will not have
that kind of headline grabbing increase in earnings. It could surprise to the
upside if the economic recovery continues.


Some subscribers may wonder about the value of an update that shows a company
as a Sell or Hold. However, if I set out to only provide Buys, then my analysis
would be biased in that direction. Having spent hours updating a company I would
be tempted top call it a Buy. To try to avoid bias I update companies and try to
let the rating fall where it may. One thing I will note, a Sell is in no way a
“short it” rating. Shorting stocks is highly risky and complex and not
something that most retail investors should get involved in. Just for one thing,
institutional investors when they short a stock may receive the cash from
shorting and invest it elsewhere. In my experience that does not occur in retail
brokerage accounts and certainly not in discount broker accounts to my




I received the following questions from a subscriber and I thought they were
good questions and have posted the questions and answers below


I recently became a subscriber to your site after reading the article in the
Edmonton journal . I’ve been thinking about the stocks you suggest as an
entire portfolio and I have two questions.



Answer: To be clear the stocks I
(technically InvestorsFriend Inc.) give a buy / sell rating to are not suggested
to be an entire portfolio. Instead subscribers can pick and choose on an
al-la-carte basis. This is explained in the short
article linked at the top of this page on how to use this page.


which indicates:



While each stock has a generic rating that ranges from Strong Sell to Strong
Buy, the suitability of any stock to a particular investor depends on a variety
of factors including the investor’s total financial situation and risk
tolerance. Therefore each investor reading these reports must take the
responsibility to decide, possibly with the help of an advisor, whether each
stock is right or wrong for their particular circumstances.




The editors personal portfolio breakdown is provided. I suggest
that subscribers pick and choose from the rated stocks based on whether or not
agree with the rating based on the report provided. Given that most subscribers
have existing portfolios and have your own thoughts about each company and have
other sources of information, it was not the intention that subscribers merely
follow the editors portfolio.




Regarding my own portfolio, it is stated there
that that my portfolio would not be considered by most to be adequately


If a subscriber wished to build a
portfolio by choosing from the total group of buy/sell rated companies, that
would be their choice (and risk) and it would have to consider their own risk capacity
and risk preferences which include a long list of personal factors. Most
subscribers will have existing investments and will build their portfolios one
stock at a time, I suspect.


: 1)
Do you consider sector risk (i.e. being over/underweighted
in a specific sector) as part of your recommendations. This leads me
to my next question – energy. 



No, I don’t and can’t since I am rating individual stocks on a generic basis and
the exposure to a sector is a personal decision requiring advice specific to an
individual and that is not something that InvestorsFriend Inc.is attempting to do or
in fact could do in this “broadcast” media. Sector advice would
require one-on-one consultation and InvestorsFriend Inc. and myself are not offering
that service. 


Is there any specific reason why there are no oil/gas companies as part
of your recommendations? When I apply Buffet’s investing rules to individual
companies and to the industry as a whole, I think that at a minimum there would
be at least few “winners”. In other words, if I had a friend (as suggested
in your recent article) who invited me to participate in a company/venture in
the oil/gas industry who met passed all the tests, I’d have a hard time not


No one specific reason but several reasons. Commodity stocks are not well suited
to analysis from financial statements. They tend to require forecasting a
commodity’s future price and understanding when tight and ample supply
conditions will occur. Each commodity tends to be a specialty onto itself. Buffett
has counseled that commodity businesses generally make poor returns except in
periods of tight supply or if one is the low cost producer. Buffett counsels
developing a circle of competence and staying within it. I have not personally
had good experience with oil stocks. I have not personally taken a big interest
in the sector. Canadian Oil Sands Trust does appear on the list above though
rated Sell back in March at $27.95. That rating does not reflect today’s oil
price which I believe is considerably higher. A different rating may (or may not
) apply when it is next updated.






BTW, the only rule which I think could potentially fail would be valuation, but
if companies are overvalued when oil is at $80/b, what were they when oil was at


Answer: I think
I can assume that this is a rhetorical question which answers itself.



In other developments Wells Fargo declined again on Friday. Obviously it
could go down more. Long term I like the company and the stock and I have not
sold. I added a small amount to my position on Friday.


Here’s how I think about a stock like Wells Fargo that is experiencing what I
think (but can’t guarantee) will be a temporary drop in price. Had I known it
would occur I could have sold a few days ago and bought back lower. But it was
not really clear the price would drop until after it happened. People can claim
they “knew” it would drop. Well really did they? Did they short the
stock? How come the price stayed higher a few days ago if people
“knew” it would drop, it the market “knew” it would have
already dropped a few days earlier. And when would I buy back? The bottom will
not be known until after it has passed.


What if I am committed to holding this stock for say 18 months and what
if just for example the stock price will be say $35 at that time. Then does it
truly matter if the stock bounces around during my holding period? At the end of
the day my profit on the stock will be determined solely by, the price I pay for
it, the price I sell it at and the dividends received. The wiggles along the way
don’t come into that calculation. I am not suggesting that stock price fluctuations
are not important – they may signal problems ahead. I am simply saying that in
this example if Wells is indeed a good company then this particular share price
dip is unlikely to be important to a long term holder. That is simply how I
think about it. Others may think differently.




October 14, 2010


My Wells Fargo got kicked down over 4% today due to this whole foreclosure
documentation scandal or issue. On top of taht the Cnadian dollar rising hurts
U.S. investments.  It’s not clear how badly this foreclosure issue will
hurt Wells Fargo but for the moment certainly it is a negative.


Google was out with strong earnings after the close of regular trading and
rose in “after-hours-trading” (It baffles me why companies would wait
until after the close to release earnings only to have trading in this somewhat restricted
after hours club. I have never seen this issue examined as to why that is fair
or even legal.)  Perhaps this news from Google will jump start the markets
tomorrow (Friday). But the futures are not showing much of a change at the


October 13, 2010


A strong day in the markets.


I was pleasantly surprised to see that for most of today Wells Fargo was up
despite the rising concern about banks foreclosure paperwork being faulty. By
the end of today Wells was down a little.


Those holding Wells Fargo should be prepared for the stock to possibly fall.
There is really no way to know how bad this foreclosure issue is. Wells Fargo
will release its Q3 earnings the middle of next week and we should know more at
that time.


I don’t have any plans to sell on this news but those who are more risk
averse may wish to do so.


This could be trouble for the banks. On the other hand this is about
paperwork. Nobody seems to be suggesting that people who actually paid their
mortgages was foreclosed on. It’s pathetic really the State looking to reverse
foreclosures on some technicality. Apparently some employees may have signed
foreclosure documents without personally knowing the documents were correct.
They relied on other employees in the assembly line. That seems like normal
business practice to me. It seems to me no one complains if the President of a
company has his signature embossed on all the pay checks without personally
knowing if those people did the work. It’s called delegation.


Looking in my wallet I notice my cash has stamped signatures on it. No one is
complaining about a robo-signer there.


Everyone loves to say the banks caused the credit crisis. They certainly
had  a role. But it seems to me it was people not paying their mortgages in
droves that really triggered the credit crisis. Were they duped into borrowing
that money? Give me a break. People who borrow money do it on their own accord.


It’s time for people to do what is right. Pay their mortgages. Honor their
commitments. Not look for technicalities after they were foreclosed on for
non-payment. It’s pathetic that the States are taking up this cause in a big
way. America is really losing its way.


October 12, 2010


U.S. stocks had been down today but recovered to end the day up marginally
when the minutes of the last Federal Reserve Board meeting added further
evidence that the Fed will undertake to buy bonds in the market which could
drive interest rates even lower and give banks more cash available to lend out.
This is very dubious long-term value but it is thought that it will boost stock
markets in the short term.  One danger however is that this boost is
already built into the market which is expecting this move.


It was pleasant to see Wells Fargo rise a little today in spite of the latest
bad news for banks – They are under fire now for shoddy paperwork on home
foreclosures. Hopefully Wells will turn out to have done things properly in that


The Q3 earnings reporting season is off an running. Intel reported after the close
of regular trading that its profits were up slightly more than expected.
(Profits were up hugely compared to the prior year, but that is not what drives
the market, – since that was already expected and built into the share
price-  it is the fact that the profits are higher than expected that
drives the market)


With markets up so nicely in the last 6 weeks I am starting to think about
maybe taking some profits. (After all, I am about 94% invested in equities and
6% cash, so it may be prudent for me to raise some cash). But I will likely wait
and see how the Q3 earnings come in.


October 10, 2010


Canadian Western Preferred
Shares are updated and rated Sell at
$28.25. We understand that these shares will almost certainly be redeemed for
$25 on April 30, 2014. So what looks like a good cash yield is not so good once
you consider that you would suffer an 11% loss if these are held until that
probable redemption. It’s not clear to us that “the market”
understands this. We do note that the CFO sold her  shares last month at
$28.05 and we can bet that she understands about the redemption.


The latest edition of our free newsletter was
sent out today. If you did not receive it by email it could be that you are not
on the list. We keep a separate email list for the free newsletter and paid
subscribers are not automatically on that list (although most paid subscribers
would have joined the free list. You can join the free list using sign-up link
at the bottom of every page on the Site. If you are already on the list, the
system will indicate that and will not add you in again.


October 7, 2010


markets were down a little today… Not surprising after recent strength.


Tonight Alcoa the first company to report Q3 earnings came out with
better-than-expected earnings and a slightly better forecast. Possibly will jump
start the market tomorrow, though that depends on other news like a jobs
report due out tomorrow.




The great mystery in financial markets these days is how interest rates can
be so low. There is lots of uniformed speculation on the matter. But not so much
informed intelligent opinion.


One question would be who is buying the U.S. Treasuries? (The U.S. borrows by
selling treasury bonds) Speculation is that the Federal Reserve Bank (another arm
of government) buys and this drives down the interest rate. But other people buy
too. Speculation is also that it is the Chinese who buy these.


The U.S. Treasury bond yields on 2 year notes reached a record low today of
just 0.36% according to Yahoo. So I decided to look who is buying. Who is it
that is willing to lock their money away for two years at 0.36%?


For starters you would have to have a lot of money to bother with this. We
are talking about a return here of $360 dollars on $100,000. If I was an
American with $100,000 cash I sure as heck would not lock it in for two years to
get $360 times two or $720 in two years. At that rate I’d just keep it in my
investment account and hope for a better deal than that.


Now if I had $100 million and just wanted to collect interest, well then
maybe… since that would be $360,000 per year, though that sounds incredible paltry
as well.


A search of www.treasurydirect.gov
(eventually) turned up a file that lists the category of recent bond buyers.




This link to the Coupon Auctions – Data from January 2000-present Excel document will open a new window


This data shows that the latest 2 year auction at September 30, when the rate
was 0.375% raised $37 billion. Here were the buyers by category:


A total of $37 billion was sold to investors… buyers were as follows:


The Federal Reserve banks $1.1 billion  (so much for the Fed being the
big buyer! not)


Deposit taking
$0.1  (almost nothing, regular banks are not interested I guess)


$0.4 billion (seems stupid, but could be payroll savings plans and such)


Dealers and
$22.6 billion (this is the big buyer, unfortunately we don’t know who they buy
for -pension plans, mutual funds, insurance companies???)


Pension and retirement funds  $0.0 ($0, thank goodness, it would be hard
to build a pension on 0.375% yield)


$2.64 billion (some money market funds are mandated to buy these so this is


Foreign and International     $10.3 billion (so okay this
is a lot but it’s not like China buys the whole $31 billion)


So, the mystery remains why in god’s name are these buyers investing their
money at these low rates. Especially why invest with the U.S. government that is
rumored to be in bad shape financially and owes untold trillions???


No one is twisting their arms right?


So the most obvious answer is that a lot of people and institutions and
foreign governments have a ton of cash and need to invest it someplace and they
find that this 0.375% return locked in for two years is the best combination of return
and safety in their opinion.


Now it would be better for the economy if these apparently rich institutions
spent the money.


Maybe we should encourage them to do so.


Maybe tax pension funds when they invest in such short term bonds (We already
tax most other investors).


I don’t know the answer but these extremely low interest rates are now doing
a lot of damage. Pension funds are decimated. Insurance companies too. Seniors
can’t get any return at the bank…


Also in terms of longer term bonds a similar patter emerges. It is broker
dealers that are the biggest buyers followed by foreigners and then investment
funds. The Fed contrary to rumor has not been a big buyer at all (They may tend
to buy on the secondary market from banks rather than from the Treasury at these


So what has this got to do with stocks? Well, stocks are considered riskily
that might fall in value if the recession resumes. But you can buy stocks at
P/Es of 15 all day long. That is an earnings yield of 6.67% or some 18 times
higher than a two year treasury bond. And over twice as high as the interest on
a ten-year Treasury bond. Dividends alone on stocks are about equal to the
10-year treasury yield. You have to be extremely pessimistic about the earnings
outlook for companies to conclude that these treasury bonds are a better
investment than stocks if held for a say five to ten years. In a short term
basis, sure stocks could fall (a lot). But the economy would have to collapse
and stay collapsed before stocks would fail to beat the ten year bonds over the
next decade. Looking at these Treasury yields I feel good about owning companies
(stocks) and not bonds. I am not advising you to avoid bonds. We just rate
stocks here, and try to understand things. We don’t advise you what to do with
your money – in part because we don’t know your circumstances – maybe you need
you money for next week’s groceries. If so, stocks are not a good choice. I am
just looking at the numbers. You can draw your own conclusions.


October 6, 2010


In the last two months we have had a strong increase in the number of
subscribers. Thank you to all the new subscribers. In large part, this was due
to a very
nice article about this Site and myself that ran in the Edmonton Journal and in
the Regina Leader Post.


While we judge and track and show you our performance on a longer term basis
such as yearly and over a period of years, it is nevertheless pleasant to report
that our Stock Picks as well as the market in general are up very strongly since
the August 7 article that attracted many new subscribers.


New subscribers in particular may benefit from reading the following short
article that talks about how to use this page of Stock Picks that you have
paid for. This link is also at the top of this page. Note also the list of
“Links for Members Only” just below the table of stock picks. There is
a lot of valuable information there.


Canadian Western Bank is
updated and rated (higher) Buy at $25.24 (it closed today at $25.04. It’s been
very successful over the years.


October 5, 2010


We should not get too excited about a one day rise in the market (even if it
comes on top of five weeks of pretty steady gains) but it certainly was nice to
see the Dow up 1.8% and the TSX up 1.4% and our stock picks up similar amounts
on average.


Warren Buffett today said it is “quite clear stocks are cheaper than
bonds” right now, and he said he “can’t imagine” choosing bonds
over stocks at current prices, but concedes that’s what many investors have been
doing because of a “lack of confidence” in the economy’s future.
“They’re making a mistake, the ones that are buying the bonds” at
record low yields.


I was not surprised to hear him say that. The latest
edition of our free newsletter quoted what he had said in 1984 about people
investing in bonds at very low yields in 1946 with municipal bonds yielding
under 1% (And he said that similar although less extreme conditions prevailed
for about two decades, thus indicating that he considered long-term bond yields abominable
at low yields that did not have to be quite as silly as 1%) and I indicated that I
thought today’s long term bond yields were similarly abominable.


October 4, 2010


It seems the big credit card companies in the U.S. are going to have to stop
banning merchants from offering discounts if you pay cash or debit versus credit
card. Amazingly enough, for decades these monopolistic card companies were able
to impose those rules on merchants. But it’s probably way too late for many
merchants to go this route. Credit card use is ingrained in the population at
this point.  I can’t see Hotels offending their guests by discouraging
credit card payments. Maybe gas stations will, given their tight margins. I am
not sure that this will be a big deal for Visa and MasterCard.


I notice today that Tim Hortons has renewed an agreement with Esso. Tim
Hortons has 350 small kiosk style locations in Esso service stations and will
add 175 more over the next ten years. So that’s only about 18 new kiosks per
year but is positive news.


Our next update will be for Canadian Western Bank. This seems to be a very
well managed little bank. It has done very well for shareholders over the


News today indicates that the Federal Reserve will take actions in November
to ease monetary conditions and get consumers spending. It all seems rather
bizarre, interest rate are already at historic lows and so I have to wonder why
more easing is needed. Seems like pushing on a string. And if America and
Americas got into trouble by taking on too much debt how will encouraging people
to spend solve that? Well in any event it could have a positive impact on stock


October 3, 2010


A subscriber asked me about my thoughts on Gold.


Actually I have more questions than answers when it come to Gold. My approach
to investing centers on financial statement analysis and trying to access the
value of companies, on a per share basis, compared to the estimated value of the
shares based on earnings and dividends and the estimated growth thereof. Gold
does not fit that mold.


When it comes to Gold I wonder about the following:


Is Gold priced simply as a collectible like rare stamps and coins and old
paintings? If so, I don’t have any ability to guess where its price will go.


Is Gold priced on some relationship to the cost of finding it in the ground
and extracting it? What is that cost of finding and extracting Gold?


Is Gold priced as the ultimate money? If so how does that work? If I owned
all the Gold in the world would I be able to buy everything in the world at
current prices? If Gold is the ultimate money, why do we talk about the price of
gold in dollars rather than the value of a dollar as so many micro grams of


Has Gold quadrupled in price over the past few years because of a decline in
value of the U.S. dollar? (No one suggests that the value of a U.S. dollar has
fallen by 75% against other currencies and there has not been much inflation in
the U.S. and in fact a dollar will buy a lot more real estate now, so in what
sense has the U.S. dollar depreciated all that much?)


Is Gold up because of a fear the U.S.. dollar will collapse? (If so, how does
that square with the fact that the U.S. is able to borrow money for 30 years at
about the lowest interest rates in history?)


So, the bottom line for me is I simply don’t understand the price of Gold or
what drives it. Personally I prefer not to invest in things I have no
understanding of.


October 2, 2010


Walgreens (the big U.S. drug store
chain) is updated and rated Buy at $33.68. It just released its Q4 2010 earnings
press release. The stock is up about 20% in the last three months. So it’s not
the bargain it was in the Spring, but it still is likely a good long term
investment. I recently sold half my shares in this at $33.70 on a recent 11%
jump in price. I would not likely buy that back unless it goes back about


Intact Financial (car, house and commercial insurance company) is removed
from the Site. (We had not updated it for about a year now). It is appropriate
to remove some companies from the Site periodically in order to make room for
new ones. Also I reviewed its financial statements and it is increasingly clear
that the earnings of property insurance companies are notoriously hard to judge
based on their financials. The earnings are essentially based on estimates.
Intact seems like a good company but it really does not lend itself to the type
of financial statement analysis that I rely on to a large degree.


September 30, 2010


Our stock picks were up on average a little today even as the Dow fell 47 points
and the TSX was down 14 points.


The third quarter is over now and within a week to 10 days we will see the
first of the Q3 earnings reports roll in. Markets are expecting good results
from the Q3 earnings reports and so those companies that disappoint will likely
see stock prices drop. Companies will have to surprise to the upside to register
gains relative to the market.


After the super strong year the markets had in 2009, I was not really
expecting much from 2010 (see post under January 2 below). But as I said in
yesterday’s post markets are nothing if not unpredictable. Market direction will
likely continue to be driven by earnings, economic reports like jobless claims,
reports of government stimulus and the usual gyrations as fear and greed
continue their permanent tug-of-war. Throw some world events like wars and terrorist
attacks into the mix and you can see why it’s anybody’s bet in the short


Our next update will likely be for Walgreen…


September 29, 2010


September has just one more day (Thursday) to go and it’s over. And it looks
like it was a record September in stocks the  biggest gain in the U.S. in
September since 1930. Well where do we go from here?


Well, clearly nobody knows. Virtually nobody guessed (let alone
“knew”) that markets would do so well in September. And few guessed
(and clearly none knew) the extent of the market crash that happened in 2008.
And if they didn’t know then (and few even guessed) why should we think anyone
knows now what lies ahead? The fact is, They don’t know now, what they didn’t
know then.


So forget predictions of where the market is headed. On this topic Warren
Buffett has said consistently throughout his career when it comes to short term
market direction I don’t know, and I don’t care to speculate. In late 2008 he
famously said stocks would do well in the long term and that he was buying, but
he did not say stocks would turn higher short term.


So again, forget predictions of where the market is going in the short term,
nobody knows. Instead focus on thinking about the best place to invest your
money. That may be in the broad stock market, it may be in bonds, or it may be
in individual stocks. Personally, I think the opportunities are in individual
stocks. But that is for the long run. In the short term nobody knows. So don’t
invest the grocery money, or the rent money. But consider investing your long
term savings in companies that are profitable, well managed and likely to be
around and remain profitable for the long term.


I would bet that right now most people would agree with both of the following


1. Business owners tend to get rich on the backs of consumers and


2. There is little chance of getting rich by owning stocks.


I would suggest both statements can’t be true.


Stock investors of course are business owners.


September 28, 2010


One of our stock picks did very well today.
Walgreens the big American drug store chain was up $3.46 per share or 11.4%
to $33.81. The reason for the increase was a strong earnings report out
yesterday after the close with earnings at 49 cents per share against an
expectation of 44 cents.


This was particularly of notice to me since I had about 4.3% of my portfolio
in this stock. We had rated it a (higher) Buy on June 27 at $27.79. On June 28 I
noted I had bought some shares. On July 14, I noted that the company had
increased its dividend by 27%. On August 1, I noted that I had bought additional
shares (which was at $28.10.)


During September the shares had risen basically along with the market to
about $31.


One thing that is very interesting about today’s jump is that it means the
news of the strong earnings had not leaked out. Often even when a good earnings
report comes out and is above analyst expectations, the stock does not budge at
all – arguably indicating the news was leaked. In this case no leaks, which is
as it should be.


With the stock up about 11% today, I wondered if the reaction was a bit
over-done. Given the large increase today and the fact that I was up about 22%
since my purchase in June, I decided to sell half my shares and sold for $33.70.
Also note that this was in an RRSP account so tax impacts are not an issue. Also
I have very little cash in that RRSP account and so that was another reason to
sell some Walgreen.


I will re-evaluate after I update the analysis report in the next few days
but I suspect the stock will end up being rated a Buy as opposed to a (higher)
Buy but I won’t know for sure until I run through all the numbers and the
non-numerical aspects and outlook.


September 27, 2010


The markets started out the week with a decline as of the close on Monday.
For most of the day stocks were up, but they closed lower. However some stocks
were up. Notably TMX Group up 2.7%
and Tim Hortons up 1.4%.
Financial news reports remarked today on the large number of takeover deals that
are happening. This tends to show that support for stock prices.


Walgreen company will report earnings
before the opening tomorrow. The results for this large drug store chain may
provide some indication of the state of the economy.


September 24, 2010 


Today was a strong day in the markets. Almost all stocks were up. United
States Markets were up 2.0% on average on the day. Canadian stocks were up an
average 0.85%. So, far September has been very kind to investors.


Yesterday it was reported that Warren Buffett had said the recession is not
over. That’s true he said that but the way it was reported was misleading.
Officially a recession is over as soon as the economy starts to climb back out
of a trough. What Buffett said was that in his view a recession is over when the
economy finishes climbing all the way back and starts to make new highs in GDP.
So Buffett is not at all arguing that the economy is still falling. He is just
pointing out that, although now climbing, it has a ways to climb still to get back to where it


By the way Berkshire was up 2.5% today to $124,850 for the A shares. These
are the very same shares that were trading at $14.86 as Buffett took control in
the Spring of 1965 paying that amount on average on behalf of himself and his
limited partners. So that’s a gain of 840,000% for Buffett and those lucky
individuals (and their heirs at this point) who were with Buffett at the outset
and who have stuck with him. Along the way they received, strangely enough,
exactly one thin dime per share as a dividend which was paid in 1967 and not
another dime since. But somehow I think maybe the 840,000% percent capital gain
makes up for the lack of dividends.


There are many analysts who will tell you that only dividends really matter
and capital gains are meaningless.  Which goes to prove that there are many
analysts who simply don’t know what they are talking about. Berkshire investors
would have been far far poorer if Berkshire had paid dividends instead of
reinvesting all profits. Save that one dime per share, which probably still
haunts Buffett. Let’s see 10 cents compounded at about 20% for 43 years is $254 dollars
per share that could have been added to book value today. And consider that 10
cents bought one chocolate bar in 1967 and today it costs about $1.00 per
chocolate bar. If those early Berkshire investors took their ten cents and
bought a chocolate bar, well that’s okay, but had the 10 cents been left with
Buffett it would buy 254 chocolate bars today. So you see, that was kind of an
expensive chocolate bar. The point is when you invest in a great company that
has ample opportunity to re-invest its profits and make high returns then it is
rather foolhardy for investors to ask such a company to pay a dividend.


But many companies do not have good opportunities to re-invest profits at
high rates of return. In those cases it is rational for investors to demand as
large a dividend as possible.


I’ll make a wild prediction at this point. Unless health reasons force it
earlier, Buffett will retire in 2015 after running Berkshire for 50 years and
the share price will be up over 1 million percent by then, from the 1965 value. It only needs to rise
about 19% to reach the million % mark. Buffett always focused on the rise in
book value. Book value was $19 per share when he took control and reached $84,487 at the
end of 2009, up 434,000%. So book value would need to slightly more than double
to reach the 1 million % mark. It would be a stretch to achieve that on
Buffett’s watch. In any event I am not sure Buffett takes any interest in the
million % figure. I think he might take some interest. But his primary interest
is always in making money now and in the future.


Another prediction, despite those kind of statistics, many people will continue
to show little respect for Buffett and will say that he has lost his touch etc.


September 23, 2010


Reitman’s is updated and rated
(lower) Buy at $18.98. Not a screaming buy at all but still worth considering.
It recovered well from the recession in large part due to the high Canadian
dollar since it imports almost all of its clothing. It is interesting to note
that it marks up its items by some 200% on average, versus an avearage 33% at
the likes of Wal Mart. There a couple of aspects of this. First Rittman’s is
able to do this because it sources at lower cost from China. And it sells almost
exclusively its own name brands. That way there is zero chance that a customer
can comparison shop on the exact same article of clothing. But another aspect of
the high markup is that it partly reflects Reitman’s higher costs compared to
Wal Mart. (For example Reitman’s does not have a higher Return on Equity than
Walmart – Reitman’s needs a VERY much higher gross markup to arrive at an ROE somewhat
lower than WalMart’s).  In some sense Reitman’s is a less efficient
“delivery source” for cloths. But then again, cloths are not that
expensive and it may be that many customers simply like the service and trust
the quality or find that they can’t get satisfactory cloths at the bigger


Reitman’s has carved out a niche for itself and should continue to do well.


Markets were down today. My own account suffered due to Wells Fargo being
down 3%. Such is life in the markets.


September 22, 2010


Our next update will be for Reitman’s Canada which I have just started
working on.


Our stocks were mostly little changed to day but Wells Fargo slipped 2.2%.


September 21, 2010


The United States Federal Bank governs met today and as expected decided to
keep short term bank-to-bank interest rates at virtually zero. The market seemed
to take some short-term comfort from this. But the market also knows this cannot
go on too long and so their is that nagging bad feeling about what will happen
when rates finally do rise.


There was an announcement by Aeroplan that
they closed the first investment in a previously announced new joint venture in
Mexico with AeroMexico regarding the most popular airline loyalty card in
Mexico. While we only rated these shares a (lower) Buy, at $10.99, if some of
these international ventures take off the Aeroplan could do quite well.


Microsoft announced it is raising
its dividend by 23%. Don’t count this company out…


September 20, 2010


Markets were up (Dow up 146 points) a surprising 1.4%. That is not all that
unusual of a one day move but it is large given that many investors have about
given up on the idea of getting 10% or more annual returns from stocks.
Unfortunately a drop of 1.4% in a day is also not particularly unusual. But we
must be grateful for the alms the market has given today. Many of our Stock
Picks did well today.


News came today that the recession ended in June 2009. This announcement was
made by the National Bureau of Economic Research who is apparently the official
record keeper of such things. An announcement some 14 months after the fact
seems of little value. There is actually some value though, for economic
research purposes, economists find it useful to have an agreed upon time period
that was “the recession”. Surprisingly, based on its Web Site this
National Bureau does not appear to be a government outfit. It may be an academic
group that has gained acceptance as the official recession score keeper.


Recession is generally defined as two or more consecutive quarters of
economic shrinkage as measured buy a drop in GDP as measured in real dollars
(dollars adjusted for inflation. For example two quarters of the economy growing
2% in actual dollars at a time of 3% inflation would be calculated as two
quarters of minus one growth (i.e. 1% shrinkage in terms of of the quantity of
goods and services produced).


Conversely the recession is over when the economy starts to climb back from
the trough. So if an economy were to drop 10% and then start to grow. The
recession would be over at the point the experts decided it had started
to grow (and they might decide this date long after it happened). So the end of
the recession does not mean the economy HAS recovered. It just means the
recovery has started. It’s only the beginning of the end of the pain. It’s not
the end of the pain.


A subscriber to this site noted how bizarre it is that an economy that grows
1% from a level of output of say 1 million units to 1.01 million units is
considered healthy and growing (if weakly growing). But if it should drop down
to 0.99 million units, every one hits the recession panic button.


That does not make a lot of sense. Having the output of the economy drop by
1% logically should not be a panic. Businesses and especially households
routinely absorb far larger drops than that without panic.


This whole business of mass panic when the recession flag is waved seems to
be a case of failing to notice that 99% of the economy is still there. It seems
we panic about the measurement of the economy instead of focusing on the economy


I mean think of it in real physical terms. If a a primitive island nation
that lived on fish alone caught 1 million pounds of fish one year, it would
hardly panic if the next year the number was 0.99 million pounds. Well, I guess
they might panic if the chief threw up a “starvation” flag and told
everyone they were going to suffer due to the 1% drop in the catch.


Anyhow according to the official source The United States has been climbing
out of the recession hole for some 14 months and continues its quest to have its
economy reach the pre-recession levels and then grow from there. Maybe everyone
got tired of panic and just went back to fishing and other useful work.




September 19, 2010


Tim Hortons is updated and
rated (lower) Buy at CAN $37.61 or U.S. $36.40. This stock is up 17% year to
date and we rated it a Buy at the start of the year. I have mentioned many times
that this is a great business. It’s obviously a money geyser. The only problem
is hat everyone knows this and so the share price already reflects that and is
pricing in roughly 9% earnings growth (per share annually) for the next five
years. If that were to happen you would make about 8% per year on your
investment according to our calculations. Even if it grows somewhat slower you
would still make a positive return. So, we really like it as a business but are
not much more than luke-warm on it as an investment right now. We’d prefer to be
buying it a few dollars lower… Still, I am pretty comfortable holding this
personally. I will not be looking to add to my position at this price.


September 17, 2010


I have updated the break-down of my personal
portfolio. I have a very heavy allocation to Wells
Fargo. In fact I could be accused of pigging out on that company or
otherwise getting far too attached to it and risking too much on it. Time will
reveal if my confidence in the company is rewarded. And I readily admit that it
comes with risk as banks by nature of highly leveraged. And its fortunes (is
that a pun?) depend to to a good extent on the recovery of the U.S. economy and
it could be hurt by government actions. Still, I like the company’s prospects
and if it does well I have enough of an allocation to it that a large price
increase, if it occurs (well hopefully when but truthfully if), is
going to add meaningfully to my portfolio. Similar logic applies to my other
larger holdings. I have made a few big bets. I like to think that they are
highly educated bets. But they could turn out wrong. In stock investing there
are ALWAYS risks. If I only focused on risks I would not have invested in stocks
at all. And I would be much the poorer for it.


September 16, 2010


I saw in the Financial Post today that Smart Technologies was down to
$10.50 at the low last week after having launched in an Initial Public Offering
at $17. I gave something of a warning about this IPO in my comment of July 15,
2010, below.


Today’s business news seemed moderately positive. Bigger earnings for FedEx –
but warned of slow growth ahead. Initial jobless claims in the U.S. slightly
lower (better) than expected.


September 15, 2010


Our stocks were mostly up a little today…


Canadian Tire is adopting a
centralization strategy. Currently it had considered Retail, automotive, Marks
Work Wearhouse, Finance and Petroleum to be separate businesses, but they will
now be ran more as one large business. It’s hard to say if this is a good thing
or not. They are paying out some $15 million in severance and so that is one
negative aspect of it. Perhaps it shows though that is is not a company resting
on its success. It continues to strive to grow and change. Our report is several
months old, but I am not sure that much has really changed. I own shares and am
comfortable owning them.


September 14, 2010


Monday the markets were up, today we gave some back… The usual tug of war
between good economic news and bad economic news continues…


I saw an interesting article today talking about how some U.S. banks have
been forced to buy back mortgages that they sold to Fannie Mae or Freddie Mac.
Basically if a bank failed to follow the rules in issuing a mortgage insured by
these entities or sold to these entities then they can make the bank buy that mortgage
back. Any loss on the mortgage becomes the bank’s and not Fannie and Freddy’s.


Wells Fargo addressed this in a presentation yesterday and indicated that
they had sufficient reserves (estimates of losses) for this item.


I have not heard any mention in Canada about CMHC refusing to honor the
insurance on any mortgages when the documents were not all completed correctly.
There have to be a least some cases where mortgage lenders gave out CMHC insured
mortgages but failed to meet all the criteria required by CMHC. If so the
Canadian banks should eat any loss. But I have not heard of any such thing. Then
again I don’t follow the Canadian banks. I have just now sent an email to CMHC
to see about this.


September 12, 2010


The latest edition of our free newsletter
was sent out yesterday.


It included an updated analysis of the valuation
of the Dow Jones Industrial Average and a discussion of the expected return
on long-term bonds versus stocks.


As a paid subscriber, you are most likely already on the list to receive the
free newsletter. But it is a separate list. If you did not receive the free
newsletter by email late Saturday or early Sunday then you could try adding your
email to the free list at the following link:




September 9, 2010


Yesterday I said stocks would likely beat GICs over the next five years. Well
stocks were up today. But there are 1825 more days to come…


Wells Fargo in particular was up 1.9% today and has recovered the loss it
suffered on Tuesday. Moody’s is reported to be looking at upgrading the credit
rating of Wells Fargo. This company seems on a track that will lead to a
noticeably higher stock price as it reports better profits in the next four
quarters and beyond. Of course that is not guaranteed, and a deep double dip
recession or further drops in U.S. house prices could delay that. But it is what
I expect will happen. As far as I know Warren Buffett is still quite bullish on
the company but he speaks only infrequently of such things.


I notice that CN a long-time Buy over the years on this site is near a record
high… despite a dip to day… same thing for Tim Hortons… Probably not the
best time to buy but these are solid long-term companies.


September 8, 2010


The bank of Canada, as expected raised “the Bank of Canada interest
rate” to 1.0%. Yawn.



It’s easy to get confused as what this rate is. The Bank of Canada describes
it this way:


The target for the overnight rate


The Bank carries out monetary policy by influencing short-term interest
rates. It does this by raising and lowering the target for the
overnight rate


The overnight rate is the interest rate at which major financial
institutions borrow and lend one-day (or “overnight”) funds among
themselves; the Bank sets a target level for that rate.
This target for
the overnight rate is often referred to as the Bank’s key interest rate
or key policy rate.



It’s Interesting (so to speak) to note that while very short term rates in
Canada are rising, longer term rates like the interest rate available by
investing in a 10-year government of Canada bond (i.e. the rate which the
Government of Canada must pay to borrow money on a ten-year fixed interest rate
basis) has been rising. The 10-year rate is currently at 2.8%, ten weeks ago it
was closer to 3.2%. This is why 5-year mortgage rates have been falling. The
rate that Banks must pay to attract 5-year deposits is linked to the market rate
for 5-year bonds and not so much to the Bank of Canada daily rate.


I will shortly be updating my analysis of the valuation of the Dow Jones
Industrial Average. Basically the numbers show that the Dow should be a
reasonable investment if held for say a 10-year period. This excludes currency
fluctuation for Canadians. As we all know we can get pretty near nothing by
putting our money in the bank. A 5-year bank GIC at ING Direct will pay you 3.0%
if locked in for five years. Against that kind of 98-pound-weakling competitor
it is not hard to predict that the DOW (and the TSX index) will do better than
that over a five year period. There is certainly always a chance that the DOW
will give lower or even negative returns over the next five years. But consider
that the DOW is yielding 2.8% right now in dividends alone. You have to quite
pessimistic to to think that the DOW will be flat or lower in five years. My
money is on stocks to win that fight, hands down (should pummel GIC rates). I
think it has been something like 50 years or more since investors last had the
opportunity to invest in the DOW at a dividend yield that was higher than the
long-term government bond yield. This was the situation in the 1940’s.
Subsequently in the next 20 to 30 years after that, those who locked into
long-term government bonds at ultra-low rates got hammered due to unexpected inflation
and stock investors did extremely well, thank you.


Yes, I know, I know, the DOW is about flat from ten years ago. That is not
the fault of the DOW companies – their earnings in 1999 were $477 dollars per
unit while in 2009 the earnings had risen to $625. Not a big increase. But still
that’s 31% higher than 1999. So why was the DOW flat? It was due to investors
who had bid the DOW up to a P/E ratio of 24 times earnings at the end of 1999.
Once investors had bid the DOW up to unrealistic levels in the 1999 bubble, it
was destined to give poor returns even if the DOW companies made reasonable
earnings gains. The DOW in 1999 was priced for perfection and was almost bound
to fall, at least temporarily. Today the DOW is certainly not priced at an
extremely high level. GIC’s returning 3.0% have a P/E ratio of 33. The DOW is
closer to a P/E of 14. Historically a P/E of closer to 8 was considered the
bargain territory. But that was back when GICs delivered higher returns as well.
Anyhow the bottom line is that unless we in for basically a depression, then
stock investments are going to out perform GICs in the next five or ten years.
As to the next day, month, year or two years. Well that’s a tougher call… A
call I can’t make. But I have voted with my wallet for stocks.


At the end of 2002 the DOW was at 8342. It seems reasonably safe (but it’s
not guaranteed) to predict that as of December 31, 2012, it will not be the case
that the DOW has made no money over the past ten years.


Visa slipped 4% to $68.55 today. I am
tempted to add to my position slowly. It might very well slip further. But
despite some efforts to reign in some its fees it still has a lot of
monopoly-like characteristics.




September 7, 2010


Markets declined on Tuesday… Wells
Fargo in particular was down 3.6%. For Canadian investors this was offset
somewhat by a fall in the Canadian dollar. The market decline was apparently due
to fears that European banks might not do well on certain “stress
tests”. Basically, banks take in deposits and loan them out. If the enough
borrowers don’t repay the loans, then the bank is in trouble. This is nothing
new. It has ever been so and always will be so. And despite attempts to measure
such risks, it can never be measured with precision. The fact is that if you
apply a stringent enough stress test (assume a high enough amount of deadbeat
borrowers) then every bank can be made to fail your stress test. This is why
governments tend to insure bank deposits. Without government insurance a
depositor would never be quite 100% safe from a bank blowing its brains out by
lending to people and companies that can’t or won’t pay back the money. A well
managed bank would avoid that fate, but government deposit and bank regulations
exist to protect the public from banks managed by reckless and/or idiot


In my investing I can’t and don’t worry about the strength of European banks.
Yes, if European banks start to fall it will probably ultimately affect the
North America economy in some way. But I have severe doubts that the
“geniuses” doing these bank stress tests have any real clue as to what
might happen. I mean, I imagine these are the same type of geniuses who made the
models that allowed packages of sub-prime mortgages to be sold with AAA credit
ratings. This kind of stuff is basically noise to me. I am certainly not going
to change my assumptions about things like how much profit Tim Hortons can make
on a donut on the basis of this news.


I expect to see markets continue to wobble and lurch around on various bits
of news like this. Meanwhile I will just continue to try to be invested in good
quality companies with good profits and a good outlook.


September 2, 2010


Yesterday’s strong markets were followed up by another good day, especially
in Canada. Almost all of our stock picks were up. Since I am almost fully
invested in equities I am not making any buys at this time. Nor am I selling
anything. However I always reserve the right to change my mind on that and do
some buying and selling as the mood may strike me. I will try to let you know in
advance as often as I can. And on any thinly traded stocks I would always
announce my plans in advance.


September 1, 2010


The U.S. market today was up 2.5% on news that manufacturing in China and in
the U.S. was stronger than expected – indicating that rumors of the death of
global trade were perhaps exaggerated. I don’t take much of a signal from this.
To me, it just shows how unpredictable markets are. It also shows I think that
there is still a large group of investors who are optimistic. So we seem to have
a continuing battle between bullish and bearish investors.  There seems to
have been a lot of announcements about corporate takeovers lately and at large
premiums. So that indicates that large corporations view stock prices as being
attractive in many cases. A certain segment of investors it seems are hungry for
positive news and when they see it, they buy with enthusiasm.


We shall see if the market decides to take this gain away as fast as it gave
it or will the rally be sustained.


Canadian Western Bank
came out with strong earnings after the close today. It’s stock price will
likely do well tomorrow ( Thursday). This company has a long history of winning.
It goes to show it often pays to bet on a winner.


August 31, 2010


Not much excitement in the markets today.


With Visa down below $70, I would be
tempted to nibble at it. I always figure it’s hard to keep a good (near)
monopoly down…


Microsoft is certainly tempting
as well. It is trading a low multiple to earnings and it has it own monopoly
characteristics. (Anyone out there use Word, Excel, Windows?, if not at home,
perhaps at the office?, despite shortcomings most of us have little choice in
the matter.)


August 30, 2010


The U.S. market today dropped 1.4%, giving back its gains from Friday. The
TSX was up a little.


Possibly stocks will get some good news soon (in the run-up to the mid-term
elections) from President Obama as he spoke today about doing some things to
help the economy.


I once again added to my Wells Fargo position today. This is definitely
“showing the courage of my convictions” though it might also be a case
of stubbornness.


August 29, 2010


Stantec is updated and rated
(higher) Buy at $25.64. This is a company that we first added to this Site as A
Strong Buy back in 1999 when it was trading at just $2.50 (adjusted for
subsequent stock splits). The stock price has had its ups and downs but the
earnings have grown quite steadily. It’s a well managed company and worth


August 27, 2010


Markets today were quite strong as U.S. GDP revised numbers for Q2 while only
1.6% were better than expected and at least were not negative as some had
feared. In addition, “the Fed” indicated it would intervene to support
the economy if needed. These are not exactly good news things but the market
took it as positive in the sense that things at least are viewed as not as bad
as feared.


Dalsa Corporation is updated and
rated Speculative (lower) Buy at $10.25. This is an interesting Canadian company
that sells technologically complex products and services world wide. It has good
potential. Over the years I had generally rated it a buy but it disappointed.
Then in 2009 it looked to be heading for trouble as earnings went to zero in
part due to the high Canadian dollar. But in 2010 it surprised very much to the
upside. Selling for not much more than book value it does not look like a
bargain now but it may be a bargain iof earnings continue to recover as they
have in the first part of 2010. Overall a possible pick as a speculative


August 26, 2010


U.S. markets were down modestly again today. Since earnings season does not
resume until early to mid September, the market will likely continue to react to
economic news.


U.S. mortgage rates reached another record low, just 4.36%. This is
remarkable in a number of ways. Consider that it was the fact that a large
number of U.S. homeowners were basically deadbeats and failed to pay their mortgages
on time that led to the financial crises. (Yes banks were responsible too, but
had people paid their mortgages as agreed there would have been no crisis). Yet
banks are now willing to lend home owners money for 30 years at 4.36%. That does
not leave much room for the risk of defaults or the risk of inflation.


It is also remarkable that we see record low interest rates and yet house
sales are extremely low. Home affordability in the U.S. is vastly better than a
few years ago. Yet few are buying. Homes it seems are too cheap and mortgage
rates too low to Buy!!!


Here is another paradox. Some analysts are saying the U.S. is effectively
bankrupt and will print money and create hyper inflation. Well someone needs to
inform bond investors. Bond investors are lending money to this allegedly
bankrupt nation locked in for 30 years at 3.50%. It would obviously be illogical
to lend money at that low rate to a country that you thought was bankrupt or
that was going to create big inflation. Consider that a 3.5% interest rate will
take 20 years to double your money (and that is in nominal terms before
deducting the impact of inflation).


August 25, 2010


Markets halted their slide today (or at least took a breather). The next
updated report on this Site will likely be for Dalsa which is an interesting
Canadian Technology company. The last time I looked at it I thought it was
continue to get clobbered by the high Canadian dollar but it ended up doing well
in its last few earnings reports.


August 24, 2010


Markets fell just over 1% today partly on news of poor sales of existing
houses in the U.S. (not new but “used” houses).


I used the opportunity to add a small amount to my Wells Fargo position. As
always I am prepared as an equity investor to accept the risk that markets fall
at least in the short term.


Alimentation Couche-Tard bucked
the trend with an 8% gain based on its good earnings report today, rising to
$22.69. We had rated it a (higher) Buy on July 17 at $20.


Groupe Aeroplan is updated and
rated Speculative (lower) Buy at $10.99. It has good potential but the
accounting is very complex. It may be nest to wait until it (hopefully)
demonstrates stronger earnings in the next couple of quarters.


August 23, 2010


Walmart had a good day up 1.8% –
perhaps a delayed reaction to its good earnings report last week.


Wells Fargo continues to slip.
I think Wells Fargo has a bright future but I have always said banking can be a
risky business and suffers from high leverage and accounting based on estimates
of bad debts. Our next real indication for Wells Fargo will come with its next
earnings report in about 2 months. Meanwhile it could get bounced around in
either direction based on market speculation and based on any political moves
that favor or hurt banks. Also as always based on the direction of the overall
stock market.


I will have more updated company reports in the next few days.


The Canadian dollar was down to 94.8 cents U.S. which helps the value of U.S.
investments held by Canadians. I can’t predict where the Canadian dollar is
headed. But I have trouble imagining how the Canadian economy can function if it
heads above $1.00 (clobbers tourism and exporting businesses). My approach has
been to go ahead and buy U.S. assets taking advantage of a dollar that is still
very high compared to where it has been over the past 30 years. Having now
bought a lot of U.S. stocks I would probably hedge the exchange rate risk if I
could but I don’t know any realistic way to do that especially in RRSP accounts.
(In theory one can buy futures on the dollar, but not I think through TD
Waterhouse and for sure not in an RRSP account) The other way I look at it is I
don’t really need to hedge the risk. In retirement I will spend time in the U.S.
and I will need U.S. dollars.


If the Canadian dollar got as low as 92 cents or so, I would then be tempted
to sell some U.S. stocks and hope to buy back at a higher level of the Canadian
dollar. But I would likely have a hard time pulling the trigger on that since I
like the U.S. stocks I hold. Now, if the Canadian dollar for some strange reason
plunged to say 85 cents then I would definitely sell some U.S. stocks at that




August 22, 2010


The preferred shares of
Western Financial Group WES.PR.A are updated and rated Speculative Buy at
$86. To other Western Financial preferred shares. WES.PR.B and WES.PR.C appear
to about equally as attractive.


Western Financial Group is
updated and rated Speculative (lower) Buy at $2.33. I took an interest in this
growing company some years ago. It has proven to be a difficult company to analyze
due to a number of factors including the fact that its life insurance and
banking operations by nature can only estimate earnings (based on estimated loan
losses and other risk factors). I choose to keep it on the list because it has
potential and because I have gained a certain amount of familiarity with it over
the years. As a speculation it might not be a bad pick, but it does have its


August 20, 2010


Although the Dow was down 58 points or 0.6% on Friday, our U.S. stocks
generally did well.


I have just updated my analysis of the S&P
500 index valuation. There are a lot of variables. Under what I consider to
be reasonable assumptions for earnings growth over the next decade, the S&P
500 appears moderately over-valued based on a required return of 8%. However
based on a required return of 6.5% (which may be a more realistic
“requirement” in this low-interest rate environment) it looks about
fairly valued. This article is not exactly light reading but it is not that
complex either and is worth a close read, especially for the mathematically


(Pre-market opening comment)


As of 8:50 am eastern time on Friday, markets were set to open lower. Investors should be
prepared to stomach the possibility of declines, possibly steep declines. That is always the case but
particularly during recessions. Investors who are not in it for the long term
can consider getting out. That is not my approach. In 2008 as markets were going
down, I was buying and this worked out well for me. If I had the ability to cash
out at tops and buy in at bottoms that would have been much better. I don’t have
that ability and doubt that anyone does.


Wells Fargo in particular has been dropping. I understand this is on
speculation that it will be forced to buy back certain mortgages it sold to the
government agencies Fannie Mai and Freddy Mac. And presumably to buy the mortgages
at the amount owing rather than at market value. It sounds bizarre that this
would be true as would suggest that one cannot count on the U.S. government to
honor its transactions. But politicians can’t be counted on to follow the law so
who knows. I am not going to worry much about this speculation.


August 19, 2010


As of 11 am eastern the Dow is down 160 points or 1.5% due to jobless claims
in the U.S. That is not a particularly unusual drop. It is never clear whether
such dips represent the start of the trend or just a one-day event that will be
reversed the next day. What Warren Buffett teaches is that if certain
investments offer a good return and are the best investments you can find then
its reasonable to just invest and not sweat the market moves. This philosophy
has worked out shall we say “okay” for Buffett.


August 18, 2010


I am vacationing for a few days in Coeur d’Alene Idaho. I was interested to
see if the recession would be noticeable here. I was not looking at real estate
but still I did notice some ads for houses for sale at cheap prices. Condos
across from our hotel were advertising 65% off and the retail area there was not
too busy.


But overall not a lot of evidence of recession. The Hotels are busy (as in
full) and the rates seem high enough. Restaurants are busy. At Silverwood theme
park today it was busy. At the huge marina on the lake there were tons of boats
and I only saw one for sale. So things do not look at all desperate. I suspect
for anyone who was caught up in the 5% or so increase in unemployment things are
rather desperate. For the 90% of the labor force still working things are mostly
not that bad. At least that is how it appears on the surface.


I do think it is the golden opportunity of a lifetime for Canadians to buy
real estate in the U.S.  That’s not for everyone of course. But a certain
percentage of Canadians plan to eventually buy vacation property in the U.S. If
so, I would not wait for some bottom but would pounce on the golden opportunity
in front of me (high Canadian dollar and sharply reduced American real estate).
Of course I would be quite selective as to the neighborhood.


August 17, 2010


I have fewer comments this week due to the fact that I am traveling this
week. A strong day in the markets today. Just the usual volatility it seems.
Walmart, Canadian Tire and Shaw Communications were among those doing well.


Wells Fargo and Melcor have been dropping. There are no guarantees but I view
dips on those two as buying opportunities. I bought a few more Melcor shares


August 12, 2010


Tim Hortons released excellent earnings today and the stock was up 6%. We
have always really liked this company. It should be obvious to every Canadian
that this is a GREAT company. Of course the stock price tends to reflect that
and and so it never tends to look very cheap. But as we have mentioned
many times sometimes it pays to pay-up for quality. I have about a 5% allocation
to this company and I am certainly comfortable holding it. I have not updates
the analysis yet so I am not sure I would still rate it a Buy at this price or
not. I plan to update this company by the end of August along with a number of
others. I will however be traveling starting Saturday for about a week so look
for a number updates the week of August 23.


Markets overall fell today on weak employment-related reports from the U.S.
With earnings season over we can expect economic news to be the main driver of
markets for the next six weeks after which the market will focus on Q3 earnings
reports as well as economic reports. As of 10 pm Eastern on Thursday, the future
markets are suggesting the Dow will be up 50 points tomorrow. That could
change of course…


August 11, 2010 (12:45 Eastern time)


I don’t usually post comments during the trading day. As I post this markets
are down about 250 points on TSX and Dow or to put that into meaningful context
about 2.2%.


Well I think we have all gotten used to days like this. It’s not that
unusual. The question is, what next? I have never claimed any ability to predict
these things. I like to think of myself as owning individual companies rather
than the market. The market may continue on down, perhaps a lot. That is always
a risk in the markets. Or it may soon turn around. I don’t think anyone can
predict it and I know I can’t.


I’m comforted by the fact that I own shares in good companies. While the
share prices are down today they are likley (but never guaranteed) to be up in
the longer term.


I had an order in the Buy some additional Wells Fargo if it dropped to
$26.50. It did and so I automatically bought some today.


Lower stock prices mean stocks are a better bargain than they were yesterday.
Will the bargains be even better tomorrow or next week? I don’t know. My strategy
is to buy cautiously on dips saving some money in case there are even better
bargains ahead.


August 10, 2010


As of August 4, 84% of the S&P 500 earnings for Q2 had been reported.
And, earnings were very strong and are back to 2007 levels after having fallen substantially
from those levels. The trailing Price ?earnings ratio on this broad stock index
is 16.8. That is an earnings yield of 6.0%. That does not look like a bargain
level by historical standards. But considering interest rates are at record lows
stocks do not appear expensive on this basis. And even if the economy does not
improve from here, it would appear that earnings will continue to be higher than
the prior year figures. On a forward looking basis the P/E ratio of the S&P
500 is 15.0. That is about the historic average and considering the record low
interest rates it looks moderately attractive.


Stocks today gyrated as they awaited news from the FED. (Central Bank in the
U.S. the Federal Reserve). The news from the FED was about as expected.


In Canada we are at least a week behind the U.S. in reporting earnings and so
we still have major companies that have not yet reported earnings for Q2. I
generally like to make buy or sell decisions after earnings come out rather than
on the basis of trying to guess the earnings.


August 9, 2010


Stock markets were up about a half percent in North America today. Winners
for us were a couple of our American stocks Wells
Fargo up 1.7% and Visa up 3.6%.


Markets are continuing to jump around as earnings results come in, and
various economic reports. Tomorrow the FED in the U.S. meets about interest
rates and the results of that meeting usually move markets in one direction or
the other.


While these gyrations in the market always grab attention, they usually don’t
have much impact in the longer term…


I am just focusing on holding good companies… I can control that to a
degree, but I can’t really predict the economy and I certainly can’t control it.


August 8, 2010


A warm welcome to a new group of subscribers who arrived in response to a newspaper
article about myself and InvestorsFriend in Saturday’s Edmonton Journal.


August 5, 2010


U.S. stocks were about
flat. Our stock picks seemed to be about flat overall as well.


The big news in the Canadian stock market today was that Manulife lost $1.36
per share in Q2 and its shares dropped 11% to close at $14.20.


We used to have Manulife on this Site, so let’s review what we said about it.


We removed it from the site June 20, 2009 when its price was $20.42 (that was
the price on June 22, after the bad news about the investigation)


At that time I reviewed what we had said earlier about its risks (The June
20, 2009 comment is in italics here with some bolding adding for emphasis, the
yellow below was in the original posting from June 20, 2009)



June 20, 2009 REMEMBER


I would sell Manulife.


I am removing Manulife from the list above. It has been a long time
since I updated. Also I have always said it is a very complicated company to


In today’s news I see that the Ontario Securities Commission is investigating
in regards to it not disclosing the risks it was taking when it
sold certain investments that protected investors from stock market declines.
Manulife shareholders took the risk on those products and huge losses have


The long-standing CFO at Manulife, Peter Rubenovitch is retiring from
company which the company says is an unrelated event. It probably is unrelated
given that Rubenovitch is staying on for a transition period.


Given the news of this investigation I would be inclined to sell
Manulife (I don’t hold any).


Prior to Manulife’s toubles in the last year or so, it was a high-flyer
but I was always a little leery that it was too good to be true. For example
picking a date a few years agai here is what we said under Accounting in my
update of February 20, 2008 when the shares were much higher at $40.28.



ACCOUNTING AND DISCLOSURE ISSUES: Life insurance accounting is complex
and based largely on estimates and smoothing as explained under quality of
earnings. We found the disclosure to be extensive but not very helpful or
user friendly. See also comments under quality of earnings and quality of
assets. The company reports in Canadian dollars although about 75% of the
business is outside Canada, this can distort results. We find it
extremely hard to understand why the company was not hurt badly by declining
long-term interest rates over the past few years. Now they are saying that
higher interest rates in 2006 will help them which only adds to our
confusion regarding the lack of impact of lower rates in the past.
the Q4 press release there many statements that various divisions were
assisted by higher equity markets, but this impact was not quantified in any
way in the press release. The Assumed discount rate applied to policy
liabilities is hugely important and seemed optimistically high at 8.25% in
Canada and 8.75% in the U.S.
This was the same as the assumed equity
return which also seems moderately high. It seems strange they would use an
equity level discount rate when most of their investments are bonds.


Under Risks we said  (and we said this for many years)


RISKS: A full analysis of risks is well beyond the scope of this
report. Earnings are dependent on stock market performance of investments to
some degree. Earnings are also very much subject to actuarial estimates. In
fact this company is potentially susceptible
to ENRON-like surprises
since the balance sheet is largely based on
actuarial estimates. However ENRON like surprises are not that likely due to
insurance company financial regulations. In fact, the company appears to be
indicating that the balance sheet is conservatively stated. The
way the earnings have trended up so smoothly, in Canadian dollars, seems
almost too good to be true
given so much of the revenue is earned in
U.S. dollars and given the increase in the Canadian dollars and the decrease
in interest rates over the past six years. But we have no indication that
earnings are being improperly smoothed… (high-light added)


Under Earnings Quality we said:


Quality of Earnings Measurement and Persistence: Lower certainty of
Earnings Measurement and Persistence. Earnings are determined by actuaries
who must estimate liabilities due to future death and health benefit claims.
Also many gains or losses on investments are smoothed into earnings. Clearly
then earnings are estimated rather than observable.
However, these
estimates are subject to regulations. The pension obligation is not that
large compared to the size of the company but the pension accounting has not
been very conservative and causes earnings to be over-stated. One
danger might be a temptation by management to smooth and manipulate earnings
Substantial income taxes are being deferred which adds to quality.
Experience gains accounted for 26% of pre-tax earnings in 2006 and 16% in
2005. We are not all convinced that this is sustainable.



My point is that Manulife is possibly also susceptible to investigations
of how it calculated earnings. I have not heard any suggestion or made any
suggestion that any such investigation is warranted. But my thought is that
given they are one investigation it could always expand. I find this company
very difficult to analyze and personally would sell and invest in something
easier to understand at this point.



Back to August 5, 2010


Now on January 1, 2009 we had rated Manulife a Speculative Buy at $20.80


At the start of 2008 we called it Speculative Buy at $40.57. So we did not
exactly predict this big fall from grace for Manulife. But it’s fair to say that
we did always warn about the risks of this company. I mean under Risks for quite
a few years we said “susceptible
to ENRON-like surprises”. 


Given our comments above about the accounting I would not at all be surprised
to see an accounting scandal in the future of this company. Something smells
extremely fishy about the way its earnings used to climb so steadily and now
suddenly it reveals it was not hedged for interest rate and stock market risks.
To me it reeks of earnings smoothing (in the past).


August 4, 2010


Well the market handed out “alms” today with the North American
Markets up about 0.5%. Of more interest Shaw
Communications was up 3.2% today on “no news”. It’s the only
company in the Strong Buy category on our list above. We rated it (lower) Strong
Buy on July 1 at $19.17. It’s my second largest
holding and represents 15% of my portfolio so I am definitely cheering for
it to do well. It closed today at $20.95. We still like it at this price. But it
tends to bounce around. Read the report for an indication of the risks and a lot
more. Other than moving with the general market it could move when Telus’
earnings come out and could move based on news of how it is doing with the T.V.
stations it is purchasing from the bankrupt Can West Global. Shaw itself will
next report earnings in October when it releases its August 31, year end


August 3, 2010


As expected, Toronto markets were up today as they played catch-up to the
U.S. after the Holiday in Canada yesterday. And, not surprisingly the U.S. markets
gave back some of Monday’s gains. Markets are torn between various good and bad
news as it rolls in. This in fact is as it should be. No one knows the future.
Markets try to anticipate it. But as the actual news comes in market constantly
adjust. As wise investors we can try to take advantage of the volatility rather
than getting spooked by it.


I have mentioned a number of times that had complained to the regulators
about companies releasing earnings during the trading day, which can
disadvantage small investors. Well score us a victory. I have definitely
seen  a reduction in this bad behavior. The regulator that I complained to
today confirmed that they have been reminding companies that it is preferable to
release outside of trading hours. The only reason that they started this
reminding was due to my complaint. This is further described on our new share
owner (i.e. company owner) advocacy page.


August 2, 2010


The markets got off to a strong start in August with the Dow up 208 points or
about 2% today. Wells Fargo was up
3%. Unless something changes we can expect a similar little pop in the Canadian
market tomorrow. Now that I am 94% invested in equities, I guess I can cheer
solidly for market gains. In my ideal world, my stocks would surge while others
lagged. I would then ultimately sell what I have for big gains and buy the
laggards. Which would then surge. That’s not much to ask for is it?


August 1, 2010


The latest edition of our free
newsletter has been sent out.


I have posted a new article that looks at
calculating the return that you can expect from a stock under different
assumptions. This new article fits in with our series
of articles on return.


I mentioned Melcor in Thursday’s posting (July 29). I bought some additional
shares in Melcor on Friday. Also an odrder that I had in for Walgreen that when
placed was below market was filled on Thursday. And I added to my Walmart shares
on the basis that it was one of the higher rated stocks on our list. With all
this buying my cash position is down to 6%. My portfolio
composition has been updated.


It might be wise to have more cash in case stocks fall. But I figure I can
always use a line of credit to take advantage if stocks really drop. When it
comes to stocks, I am in it for the long-haul. I have survived the major market
declines of the early 2000’s and of 2008 and still made strong returns in
stocks. I don’t see reason to be particularly scared at this point. Stocks may
go down. But over time the economy continues to grow and stocks come back up.
Also I tend to invest in stocks that are somewhat less susceptible (than the
average stock) to declines because of their earnings.


July 29, 2010


Melcor Developments released good
earnings after the close today. And indicated they plan to buy back some shares.
They also indicated the following:


The Company believes that the Alberta residential real estate markets have
now stabilized and expects to see cautious growth continuing for the foreseeable
future. While commercial real estate is going through a rebalancing, primarily
in the office market, it is not expected to have a significant negative impact
to the operations of the division. The Company remains confident that it has the
appropriate assets, capital resources and experienced management team to
continue to create value for the shareholders during the current real estate
business cycle.


I think this is all good news. Be careful if buying this stock because it is
quite thinly traded. Don’t use a market order because the price could jump and
you would pay more than you intended. On the other hand if the offer price is
reasonable you may want to accept it. Bidding to buy a few cents below the offer
would make sense most days but if the price starts to rise due to this earnings
release than an order below market could go un-filled. My hope would be that the
stock does not move on this news because I prefer to buy more shares. If it
keeps making more money, the share price will take care of itself over time.


July 28, 2010


Market gave up some ground today on concerns about the weak economic
recovery. Earnings reports continue to roll in. I have been biding my time, not
buying and not selling right now. I’d like to keep some cash in case stocks do


July 27, 2010


As expected, the market gyrated up and down today as it digested mostly
positive earnings reports and then some negative economic reports (notably lower
consumer confidence).


Wells Fargo was up again today… However, near the end of trading today it
announced its next dividend which remained at a paltry 5 cents per share. The
stock did not react and this was probably expected news. This is a conservative
company and it will likely continue to build it equity up rather than spend it
on a dividend. It could also decide that a share buy back makes more sense than
a dividend restoration. The Dividend used to be much higher at 34 cents before
the whole financial crisis. II would not hold my breath waiting for the dividend
it will likely rise only slowly. The Wells Fargo CEO apparently sold $3 million
in shares.  I always start to wonder in those situations why I should buy
if he is holding. But on the other hand it has become fairly routine for big
CEOs these days to get lots of shares from the company and to then sell some.
This appears to be a relatively minor portion of the CEOs holding especially when his option holdings are considered.


July 26, 2010


Winners for us today included Wells Fargo, up 1.8% and the TMX Group up 2%.
Losers included Couche-Tard down 1.8% and Walmart down 1%. Overall, just another
day of modest moves up and down in stock prices.


Earnings reports for Q2 are still rolling in and this along with the usual
economic reports will no doubt keep markets gyrating.


July 25, 2010


Wells Fargo is updated and
rated Speculative (higher) Buy at $27.42. InvestorsFriend expects this company
to do well. It’s worth noting that not only does Berkshire Hathaway own several
hundred million shares and some 6.7% of the company, but Warren Buffett
personally owns about 2.4 million shares. Back in 2008 when Wells was also at
$27 I recall that Buffett mentioned that it was the ONLY stock he was buying in
his personable portfolio. Admittedly it fell to the $10 range at the height of
the credit crises when it looked like the financial world was coming to an end.
But it recovered.


This Bank is nothing like Citi Group or J.P. Morgan or Goldman Sachs. This is
a community and business bank headquartered not on Wall Street but in San
Francisco. It is huge but nevertheless it is a community and business bank not a
Wall Street Bank. Basically it pays an average of 0.76% on mostly deposits and
on some debt it has issued. It then turns around and loans this out at an
average of 5.14%. The gross profit of 4.38% is the highest of any large bank. Canadian
banks are at closer to a 2% spread. The low cost of deposits (it pays an average
of 0.45% on deposits!) is what has Buffett drooling. It seems very well managed.
There is always a danger though that mortgage defaults get even worse that is
why we call this speculative. We think it is a good bet, but we don’t argue that
it is without risk. It is not without risk.


July 24, 2010


Staples is updated and rated Buy
at U.S. $20. The valuation is reasonable but not compelling. But considering the
13% adjusted EPS outlook for this year it should be a reasonable


July 22, 2010


As you are no doubt aware, today, Thursday the market surprised with a surge
in prices. This is nice. I suppose an even nicer scenario would be if a couple
of my stocks would quickly double in price while the rest of the market was
flat. Then I would cash the big gains and reinvest in other stocks that had not
risen. If the whole market were to rise up 20% that would obviously be very
nice. Except at that point it would not be so easy to see what to sell and what
to buy. Better than some stocks go up 40% or more and others stay flat.


Market volatility is our friend and appears to be alive and well.


I have some cash although I am over 80% invested in equities. I have a bit of
an itchy trigger finger to just get it all invested. If I do and the market
takes a sharp dip then I would regret being fully invested. But I am in a
position where I could then take the risk of borrowing some money to buy.


Speaking of itchy trigger finger, that sometimes causes the good investment
to get in the way of a great one. If I analyze a company and it looks like a
good investment. That does not mean I should invest. Ideally I would analyze
everything and invest in only the very best, and not the merely good.
Realistically though it takes many hours to analyze one company and so the idea
of analyzing everything is certainly not possible. But it does argue for keeping
some cash in case I do find a better investment.


July 21, 2010


Wells Fargo came out
with good earnings this morning, beating expectations. The stock was up over 5%
early today but then ended up only marginally at the end of the day. But the
market was down today so Wells Fargo at least went against the lowering tide. I
will update the report on Wells Fargo probably by Sunday. If a company keeps
increasing its earnings, the stock price will follow eventually.


July 20, 2010


The old saying is “if you don’t like the weather, wait five
minutes”. That certainly applies in may parts of the world and for sure in
Alberta and Nova Scotia, the only two places i have lived.


It also seems to apply to the stock market. This morning stocks were down,
but by the end of the day they were up. Someone told me today that the technical
indicators showed that today was a “key day reversal” (or something
like that). I was too polite to tell him he was preaching to the unconvertible.
I don’t follow so called technical analysis not now and not ever. I mean if it
works for him, that is great. But jumping in and out of stocks on an hourly
basis based on chart signals just does not fit my temperament, my availability
to watch screens all day or my intellectual curiosity.


At the risk of offending anyone who follows technical signals, as I have said
before, technical analysis try to follow the smart money. Fundamental
analysts do the heavy lifting and try to be the smart money. Each to his
own, but I have chosen my road and I am sticking to it.


I have not followed very closely the Magna billion-dollar-buy-out-of-Frank-Stronach
story. I don’t own or follow the stock and vever have. I am not sure a car
parts company is a great bet in the middle of a car selling slump but then I
have never looked at the stock. As far as paying Frank big dollars to relinquish
his multiple voting shares, I figure that is up to the shareholders to vote on.
Apparently they will vote to approve it. I’m not sure of their logic. Frank
built the company and has earned huge dollars running it. But now they seem
willing to pay the great master a billion or so dollars to go away. Makes no
sense to me.


Anyhow it’s interesting to see Frank causing such havoc. Remember a couple of
years ago it was daughter Belinda who was running around being the kiss of death
of near death (Peter Mckay, Paul Martin and I think some havoc for hockey player
Ty Domie (spelling?) if I recall correctly. It’s quite the family. Good thing
Belinda has no siblings (to my knowledge at least)


What caught my attention about Magna and Frank today was a headline saying
that Magna would eliminate some stock dilution by buying back shares. They are
issuing a ton or so of shares to pay Frank. But the cost of buying out Frank is
a real cost. It can’t somehow be reversed by buying back shares. Do these financial
reporters understand that Magna will use shareholder’s money to buy back the
shares? A lot of corporations try the same trick. They give out stock options
like candy, diluting the real owners that actually paid for their shares. Then
they take company cash and buy back some shares and pretend that somehow makes
it all okay. The financial press tends to buy this crap. The level of thinking
is quite weak.


As for stocks today, nice gains especially from Walmart
and Visa.


With Wells Fargo down this morning I bought a few more shares. Depending on
your point of view I am showing the courage of my convictions or being wantonly
reckless and stubborn. Tomorrow morning, early, they will release earnings which
should give a hint as to whether Wells is worthy of my enthusiasm. In truth this
won’t really be known for another year or so as we see whether Wells continues
to grow in profit or instead gets smacked down by the financial problems of the
U.S. and its economy.


July 19, 2010


I did not notice anything too exciting in the market today. I did buy some
Couche-Tard shares.


Here is something to think about. In Government bonds these days you can earn
about 4%, if you go 30 years. In higher rated corporate bonds if you go to
30-years it’s around 5% and maybe 6% at the lower end of the investment grade
bond category. Now a 5% yield is equivalent to a P/E of 20. Meanwhile stocks
like Couche-Tard are available at a P/E of 12.5 or an earnings yield of


Now, given this what is the chance that stocks will not out-perform bonds
over the next 20 or 30 years? And what is a reasonable return to expect from
stocks? I will elaborate on these things in the near future. But suffice to say
there is not any chance that I will be buying any 30-year bonds.


July 17, 2010


Alimentation Couche-Tard is
updated and rated Buy at Canadian $20. This is a huge convenience store / gas
bar operator in the U.S. and Canada, but Canadian owned and managed. The company
appears to be very well managed. It has a long history of successful growth by
acquisition. It is an exception to the usual “rule” that Canadian
companies tend to fail at expanding into the United States. I will strongly
consider buying a position in these shares. It will be pleasant to own another
business that I can see and touch in my own City and that I can shop at.
(Remember when everyone loved Nortel, well none of us shopped at Nortel did we?
nor we did really understand how it made money (turned out it didn’t except on
an ex-items basis which the investment world swallowed hook, line and sinker
back in the day). How much nicer to own a business you can actually understand)


July 16, 2010


U.S. markets fell a nasty 2.5% today and Canadian markets fell 1.5%. This of
course is good news for those looking to add money to stocks. It seems like bad
news for those holding stocks, (and not looking to buy more) and it may indeed
turn out to be bad news if it signals more declines ahead. But it may be that
stocks will be higher in a week, a month or a year and then this 2.5% drop in
one day will be of no consequence. The thing is stock markets are volatile.
Every equity investors should learn to live with that and in fact learn to take
advantage of it. If one can’t get comfortable with it then one should not be
invested in stocks.


I took the opportunity to add to my Visa position today.


July 15, 2010


Markets were down somewhat most of the day but then ended higher. The fact
that Goldman Sach’s has settled up with the Securities and Exchange Commission
in the U.S. was taken as good news.


B.P. capped its well also. I figured this latest cap would work because it
was bolted onto a flange. Apparently the last cap was just a pressure fit onto
the pipe. On the old cap they could not close off the valves because I am sure
that old cap would have flown off if they did. The weird thing is why did they
not go with this bolt-on approach last time. Remember they sawed off the pipe
instead of unbolting at the flange. If they can bold this new cap on today why
did it take all those weeks?


There was a big Initial Public Offer in Canada today. Smart Technologies. The
part that caught my interest is that most of the money raised (I think it was
about 70%) will go to the existing owners not to the company. To me that is a danger
sign, the original owners were in large measure selling out. If they were super
confident in the company I think they would have just sold enough shares to get
the money the company needs and held on to most of their stake. But the fact
they were able to do this large IPO shows that investors are eager to buy. It is
also good for the TSX which
collects juicy fees on every IPO.


I mentioned yesterday I was placing an order to add to my Melcor position.
That order was filled today at $11.60.


New figures are out from the Canadian Bankers Association that show that
Canadian mortgage delinquencies remain low. Under one half of one percent,
compared to more like 10% in the U.S. I had really expected to see more
delinquencies in Canada due to job losses. But so far, so good. And now with
interest rates having gone back down, there is not a lot of reason to expect
higher mortgage delinquencies. That could mean house prices will stay high in
Canada. It does look like the housing market is cooling off and so prices could
drop. But based on affordability and low rates, I would not be too sure that
house prices will drop.






July 14, 2010


Stocks today mostly took a breather from their recent rally. (All the better
to give us a chance to buy them). I placed an order to add to my Melcor
Developments at $11.60. Walgreen
though was up a little on news that its dividend was increased 27%.


Now, this is not the case of some company that had cut its dividend during
the financial crisis and is now just re-instating the dividend to the old level.
No, this company has increased the dividend every year for the past 35 years
straight. Furthermore, the increases in the past six years averaged 24% per
year! (We don’t expect that to continue but this is certainly impressive). They
have paid a dividend each and every quarter for the last 77 years come
recession, boom, bust and war. This is an example of what stock traders don’t
seem to get. Anyone who bought Walgreen years ago did not need to trade. They
could just hold and make money in their sleep. Sure, astute buying and selling
could have added vastly to the gains. But for every trader than won that game
another lost. The gains from Walgreen over the long term did not come from other
stock investors, the gains came from (duh) selling things profitably in the
stores. Take a look at Walgreens balance sheet. Despite all those dividends paid
out every three months for 77 years, the equity consists almost entirely of
retained earnings. Other than for stock options it does not look like the
company ever issued many shares for cash. Again, its money came from its
customers not from investors. With this kind of legacy, I would not bet against
this company.


Speaking of companies that did cut their dividends during the crisis, we
should see some of those companies reinstate their dividends and that is going
to make for impressive sounding increases in the dividends. (Though in reality
not as impressive as Walgreen which never had to cut at all).


You know, I never claimed to guarantee that markets will go up, and certainly
not in the short term. But history suggests they will continue to rise in the
long term. Technology and productivity are always marching on and the better companies
do tend to grow over time. There will always be analysts screaming
“Sell” and warning that the end of the stock market (if not the world
is nigh). History suggests that these folks should mostly be ignored. But to
each his own. Invest at your own risk, always.




July 13, 2010


It was a very strong day in the markets as “earnings season” kicked
off quite nicely with higher-than-expected earnings from Alcoa. Then, after the
close today, Intel was out with excellent earnings and outlook. So… maybe the
party will continue…


In late June as markets fell, I was buying. Many analysts would argue that
you should never ever buy into a falling market. Only time will tell if it was a
good idea to be buying in late June.


If the economy and earnings really crash then of course stocks would go down.
To me, it’s not clear where the economy is headed. I figure if I hold good
companies bought at reasonable prices I will do okay.


Some argue that stocks need to go down to selling at 8 times earnings or so
like they did at the bottom around 1981. But around 1980, government bonds
yielded in excess of 13% which implies a P/E on bonds of 1/0.13 = approximately
8. So stocks got super cheap partly to compete with bonds. Now government bond
yields are more like 4% or less. A 4% yield on a government bond is a P/E of 25
and that “E” will not grow. On that basis stock P/Es of 15 (and with
the E expected to grow) look very cheap in comparison. In a world where bond
P/Es are 25, it is a very poor bet to think that stock P/Es are headed to 8. How
much would people have to hate stocks for that to happen? If stocks fall it will
more likely be because earnings fall, not because the P/E will fall.


I am looking forward to earnings reports especially from Wells Fargo, my
largest holding. I guess I am swinging somewhat fore the fences on that one.
Hopefully it will not be a swing and a miss.


July 12, 2010


The Q2 earnings reporting season has just started. In the next couple of
weeks hundreds of big-name corporations will report earnings. Those stocks will
tend to rise or fall depending if the company beats or misses expectation and especially
depending on what the companies say about their outlooks for future profits.


Investors can benefit by taking a longer term view, but the market tends
often to be driven by the very short-term outlook.


July 8, 2010


U.S. markets were up another 1% today… I have not bought or sold anything
for the past week or so. I am not in a hurry. patience can often be your friend
when it comes to investing.


I notice Melcor, which is a low
volume stocks is gyrating down as low as about $11.60 lately. It should be a
good bet at that price although it may be hard to get any. One can always put in
a bid somewhere below $12 or even much lower and see what happens.


July 7, 2010


Heading into this week everything was doom and gloom and talk of double dip recession.
But then the market rises a bit yesterday and then the U.S. market jumps 3%


After the Close Wells Fargo said
it will shut down a sub-prime unit and close 638 banking stores (it has about
8,800 stores, so this is big announcement). The company indicates that these
consumer finance stores became redundant after it acquired Wachovia. The charge
to earnings will be 2 cents per share which seems relatively minor.  It
will be interesting  to see how the market reacts. The reaction might be
positive as it indicates how Wells Fargo is moving to cut costs. Or it may be
seen as negative as it is a loss of a certain amount of business. Apparently
shares did not react in (the oxymoron world of) after-hours-trading. I have been
adding to my Wells Fargo position as its price dropped the last month or so.
There are no guarantees but I am quite confident that this will be a good


July 6, 2010


Markets were up today despite the fact that the futures market last night was
suggesting they would be down. It goes to show that markets are always
uncertain. Lots of people are predicting a depression ahead. I don’t think
anyone really knows. It’s not really clear that anyone really understands what
drives national economies.


I look at the real economy as being the production of goods and services. The
quality of our lives and our living standards comes from the production and use
of goods and services including manufactured items, agricultural items, personal
services (of which there are many interesting varieties, I am sure) , government
services, financial services, commodities such as oil and gas and etc. and also,
importantly from the installed infrastructure such as houses, buildings of all
types, bridges and roads.


Now these items are produced by labour and installed assets (buildings,
factories, mines, roads, houses…) and by knowledge (much of which is now in
the free domain but some of which is proprietary) and by an organizations
and  systems including corporations, the monetary system, banking and the
rule of law that keeps all these things working.


As workers we get paid whatever wages we can command in a somewhat
competitive world. I think we all generally get something of a free ride from
all the huge base of free domain knowledge that has been built up. As investors
we can get our share of the rewards of being investors in corporations who are
the owners of proprietary technology (in some cases) and who invest money to organize
production and reap the rewards of that. As investors we see our invested wealth
fluctuate but over time it tends to rise. Non-investors over a life-time will
lose out (big time) compared to investors.


Now come what may, I believe technology will continue to advance and
therefore I see our standards of livings as continuing to rise over the years.
(I don’t see oil shortages or anything else stopping that from happening)


I don’t know why there would need to be a depression, but I also don’t claim
to understand the implications of vast world debts (I do know the earth as a
whole is not in debt – no money was borrowed from the Martians).


Whether there is any depression or not I am confident that our standard of
living will be higher in 10 years than now and that stock prices will be higher
on average. I can’t guarantee that, but I am confident of it.


If I could predict markets accurately I might try to time them in and out. (I
do this a little but not that much) Failing that I am simply trying to hold the
best stocks I can find with good long-term prospects. I won’t buy and hold
forever. But I am not about to abandon the stock market everything someone
claims the world is about to end (which is everyday of my life I suppose).


July 5, 2010


U.S. markets were not open today. Toronto was down about 100 points 1%.
Futures are suggesting that U.S. stocks will open down modestly on Tuesday.
Markets obviously could continue on down. My strategy is to hold higher quality
stocks and to add very slowly on dips. Markets don’t go up or down in straight


July 4, 2010


Visa Inc. is updated and rated Buy at
$71.98 (it last closed at $73.18). This company is attractive because it
effectively operates as an electronic toll booth on every Visa transaction.
Because every merchant is virtually forced to accept Visa, the company has
monopoly characteristics. In some countries it is not regulated as to its fees
and in those cases it is at least an oligopoly with MasterCard and has some
monopoly characteristics. However many counties including the United States are
considering regulating at least some of the fees that Visa collects. Overall
while no company is without risk, we are attracted to the opportunity to
accumulate Visa shares at a price that seems reasonable. Our strategy would be
to buy gradually on dips at or below approximately the current price (say below


July 1, 2010


I updated my personal portfolio allocations.
After some recent purchases I still have some cash available to add to


Shaw Communications is
updated and is rated (lower) Strong Buy at Canadian $19.17. It released earnings
yesterday before the opening of the market. Surprisingly, it did not lose any
basic cable customers this latest quarter despite the marketing activities of
Telus with its improved television offering. I would expect some loss of
customers to Telus to occur. On the other hand Shaw has had great success with
internet, digital cable and phone service. New growth activities for Shaw in
terms of cell phones and television stations represent both opportunity and
risk. I am comfortable owning Shaw and will consider adding to my position.


I looked at the Shaw’s bonds as well. There is a bond that matures in March
2017 that yields 4.32%. Also a bond that matures in late 2019 that yields 4.84%.
These can be purchased online at TD Waterhouse and probably at most other
brokers as well. These bonds may be attractive compared to other BBB minus
corporate bonds. But I will not buy these. I find them unattractive compared to
investing in Shaw’s common shares which yield 4.6%. The bonds have the advantage
that as long as Shaw remains financially solvent they will yield the stated
amount if held the 7 or almost 10 years to maturity. The Shaw shares could end
up returning less than the bonds. But consider that the shares have a P/E of 15
which equates to an earnings yield of 6.7%. Shaw’s earnings are expected (but in
no way guaranteed) to rise (and they could fall). On an expectation basis I will
expect something that is earning 6.7% (and which earnings are expected to grow)
and paying a dividend of 4.6% to easily exceed the return on the 4.3% or 4.8%
return to maturity on these bonds.


June 29, 2010


The Canadian market was down 3% today. That hurts.


But I don’t dwell on that. I have been investing too long, seen too many
downs and too many ups to get particularly worried. Stocks may continue to
plunge but is so that has its up side as well as explained in my latest
free newsletter.


I added to my positions in Canadian Tire and Wells Fargo today to take
advantage of the lower prices. I’ll try to proceed slowly and save some cash in
case even bigger bargains arrive (which is always a definite possibility). If at
some point I am out of cash and the markets continues on down then I will
consider borrowing to invest although that will admittedly be a scary


Shaw Communications will report tomorrow morning. As I mentioned before I do
think it will have some loss of basic cable customers to Telus. But overall it
should still have a good quarter. The unkown, is how will the market react to
the loss of basic cable customers?


June 28, 2010


I bought some Walgreen Company today, based on yesterday’s updated rating.


I am just reading the Wells Fargo annual report today. This company really
seems to have its feet on the ground. It knows what it wants to achieve and it
appears to measure all the right things. Unlike the Wall Street banks it does
not do any proprietary trading. It is in the business of providing basic banking
at a profit. I feel good about owning it.


June 27, 2010


Walgreen Company is updated and
rated (higher Buy) at $27.79 (it closed Friday at $26.93). This appears to be an
opportunity to buy a very strong company at a price that is reasonably
attractive. The price has fallen recently.


While the price could of course fall further, that is always the case with
any stock you buy.


Canadian purchasers are exposed to the risk of a rising Canadian dollar. I
plan to buy shares even though my U.S. exposure is already perhaps too high.


My timing in buying additional Wal-Mart shares Thursday last week was off as
it continued to fall after I bought. I view the lower price on Wal-Mart as an opportunity
to average in at a better price.


June 24, 2010


Markets were down about 1.5% in the U.S. today. The up-side to that is
cheaper stocks. I decided to add a bit to my Wal-Mart
position today. It’s stores seem to do relatively well in any economy.


In other news today, Conrad Black won a major victory with a favorable ruling
from the U.S. supreme court. His fraud convictions will be sent back to a lower
court and to be looked at again and this time they can’t use the
“deprivation of honest services” law which was a horrible law that was
too broad and under which basically the the entire working population could be
found guilty. Maybe I am a sucker for the underdog. I don’t believe in kicking a
man when he is down. Conrad Black took non-compete payments that were obese but
he could just have easily have taken the money as bonuses. This never should
have been a criminal matter. And in any event he has now served more than two
years and that is enough. I last defended Conrad Black in my newsletter of July
14, 2007, just after the guilty verdicts came in.




June 23, 2010


In the U.S. new home sales were apparently at a record low in May (at least
since they started tracking it in about 1963). This was greeted as bad news but
it may be a statistical aberration due to the end of an $8000 government
subsidy. Many people who would have bought in May probably rushed to buy in
April while the grant was still availabel.


Also lower new home sales should lead to lower new home building and that is
a good thing for the economy. Existing house prices will recover faster when
there is a shortage of houses. that can only happen if they slow the building of
new houses.


Lots of macro-economic news today such as this house sales statistic and a
statement from the Fed. But not much news from the companies on our list. Shaw
has managed to make peace with the Asper family by agreeing to pay $11 million
to the former shareholders of CanWest Global. The price of Shaw did not react to
the news.


There was a completely horrible story in the Financial Post today about an
employee winning $500,000 in a wrongful termination case. This was an employee
who only made $50,000 per year. Why is this horrible? It’s because if it is
becomes that expensive to fire someone then companies are going to have to think
long and hard before they hire anyone. For unions this is a case of be careful
what you ask for, you might get it (along with the unintended but predictable




June 22, 2010


Stocks were at first up today but then fell about 1.5% by the end of the day.


I don’t think anyone can really forecast where stocks are going. Over the
longer term the stock indexes will go up as earnings rise. In the shorter term
stocks often move around somewhat randomly.


If stocks fall I will deploy more cash so that’s not such a bad thing. If
stocks rise, that ‘s okay too. The goal is to beat the market averages over the
long term.


In another few days the market will start turning its attention to the Q2
earnings releases…


June 21, 2010


A big winner today was Visa, up 5%. It
had recently fallen hard over concerns about regulations on its fees. Now, the
regulations look less onerous than first feared. It goes to show, it’s tough to
keep a good unregulated monopoly down.


June 20, 2010


Microsoft is updated and rated
(higher) Buy at $26.28.


June 17, 2010


I have added Bombardier Preferred shares to the list above, rated Buy at
$21.75. These shares yield an attractive 7.2%. However this yield reflects
a higher risk given that Bombardier’s debt credit rating is only BB according to
DBRS as of late 2009. (The company indicates a BB+ credit rating from Standard
and Poors but that does not appear to have been updates since early 2008 and may
no longer be valid).


In my view a certain allocation of funds to this preferred share is
reasonable but one should not get greedy and chase yield with too high of an
allocation to lower-rated preferred shares like this.


This may be a good investment for yield. As a substitute for cash or very
safe short-term investments it may not be suitable. For example if the credit
crisis returns cash will hold its value but these preferred shares could drop in


These shares would lose value if long-term interest rates rise (all else
equal) and would lose value if Bombardier’s financial health or profit outlook
deteriorates – which could happen if the economic recovery stalls. I believe
there is some potential for Bombardier’s financial health to improve and in that
case the shares could move towards $25 – that would likely occur for a couple of
years – if at all.


I will likely buy some of these preferred shares.


June 16, 2010


I mentioned that for Bombardier I might add information on its bonds as an
investment. Its annual report mentioned 7.5% bonds due 2018 and 7.75% bonds due
2020. The yields looked attractively high which was due being rated BB+ which is
below investment grade. These are in U.S. dollars. Unfortunately TD Waterhouse
indicates they don’t have these bonds in their inventory and so I can’t buy
them. Presumably they are thinly traded and not widely available.


I then too a look at what TD does have in its inventory on its online system.
Some examples were:



  Years  ’til Maturity  Yield Loss if sold  DBRS rating  
 Bank of Montreal  0.6 years  0.72%  not stated  AAm  
Royal Bank  1.1 years  1.41%  not stated  AAm  
 Suncor  1.2 years  1.87%  not stated  Al  
 Wells Fargo Canada  2.0 years  2.47%  1.46%   AAm  
Bank of Montreal 2.25 years  2.25%  1.40%  AAm  
 Shaw Communications 2.5 years  2.87%  1.70%  BBBm  
 Bank of Montreal  3.9 years  3.10%  1.37%  AAm  
 Bank of Montreal   4.9 years  3.38%  1.40% AAm  
 Canadian Natural Resources  5.0 years  3.81%  1.60%  BBBh  
 Royal Bank  6.7 years  3.76%  1.81%  AAm  
 Shaw Communications  6.8 years  4.74%  2.70%  BBBm  

To me, none of these look attractive. On the shorter end I can invest in a
bank deposit such as one that Manulife offers that trades like a mutual fund
(symbol MIP510) that pays I believe 0.75%  and offers fast cash-ability
with no penalty. This I can buy in my brokerage account including the RRSP or
RESP accounts. Therefore the first bond in my list above looks most


At 2 to 2.5 years I could get 2.25 to 2.87% per year but I face a cost of
about 1.5% as a one time cost if I sell. The small extra yield hardly
compensates me for lower cash-ability.


If I go all the way 7 years I can get 3.76% per year  on Royal Bank or
4.74% per year on Shaw Communications. But I face a one time fee of 1.8% on
Royal Bank or 2.7% on Shaw if I sell before maturity. The only way I would
consider this is if I were absolutely committed to keeping the bond until
maturity. Also if I had a lot of cash.


For smaller amounts of cash (like much under $100,000) it hardly seems worth
it to buy individual bonds like this. A bond ETF fund would likely be a better


I prefer to sit with cash in the Manulife bank account earning the 0.75%
rather than lock my cash into these low bond yields above especially given the
costs to sell before maturity.


There are also things like Ally bank that pay 2.0% with no cost to withdraw
but I can’t access that from inside my TD Waterhouse account.


I will take a look at the Bombardier preferred shares. It may be that preferred
shares are the best way to find a better yield without too much risk. Preferred
shares are particularly more attractive than bonds when it comes to taxable
investment accounts.


June 15, 2010


A strong day for the markets but apparently it was based on the “good
news” from Europe that countries there can still borrow money. It’s a bit
scary when that is what passes for good news. Until ,recently that would have
been taken as a given.


I added to my Melcor Developments
position as a bid that I had placed somewhat below the market was filled. This
company is very thinly traded. If it were more liquidly traded it would probably
be rising on the news of higher oil prices.


June 14, 2010


Bombardier Inc. is returned to the list
above after an an absence of eight years and is rated Speculative Buy at $4.62
(it closed today at $4.66). A lot has happened to Bombardier in eight years
including the divestiture of its large financing arm and its recreational
products division. This stock was over $20 in the early 2000’s and then fell
very hard and bottomed near $2.00 at the end of 2005 and briefly re-visited that
low in early 2009. A lot of investors were burned by that drop in the stock
price but in fact the stock never deserved to be that high and it was mostly
irrational exuberance on the part of investors that pushed it that high
(irrational exuberance was common in the late 90’s and early 2000’s). In part
Bombardier’s stock collapse was due to management errors as well
however.   Having survived a lot of difficulties in the early 2000’s
Bombardier was growing stronger but is currently weathering the world recession.
If this recessions is over then Bombardier could emerge in good shape and the
stock could offer a strong return in the next couple of years. But it is not
without risk and the share price could certainly go the other way at least
temporarily. I am not sure that I will buy any.


In the next few days I plan to post a rating for Bombardier’s preferred shares
and some information on its debt. Both may be of interest for yield.


June 13, 2010


Recently we have not added many new companies to our list (an
under-statement). Instead we went deeper on the companies we do have on the


However, it now seems to be timely to add some new names to the list. This
may involve removing some companies that are lower rates. Also some of the
companies have been updated quarterly and that may not be the best use of time
since barring a major price change, or a major change in profits and outlook the
ratings usually don’t change on a quarterly update.


I am working on an analysis of Bombardier, which will very soon return to the
list above after an absence of eight years. It will probably be rated
Speculative Buy. Not a screaming buy but it does have good potential if the
world economy cooperates.


After the analysis of the common stock is posted, I will also take a look at
its preferred shares and its debt which I expect will be moderately attractive.


June 10, 2010


As good and bad economic news continues to alternate so too the market ebbs
and flows. Today it flowed and gave us strong gains in Wells Fargo, the New York
Stock Exchange Group, and Visa, with smaller gains elsewhere and very few
losers. As of 11pm Eastern, futures point to a relatively flat opening tomorrow,
down just a few points.


June 9, 2010


Notable today was a 2.6% drop in Wells Fargo. (ouch!)


With stocks dropping I have been thinking of entering some “stink
bids” below the market. One I have placed is Melcor at $12.75. Probably a
true stink bid would be at least 10% below the market and perhaps more like 20%.
It would depend on the volatility of the stocks and on how interested I was in
the stock. With some stocks I might not want it unless it dropped 25%. In which
case it would not hurt to have a bid in at that level just in case there was a
drop. We saw a couple weeks ago in the “flash crash” that very strange
drops can occasionally happen in the market.


The problem with a “stink bid’ strategy is that it requires cash or
margin your account and most of us have limited amounts of that. Another problem
of course is that if a stock drops on bad news you can find yourself buying in
the earlly stages of a bigger drop. Such is life in the markets. It may be a
case of “no pain, no gain”.


June 8, 2010


Again a volatile day. Wells Fargo is an example. It closed up 47 cents to
$27.76. But earlier in the day was as low as $26.66. I had an order in buy even
more of it (no doubt I am way over-exposed now) at $27.01 so that was filled.


I have now got a good portion of my portfolio in U.S. stocks. Patrtly7 this
was because were the ones that were mostly higher rated on my list. Also I took
advantage of the multi-decade high in the Canadian dollar to put some money into
U.S. dollars. My portfolio value is now volatile with the Canadian dollar.


Since I expect to someday spend portions of the winters in the U.S. I need
U.S. dollars and in that sense I have a natural hedge. But as calculated in Canadian
dollars I am not hedged.


Will the Canadian dollar rise? Maybe. Most analysts seem to think so. Then
again I see it is at roughly a 30-year high (save a few spikes higher in the
past few years) and I don’t believe that the Canadian economy can compete at a
par dollar (not without lots of wage cuts). So I simply don’t know where the Canadian
dollar will go. If it falls to 90 cents I may sell some U.S. stocks. If it rises
above par I will likely buy more U.S. stocks.


Telus announced this morning a re-branding of its TV offerings with lots of
bells an whistles. No doubt they will win some customers from Shaw. Shaw did not
drop on the news today but could drop as the news sinks in. Given Shaw was
starting out with a huge market share it will lose some basic cable customers.
On the other hand Shaw has lots of high priced offerings as well. In the end
consumers are going to paying lots for TV service and internet but getting
amazing features. There is probably room for both Shaw and Telus to make money
in TV but certainly the market is more competitive now.


June 7, 2010


Markets were up most of the day but then closed down. Shaw Communications an
Wal-Mart, among our stock picks were up somewhat.


As I post this the futures are suggesting the Dow will open higher by about
50 points on Tuesday morning.




June 6, 2010


Costco is updated by rated only Weak Buy at $58.36 (It closed Friday after we
had mostly completed our analysis at $56.17) It’s a fantastic company and
represents perhaps the most efficient retail company. It’s mark-ups average only
about 13% and which compares to Wal-Mart at 25% and target at 31% while some
retailers are at over 200%. Costco’s low margins indicate its efficiency. We suspect
it could increase profits at will by simply increasing the margins. But they
have no apparent plan to do that and we can’t count on such a thing. I will
consider entering a “stink bid” for Costco at around the $50 mark.


I had mentioned that
Thursday last week was a boring day. But Friday was not so boring with its 3%
drop in the Dow and 2% drop on Toronto. I took advantage of the drop of add to
my Wal-Mart holdings. I figure if I
don’t buy during market dips then I may miss the chance to buy during market
dips. I am proceeding slowly in case the market dip deepens.


On our home page I had
a link to a page of useful links. I moved that link now to the menu items that
appears on the left of every page. I also re-organised the links and deleted


I decided to read once
again all of Warren Buffett’s annual letters starting with 1957. I wanted to
refresh my memory on the type of investments he was making in the early days
when he was buying stocks and not entire companies and when he had only a
relatively small investment portfolio. Many people would claim that there is
nothing to learn from this since the world has changed so much. But Buffett has
always tried to impart timeless principles of investing. My opinion is that if I
can always learn something by studying the words of the greatest investor ever.
Also I am of the opinion that in any skilful endeavor, one cannot review the
basics too many times.


As I review these
letters I am writing down certain key points. These are available here
(so far 1957 through 1963).


The stock market of
late has of course been very volatile after its huge increase since it hit a low
point in March of 2009. 


Many people are now
predicting the market will go much lower. That may be true. But also consider
the fact that at every point in history there has been a group that has
predicted that stocks are heading down. Sometimes they are right but more often
they are wrong.


Imagine for a moment
that you decide to ride out the market and keep your money in. In that case does
a market decline really hurt you? The market is almost certain to be higher 10
years from now. On a portfolio that would be held between now and ten years from
now does the intermediate value of the portfolio really matter? It does
psychologically of course but if your goals is to maximize your wealth ten years
from now, all that matters to a buy and hold portfolio is the value in ten
years, not the bumps along the way.


But now imagine that
in addition to your current portfolio, you are going to invest new money each
year. In that case a market decline right now is nothing but good news.


So I am trying to get myself
to focus less on the psychological and probably temporary pain caused by a drop
in my portfolio and focus more on the opportunity to buy additional shares at
lower prices.


At any given time then
a prediction that stocks will fall is both Bad News and Good News and a
prediction that stocks will rise is both Good News and Bad News.


We can’t change what
happens to the overall stock markets but we can change our reaction to whatever


June 3, 2010


Today was a rare boring day in the market where not much was happening. I
plan to have an updated report or two by Sunday… Canadian Western Bank was out
with great earnings this morning and its stock was up a little. I’d still
consider it a buy although loan losses are always a bit of a worry.


June 2, 2010


TSX was up 1.8% and the DOW was up 2.25%. There has been more than enough
volatility to keep investors confused. I don’t envy those that try to invest
based on technical and market momentum. The charts must be throwing off more
mixed signals than a dyslexic flagman. Go, no Stop, no caution, no go…


The TMX Group released trading
statistics for May that looked very good. Despite competition from Aplha which
we know to be strong, the TSX and the Montreal Derivatives exchange set several
records for volume during May. For the TSX it was volume records for particular
days and for Montreal it was a daily average volume record for the month. Now
volume does not necessarily mean record profit since there has been price cuts.
But is does look the TMX Group is holding its own. I don’t know if I will add to
my position but I do like the P/E ratio and dividend yield. This is tempered by concerns
about the ultimate impact of competition.


June 1, 2010


Yesterday Toronto was up 90 points on a day when the U.S. market was not
there to provide leadership. Today the U.S. market woke up in a bearish mood
and so Toronto gave back the 90 points from yester and and then another 100.


Many economic indicators remain reasonably positive and so Stocks may do
okay. My strategy would be to nibble on the most attractive stocks you can find.
If the market delivers better bargains ahead, so be it, be ready with at least
some cash to take advantage.


May 31, 2010


The latest edition of the free newsletter
was sent out over the weekend. (warning, those who love technical analysis may
find it offensive. Those who are sure the end of the financial world is nigh may
also be offended).


The Canadian market was up 0.8% today. But this was a case where Mom &
Dad (The U.S. market) let the teenager (Canadian market) out on its own
unescorted. (U.S. and England markets were both closed for holidays) Tomorrow we
will see if the U.S. parent is willing to confirm the teenager’s exuberance. Far
East markets Monday evening are down… but usually the U.S. leads and the Far
East follows and so again we will see if these Far Eastern markets are really
going to show the parent the way for tomorrow.


Canadian GDP apparently grew 1.5% in the first 3 months of 2010 or 6.1% annualized.
It’s hard to believe… given the problems with a high dollar in Canada. I have
to wonder how much comes from government spending. Governments of all kinds all
across Canada were still hiring and mostly giving raises. I would not count on
this growth being sustained.


Tomorrow, Tuesday is June 1. Soon the tourist season will start. I expect the
tourist reason to be pretty dismal given the high dollar and the poor state of
the U.S. Last weekend though the Victoria day weekend I was on the road and the
number of trailers (RVs) moving was truly stunning. Canadians are on the move.
So tourism of Canadian within Canada should do okay, I just don’t expect too may
Americans to visit.


By the time your read this I suppose The Bank of Canada will be announcing it
has raised rates 0.25%, we shall see what that does to the dollar…


May 29, 2010


The break-down of my own portfolio is
updated. My portfolio is quite concentrated.


Check our list of Special Reports
on Current Stock Market Attractiveness (it’s also in the list just below the
table of stocks above). I just updated the valuation of the Dow Jones Industrial
Average and the Toronto Stock Market Index. Also I have updated our list of Canadian Exchange
Traded Funds. These include higher yield funds. This ETF article provides a
wealth of choices and our particular article is the only central source that we
know of that gives you the fundamentals of each ETF that we list along with
links to the ETF sponsor. This article should be of immense value to ETF
investors. (I’ve got probably 100 hours invested in finding all those links, and
that’s not counting the time to update the figures, just to find all these links
and set it up)


Bizzarely enough I was unable to find the full Statistics for the Dow Jones
Industrial Average on the Dow Jones Site.The
Site requires you to register for a free password and I have one. Those
Statistics have always been there in the past including P/E ratio (trailing and
forward and GAAP and negatives removed), Yield and Price to Book Value. And
there is no indication that even under the paid section of the site that the
figures are there. They are just gone!. Clicking fundamentals for the DJIA they
give some fundamentals but the last update was some 15 months ago!


I then did some Google searching for the current DJIA P/E and yield did not
really find what I wanted but did find enough to get by with for my update.


What does this mean when even the Dow Jones company is not bothering to publish
the P/E ratio and such? I think it means almost no one cares. No one is looking
for these figures.


We have reached the stage where the vast majority of investors have basically
forgotten that stocks are shares of ownership in companies. Just look around the
Web. Every stock chart you see is a chart of the stock price. Almost no one
bothers to show you charts of earnings per share.


I hope to discuss this further in an article in our free newsletter. But this
is a wonderful opportunity. Increasingly investors , even institutional
investors have drank the Kool-Aide of (so called) Technical Analysis. (It’s
beyond me, what is “technical” about looking for patterns).  They all
study price charts looking for patterns instead of looking directly at the
earnings and fundamentals of companies and stock market indexes. This means
stocks will be increasingly mis-priced. There are and there will continue to be
bargains and extremely over-priced stocks. There will be volatility. All of this
is fantastic news for more intelligent investors willing to view stocks as
part-ownership in businesses – who understand that stocks have values based on
future earnings and that this value can be roughly estimated – and compared to
the current price in the search for bargains.


What about market manipulation? Well bring it on! If it exists it too drives
stocks away from their true values and creats opportunities.


By the way, the companies you own shares in don’t think of you as owners
either. I occasionally email a company and I always indicate if I am a share
owner (I use the term share owner not share holder). Often the response includes
the thoughtless line “Thank you for your interest in (company name)”.
That bugs me I feel like writing back and pointing out that I am not some
outsider “interested” in the company, I am an owner. I feel like then
thanking them for being part of our companies “hired help”. But hey,
if investors don’t think of themselves as owning anything more than a squiggly
line of a chart that might go up in price, I guess why should these
companies think of investors as owners?


May 27, 2010


OK then… that was a rather big market rally today. It just illustrates how unpredictable
markets are in the short term… It seems we are just lurching from fear of a
crash to fear of missing out on gains… stay tuned…


May 26, 2010


It was not a good day for our Stock picks. It started out well this morning
but then turned negative. Meanwhile economic news is North America is fairly
good. For many months the market was moving a ahead a lot faster than the
economy. Now the stocks are moving backward even as the economy continues
forward. This is not unusual.


In the U.S. loan delinquencies and charge offs were relatively stable in Q1
versus Q4 but did edge up very slightly (which








This quarterly data was just posted today or yesterday. Some sources of data
may also give these figures monthly but these Fed numbers are only quarterly.




May 25, 2010


“Nothing to See Here”. The Canadian and U.S. markets were almost
unchanged at the end of the day. Boring…


Of course early today the Dow was down almost 3% and Toronto was down over


So lots of volatility. Some days it certainly seems best to ignore the market
and just see how it turns out at the end of the day, week, month, year or even
decade. many people have been day trading or at least “day watching”
for a decade or more now. But there is no indication that such day traders or
day watchers have higher returns. Buffett teaches that the way to invest is to
buy great or good companies, with trustworthy management, at great or good
prices. The trend of the market does not come into that analysis. He advocates
to simply buy the best investments you can find on a price versus value basis.
The market can do what it wants but eventually if the value is really there the
stock market will reflect that.


So think in terms of buying a stream of growing dividends and/or earnings. Do
not think in terms of buying a squiggly line on a screen. But, hey what does
Buffett know? Berkshire is only up, what? roughly 1 million percent from when he
first started buying. He bought under $10 and took control and now the stock is
over $100,000. That is over 1 million percent.


P.S. I bought 100 Berkshire B shares today.


May 24, 2010


Canadian stock markets were closed today while the U.S. markets were open.
The Dow was down 1.2%. Berkshire was down 3% and Wells Fargo almost 5% (ouch)


I saw one story about how the Bill and Melinda Gates foundation was selling
some of its Berkshire stake. Well yes, I suppose it is, especially since it was
part of the deal when Buffett donated those shares. He required that the shares
be sold so the cash could be used for charitable good. The deal states:


“beginning in calendar 2009, BMG’s annual giving must
be at least equal to the value of my previous year’s gift plus 5% of BMG’s
net assets.”  This stipulation means that the Gates Foundation must
spend 5% of its assets each year plus 100% of the Buffett gift from the
previous year. So yeah, they are selling the Berkshire shares as Buffett


I never claimed to know where the market is going in the short term. I
just subscribe to the idea that if one selects stocks in a logical way based on
trying to find a stock that is worth more than its price, one will do well long
term. The short term is basically random.


I try to have opinions based in logic and fact. There are tons of opinions
out there based on nothing. People spew opinions with wild abandon. Often
ludicrous opinions. It’s all good really, if everyone were investing
intelligently there would be no one left to beat in the market. Long live the ninnies
of the investment world.


As I write this at 11:00 pm eastern time, indications are that the Dow will
open down another 100 points on Tuesday morning. Well, no one ever said
investing would be boring did they?


It seems we may have a case of “there is Good news and Bad
news” which both can be expressed in the following two words.
“Bargains Ahead”




May 21, 2010


The Toronto market is now down 1.9% for 2010 to date and the U.S. markets are
down about 2.3%.  Our stocks in the Buy range from January 1, are down an
average of 1.2% which is just slightly better than the market performance. My
own portfolio is up 1.6%. So not performance to “write home about” yet
this year, but year has a long way to go. Investing in stocks on a rational and
value based approach won’t always beat the market in the short term (and can
occasionally trail it badly – though we have not experienced that yet) but can
be reasonably relied on to do well over the years.


It was interesting news today that the U.S. Federal Government has sold off
some $840 million in warrants of Wells Fargo. What is interesting is that Wells
Fargo itself grabbed 64% of the warrants. I believe the warrants were to
purchase Wells Fargo stock at a price of just over $40. This purchase is a
signal that management believes that the Wells stock will be over $40 by the
time those warrants expire and they did not want the dilution that would result.
The warrants originated when the U.S. government forced Wells Fargo to take TARP


eBay is updated and rated Speculative
Buy at $21.42. It looks to be set for strong earnings growth this year and is
worth considering.


May 20, 2010


Shaw Communications announced at the end of today that Shaw family members
have recently purchased an additional 235,000 (Over $4 million worth) shares to
hold a total of 48.2 million (about 897 million worth) shares and that the Shaw
family would continue to be regular purchasers.


To my mind, that is a strong vote of confidence. In many cases you see
founding families sell shares for diversification purposes and here we have the
Shaw’s buying. Effectively it appears that the Shaws are re-investing a portion
of their dividends. Apparently they think the company is good value at the
present price.


In terms of bargain hunting I may buy some additional Berkshire shares. I also
like basically all the shares that I hold and could buy more but want to proceed
slowly to preserve “ammo” in case things get much cheaper.


May 20
(10:45am  eastern time)


Markets off to a bad start today…


Could we be in for  lots more declines? Of course, yes.


I have been cautious about markets since last August when I took a chuck of
money off the table after the market had already recovered a lot from the losses
of March 2009. Markets then soared  much higher than expected. By early May
it was hard to stay cautious as markets kept rising. Logically it is clear that
higher markets mean more room to fall but emotionally it is always hard to pull
back from the party during good times.


Hopefully you are positioned with some funds in cash to take advantage of
bargains. I would tend to nibble at bargains rather than gobble them. You don’t
want to be left with no ability to buy if the bargains get seriously cheap.


Seeing losses in the portfolio is always hard but we should remember that
rumors of the death of capitalism have so far been greatly exaggerated and this
will continue to be the case.


I am sure that the owner of a wonderful business like a Tom Hortons Franchise
does not worry every day if the price of such franchises fluctuates in the
market. Stock investors tend to worry a lot more about the fluctuations since
they “in our face” everyday in the stock prices. But logically if we
own shares in a wonderful business like Tim Hortons we should focus a bit more
on the profits and dividends and a bit less on the stock price.


Remember, the road to the top of any mountain including a mountain of wealth
is always winding and may often have switchbacks, including large switchbacks,
but if we stay on a logical path we will travel upwards over the long term.


But you may be asking should you sell? That is your choice and those too
nervous too stay in the market or two heavily exposed may wish to sell some. I
am not thinking of selling but I am not about to tall anyone else not too or to guarantee
where the market is going.


Those of us in RRSP investments can take some comfort perhaps from the fact
that really as I explained in a recent newsletter, the government is in effect
your partner in your RRSP and owns about 40% of it depending on the tax rate you
will pay on withdrawals. When the account loses $100, in effect you can think of
it as you lose $60 and the government loses $40 .




May 18, 2010


Notable today was Wells Fargo
down 4.3%, and Visa down 6% to $70.09
which is a big drop from its recent highs. There have been some unfavorable developments
in the U.S. regarding what Visa will be able to charge merchants. It ‘s very
hard to say what the impact will be. So this stock is now more speculative. But
it still has a very powerful position in the market. It is worth considering at
this new lower price. Meanwhile Wal-Mart
has reported strong earnings and was up today.


The June oil contract is down to $68.55. Interestingly though in the next day
or so we will switch to the July contract which is at $72.00, so that makes it
confusing as to where the price of oil is.


In our ETF
article under the commodity ETFs I have mentioned the following “In a stable market with an upward sloping futures price, it may naturally
lose money as each futures bought each month tends to be more expensive than
the value of the expiring contract being sold”.
You can really
see how this would work with an oil futures ETF that holds the one month forward
future contract. As the May contract expires it sells that at $68.55 (based on
the closing price today) and then must buy the July contract at $72.00. So that
is a loss of 4.8% right there just on the “roll-over” of the month
contract. In this situation with a steeply upward sloping futures curve, an Oil
futures ETF is going to lose money fast if oil prices stay flat and losre money
extremely fast if oil prices fall and even if oil prices rise, it has a hard
time to make money. Just check out the oil future HOU.to
it has not made money and in the last few days in particular is plummeting. I
would prefer an ETF that held physical oil in a tank. When I looked at the
on-line sites for these types of ETFs (the futures ones that lose money in a
flat market with an upward sloping future price curve, which is normal) I found
no clear explanation that losses should be expected in a flat market.


May 17, 2010


The week has started off with another of those interesting days that seem to
be so common lately. The Dow at one point today was down 184 points but ended
the day up 5 points. The Toronto market ended the day down 200 points but at one
point was down over 300 points.


My decision last week to sell my Bear ETF funds was ill-timed. But that’s the
nature of the markets, you pays your money and you takes your chances. Or you
takes your money back off the table and then you takes your chance that it would
have been better to leave your bet in place. I’m still holding good companies
and some cash and so my portfolio was not down much today. Buffett has said that
investing is simple but not always easy…


May 16, 2010


Boston Pizza Royalties Trust is
updated and rate Speculative Buy at $11.45. This is worth considering for its
8.7% yield. (The reported yield right now is actually 12.1% but that needs to be
reduced by about 28% as the fund becomes taxable in 2011). We should not expect
any real growth in earnings / distributions per unit because of the recession
conditions, and due to the fact that the restaurants are mature and can’t be
expected to grow sales except through inflation. New store openings have almost
no impact on earnings per unit because a related company scoops new fund units
that almost entirely offset the growth.


Risks at this time include how the units will react when (not if but when) a
significant distribution cut is announced due to taxation in 2011. In theory
that is already priced into the units. We would see any dip on such news to be a
buying opportunity.


The nature of this entity with all earnings paid out in cash but with little
or no growth expected raises questions as to what a reasonable P/E would be.
Normally a zero growth scenario would suggest that the P/E should be very low.
In fact in the extreme case of zero dividend and no growth and no sign that
there will be any dividends or a corporate buy-out, it’s hard to justify paying
anything. But here we have 100% dividend. Even with zero growth we can justify a
14 P/E if we require a 7% return. (1/0.07) = 14.3. The justifiable P/E would
fall if a more normal 30 to 50% dividend pay-out ratio applied.


May 15, 2010


Our popular article on the valuation
of the S&P 500 index is updated. Our analysis indicates that the S&P
500 may be 20% over-valued if one is expecting a 8% return on stocks but is only
11% over-valued if 7% id the fair return to expect from stocks. The current 1136
S&P index value seems more likely to provide long-term returns in the range
of 6% but with a lot of uncertainty around that 6% even in the long-term and
huge uncertainty in the short-term.


With Visa down yesterday on some negative news about government plans to
limit its fees charged to merchants, I bought 100 shares. Also I added 100
shares to my Berkshire B shares position.


Canadian National Railway is updated but
is rated only Weak Buy / Hold. It is very much a high quality company with competitive
advantages and good management. I had hoped the rating would be higher but it
appears that it is at least fully valued at the current price. I would be
more  interested in buying if the share price falls back towards $50.


May 13, 2010


I have updated the components of my own
portfolio to reflect the sale of the bear ETFs. I have to say my own
portfolio has become extremely concentrated. That is risky, so far it has worked
out well but it is vulnerable to a big hit if, in particular Wells Fargo were to
get whacked, which it certainly could.


Canadian Tire was a big winner today up 4.6%, also Tim Hortons was up 3.3%,
both on good earnings releases.


In both cases the earnings came out only shortly before the open this morning
and the stocks did not fully react at the opening. That’s not fair and I already
emailed Canadian Tire to ask what is up and I will email Tim Hortons as well.
Earnings should be released after the close to give more time for the news to be
absorbed outside of trading hours. that way the opening price would reflect the
news. It’s actually TSX preferred policy that it be done that way. But since it
is only  a preferred practice it is often not followed.


Meanwhile my portfolio is doing great this week but I still have to make sure
companies are releasing earnings in a fair manner. No one else seems to be
keeping an eye on it.


TMX Group by the way indicates they will no longer be releasing earnings
during the trading day and that happened after my complaints about it.


May 12, 2010


It was another positive day for the markets. This morning I decided to sell
all my Bear ETF funds. I had bought a good part of that only on April 27 as the
Greek situation was starting to look ugly. With that seemingly “bailed
out” at least for now, there was less immediate need to hold the bear fund.
And some of that bear I had held al the way since August and always hoped to get
out of it at some point but was reluctant since I had a loss on in (an illogical
reason, I admit). Anyhow as with all of us my fear ebbs and flows and I guess
today I was a little more greedy and a Little less fearful and I just hit the
sell button on the bear funds. I could decide to buy it back at any time but for
now I will just hold some cash which I can use to take advantage of any market


I mentioned over the weekend I wanted to add to Berkshire Hathaway. But then
it had jumped 4% on Monday morning and so I decided to wait and see how things
settled out Monday and so did not buy the Berkshire but probably should have. I
will be updating my analysis on the valuation of the S&P 500 soon and that
may determine my next move. I do remain somewhat cautious but I guess threw some
of that caution to the wind today by selling the bear funds.


May 11, 2010


Well today as the market opened, the far east markets were down over-night
and it looked like the relief over the European bail out was short lived. But
North America hung in not too bad. Canada was up mostly because of Gold stocks I


Overall I was happy to more or less hang onto the gains from yesterday.


One story on Monday was that Wells Fargo was being investigated for steering
customers into higher cost loans. I tend to believe that, Wells Fargo makes the
largest interest rate spreads of the big banks and they don’t do that by giving
people the best deal possible. Is that illegal? I would think not. Immoral? I am
not sure. Most businesses are fully expected to push people toward the
higher margin products. As far as I know in Canada if you don’t ask for a
discount mortgage you get the higher posted rate. Seems to me that is partly
market segmentation. If some people take the first offer on a car or loan, the
sellers are happy to oblige. Meanwhile if you shop around and look for a
bargain, businesses are happy to do that. They probably can’t afford to give
everyone the lowest rate. It seems to me it is partly a matter of market


People should learn, a business is generally out to make money. A business
also wants to offer reasonable value because they want you as a repeat customer.
There is nothing wrong with this, a customer gets a service and the company
makes money. Neither are forced to do business. Profit is not a dirty word.


It is a sad fact of reality that low income consumers are (on average) higher
risk and they pay the highest bank interest. It’s just the way the system works.
Sadly a low income customer who pays the loan faithfully is subsiding the other
low income customers. The high income customer gets the low interest rate (if he
asks) and does not subsidize the others too much.  A bank is not your
Mommy. Should the regulators expect banks to be a Mommy to their customers?


The market on Monday certainly seemed unconcerned about this Wells Fargo investigation.


May 10, 2010


Well today was an exciting one in the markets. S&P 500 up 4.4%. Dow up
3.9% and Toronto up 2.2%. Wells Fargo was up 7%.


This of course war due to the announced bail out package for Greece and other
parts of Europe.


Does this mean we are up and away and this European debt crisis is behind us?
Somehow I doubt it.


A subscriber had the following question:


 If money, with all that it entails, is
going to be in short supply for all the Governments they will have to put
personal taxes up. If so, maybe one should start to increase the amount one
takes out of a RRIF now and beat the increases down the road.  


This is a good question and it relates a bit to my newsletter
article that explained how your RRSP (and your Registered Retirement Income
Fund) can be considered to be about 40% belonging to the government, with the
exact percentage depending on your marginal tax rate at the time you take the
money out.


So there there are several considerations.


1. Can we expect tax rates to rise? Actually in Canada I’m not sure there is
too much reason to worry but certainly it could happen. More likely perhaps is a
GST increase.


2. If tax rates are expected to rise then it is worth it to take the money
out now and beat the tax increase?


Well, probably not, not if it means the money will come out and go into a
taxable account to be spend some years down the road. You would lose the
tax-free compounding.


But if you you can get some out and put it into a Tax Free Savings Account,
then yes, you would save by paying say 35% tax now, rather than say 39% later,
if indeed taxes do rise.


A much bigger consideration is to try and figure out what marginal tax rate
you would face on an extra RRIF or RRSP withdrawal now and what tax rate would
apply if you waited until the future.


Even if tax rates are unchanged, your marginal tax rate on an extra dollar
taken out of an RRSP/ RRIF, can change dramatically depending on how much you
take out.


For example the marginal tax rates in Ontario for regular income like RRSP/
RRIF withdrawals is:


Income less than $37,102     20.05%

next amount to $ 40,970        24.15%

next amount to $65,345        31.15% Plus if
receiving old age pension add 15% total 46.15%

next amount to $74,214        32.98% Plus if
receiving old age pension add 15% total 47.98%

next amount to $76,986        35.39% Plus if
receiving old age pension add 15% total 50.39%

next amount to $81,941        43.41% Plus if
receiving old age pension add 15% total 58.41% ends at $108,000

next amount to $127,021       43.41%





(has other Provinces too)




From this you can see that if you take extra RRSP or RRIF withdrawals in one
year it could mean you pay a much higher marginal tax rate.


The marginal tax rate you pay on your withdrawals depends on where your
income falls and that of course depends on many factors.


Old age pension kicks in at age 65 and Canada Pension can be started from age
60 to I believe 70.


One strategy might be to take out larger RRSP amounts before age 65 to avoid
the old age claw back and higher marginal tax rates. This might especially make
sense if one arrived at age 60 with significant Tax Free saving Account room. Or
maybe a person could delay taking their pension from their job despite being
retired, and live on large RRSP withdrawals.


There are a lot of combinations. If you have tax software you might be able
to save a copy of your return under a different file name and then play with
some what-if analysis. Things like pension income splitting also might come into


It may be worth it to seek out an income tax advisor.


The bottom line is that it is going to be hard to beat the tax man and any
scenario you try could work out well or not so well depending on future tax


One also has to consider that extra money taken out of an RRSP might be spent
and then it`s gone…


One aspect that is really bothersome is that 15% extra clawback on the old
age pension, that can mean each dollar you take out nets you only about 42 cents
if you are in the income range of $82,00 to $107,000.


The tax rates don`t look too bad for those with total income including all pensions
and RRSP  RRIF withdrawals  that are under $65,000. After that you are
looking at about 46 cents in every extra dollar going to the government and,
nastily, between $82k and $108, it`s 58.4 cents to the government, and just 41.6
cents for you on each extra RRSP or RRIF  dollar you take out.


Your average tax rate will be a lot lower than the marginal rates, but these
marginal tax rates are nasty for those earning above $65k total taxable income
in retirement. (And then there is that nasty fact that dividend income is
grossed up which can push some people into higher taxable income brackets
somewhat artificially).


May 9, 2010


Telus is updated and rated (lower) Buy
at $37.53. They had a strong Q1 and earnings stabilized after recent declined.
Competition is intense. It’s not clear that they will be able grow except moderately
although in 2010 there should be decent growth compared to the weak 2009. I
don’t own it myself and will not be buying any.


May 8, 2010


Developments is updated and rated Speculative Buy. Its earnings are volatile
and so an analysis based on P/E or ROE is not the best approach. The company has
a long history of profitability. And its available at just a 25% premium over
book value. That is likely to be a good investment in the long run, although in
the short term it has sometimes traded below book value. 


Well a scary week in the markets has ended.


My own portfolio came through in good shape
due to some exposure to Bear ETFs and also as the surprisingly lower Canadian
dollar helped out with my U.S. investments. Symbols for the bear funds are in
our ETF
article. With heavy weightings in a few stocks my portfolio is subject to
large losses if those stocks do bad, but so far, so good.


Berkshire Hathaway is updated and
rated Buy at $74.41. It’s Q1 earnings were quite strong and looked particularly
good compared to a loss last year Q1 on a GAAP basis and smaller profit on an
adjusted basis. Berkshire should be able to post good earnings in 2010 compared
to 2009 which was very weak. Valuation mainly focuses on adjusted earnings which
exclude all gains on investments due to their volatility even though such gains
are positive in most years. With that definition of adjusted earnings the profit
does not make the stock look very attractive. On the other hand it is trading at
only 21% above book value and Buffett recent wrote that its intrinsic value is
certainly higher than book value.


I intend to add to my position in Berkshire.


I would also note that I made sure to read the entire quarterly report
including the financial statement notes closely. This is huge and complex
company and yet the entire quarterly report is relatively short by today’s
standards. I like that. Everything in this report is in relatively plain language
and is easy to read at lest for myself who is familiar with the company and any
jargon it does contain. I have come to the conclusion that Buffett himself must
write a good portion of this stuff since it is very much in his always clear
style. It’s worth reading.


I found it interesting to note that in the management discussion and analysis
only about half a page was devoted to the recently purchased rail road,
Burlington Northern. This is a huge but quite simple company. When it was on its
own it required a full and fat annual report, and investor relation staff, and
no doubt a huge effort in publicly filing its financials. Now it takes up just a
little space in the Berkshire report. This is small but important efficiency
that was gained when Berkshire bought the company.


May 6, 2010


And I had said Yesterday was interesting…today (Thursday) was much more so.


So where are we?:


Canadian dollar down to 95 cents. I think it was Tuesday that Don Coxe who is
a very smart and experienced and widely followed investor said he was quite
certain the dollar was headed to $1.10 or $1.15 range. He gave two reasons.
First, high commodity prices would push up our dollar. A high dollar is very bad
for manufacturing. This is known as Dutch Disease because some years ago high
oil prices pushed up the Dutch currency and really hurt manufacturing and
tourism in the Netherlands.  Second, he said that world investors would relatively
soon start to get very nervous about the U.S. dollar due to the deficits there.
They would see Canada as safe place and invest here. But we are a small country
and that would push our dollar up. This he called Swiss disease because the same
has happened in Switzerland which still has its own currency. This all seemed so
logical and yet we have the dollar plunging as people rush to the “safty’
of the  U>S. dollar. Now when Don said this we were at about 98 cents
and he thought that was just temporary and we will be heading to the $1.10,


Done Coxe may be right, if so now is a time to stay in Canadian dollars,
possibly even sell U.S. assets or hedge your U.S. stock exposure (I am not sure
how a retail investor can do that). But Don could be wrong as well, I prefer to
“bet” on companies rather than currencies. There seemed to be a big consensus
that the U.S. dollar was going to tank, yet it has risen. Many currency traders
will have lost a lot of money on that bet.


Many smart people including Warren Buffett and Peter Lynch have argued that
the individual retail investor who invests intelligently can beat the market. Big
institutional players often play follow the leader and will follow each other
into irrational buying. So a small investor can beat them simply by being
rational. An example of being rational is to buy stocks based on their earnings
not based on the price on a chart moving up.


I have never heard anyone say though that a retail investor can beat the big
guys at currency trading. Currency trading is a zero sum game. It’s extremely unpredictable.
I would stay far away
from it. I might try to hedge once ion a while or put some cash into U.S. dollars
when the Canadian dollar is high. But never would I go onto one of those forex
sites and make a leveraged bet on the direction of currencies. With the kind of
leverage they allow, you could blow your financial brains out very quickly


Maybe Canadians should track their investments in two chunks. One in Canadian
dollars and a separate chunk in U.S. dollars. Translating the U.S. investments
back into Canadian dollars may not make a lot of sense. Most of us will need
U.S. dollars at some point, so why not just have a pot of money in the U.S. and
track its progress strictly in U.S. dollars and not by translating into Canadian


Dow Daze


So the Dow was down 348 points or 3.2% today… And at one point it fell an
extra 600 points or about an extra 6% apparently based on a huge trade entered
by mistake. It goes to show the irrationality of the institutions, with stocks
getting cheaper they all rushed to sell. Rational people rush to the store for a
big sale, they don’t rush to sell things when prices fall. Yeah, I know that a
900 point drop could be a signal of worse to come but I simply think its more
rational to buy on dips than to sell.


It would have been a sweet day to have a bunch of “stink bids” in
to buy various stocks at “unrealistic” prices like 10% below the
market. Many of those would have triggered today. It is a strategy I have talked
about before and have done a few times.


What is next?


I don’t know and I don’t think anyone does. I have warned lately to be
cautious and I continue to be cautious. Try to have some cash around in case
things do get really ugly. Should we nibble in at these prices? Probably, yes,
but only if we have a higher cash allocation.


Earnings season is pretty much over for another quarter at least in the U.S.,
unfortunately that might give the traders even more time to think about Greece
and how bad that could get…


One thing is for sure, in the markets bad news for a stock holder is good
news for the investor waiting to buy it…


I notice Melcor Developments posted good earnings after the close today.
Balance sheet was not yet posted. I am hoping that have made excellent progress
on collecting the money for lot sales outstanding. They tend not to get paid for
their lots until a house is built on it so they were carrying a lot of


May 5, 2010


Another interesting day in the markets…


The TSX was down early in the trading day as much as 277 points or 2.3% and
ended the day down 1.3% or 156 points.


It’s interesting that when the market was that far down I was glad I had my
bear positions and wondered if I ought to buy more. Possibly I should have been
thinking instead about buying on that dip. But when we see markets dropping like
this week it’s natural to think defensively.


I suppose most times if you buy when the market is down 1% or more you might
end up making money most times. But the fear is of course those few times when
it goes down 1% and then another 1% and another 1% and… People run out of the nerve
to buy or the money to buy pretty quickly in that situation.


Similarly, with Canadian Tire
down almost 3% today to $53.26 and down about 10% in the past few days, it is
tempting to buy some. For those with cash that want to put into the market I
think Canadian Tire would be a good bet.


I already have a good “exposure” to it and while I am tempted to
add to that, I am not sure that is wise. The reason is that the cash I have is
meant to be used to take advantage of a more significant market decline. So I
don’t think I should be too quick to use up my cash reserves.


In my own portfolio today I probably made
money. The Bear ETF funds and  Walmart were winners for me today. Also the
falling Canadian dollar adds to the value of all my U.S. stocks.


May 4. 2010


Well the market was down about 2% today… but my Stocks did quite okay with
a good rebound from Shaw today (impressive on such a weak day). Also my bear ETF
funds helped out a lot today.


I forgot to mention that yesterday I picked up a bit more Shaw Stock
for my portfolio.


So, lots of things happening… oil down about 4%.


U.S. dollar rising, Canadian dollar down over 1 cent.


As I have been saying, it’s a time to be cautious, not a time to get too
greedy. Try to be ready with cash to invest if the market keeps going down.
There are bargains out there… they might be better bargains tomorrow, but no
one knows for sure. Wade into bargains carefully. If you have stocks that make
you really nervous, why not Sell and hold some cash? Or move (slowly) into
stocks that seem like a better bet.


May 3, 2010


A good start to the trading week. Wells
Fargo was up 2.3% and that tends to loom large for me given its my biggest position
by a wide margin.


Yesterday the latest edition of our free
newsletter was sent out. It includes an interesting analysis regarding RRSPs and
taxation. It’s interesting to consider that if your marginal tax rate at the
time you make your RRSP contributions is expected to be the same marginal tax
rate when you take the money out then A TSFA and RRSP are effectively the same
deal. With the RRSP in that case think of your RRSP generated refund as being
essentially the government loaning you money for your RRSP but they take it back
at the end. And in effect they charge you interest with the interest rate being
exactly the growth rate of return that you achieved in your RRSP.


Shaw Communications
however was down 2% to $18.72. Shaw is buying the TV stations of CanWest. As I
understand it, Can West went broke not because these assets were really losing
money on an operating basis. What happened was CanWest blew its brains out on
too much debt. No doubt the recession and the decline in newspaper advertising
was part of it, but it’s debt and the inability pay some that eventually causes
bankruptcy. I’ve seen it happen before, Ainsworth Lumber was another example and
I even warned the company about it. (They bought up Oriented Strand board mills
using borrowed money and destroyed a decades old family business – blew their
brains out with debt. Oh well, it looks like that sort of thing has become a
national past time for many. But actually of late corporations have not been the
big offenders at all, it is homeowners and government who have loaded up the
debt guns).


The hope would be that Shaw is buying these at a decent price. Also that Shaw
is maybe in a better position since it owns the Cable although I sort of
discount that. The owner of a toll road does not usually buy a trucking fleet
nor does it have any advantage in that business just because it owns the


Shaw is not buying any of the newspapers. I have to admit it seems odd that
Shaw would not have bought these assets through its Corus Entertainment business
rather than Shaw Communications – would seem a better fit there. What could be
next/ Shaw buying back Corus shares and making Corus part of Shaw? (I don’t know
I am really quite unfamiliar with Corus).


The fear with this transaction is that as Buffett would say, the animal
spirits were running wild and Shaw has paid too much. But on the surface that
does not appear to be the case.


This purchase makes Shaw harder to understand and predict but my suspicion is
that that this transaction will a positive one for Shaw.


Click below for a list of the TV channels involved.




Some of those such as Global are actual Canadian television channels, most
appear to be simply the Canadian rights to foreign channels.




May 1, 2010


TMX Group is updated and is
rated Speculative Buy at $29.04. It has a strong Q1. Basically it looks quite
attractive based on its earnings but here is a good deal of uncertainty as to
whether new competition is going to cut the profits of TMX.


April 29, 2010


It was a strong day on the markets due to strong earnings reports and good
employment-related numbers. And meanwhile I think some optimism about a Greek
bail out.


So the insurance (against a market dip) that I bought a couple days ago (bear
ETFs) cost me money. Well, that is the nature of insurance, if the house does
not burn down then you would have been better off with no insurance. And this
type of portfolio insurance is expensive. If the market soars i will have lost
significant money by owning bear ETFs. But that was my choice, I wanted some
level of protection, and I got it and it may pay off or I may pay the price.
Time will tell.


Anyhow with Wells Fargo, my largest holding by far, up 2.4% today I still did
well today.


And while markets may continue up with the strong earnings, I don’t think
this Greek debt situation is going away. And higher interest rates seem more likely
than not to be on the horizon. So there is a good chance that my ETF bears will
earn their keep before too long.


April 28, 2010


So the U.S. market recovered a little today on more good earnings news and I
think some signs of progress for a Greece Bail out and despite a Spain credit
rating drop. I suspect that this Greece / Europe national debt situation will
cause its share of ups and downs on the market and I am  afraid it could
possibly turn a bit ugly. I mean even the best case scenario is that we solve
the problem of too much debt in Greece by lending it a ton more money. Does that
really solve the problem or just delay it? And a true solve will involve lots of
layoffs and pay cuts in Greece and higher taxes and that should also spread to
the other European countries that are in trouble and that hardly sounds positive
for the world economy.


Closer to home, a banker friend of mine in Edmonton is seeing lots of clients
defaulting on car loans. Said he has never seen the likes before. Statistics on mortgage
delinquencies still look pretty good in Canada and Alberta but maybe the car
payment is the first thing to let go? If the jobless  rate stays a little
high or goes higher and with tax bills rising, I suspect that means more bad
loans ahead for the banks. Edmonton property tax 6% coming for late June. Sales
taxes have been or are being raised in Nova Scotia, Ontario and BC. That also
has to drag down consumer spending (although possibly right now we get an uptick
as people try to beat the sales tax imposition date – which does what to future


Another reason for all stocks to possibly decline, is higher interest rates.
Higher rates are simply a gravitational force on all investments especially
longer term investments. Unless higher earnings (actual and expected) offset the
higher interest rates, stocks come down with higher interest rates.


So I remain somewhat cautious…


A subscriber asked about Shaw
Communications being down lately. I don’t know why it should be, but read
the last report carefully, there are always risks with any stock. But I think a
dip in Shaw is a buying opportunity. I just would not get in too big a hurry.
Shaw is going to spend to enter wireless phone competition and that is a very
competitive business and maybe that is part of the reason for the decline. Wade
into things, don’t dive.


TSM group reported good
earnings growth today and that is despite the new competition they face. But in
valuation it’s not this quarter that matters it is the next 10 to 15 years that
matter. Closer years matter the most. I’m still hopeful that TMX is a good
investment but note the risks talked about in our report. I will plan to update
TMX for this earnings report within the next week.


April 27, 2010


Yesterday I mentioned the Greek Debt situation, the witch hunt against
Goldman Sachs and the rise in interest rates and said now was a time to be
cautious. So… today when news came of the downgrade to Greek and Portugal debt
and the modest dip in the market, I was inclined to take the news seriously and
to become even more cautious.


So I did make some moves today. I sold the First Service Preferred Shares
that I had which was in the kids RESP, this was sold because interest rates
could rise and hurt that investment although generally I still think it looks
like a good investment. I just decided to remove the risk on that one.
Then since I was not inclined to sell what I own I instead bought some
additional ETF bear funds. The symbols are HXD for Double bear on Toronto, HIX
for single bear and SH for a single bear S&P 500.  I have had a small
amount of Toronto bear funds for many months and it has lost money as the market
rose. But my thinking right now in my own personal situation, is that I have
accumulated a tidy portfolio and I don’t want to take a lot of risk that it will
fall. I fear the downside more than I love the upside. So I thought I would
partly protect the portfolio with some bear ETF funds, just in case this
European debt situation gets worse.


Markets were really not down all that much today, and if anyone is
considering using bear ETFs to partly protect their position, it is certainly
not too late to do that.


On the one hand the North America profit reports have been stellar. On the
other hand the market does not seem cheap and now we have this situation in
Europe with more than one country likely in need of a bail-out and possibly going
to default on government bonds. A default on the government debt of even a small
European country seems like if it happened would throw quite a lot of cold water
on stock prices. So I don’t know if that will happen but just decided to protect
myself somewhat.


I also updated my personal portfolio.
Almost undoubtedly I have allowed myself to fall a bit too much in love with
Wells Fargo. I should really lighten up on that one, I do think it will do very
well longer term. But right now in the middle of a bank-bashing fest in
Washington, it may suffer in the short-term. (Although it is a far far different
type of bank than is Goldman Sach’s and it is not a Wall Street Bank, it’s


April 26, 2010


The markets benefited today from strong earnings reports by Caterpillar and


Canadian Tire was up 3% today. Melcor, although on small volume was up 7%.
But Wells Fargo was down 2.3%.


This market has surprised almost everyone to the upside although as it rises
higher more and more analysts seem to be jumping on board with the idea that it
will keep rising.  Maybe it will, but I think it’s a time to be cautious.


The Greek debt situation could send interest rates up around the world. In
any event interest rates seem poised to rise at least moderately, but it could
be more than that. The Senate investigation of Goldman Sachs seems to be something
of a witch hunt and could certainly cause problems. Maybe Goldman is guilty of
something, certainly any financial institution of that size will have individual
transactions and emails that are embarrassing especially when judged in the
court of public opinion and on a hindsight basis.


Consumer spending has rebounded to an extent that seems to defy the number of
people without jobs. Unless job growth materializes soon, that seems


In Canada we have Royal bank raising interest rates for the third time is a
few weeks. Will that be enough to start house prices on the down-slide? time
will tell.


One thing that we have all hopefully learned form the past few years, is that
things can change very quickly in the global economy. We should be glad that
stocks have done well, but not complacent.


Many experienced investors with larger portfolios kept a good portion of
their funds in cash in the past year. That hurt performance, it turns out an
all-in all-stocks approach would have done better. But that was not knowable in
advance. A certain amount of prudency was called for and still is. Having some
funds in cash allows flexibility and means that you live to play another day no
matter what happens. That’s not to suggest that any calamity is on the horizon,
but rather to suggest that a little bit of insurance while costing money, is usually
a prudent move.


April 24, 2010


Wells Fargo is updated and rated
Buy at $33.48. Based on profits in the past year it does not look like a bargain.
But Wells has strong competitive advantages and it is likely that its profits
will grow substantially this year and next year and if so it will be a good


April 22, 2010


A few days ago I over-contributed to my Tax Free Savings account. I got the
trade reversed today otherwise I would have faced some penalty. Here is how it


Last year I contributed $5000 to the new Tax Free Saving Account (TFSA). I
put it all in Boston Pizza and was up over 50% by early 2010. Then I pulled all
that money out. That’s the beauty of the TFSA, you can take out the contribution
and the gain tax free and then put it back later. (But only within some limits
as I found out…)


When I went to put it back I thought I  could put in a total of $10,000,
$5,000 for 2009 and $5000 for 2010. Then today I was thinking that actually I
could probably put in $12,500, the $7500 I took out early this year plus the
$5000 for 2010. But it turns out I have to wait until 2011 before putting back
the $7500 I took out early this year. The rule is each new year you can put in
$5000 plus any net amount you removed in prior years. But you can’t take money
out and put it back in in the same calendar year. This is what TD Waterhouse
told me.


The great majority of my investing has always been in RRSPs and RESP where I
don’t have to worry about tax consequences. Given RRSPs, RESPs and now TFSAs I
suspect most investors don’t have money left over to invest in taxable accounts.
Also I find taxable accounts to create too much work in tracking the gains for
tax purposes.


I had a small taxable account with one Canadian stock and two U.S. I decided
now though to sell those stocks and buy the same ones in my RRSPs and use my
non-taxable account money to pay off a small line of credit. These days I have a
fair amount of cash in my RRSP accounts and I decided it made sense to convert
my taxable account to cash and pay off any debt. I had no big gains in the
taxable account so maybe now was a good time to sell the taxable stocks and buy
the same stocks in the RRSP which I did today. In the process I bought another
100 Berkshire B shares since I only had 100 and the price has been down this


I will have one taxable account left. A business account. To make things
easier I took that account which only had cash in it and bought just one stock
Wells Fargo. First I sold about the same amount of Wells Fargo stock in my RRSP.
This kept my exposure to Wells Fargo constant. It’s a bit odd, I bought Wells
Fargo in the taxable business account and sold it in an RRSP account, at the
same price. I had to pay two commissions. But I could not simply transfer the
stock between accounts since that would have been an RRSP withdrawal. Actually,
now that I think about it,  I think I could have done a swap where I take
stock out of the RRSP and swap in cash. But that seems complicated too, so I
just did it online and it cost me only $20 in fees to “move” a
fairly large amount of stock. Effectively this moved cash into my RRSP and the
stock to the taxable business account. My plan is to hold the Wells Fargo
indefinitely, that way no tax will be payable on the capital gain.


Some might question the sanity of having only one stock in an account. But
what is important is not so much that we diversify in any one account, but
rather than we diversify across all of our assets.


The TMX Group continues to slip in price due to fears of the impact of
competition. The competitor Alpha group has announced it wants to list stocks
and not just offer alternative trading. This could certainly drive down listing
fees. On the other hand, if listing fees are not a big cost for companies they
may tend to stay with the TSX. The President of TMX says he is confident that
the TMX can maintain its profit margins. I am expecting TMX to report a
reasonably good first quarter. But I have said this stock has become more
speculative due to competition.




April 21, 2010


Wells Fargo came out with earnings today that were a little better than
expected. The stock however fell a little. The market has had a LOT of good news
lately and run up sharply and now seems to have reached a point where its not
going up as much on positive news. Also tomorrow, President Obama will go to
Wall Street  and no-doubt bash some banks, so Wells gets caught up in that.
I’ll update our report on Wells in the next few days. I suspect any pull back in
this stock is a buying opportunity and I suspect it will be a good investment.
Nevertheless if the whole market falls it can certainly fall and also all banks
are subject to having bad earnings is more people stop paying their mortgages so
Wells is not without risk.


Most of the big U.S. companies have now reported earnings but in Canada we
will have lots of earnings coming out over the next couple of weeks.


I continue to be patient in my investing. I’m not in a big hurry to add to my
overall equity position and on the other hand I don’t care to sell what I hold.


April 20, 2010


Markets were up today as more U.S. companies reported higher-than-expected
earnings. Wells Fargo is my largest holding and was up 2% today. Unfortunately
that was somewhat offset by the rise in the Canadian dollar.


Wells Fargo reports earnings before the open tomorrow (Wednesday) morning. I
am hoping for good things, but banking profits are always hard to predict.


With Canadian central bank daily interest rates on the rise (starting June 1)
and the U.S. holding pat at near-zero, we might expect the Canadian dollar to
keep rising. But that is never a sure bet. If it were you could make a risk less
profit by borrowing now in U.S. dollars and paying back later as the Canadian
dollar rises. Risk less profits are not likely to exist. It’s possible that the foreign
exchange market has already “priced-in” (on an expected basis with
appropriate probabilities) all the factors that would drive the Canadian dollar
up. If the Canadian dollar is already fully anticipating interest rates to rise
faster in Canada and is perhaps already anticipating higher oil prices, then
when those factors occur, the dollar may not rise. If those factors don’t occur
the dollar can fall.


Pure currency speculators can take whatever bets they wish. Most investors
are not wanton speculators and would be better off to pursue a more disciplined
approach. For example middle aged or older Canadians who currently spend money
each year in the U.S. or expect to in the not so distant future should consider
switching more assets to the U.S. gradually. In effect take advantage of the
almost historically low price of U.S. dollars at this time. Don’t get too greedy
waiting for the U.S. dollar to get cheaper. But also don’t transfer too much
money all at once. Be patient and maybe transfer money over a period of a year
or two. Every situation is different but the point is most of us don’t need to
try to speculate and time the foreign exchange rates. Instead we can simply (and
patiently) take advantage of U.S. dollars being on sale.


And it’s not just the U.S. dollar that is on sale. Of course their entire
housing stock is on sale and most of it below replacement cost. Land is on sale
compared to historic prices. It’s staggering to think of how much cheaper it is
in Canadian dollars today to buy a vacation property in the U.S. versus the
prices of a few years ago. First the prices are often down 50% and then price to
buy U.S. dollars is down about 20 to 30% depending on the time frame.


For those who are wanting a property in the U.S. for their own winter use and
who can find an attractive and safe area, and who have the cash to do it, I see
little reason to hesitate. Hoping for a more attractive price and/or Canadian
dolla rise does not strike me a good reason to wait. Sure, the house in Canadian
dollars might get even cheaper in a year but if you are buying for the long
term, there is really not a lot of downside to buying now. As always though this
decision would be very specific to each individual’s own situation. You pays
your money and you takes your chances. But I likes your chances right now.


April 19, 2010


Our Stock picks did well today but it was a particularly volatile day.
Goldman Sachs is not one of our stock picks but it gyrated around in a range of
$155 to $163.73. Clearly the market is not of one mind as to the value of
Goldman’s and is highly reactionary to any kind of news, rumors or opinion. The
future of Goldman’s is anybody’s guess. They filed what looked like a pretty
good letter of defense today. Apparently while the “short” side of the
investment did indeed pick a few of the investments, the long-side was really in
charge of building the portfolio and approved everything in it. But if the
regulators decide to go after Goldman they will no-doubt find something they
don’t like. An analyst today suggested that all of these Wall Street Investment
Bank firms had misrepresented mortgage securities and committed accounting
fraud. In her view Goldman could completely implode due tot he loss of


April 18, 2010


FirstService preferred
shares are updated and are rated Buy at $23.09. They yield 7.6% which seems
attractive but does indicate that the market perceives risk in this investment.
I may add to my position.


FirstService is updated and
rated Weak Sell/ Hold at U.S. $24.26 or CAN $24.60. It is a well managed company
and has performed well in the face of the recession considering it is a
property services company. We like the company but the stock price is not
attractive at this time.


April 17, 2010


Canadian Tire is updated and
rate (higher) Buy at $55.70. It’s profits were hurt in 2009 by the recession. It
is now projecting good profit growth. And it is available at a reasonable price.
Investors should not be in a rush at this time but this looks like a good
investment. I plan to add to my position in this company.


April 15, 2010


Mixed messages continue.. Higher jobless claims in the U.S. and record
foreclosures… But the world economy has recovered strongly in terms of trade
and GDP growth. Google out with strong earnings growth…


One theory is that a large pool of U.S. consumers have who are basically
“awaiting” foreclosure are no longer making any attempt to pay their
mortgages and this has freed up money to spend. An interesting theory…


At some point and before long, income taxes need to rise in order to start to
get government deficits under control.


In Canada, higher interest rates have already started to arrive and will more
officially arrive by around the end of June when the Bank of Canada starts to
push up short term interest rates.


Overall this is still an environment in which to be cautious. Don’t be afraid
to leave some money in cash or to sell some stocks to raise cash. I never like
to get too rushed when it comes to investing. If you miss one investment
opportunity there are always lots more to come (over the years).


April 14, 2010


The markets and the economy seem to be firing on all cylinders lately…


That’s good, but let’s keep in mind that the stock markets have risen a
tremendous amount in the past 13 months. Last year at the depths of despair the
market suddenly turned around and has not looked back. Now with euphoria
returning, the market could at any time turn around. It may still be a good time
to buy quality stocks but it’s probably not a time to buy indiscriminately.


I did add to my Wells Fargo Position today. I am considering adding to my Tim
Hortons as well.


April 13, 2010


Markets should do better tomorrow (Wednesday) in reaction to strong earnings
released by Intel, after the close today.


Taking a look at Western Financial Group’s annual report there is good news
and bad news. Their traditional insurance brokerage network has continued to do
well. Also their life insurance operation (which I now see is more of a group
health benefits operation than a life insurance operation) has done well. The
part of the business that is a big concern is its banking business. In 2009 they
had specific loan loss provisions of 0.75% of loans outstanding as opposed to a
target of under 0.50%. And given that they lend to somewhat higher risk
situations often with weak collateral (recreation vehicle financing and crop
financing) I am surprised that the loan losses are not higher. I just don’t see
what competitive advantage they have in those are as of lending, particularly
the recreational vehicle lending. And, from what I understand, western farmers
are facing the new crop year looking at a rather parched and dry landscape. The
possibility exists that they will be hurt badly in this area. Another problem
with this company is that they have issued convertible shares which will cause
the diluted share count to increase whenever the share price increases. On a
positive note they have grown the revenue of the business strongly over the
years. But, over the years, the earnings per share growth has been poor
and the return on equity weak. I will review the financials more closely when
they report the Q1 results.


April 12, 2010


Canadian Oil Sands was up today on news that a Chinese company would buy a
stake in Syncrude. Canadian oils sands had predicted oil to average U.S. $70
this year but so far the average is closer to $80 and the current price is about
$85.  In our last update Canadian Oil Sands looked over-valued to us. So we
would not be buyers. However, if one expects oil to continue to rise than any of
the oil stocks should do well.


Meanwhile none of our Stock Picks did anything exciting today. Earnings
season has kicked off in the U.S. and so we should see various stocks react as
earnings are released. Stocks will react is the earnings a are different than
the expected amount.


April 11, 2010


Shaw Communications
is updated. Late last week it reported another good quarter of earnings.
“The market” seems unexcited by this stock but to us it looks like
good value and a stock that should be less volatile than others. As always there
are no guarantees and competition in the industry is still evolving with new


April 8, 2010


Markets today were down and then up slightly reacting to various news interpreted
as good or bad. I took the opportunity to add to my Shaw Communications at
$19.41. I already have a heavy exposure to Shaw so I am certainly showing the
courage of my convictions here. Tomorrow (Friday) morning it will release
earnings and I will see if my faith is rewarded.


April 7, 2010


I note that Shaw
Communications was down today. I suspect this is a buying opportunity. It
will report earnings on Friday morning and I don’t see any reason not to think
that it has had another good quarter. Possible negatives would be if Telus has
gained more traction with its television offering or if any kind of price war
has broken out. The Cable companies are complaining about the fact that they
will have to pay something to the likes of CBC and CTV. Personally I think that
is eminently fair that they pay for those channels. And I suspect that they will
be able to pass the cost along.


I was taking a look tonight at the yield on the Canadian Government Real
Return Bond. Here is a graph of the yield


Canadian Real return bond, long term

What this shows is that the real return to be earned by holding this bond to
maturity (close to 30 years) is about 1.6% per year plus inflation.


If we could lock in this 1.6% real return for the next year that would okay,
I would certainly take that rather than for example parking cash in Manu life
bank at 0.75%. But you can’t lock this in. The problem is that the principal
value of this real return bond can fluctuate significantly as the market real
return yield changes.


Consider that the  Canadian Real Return bond ETF (trafe symbole XRB on
Toronto) has increased from $18.50 to about $20 in the past 10 months. That’s a
gain of 8%. Now that gain came partly because the market yield on the real return
bond during the same period fell from about 1.9% to about 1.6%. Meanwhile XRB is
currently yielding 2.4%. (which presumably includes in some manner the real
return plus inflation minus the management expense fee). So that was great a
gain in excess of 10% on the real return bond fund in the past year.


But if the market real return rate rises the real return bond would fall in
price. It could easily fall 8% in a year for a net return of say minus 5.6%…


The bottom line is that a real return bond is not risk free in the short run.


Right now interest rates seem to be on the rise, so there is certainly risk
that the real return bonds will fall in price.


So… I am not interested in buying the Real Return Bond as a place to park


And I am not too interested in the 1.6% real return if held to maturity. That
might be okay for a portion of a portfolio, but certainly does not seem like a
great return at all. At that rate money doubles its purchase power only after 44


As a short-term speculation I would consider shorting the real return bond or
the XBR fund. But that is quite speculative. Shorting is a strategy that should
only be practiced by experienced investors and then only with a small amount of
a portfolio.


April 6, 2010


A good day for our Stock picks. In particular Wells Fargo was up another
2.5%. TMX group today released equity trading figures that were “okay”
but not great. We are once again about to enter earnings season and so
individual stocks will react this month when their earnings are either better
than or worse than expected.


April 5, 2010


Well, I am back from my travels in Europe and so can get back to the regular
daily comments. Markets are continuing to move upwards to the  surprise of
most analysts. I continue to take an approach of being about two thirds invested
but with the rest in cash or near-cash type investments.


With the Canadian dollar at about par I may switch more funds to U.S. dollars
at this level or say $1.01 if it gets there. I did switch some in at $0.98. As I
said before our dollar may go to $1.10 and beyond but it is hard to imagine it
can stay there. Alberta could live with that as it is likely to only happen with
high oil prices. But I can’t see how our manufacturing and tourism industry
could handle it. So my view is take advantage to gradually switch some money to
U.S. funds on the basis that the price is good and also on the basis that at
some point most of us will need U.S. dollars for our spending in the U.S.


As in 2008 we have a golden opportunity for Canadian retirees to cash out
completely and move to the U.S. Sell an expensive home here and buy a cheap one
there. Move cash to U.S. at the best rate in 35 years (save for a few mad months
in 2008). Of course most seniors would not want to make a total move to the U.S.
like that (but some will). Snowbirds too have a golden opportunity to move
dollars to U.S. Sure the opportunity might get even better later but there are
no guarantees of that. Again I ask Canadians how much did they transfer to U.S.
funds the last time the Canadian dollar got above par? Or did they see it slip
back from $1.10 and vow to transfer when it got back to $1.10 but it never did
(at least not yet).




March 31, 2010


Greetings from Italy. Tonight we are in Venice having rode the canal boats
this evening. On to Florence tomorrow and then Rome and home on Sunday.


As for markets I am not aware of any important developments this week. It was
interesting that the markets did not react much to the Moscow subway bombings.
Sadly we are de-sensitised to such things especially as it was specific to
Russia with no Al cada (spelling?) or Taliban involvement..




March 26, 2010


I am surprised to see Canadian
Western Bank preferred shares get to $28.25. While the 6.4% cash yield is
attractive, one has to remember that these shares will be almost certainly
bought back by the bak for $25 in four years. So that lops 11.5% off the yield
over four years or almost 3% per year. Therefore the real yield to maturity on
these shares is about 3.8%. That may not be a bad yield but if people think they
are getting 6.4%, that is a mistake.


Meanwhile doing the tourist beat in London I see lots of people (although I
imagine summer would be way more crowded). I see very high prices at some of the
stores like Harrods and Selfridges but I did not see much buying going on. I do
lotice  lots of familiar brand names and it goes to show the power (and
shareholder value) of some of the really well known brands. They may have their
own brand of “crisps” (potato chips) but when it comes to cola, Coke
is number 1 here. Most of the beer brands were familiar too, though not


March 24, 2010


Greetings from London. Browsing the
stores here I saw a lot more browsers and relatively few people actually buying.
Then again Harrod’s had nothing on sale and so they must not be hurting too bad
from the recession. It’s generally busy here but not too crasy. 


March 22, 2010


I am off for a little family vacation in Europe (mostly London and then a
tour that includes Paris, Lucerne, Venice, Florence and Rome.) I have a computer
but expect to post only infrequently the next two weeks. Hopefully I will return
with more of a Global view of the world and some new investment ideas. This is
our first trip off this continent and I hope to make it the first of many trips.
I am back on Easter Sunday, late that day.


As of 2:40 pm eastern it looks like Monday sees the market off to an okay
start for the week, this after first being down in the early going.


March 20, 2010


Our analysis of the
S&P 500 fair value is updated. I calculate a fair value of 944 under
what I consider to be reasonable assumptions. Current value is considerably
higher at 1160. The Table within the article allows you to see the fair value
based on different assumptions for the required return, expected growth and
expected long-run market P/E ratio.


Telus is updated and rated (lower)
Buy at $35.35 for the non-voting shares. While the price earnings ratio at 12.6
seems attractive, the company has faced lower earnings the past two years. It
does project earnings growth of 3 to 17% this year. With stiff competition from
cable companies and from new wireless entrants and given the fact that the
remaining pool of people who do not already carry a cell phone is shrinking, it
is hard to imagine that growth will be very robust in the next several years.
It’s probably not a bad stock to own or buy but does not appear to be a
particular bargain.


March 18, 2010


Data for rail road car loadings shows strong growth, which provides support
to arguments that the economy is recovering. http://www.aar.org/NewsAndEvents/PressReleases/2010/03/031110_RailTraffic.aspx


However since the stock market has already anticipated a recover, it may be
that the economy could now recover while stock markets don’t rise. The unfortunate
fact is that markets are always unpredictable. It is probably easier to focus on
investing in individual stocks that seem like bargains rather than trying to
time the market to any great extent.


March 17, 2010


The Financial Post had a couple stories today about how Canadian manufactures
had “adjusted” to our dollar at about par and were now competitive
with the dollar at about par. As a general claim, this is idiotic. Yes
there are some manufactures in Canada that are competitive with the Canadian
dollar at par to the U.S. dollar. If a company has all its sales in Canada and
all its costs in Canadian dollars and if it faces little or no competition from
imports then it is immune to the dollar level. For this type of company the
level of the Canadian dollar does not matter. But consider the extreme case of a
Canadian manufacturer that sells most of its output in US. dollars into the United
States but faces most of its costs in Canadian dollars. A few years ago every
$1.00 U.S. in revenue was worth say $1.30, even $1.50 in Canadian dollars. Now
that same $1.00 U.S. in sales is worth only $1.00 Canadian. So how to adjust?


Well this manufacture could “simply” cut its wages 30% or so. Not a
pleasant or easy task. And it is was only paying low wages to start, then this
is impossible. It could go and ask all its suppliers like the local electricity,
gas and water utilities to please cut their rates by 30%. Also ask the
municipality to cut property taxes by 30%, the bank to cut interest rates by
30%. You get the point, for many costs it would be absolutely impossible to
adjust. Instead if this company was making a 15% profit when he dollar was 80
cents, then it would be lucky to manage to simply break even at a par dollar.


The government may think that such companies have learned to live with the
high dollar. Not likely. More likely is the fact that a large number of
manufacturers that are selling into the U.S. but with most of their costs in Canadian
dollars have been struggling along hoping for a lower Canadian dollar and now
seeing he dollar headed for par and beyond will be ready to throw in the towel.
Watch for announcements of manufacturing plant closures in Ontario in the weeks
and months ahead. It is a certainty that a good number will occur if the Canadian
dollar does not soon retreat below about 90 cents. And there is no sign that
such a retreat will happen.


On another matter, I saw an announcement today that U.S. household debt had
declined for the first time since world war II. One analyst commented that we
have had over 60 years of households spending more than they make and running up
debts to fund this. Now the process is in reverse and the U.S. consumer must
spend less
than he makes in order to pay down debt and is in fact doing
this. This particular analyst believes that this will lead to a decline in stock
markets as the reality of lower consumer spending sinks in.


To me that does sound plausible. I am not about to run screaming away from
stocks, but it does make me feel that it is wise to hold a reasonable allocation
in cash in order to be in a position to take advantage if the market does in
fact drop.


March 16, 2010


A good day on the markets for our
stock picks. Nothing spectacular but a little gain here and a little gain there.
In many ways that has been the story of how I have beaten the markets over the
years. It was not done based on any grand slam home runs, but rather on lots of
doubles and singles and bunts and very few strike outs. As Warren Buffett says
in the investing game you don’t have to swing, ever, until you get a nice juicy
pitch. In baseball you are forced to swing even when its not an easy pitch, in
investing you can wait for the easier hits.


March 15, 2010


This week started off with a gain in Walmart
as analysts expressed the opinion that it was a good investment.


March 13, 2010


Berkshire Hathaway is updated and
rated (lower) Buy at $82.24. It is clearly a great company but does not appear
to be particularly bargain priced at the moment. It is a complex company. It
should continue to do well in the long term due to its stable of profitable


On Friday I transferred a small amount of cash to U.S. dolalrs to take
advantage of the 98 cents Canadian dollar. There is lots of speculation that the
Canadian dollar will head well past $1.00. That may be though I don’t see how
the Canadian manufacturing and tourist sectors can fail to be decimated if that
happens. My strategy would be to buy U.S. dollars gradually since they are cheap
now compared to the historic exchange rate and since I can’t predict the
exchange rate.


March 11, 2010


I sold my Canadian Western Bank preferred shares today at $27.60.


March 10, 2010


Canadian Western Bank
is updated and rated Buy at $23.37. Last week it reported a very strong first
quarter. It looks like a good investment but there is some risk of bad loans
especially if gas and oil prices drop and the Western economy cools.


Canadian Western Bank
Preferred Shares are also updated and rated Weak Sell / Hold at $27.61. They
appear to yield 6.6%, but will almost certainly be redeemed (bought back) by the
Bank when they are allowed to April 30, 2014. Therefore there will be about a
9.5% capital loss if held until then or an average 2.4% per year. So a the
“yield to maturity” is closer to 4.2% per year, which is not bad, but certainly
not as good as 6.6%. I plan to sell my shares and perhaps switch into the
Canadian Western Bank common shares.


I added to this Site an advertisement to Questrade a Canadian discount broker
service. They have an affiliate program and InvestorsFriend Inc. will receive
$70 for any customer that signs up with Questrade through our advertisement and
makes a minimum of 10 trades. I have not tried Questrade because TD Waterhouse
has met my needs and I like to keep all my investments in one place. But it
looks like a good service.


Over the ten years that this Site has existed I have rarely ran any ads
(except for a link to Amazon for recommended books which so far has earned all
of about $40 in four years). My policy is to advertise only high quality
businesses. Right now the ads are for Questrade, Bank of Montreal and Ally. I
use Canadian financial ads to run some ads. If they run any ads I don’t like i
will opt out of those ads.


March 9, 2010


Back a day early from my travels… I sold my remaining Canadian Oil sands
trust units by placing on Sunday an order to sell at the open on Monday. that
was a bit risky as I did not know what price it would open at. But I figured
with a big heavily traded stock like that (liquid) it was unlikely I would get a
bad price at the open. As it turned out the price at the open was $28.50 and it
fell modestly on Monday and again today (Tuesday) now at $27.59, so my trade at
the open was a good one.  (Though  it will look dumb eventually if oil
prices rise enough).


My experience has been if I want to sell it’s best to just sell at the market
(although be cautious with thinly traded stocks). If you don’t want a stock why
try to be cute and get an extra few cents? instead sell at the price offered.


A different strategy is when I have a stock that I don’t particularly want to
sell but where I might decide to throw in an order to sell if the price happens
to jump by some certain amount. Or sell a portion. On occasion I have done this
jut to take advantage of volatility.


Housing starts in Canada are apparently back all the way to an annualized
200,000 per year. Every time Buffett talks about housing starts in the U.S. he
compares it to the number of household formations. I have not seen that data for
Canada. I believe Buffett said the U.S. has about 1.3 million household
formations per year. And for a long time they built more like 2.0 million houses
per year. And so they ended up with a glut of houses. If Canada has about 10% of
the U.S. household formations then t would seem we need closer to 130,000 houses
per year. So what will building 200,000 per year do? It should lower prices,
that is what.  That apparent over-building along with higher interest rates
seems likely to push house prices down in the next year.


Meanwhile a company like Melcor that sells building lots in Alberta is
probably going to have improved results these next couple of quarters.


Shaw Communications and Wells Fargo are both on my list of stocks where I
might add to my positions. Also Melcor.


My Canadian Western Bank preferred shares have done so well that I am tempted
to lighten up. (They are not up all that much but really I was not expecting any
capital gain, just expecting the dividend) Possibly I will sell and then buy
back if they drop again.




March 7, 2010


Due to travels I will have no updates on March 8 or 9, most likely return
with comments on March 10


Target is updated and rated a Buy at
$52.13. Its earnings are now increasing. In particular in its next reported
quarter it should show strong earnings growth compared to a very weak Q1 last


Canadian Oil Sands Trust
is updated and rated Sell at $27.95. (it closed Friday at $28.28). In
2009 West Texas oil price averaged $U.S. $62 and the P/E based on 2009 earnings
is 32. Based on the 2008 earnings the P/E would be 9 but that was with $U.S.
$100 oil. The company is projecting U.S. $70 oil this year and that does not
appear to be high enough to make the value ratios look attractive. Also we are
starting to wonder about management at syncrude (the operating company) given
production problems, higher operating costs and issues with dead ducks. The
company is projecting free cash flow per unit of 97 cents in 2010 which is
problematic considering the current dividend is $1.40. Then there is the issue
of taxation in 2011. It may be best to sell this unless you believe oil will
stay well above $70.


I had sold most of my shares earlier this year and now plan to sell the
remainder. If I decide I want “exposure” to oil sands I will buy the ETF CLO the
oil sands sector ETF.
See our ETF article.


March 6, 2010


Walmart is updated and rated
(higher) Buy at $53.66 (it closed Friday subsequent to our analysis date at
$54.14. It’s worth thinking about buying this stock now when it is relatively
out of favor. I will consider buying some. Buffett has bought this in the past
year at relatively similar prices. Yet most investors are not interested. What
do most investors know that Buffett does not?


March 4, 2010


A couple of interesting things in the market today…


Melcor came out with earnings yesterday after the close. I believe the
earnings were reasonably good. Melcor shares traded down early today and the low
was $9.77 but it closed up 20 cents at $11.00. This goes to show that if you are
patient and put orders in below the market price you can sometimes get a nice
fill price.


FirstService Preferred jumped 6% to $22.50 today. That’s a nice jump
especially for a preferred share. These shares tend to be a bit volatile and are
thinly traded  it’s not clear it will hold that price. But for now at least
it feels good.


March 3, 2010


The TMX group reported on its trade volumes for February this morning, well
before the market opened. TSX volumes were down a substantial 19% versus January
and down 25% versus last year. This exchange is clearly losing trading volume to
competing alternative trading systems including most notably Alpha. The smaller
TSX venture exchange however had dramatic increases (75% versus January and 284%
versus last year February). The Montreal exchange also showed good gains.


So a mixed message overall. The TMX stock opened up a few pennies higher than
it closed yesterday and then traded in a tight range to close down just 3 cents.
Therefore, it appears that this was not too different than “the market” was


I was pleased to see that they released this data before the opening of
trading which is what I have been urging them to do. Traditionally they have
released news like this in the middle of the trading day. A release during
trading hours, especially when the trading volumes are unexpectedly strong or
weak can cause some trades to happen at unfair prices before the market adjusts
to the news.


When I saw this news I thought that the TMX stock would fall on the news but
as mentioned it did not. They will also shortly release figures for the TSX that
include the number of initial public offerings and secondary offerings of
shares. These I believe will be higher than last year and on these fees the TSX
does not (yet) face competition. I had reduced my TMX position last week in
order to buy Tim Hortons and I am sitting on the remainder of my TMX shares
hoping it will rise but with certainly no guarantee of that given the new
competition. It does pay a good dividend, which is good, but will not be of any
great comfort is the stock were to drop significantly.


March 2, 2010


U.S. stocks were flat today while Canada was up about 1%. Bank of Montreal
had strong earnings. The outlook remains uncertain… earnings up a lot since
last year but problems with debts and with economies pumped up with government
spending continue to loom.  Best strategy is probably to continue to look
to hold strong companies.  It’s extremely hard to time the market. But it’s
not so hard to identify some companies that we can be reasonably certain will
still be around and still be strong in a decade. CN is an example, probably Shaw
Communications, Tim Hortons, Wal-Mart.


March 1, 2010


Berkshire Hathaway was up 2.2% today. Not a surprise given Buffett’s
comments, in the annual letter, that he considered the company to be worth more
than its market price. Interestingly it was down all morning and only started
rising around noon.


February 28, 2010


My personal portfolio allocation is updated.
I have about a 56% exposure to equities (plus 16% in preferred stock equity). I
am mulling over whether I should reduce the equity exposure further by buying
additional Bear ETF funds. This would protect me if the market happens to turn
sharply lower. It would also limit my upside if markets rise. So it’s not an
easy choice.


I have read Warren Buffett’s letter closely and also read the Management
Discussion section in the annual report. I have not yet updated the analysis f
Berkshire Hathaway. I don’t think that Berkshire will look all that attractive
based on its 2009 earnings (excluding gains and losses). However Buffett seems
to be unusually clear this year in the letter in stating that he believes the
company is worth more than the current stock price. In his case, it seems safe
to take his word for it. That does not mean Berkshire’s stock can’t drop in
price but Buffett seems to signaling that it is a good long term investment.


February 27, 2010


Warren’s Buffett’s annual letter for the end of 2009 was published this
morning. This is absolutely required reading.



Tim Hortons is updated and
rated Buy at Canadian $31.94 or U.S.$30.33. This stock is not bargain priced but
does seem to be reasonably priced and should be a long-term winner. I did buy
some yesterday after mentioning in Thursday’s post that I would.


I sold almost half my TMX Group
shares to obtain the cash to buy Tim Hortons.


Walgreen (the big U.S. store chain) is updated and rated Buy at $34.35 (that
was the price at which we analyzed it, it closed last at $35.24. After some
weakness in 2009 it has resumed strong growth in the past two quarters which is
good performance given the recession. This is well worth considering.


February 25, 2010


U.S. markets fell today on concerns about the weak recovery…


Tim Hortons reported good results this morning and raised its dividend. I
will likely buy some shares tomorrow. It is surprising the stock did not rise
more today and the tepid reaction probably illustrates that investors in general
are cautious.


February 24, 2010


Regarding the TMX group. I
spoke to its competitor Alpha today and to the Investor relations person at TMX.


I was interested in confirming that no company can “list” on Alpha. This was
confirmed, Alpha trades shares but is not (yet) an exchange. So for now TMX
basically has a monopoly on charging for listing fees. So I expect they will
have good earnings this year . BUT Alpha may become an exchange within about a
year. At that point there could be considerable pressure on TMX to reduce its
listing fees. And I refer here mostly to the sustaining listing fees that the
companies have to pay every year to stay on the exchange.


So.. this remains a tough call, it it were trading at a P/E of 20 like it
used to it would be easy to say sell. But at some 10 times adjusted earnings it
still looks good. But it could grind down in price due to this competition. As
the better part of valor I may reduce my position. I am sorry to be so
non-committal but that is the nature of markets. In an efficient market all
stocks would be holds.


The best strategy is to find stocks that are very clearly buys. (although the
job is not easy given that if markets are efficient, they don’t exist!), and
also that are not overly speculative. At the moment those seem scare…  My
top pick in that category (though certainly not guaranteed) is Shaw


February 23, 2010


A negative day in the markets today Tuesday… but that’s life in the
markets. It does not bother me because I am positioned with cash to buy on dips
and I am confident that the overall direction of markets is up, although not
necessarily in the short term. When markets are declining Dividend stocks are
great because they tend not to fall as much and they give you cash to buy at the
lower prices..


February 22, 2010


It was a good day in the markets for our stock Picks thanks primarily to
Wells Fargo. It’s not without risk
(what ever is?) but it is one our top few picks at this time.


February 21, 2010


TMX Group is updated and rated
Speculative Buy. It is hard to predict the earnings for TMX Group now that new
competitors have emerged for the trading of stocks. It may be that TMX can
continue to do well because it may be that all large Canadian companies are
still required to list on a traditional exchange like the TSX. I have sent an
email to the TMX to confirm this. I believe that even if much of the trading
takes place on alternative exchanges like Alpha, it may still be necessary to
list on the TSX. This company looks cheap on a trailing adjusted earnings basis
but that will be of cold comfort if earnings do in fact fall significantly with
competition. It’s one of y larger holdings and I have not yet decided if I will
reduce my position due to the uncertainty.


February 18, 2010


In the United States, the central bank (the Fed) raised an important interest
rate by 0.25% to 0.75% after the close today. This was the Fed Discount rate
that banks can borrow from the Fed at. The more important Fed Funds Rate remains
near zero.


Even though this was the discount rate and not the Fed funds rate, it
certainly looks like this marks the turn of the tide in interest rates. We
should expect interest rates to rise.


When all else is equal (and it never is) higher interest rates tend to drive
stock prices down.


February 17 ,2010


Recession Watch:


Some interesting figures were recently published regarding the extent to
which Canadians are getting behind on loan and mortgage payments.


First, statistics published just yesterday show that the percentage of
Canadian credit card receivables that are at least 90 days past due was 1.3% at
the end of the bank’s fiscal year ended October 31, 2009. This is the percent of
the dollars that are delinquent. The percent of card holders that are delinquent
would be different. It does not sound all that high. But it was up 30% from 1.0
the prior year. This rate topped out at 1.8 in past recessions in 1990 and at
1.7 in 1982.   So it looks like things are not nearly as bad as those
prior years. I notice too that this figure has been volatile, it was 0.9% in
1989 before doubling to 1.9% at the end of fiscal 1990.


My belief is that it is much easier to borrow today than it was in 1990. Home
lines of credit were not really around in 1990. My fear is that people today can
hide their inability to make their payments by simply borrowing more. If you
have an existing line of credit and then lose your job, you are not going to
starve or miss your Visa and mortgage bill, nit until after you have tapped out
that line of credit. My experience has been that banks keep a close eye on who
is paying late but they fail to even notice if bills are paid by borrowing.
Paying your credit card with your line of credit will se off no alarm bells.
Paying anything even a single day late however starts to set off the bells and
once you are over 30 days late the black marks start to accumulate on the credit
file. So, what would we expect people to do in this situation?. I would expect
them to avoid paying late by running up debt until they totally hit the wall.
That remains my prediction, that banks will ultimately be surprised when people
finally run out of borrowing room many months after they lose their job and then
they will declare bankruptcy with large amounts owing. If someone is headed for
bankruptcy there is little incentive not to first borrow as much as possible.


This data is available here:



The loss rate which accompanies this 1.3% over-90-days late is 5.38%
annualized. This loss figure has been increasing faster than the delinquency
rate. In good news, the 1.#% and 5.38% as at October 31 are almost exactly the
same as they were on July 31, so perhaps things have stabilized.



Figures on Mortgages 90 days past due continue to show little sign of


Only one mortgage in 227 (0.44%) is over 90 days past due. Being skeptical,
one possible reason for this is that maybe at day 60, the bank grants the
borrower several months of payment holiday (this is not that uncommon) or they
extend the term to lower the payments. If you got in difficulty but you them
make this type of arrangement then the mortgage is no longer delinquent. The
bank has every inventive to do this to make their delinquency figures look



February 16, 2010


I added 50% to my position in Wells Fargo. Today was very strong on the
markets. But this may just be the continuation of volatility rather than the
start of any trend.


February 15, 2010


Wells Fargo is updated and rated
Speculative (lower) Strong Buy at $26.88. (Meaning we think it is in the Strong
Buy range but at the lower end of that range and that it is Speculative due to
the uncertain nature of banking and loan losses. This company is a long-time
favorite of Warren Buffett’s. He likes its management and its competitive
advantages of paying lower average amounts for deposits and the fact that it
tends to lend in areas where it can charge higher interest rates. I plan to add
to my position in the company.


Regarding Shaw Communications’ planned purchase of a controlling voting
interest in (the currently bankrupt) Can West Global. They would own 20% of it
but control most of the votes. I don’t have a strong opinion of whether this is
good or bad. I don’t really buy into the idea that they needed to buy content
for their cable network (no more than a cattle trucking company has to buy
cattle farms). I suspect that they will be getting a low price for the assets so
that is good. I suspect they would have preferred if the other
Shaw-family-controlled company, Corus Entertainment, had bought these assets but
that would have led to more problems with the competition bureau. Overall I
don’t think this affects the value of Shaw Communications though that is hard to
say as I don’t know the size of the investment in dollars.


February 14, 2010


Check out the latest edition of our free
newsletter, if you have not already read it. It was emailed out last night.
(I did make a few minor edits this morning). In it I skewer the argument of the
investment industry that we need to be saving something like 20% or more of our
earnings annually between pensions (including employer contributions) and RRSPs.
We can’t and don’t need to save that much. I discuss also the usual assumption
that we should be expecting to withdraw completely from the workforce by age 65
though we remain perfectly able to work.


February 11, 2010


Canadian Tire fell 6% after releasing disappointing earnings before the
opening today. Interestingly the source of the problem was higher credit card
losses. Higher credit card losses is a story we can expect to hear a lot about
in 2010 – not just at Canadian Tire but all credit card issuers. And maybe after
that some higher losses from mortgage lenders.


February 10, 2010


TMX Group reported earnings about one hour before the open this morning. The
result was that the market adjusted to the news before the open and the stock
opened about 80 cents higher. This is more fair than what happens when earnings
are released during the trading day (as TMX has done on most occasions) When
earnings are released during trading hours, institutional investors with eyes on
screens can trade quickly and disadvantage retail investors. It appears that our
efforts to get the Investment Industry Regulatory Organization to discourage
release during trading hours has had the desired effect. I had written to them
specifically in regard to TMX but also as a more broader concern about all
companies. After initially rebuffing me the Regulatory organization decided to
look into it and agreed with me that TMX should “probably” not have released
their Q3 during trading hours in Q3 since they had a “miss” in earnings and they
copied that reply to the TMX. As I understand it the Board had to meet earlier
in the morning to approve the earnings release and get the press release out.
(The poor dears, had to get up extra early!). (And maybe my efforts here are
just coincidental, maybe these earnings would have came out pre-opening in any


More importantly TMX earnings (if we ignore a goodwill write-off on their mis-guided
investment in a Boston options exchange) were apparently higher than expected.
The conference call was after the close today but hopefully could lead to more
upside for the stock if the analysts like what they hear on the call. I have not
read the earnings release as yet.


February 9, 2010


Microsoft is updated and rated
(higher) Buy at $27.72 (closed today at $28.01). This is a complex company.
Based simply on its recent profitability and assuming it can grow at least
modestly, it appears to be a reasonable investment.


The North American markets were up about 1.5% today after losing 1%
yesterday. So certainly lots of volatility…


The TMX Group will release earnings tomorrow. I see the conference call is at
4 pm rather than during trading hours. If they release earnings after trading
hours it would likely be because of some work I did to officially protest their
past release of earnings during the trading day. (Especially last quarter when
they had an earnings miss – not fair to release during trading hours).


If a company releases bad news during the trading day then a few lucky
(usually institutional) investors get to sell to hapless retail investors who
have not seen the bad news. If bad news of any company is released after hours
then no one can sell before the news becomes known. Anyway that is a more fair
system. Similarly if the news is unexpectedly good, and is released during the
trading day then institutional traders get to take advantage of retail investors
who have not seen the news.


With a conference call at 4 pm, it is highly possible that they intend once
again to release during trading hours… we shall see.


But more importantly I hope the TMX Group earnings are strong whenever they
release them.


February 8, 2010


Microsoft will be our next update and it looks like we will rate it (higher)
Buy. It just reported a strong quarter and has started to grow revenue and
earnings after a poor fiscal 2009 (the 12 months ended June 30, 2009).


The Dow and Toronto both fell by pretty close to exactly 100 points or 1.0%


Wells Fargo has been hard hit in the past few days. This will likely be our
next update after MicroSoft and I believe it will be rated a Buy or (higher) Buy
although that is a preliminary view as the analysis of this one has just been




Feb 7, 2010


eBay is updated and rated speculative
Buy at $23.54 (since the date we started the analysis the price changed and it
last closed at $22.71). eBay continued to grow revenues in 2009 (although only
slightly) in spite of the recession. Adjusted earnings however fell about 33%.
Management expects adjusted earnings to increase about 41% in 2010 taking them
back close to the 2008 level. eBay has strong competitive advantages due to its
dominant position in online auctions and sales by individuals and also by its
dominant position as a third-party payment processor for millions of web sites
including for InvestorsFriend (PalPal). These factors combine to make it worth
considering as a Speculative Buy. I don’t own it personally at this time but I
will consider buying a modest position in this company at this price.


Feb 5, 2020


The Toronto market ended up closing
about 1% higher today but earlier in the day had been down about 1% so it’s been
a volatile day and a volatile week. Oil in particular was very volatile this


I decided to sell my remaining Aeroplan this afternoon. This offsets the Shaw
I bought this morning to keep my cash position at the same level. Normally i
would wait until the earnings release for Aeroplan comes out but in this case it
was last rated (lower) Buy at $10.03 and it was now at $10.85 and I just decided
to sell that position.


I have added to my position in
Shaw Communications this


February 4, 2020


The TSX was down 2.3% today while the U.S. markets were down 2.6% (Dow) and
3.1% (S&P 500). On the hand markets were up strongly earlier this week. It only
seems to take one day like to today to cause most investors to lurch from
optimism to fear. On this Site I have expressed a cautious sentiment since at
least August.


At all times investors face the problem of balancing their fear of losses if
markets in general go down with their fear of missing out on gains if markets in
general go up. Layered on top of that we tend to have our portfolio of stocks.
Even if we think markets will go down in general we may feel that our stocks
will not be hurt as badly. Or we may face tax consequences if we sell. One way
to deal with that is the partially hedge the portfolio by keeping the portfolio
but buying a “bear” ETF. Our
ETF article
provides the trading symbols for these bear ETFs. Personally I have a small
amount of bear ETFs. These have lost me money over the past year but they do
cushion the blow (by rising) on days like today.


Everyday, new economic figures come out such as employment reports and
markets react to that. Obviously the markets tend to go down if the news is
worse than expected and rise when the news is better than expected. In general
this process especially over shorter periods tends to be rather random and
unpredictable. (If it was truly predictable that the overall markets will (say)
fall in the next month, they would fall right now, that is markets tend to
assimilate the know news quite quickly. It’s the unforeseen news that causes the


I expect to have a couple of updated stock reports by Sunday.


February 3, 2010


Shaw Communications continues to slip down in price which I view as a buying
opportunity. In my own account, I am holding firm neither buying nor selling
anything at the moment. The only order I have in is for a small amount of Melcor
– I cheaped out and tried to buy it below the market price. (I already have a
healthy exposure to Melcor).


February 2, 2010


TMX Group announced after the
close on Monday that it was reducing trading fees on stocks under $1.00 by about
50% and this was for both TSX and Venture exchanges. In response the stock fell
2.4% today. The pres release indicates this reduction would cut revenue by 3% if
there were no offsetting benefit of higher trades due to lower prices. TMX
profit as a percent of sales was last reported at 34%. Therefore this revenue
drop does not seem very large.


The concern that is raised here is that TMX group is not as much of a
monopoly as it once was. In part it was competitive pressure that led to this
trading fee decrease. Therefore it is of concern. On the other hand it appears
that no other fees are being lowered at this time. This suggest that competitive
pressures in most of their business are not that strong. The bigger concern
would be if they are forced to lower listing fees. So far that has not (to my
knowledge) occurred, and it may not.


Today, after the closr of m,arjket this smae TMX Group announced its trading
volumes for January.



Regarding the Venture exchange (which is much smaller than the TSX exchange),
the TMX Group said Trading volume for the month on the public venture capital
market place was double the volume traded in January 2009, the number of
transactions was up 179.5%, and the value of shares traded was 374.1% greater.


However the trading on the TSX itself was lower than January of the prior
year. Given that the stock market is a lot higher now than last year, these
figures suggest that the TSX has lost noticeable volume to alternative
exchanges. Profit for January may not be lower, because annual listing fees
should be higher based on the higher stock market.


Also IPO and secondary offering data has not been released but will be this
week. I suspect this would show strong improvements from the weal levels of last


Based on current profitability TMX Group would remain a Buy. However, there
can be no assurance that profits will not ultimately be driven much lower due to
competition. Personally I will not be selling my shares and may possibly add to
my position but I recognize that the stock is becoming more speculative.


I note withy interest that these last two press releases from TMX came out
after the close of trading. I the past they have released trading statistics and
even earnings during the trading day. I had advocated for them to stop that.
Possibly my advocacy has had the desired impact.




January 29, 2010


Due to travels, I will be off-line for just a few days and expect to post the
next update here late on Tuesday.


With one month gone in 2010, the TSX is down 5.5% and the Dow is down 3.5%
and the S&P 500 is down 3.7%.


I have not yet calculated how our stocks picks here have done but I am
confident that in the early going we have out performed the market. My own
return is about zero (down 0.1%) for the month. As we get further into the year
I will be calculating the return on our Stock Picks for 2010.


January 28, 2010


Walmart has slipped a bit in price
and is worth considering. With markets having declined somewhat these past
couple of weeks I would be inclined to nibble at adding to positions but would
not be in any particular hurry.


January 27,2010


Not too much happened with the stocks I hold today. Except for Wells Fargo,
it was up 4.5% today whereas yesterday it fell about 6% late in the day after
first rising somewhat earlier in the day. Also Berkshire up about 5% but sadly I
own only 100 B shares.


Far East markets are up in early Thursday trading and so perhaps we will see
a stronger day tomorrow.


Jan 26, 2010


After the close of (regular) trading today it was announced that Berkshire
Hathaway will become a component  of the S&P 500 index. The stock then
promptly rise about 8% in “after hours trading”.


It’s surprising that it would rise that much given that this event was
expected to occur. According to the efficient market theory, markets move when
unexpected news is released or unexpected events happen and should not move when
things happen as expected. Of course the announcement gives certainty so we
might expect a little move but 8% seems a lot. Therefore Berkshire could
relinquish some of this unusual gain tomorrow. (I’d like to see it drop to give a
better buying opportunity).


I have always had trouble with the notion of “after hours trading”. By
definition it seems like a market that is somewhat restricted, where not
everyone gets to play. It makes no sense whatsoever to hold news until the end
of regular trading only to release it into this after hours trading.


Wells Fargo for one is a banking stock that fell quite hard at the close but
did stabilize after hours. It’s just another example of the fact that stocks do
tend to be volatile.


CN was out with good earnings after the close today. And it is increasing is
dividend from 25 cents to 27 cents or 8%.


I notice Kingsway Financial announced it will sell a subsidiary (Jevco) to a
company called Westaim. Westaim used to be a technology company and I once had
it on this Site. Kingsway will sell this Jevco subsidiary at 94.5% of book value
(which means it is sold at a loss although the size of the loss was not stated).
Kingsway rose yesterday on the news perhaps because it included the fact that Jevco would first pay a $40 million dividend to Kingsway. But that is cash that
Kingsway already owned. Given that Kingsway trades well below book value this
does look positive. Bit it also looks like a move of desperation as Kingsway
sells off assets to get enough cash to fulfill its debt covenants. I expect
Kingsway to report write-offs at year end and its book value to drop, although I
can’t estimate if it will drop as low as the lowly share price. Today is gave
back about half the gain of yesterday. Not a company
that I take much notice of anymore…


January 25, 2010


Earnings reports for year-end 2009 are pouring in now in the U.S. with Canada
soon to follow. Since the last quarter of 2008 was a complete disaster for
earnings, most companies are reporting bin increases for Q4 2009 versus the
prior year.


I’ll continue to keep posted of any trades I do but right now I am basically
in a wait and see mode, waiting for Q4 earnings to come in and then to take a
look at those.


When I bought my house I had the attitude of not getting in a hurry, not
falling in love with any particular house. Trying to keep in mind that if I bid
on a house and the seller did not accept, there was always another house for
sale. This is even more true with stocks, I don’t believe in getting in a big
hurry. I am not a day trader and I don’t try to pounce on short term gains.
Instead I analyze and buy with patience. (At least in theory, though at times we
all get trigger happy).


I am always amazed at how many people think the stock market is manipulated
and the little guy can’t win. In reality a manipulated market would probably
make more chances to win since it would lead to over- and under-priced stocks.
Maybe the market is manipulated. But I don’t worry much about that. Instead I
try to just analyze stocks and see what bargains I can identify.


January 24, 2010


Shaw Communications
is updated and continues to be rated (lower) Strong Buy now at $20.30 on Toronto
of U.S. $19.11 on the New York Stock Exchange. It has continued to show very
strong growth in earnings. There is some risk due to more intensive competition
but so far Shaw has grown despite competition.


Recently Shaw purchased Mountain Cable in Hamilton and paid 40% of the
purchase price in shares. This is of particular interest because Warren Buffett
has recently been highly critical of Kraft foods (of which he owns about 10%)
for partly using its shares to purchase Cadbury. Buffett basically said it is
crazy to use shares that you think are undervalued to purchase a company that
you paying full price for – not getting a bargain. Therefore this purchase could
be viewed as signaling that Shaw thinks its shares are NOT under-valued. BUT,
Shaw subsequently went out and purchased back the same number of shares from big
institutions and paid roughly the same price as which it issued the shares to
buy Mountain cable. The signal I woukld read from that is that Shaw did not like
issuing shares for the purchase. It was likely the sellers who wanted Shaw
shares perhaps to save on income taxes since the sale of a company in return for
shares in the purchaser can often qualify to defer the gain on the sale. The
fact that Shaw repurchased these shares so quickly may be a signal that they
believe that their shares are undervalued.


I personally have a significant percentage of my own portfolio in Shaw
Communication shares and I am comfortable with that. It is not without risks but
overall I believe it will be a strong long term investment.


The U.S. market fell about 2% on
which followed the 2% decline on Thursday. Does this mean the
start of big decline in the markets? I don’t think anyone knows that. What I
have said for many months now is be cautious. Be positioned to take advantage of
any big market decline. That’s why I am holding a much larger cash position than
I normally do and a small amount of “bear” Exchange Traded Funds. Also I am not
leveraged in the market. If the market declined very substantially (and I am not
suggesting it will or won’t) I am positioned to borrow money to invest if I
decide I want to.


January 21, 2010


Markets were down about 2% today. Markets fell after Obama indicated he hoped
to introduce measures to stop banks from making so much money and to more
heavily regulate them.


Obama seems likely to make some populist but anti-business moves. Financial
markets may complain but they have basically brought this onto themselves.
Hopefully it will be the big investment banks that suffer and not traditional
banks like Wells Fargo and not the non-financial companies.


Berkshire Hathaway was up about 4.5% due to Buffett indicating it was under
valued and due to the 50 to 1 split of the B shares. The original A shares are
now worth 1500 B shares.


Oil dropped noticeably as the futures contract switched from the Feb contract
to the March contract. Interestingly that is not really considered to be the
true drop in price since it is a different contract. In any event oil is now
just under $76 which is lower than it had been recently.


January 20, 2010


Earnings season is once again under way. Wells Fargo and e-bay reported
strong results. I decided to add to my position in Wells Fargo today. I had been
thinking of doing that and then when I heard the earnings were better than
expected and I noted that the share price actually fell on that news (probably
because of the U.S market being down today) I decided to go ahead and buy.


Canada’s “leading economic indicator” rose 1.5% in December. And this is the
seventh straight month that it has risen. That would seem to indicate prosperity
ahead. But I note that most of the rise is due to two factors. Higher stock
market prices and higher house prices. So I would be a little leery to conclude
that the higher economic indicator means higher stock prices since it works the
other way higher stocks drive the indicator up.


Warren Buffett said today that he sees the economic recovery as being
somewhat slow and prolonged.


So overall a cautious outlook seems warranted.


Last Thursday I mentioned that with the Canadian dollar at 97.5 cents U.S. it
might be wise to convert some Canadian money into American now especially if you
were planning to do so soon but were maybe waiting for the Canadian dollar to
hit parity.  As of last week conventional wisdom was that the Canadian
dollar was headed to and beyond parity in no time flat. maybe it soon will…
But as of right now it is down almost 2 cents since last week and is at 95.6
cents. Actually that still means that U.S. dollars are “on sale” and are cheaper
than they have been in about 34 of the last 35 years. So it still may be wise to
lock in and buy now rather than wait and see which way things float. In any
event people tend to get more uptight about a 2% change in the dollar than they
need to. 2% more is only $20 on $1000 so it should hardly change your vacation


I am heading to Europe for the first time ever at the end of March. (Family
trip London for 5 nights and then a 10-day bus trip through France Switzerland
and Italy and we fly back out of Rome). The travel and accommodation and much of
the touring around has already been pre-paid.  I will probably just use
credit cards for spending. However Visa likes to scoop a rather healthy fee on
foreign spending so that will cost me. As well I have an HSBC account and so
will be able to withdraw cash easily that way. I did already buy some Euros and
British Pounds. I figured why not buy the funds now when the Canadian dollar is
high rather than chance that it will fall by the end of March.


January 19, 2010


Anyone who happens to be reading this on Tuesday night. Warren Buffett and
Bill Gates are on CNBC at 10 pm Alberta time so I assume in Ontario it would be
on at midnight eastern time.


Most of you have probably seen the email I sent with an offer that we would
donate $50 to Red Cross / Haiti for every new annual subscription.


The response has been excellent with 18 so far for a donation of $900. And
that will be matched by the Federal government. I think it will go over $1000 in
the end here.


For those of you who just joined because of this thank you again.


Also if any of you were on an active monthly subscription and you have by
chance just signed up for the yearly subscription, we then need to cancel the
monthly, so let me know. PayPal treats that as two unrelated subscriptions.


For all my existing customers/friends I hope you don’t mind that this program
by its nature was only for new subscriptions. Well, if I did not have you, this
Web Site would not exist and and the donation would never have happened so you
are all a part of this as well.


As for today’s market. I notice Melcor
down 32 cents to $11.08, maybe a change to buy. I have an order to buy more
at $10.70, but no guarantee it will dip even that small amount. Similarly
Canadian Western Bank Preferred shares are down a shade to $26.75 after being at
$27.15, nit a big drop but if you want to buy it’s obviously a slightly better


Shaw Cable has been buying back large blocks of stock from someone 1.6
million shares at $19.07 today. This makes a total of 6.1 million shares bought
this way in four blocks since November 24. The previous prices paid were $20.01,
before that $19.83and the first one was at $18.66. I think this is positive
since the company does want to buy back shares and I believe they think they are
under-valued. I was worried though that it was an insider selling. Some of the
Board members who previously sold their cable companies to Shaw have huge
amounts of shares as does Tim Hortons co-founder Ron Joyce. But I checked
insider selling reports and nothing listed. So it’s likely a pension plan
selling (or plans). So I guess they don’t think it is worth more than the $19
but then again maybe they just need the money.


Visa was up 2% today. It’s hard to
keep a good monopoly down I guess.


January 18, 2010


The U.S. markets were closed today which made for a quiet day in the markets.


I had hoped to have an update on Shaw Communications ready but ended up
expending the time on the ETF article update. In any event I am reasonably sure
Shaw will remain a higher rated Buy. One of the worries with Shaw is that at
some point Telus TV starts to take hold and competition gets more intense. In
fact in Q3 Telus finally started giving more details about Telus TV. They signed
up 22,000 in Q3 and this was about the first quarter of good “traction” for
them. They now have about 100,000 Telus TV customers. This will hurt Shaw
somewhat but to date Shaw is more than making up for that with all the internet
and phone customers it is taking away from Telus. While we may see Shaw’s share
price jump around a bit on competition fears, so far it still looks very good to
me. But I will know more when I do the update in the next few days.


January 16, 2010


comprehensive reference article of Canadian Exchange Traded Funds has been
updated. At this time some of the fixed income / higher yield ETFs are the ones
that look of most interest.


This is not a particularly long reference article but it is packed with
information and has links to everything for updated information as things change
each day in the market. Enough links to make a roll of chain jealous!


This update adds new Gold and Silver ETFs that we did not have before and
indicates which ones own physical Gold as opposed to futures positions. Also
added are additional preferred share and bond ETFs.


I have not added any of the new BMO ETFs yet but will consider if any should
be added.


January 14, 2010


Shaw Communications reported Q1 earnings before the open this morning. The
earnings were strong. The market had high expectations and that is why the stock
did not rise on the news. The company also raised its dividend by 5%.  I
plan to update the report for this company within a few days. Meanwhile I may
add to my position tomorrow.


The Canadian dollar has been rising and is 97.5 U.S. cents. Or about $1.0254
(wholesale before commission) to buy a U.S. dollar. Quite possibly it will reach
and exceed parity. If you are wanting to move some money into U.S. dollars
either for near-term spending (such as a vacation or shopping trip) for
long-term spending (future winters in the U.S.) or for pure speculation it may
be wise to average in, buy some U.S. dollars now and some later. Sure they may
get cheaper later. But meanwhile U.S. dollars are “on sale” at levels not seen
in about 35 years (save a very brief period of about 3 months in the fall of
2007 and a few weeks in early 2008. So maybe U.S. dollars will get cheaper but
that is not a sure thing. Also if you are going to buy U.S. dollars and you want
to wait for the Canadian dollar to get higher, at what point will you buy? How
much did you actually end up buying last time when our dollar got over $1.05?


January 13, 2010


Shaw Communications will report earnings before the market opens tomorrow
(Thursday) morning. I am expecting a good quarter but we shall see…


It seems the President of Claymore Investments Inc. (Exchange Traded Funds)
came across my reference article on
ETFs. He would like to see more Claymore ETFs on this page. I plan to update
that page within the next week and will likely include more Claymore ETFs. I
will also consider adding the Bank of Montreal ETFs. But that will depend if I
think they are needed and if BMO provides the fundamentals like the P/E ratio
for their ETFs.


January 12, 2010


The TSX fell today about 1%. This is just “noise” (as opposed to signal) but
it is a reminder that markets are not cheap like they were last Spring. While we
can hope our stocks always go straight up but that is unrealistic. And a ride
down the next roller coaster hill could certainly be a stomach-churning one.
That is simply the nature of markets. They go up long term, but the ride is
never smooth.


Wells Fargo was down today
apparently on threats of some kind of a new Bank Tax. I don’t particularly think
that any such tax would be a huge big deal to Wells Fargo but maybe the stock
will continue down on this news. If so i would add to my position.


January 11, 2010


It was a reasonable day in the markets as most of our Stocks Picks were up.


In the comments under November 23 and 24 below I mentioned that I had made a
formal complaint to the Investment Industry Regulatory Association. This was
about companies that unfairly release earnings during the trading day. Often
without even halting the stock. This disadvantages retail investors and allows
the big guys first crack to trade on the news. In a lot of cases this is just
sort of laziness on the part of the entrenched investment  industry and the
companies that trade. It’s more convenient for the companies and analysts to do
it this way rather than to do as a lot of companies do and release the earnings
after the close of markets.


The Investment Industry Association initially brushed off my concern but I
pursued it the top person there. To my pleasant surprise they have now responded
indicating that they fully understand my complaint and admitting that I was
right about one particular company that issued without a halt when under the
rules a halt should have been called because the earnings were a substantial
“miss” to expectations.


Unfortunately the rules are not entirely under the control of the Investment
Industry Association but they have passed the concern onto the Securities
Commission and the Toronto Stock Exchange indicating that they would be willing
to work to solve the issue of unfair disclosure that I raised.


Maybe it is a waste of time for me to pursue something like this but I feel
that somebody has to look out for the little investor.


January 9, 2010


COSTCO is updated and rated Weak Buy
at $59.17. This is a great company and I would like to own shares. However, it
looks expensive at this time.


I added to my positions in Melcor
and First Service Preferred
shares on Friday.


January 7, 2010


There was a nice gain in Wells Fargo
today. TMX Group continued to slip. Earnings reports in the U.S. will start very
soon while most Canadian companies will not report until at lest close to the
end of January.


In the last 10 months we have all perhaps gotten a little spoiled in terms of
seeing steady gains and few declines. But realistically stocks do fluctuate up
and down. If we concentrate our investments in strong companies that we are
confident of for the long run then perhaps we can learn to be more comfortable
with bumps along the way.


I did sell my Boston Pizza shares to lock in that gain my Tax Free savings
Account (as I mentioned yesterday morning that I planned to do).


January 6, 2010


The TMX Group released its
trade volumes for December. It looks like they had a pretty good month. On the
negative side they have no doubt lost some market share to competitors. If they
can hold the line on their ongoing listing fees which are paid annually on the
basis of the market value of each company then it seems to me that their
earnings continue to look strong. If however competition were to force a drop in
those fees that would be basically a game changer. My thought was that the
listed companies don’t have much leverage to force a drop in the fee, they
pretty well need to be listed on the TSX even if they are also trading on the
new alternative trading systems like Alpha. TMXis is one of my larger positions
and I have toyed with idea of selling some (definitely not all)  to to lack
in a modest gain  but so far have continued to hold.


Shaw Communications has slipped about 5% in the past two days. It will
release earnings next Thursday morning. I was thinking it will be reporting a
strong quarter. The market may be focusing on fears of increased competition
from Telus TV. There is also the demand from local television to share in the
loot. There are never any guarantees in the market but Shaw looks like a good
investment to me. At this time I personally would wait for the earnings release
next week before making any further buys of the stock.


I transferred a modest amount of money into U.S. dollars today to take
advantage of the higher Canadian dollar. Sure the Canadian dollar might be even
higher next week and next month. But I figure its already at virtually a 30 year
high (save a brief period in 2008 where it rocketed up to $1.10 very briefly. My
strategy is to transfer a modest amount of money now and then if it rises
another two cents or more to transfer again a similar amount. I think a Canadian
dollar at the current almost 97 cent range is very tough on the Canadian economy
so there will be pressure not to let it get much higher. If I needed U.S.
dollars for a trip in the next month or two I think I would go ahead and buy at
this price rather than gamble it would go much higher. Or at least buy some of
it now to hedge my bets.


January 6, 2010 (9:25 am Eastern


Boston Pizza was last rated as Buy at $11.05 a month ago. Now it is at about
$12. I will likely sell my shares which are in a Tax Free Savings account. While
it it still looks like good value, it may have a least a temporary dip when it
finally announces what the distribution will be after it converts to a
corporation and/or becomes taxable expected at the the end of this year.
Distribution cut of about 30% is to be expected and should already be priced
into the stock but it still may drop when any announcement is made.


January 4, 2010


A strong start to the markets today…


I bought today a small amount of the Japan Index fund EWJ. It does not look
attractive on a P/E basis but I have been reading about the Japanese market.
After 20 years of losing ground, Japan’s market should at some point start to
rebound… I took a look at some of the big companies in this index including
Toyota, Mitsubischi UFJ, Honda, Canon and Sony. Many of these companies lost
money in their latest reported fiscal years. Given the difficulty of
understanding the valuation and the future of the Japanese market I will not
likely invest more than a small amount in this index fund.


January 3, 2010


Our reference article that provides the
trading symbols and the fundamentals (P/E ratios, yields, Price to book) for
selected international Exchange Traded Funds is updated. However we don’t see
any bargains there.


January 2, 2010

Market Outlook

Overall, my best guess is that the overall markets will not do that well
this year. We might be lucky if the markets don’t drop rather than rise this

U.S. Dollar

I suspect that reports of the death of the U.S. dollar are rather
exaggerated. Many commentators point out that the U.S. is running huge
deficits and has become dependent on the kindness of strangers (the Chinese
government) to buy its bonds. While that rings true, we also observe that
10-year U.S. Treasuries are still below 4%. Apparently the bond market
overall still finds the U.S. government to be a very safe investment.

Canadian Dollar

Many would argue that it is clear that the Canadian dollar is going to rise
versus the U.S. If so, Canadians then might want to avoid U.S. investments.

But it also seems clear that the Canadian economy has difficulty dealing
with a dollar that is at U.S. 95 cents let alone U.S. 1.00 or more. There
will be  a lot of pressure for Canada to try to keep its dollar lower
rather than higher in order to protect manufacturing jobs.

So, it seems very uncertain where the dollar will trade.

I continue to hold some U.S. investment for diversification purposes and
because at some point in my life I will spend money in the U.S. If I will
need U.S. dollars in future and if I am uncertain of currency movements then
I can hedge my future U.S. spending by owning some U.S. dollars and
investments at this time.

U.S. Economy

Recent U.S. house prices had begun to rise slightly. However U.S. consumer
delinquencies and unemployment were still rising. It seems likely that U.S.
consumers will have to continue to cut back on spending. Absent massive
further large government stimulus measures the U.S. economy is likely to
continue to lag in 2010. It seems unlikely that there will be a strong

State governments will be inclined to raise taxes and cut salaries for their
public service as well as cut jobs. They generally have no choice as they
are not allowed to budget for deficits.

Canadian Economy

Canadian house prices have continued to rise. This seems likely to reverse
in 2010 as unemployment and higher interest rates should subdue the housing
market. Also the new Harmonized sales tax in Ontario and B.C. will put
downward pressure on house prices after July.

The overall Canadian economy may do well if oil prices rise but average
Canadians will likely feel left out.

Governments will likely start to think about cutting costs. Public sector
workers should expect to see wage freezes. Also hiring freezes. Possibly
also some effort to trim pension costs.


Updates for 2010


The composition of my own portfolio is updated. I am hedging my bets with a
55% exposure to common equity (47% net of some bear funds) 12% preferred shares
and 33% cash.


For the start of 2010 many (but not all) of the ratings above were updated.
For performance tracking purposes all of the ratings above will be used since we
consider all of them to be reasonably valid. But we have more confidence in the
ratings that are most up to date. For buying (or selling) stocks we would focus
on ratings that are most recent.


Costco is removed from the list because the rating is out of date and the
price has changed significantly. Quest Capital which is a tiny company is
removed from the list. It was last rates Sell.


January 1, 2010


Stantec is updated and rated Buy at
$30.40. It’s a strong company with an excellent past growth rate. The valuation
is reasonable. In the near-term the outlook is uncertain due to the recession.
Government projects may allow it to grow despite the recession in 2011. However,
the higher Canadian dollar also will hamper earnings growth in 2010. I would
consider taking an initial position at this time but I don’t currently own it.


Performance figures are updated for 2009
(Happy Old Year!)


See older comments from
2009 and prior back to 2001

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