And it's confirmed yet again, Canada is the best place on earth. OK, so we don't have a tropical beach and income tax rates are somewhat daunting, but a new report from CIBC World Markets rates our companies as the place to grow your investment loot.
"Canadian stocks are likely to produce the best returns in light of what looks to be a longer-term bear market in bonds, and ongoing fiscal belt tightening in the U.S. and Europe," says John Smuel of the Financial Post FP Trading Desk this week.
Energy and gold shares, less inflation threat and a strong corporate Canada are what make Canada look like a safe place to stash your dough compared to the emerging markets and even the U.S. equity market.
Corporate Canada meanwhile continues to show signs of strength as well. CIBC’s new Leading Indicator of TSX Earnings (LITXE) shows that there remains room for further profits from Canada’s companies, even given the impressive performances seen in the past few quarters.
Senior economist at CIBC, Peter Buchanan, is reported as saying that "While (Canadian) stocks are by no means as cheap as earlier, above-trend earnings growth should continue to provide the market with some support”.
Canadian Venture Exchange: A Honey Pot for Savy Investors
In perusing the various internet resources for where, when and how to invest in stocks, the Canadian Venture Exchange aways seems to play in the top stock picks across nearly all sectors. These small companies have the tendency to make big jumps in stock prices in short periods of time when the stars are aligned in their favor. Of course some of smaller company stocks can just as quickly fall as they rise, but overall, the CVE is a unique breeding ground for these micro and small cap ventures.
My first experience in investing was a short term swing trade with Intertainment Media (INT on the Canadian Venture Exchange)--this is a little internet company with a big product called Ortsbo that translates social chat and networking sites like Facebook and others in real time as an embedded add-on. See it here. Their subscribership has ballooned over the last few months affording Intertainment the opportunity to compare their astronomical growth to the starting days of Facebook subscription. Sure, they will get swallowed up by some larger google-eyed mongol, but in the meantime, their little stock went from 16 cents to over 90 cents in a matter of days. Sliding back to around half this gain of late as some investors took their profits and ran, Ortsbo is still churning out user numbers that make this little tech play an attractive purchase.
And INT is not alone. There are hundreds of small penny stock mining ventures spiking, ready to spike or having already lit up the sky with a firework display of huge gains in this current bullish market.
Canadian Equities Lead the World in Long Term Performance
Overall, Canadian equity portfolios have outperformed US portfolios of similar diversity. Doityourselfinginvesting.ca reports their performance of Canadian Equities vs US Equities which shows 2.5% higher growth in the last 12 months and 144.3% higher growth over 3 years. Of course the equities are not identical, but the comparison is interesting. Taking a look at index funds, the TD Canadian Index e fund reports 6.02% performance over 10 years compared with a -3.26% performance over 10 years for the comparable TD US Index e fund. Japan's TD e series index fund produced -3.37% over 10 years and the International Index TD e series fund produced -0.66%. Hmmm. OK, so over the last 10 years, lots has happened and maybe we forgot a couple wars, flash crashes and pitfalls along the way. What about the simple 1 year bullish market post-recession recovery months that are still fresh in all of our memories. Here is the 12 month performance stats for these funds:
TD Canadian Index - e: 25.06%
TD US Index - e: 13.66%
TD International Index - e: 8.43%
TD European Index - e: 8.01%
TD Japanese Index - e: 5.61%
And the winner is...CANADA!
So what do we do with this information? It's simple--invite the world to invest in Canada. The best country on earth for so many reasons--except the tropical beaches...but you can always visit West Edmonton Mall and go surfing!
Happy Investing
Disclosure: the author owns shares of the TD e-series index funds: for Canada, US and Europe. The author currently does not own INT.V...but wants to.
Monday, February 28, 2011
Sunday, February 27, 2011
Market Top or Mid Market Madness?
If you fell asleep in the summer of 2000 and woke up this morning, you wouldn't think much has changed from a financial point of view. Perhaps the Canadian dollar's a whole lot better, perhaps the world markets are a bit misaligned by comparison. There may be some fancier websites--and what's this Google thing?...where is AltaVista? What happened to Ford, Microsoft and Yahoo!? Hey--look at Apple! But all in all, the market overall produced little RipVanWinkle effect from then to now. Bulls seem to be stomping uphill and the bears are off hibernating--or are they?
What Goes Up Eventually Goes Back Up
My first exposure to market investing was in 1999. The internet bubble was rising high and everyone I knew jumped into the day trading biz. I was enamored with the web, having riden the wave of affiliate sales before the majority of home-office net-hounds jumped into the game. By the time I joined the stock trading hype and signed up with an online broker, the markets had already begun to crash and my few purchases amounted to penny stocks, some of which still lie in tiny graves in my brokerage account as shadows of the giants they once were. I traded in my affiliate status with Linkshare for an application to university and moved my focus from the internet to the library for the next few years.
Enter 2004. Having stockpiled student loan debt amounting to well over 80,000, thoughts of investing, let alone saving money were abandonned for the more pressing issues of paying down debt, aquiring a mortgage, and a new profession. Saving money was at the bottom of the to-do list.
Then one day, out of the blue, I turned 45. Hellish and horrid day that was, not because I felt old, nor because I looked old, but because I suddenly realized that in 20 rather short years I was supposed to be able to retire. And for the first time in my rather penny-poor life, it dawned on me that I had better make a plan.
Missed the Bottom--Again?
And enter 2011. I missed investing in the last market bottom--not for lack of awareness. My colleagues were all lamenting their shrinking portfolios. My parents weren't certain retirement was in the near future after all. Companies that were once giants were suddenly exposed for the lack of value their stocks actually held--yet again. I watched as the market climbed and then paid off the last of my high interest debt this past fall. Now what? Do I enter and invest? Do I sit on cash? Do I wait for another bottom that won't come or invest in a raging bull that's about to crash?
Are We Topping Out or Just Getting Rolling?
In my search for an answer there appear to be four somewhat contrary schools of thought on this Winter 2011 Market:
1. We are beginning a Secular Bull Market that will go on for years to come with a few dips and alot of highs as the world money mongers try to avoid a deep dark depression in a wounded and post-recession world economy.
2. We are in the middle of a Secular Bear Market that actually started back in January 2000 with a few highs on the way down, down, down.
3. We are reaching the top of the market and it will soon glide slowly down to the Spring 2009 low.
4. We are half way up a bull cycle and other than a few corrections here and there, the next big swing won't occur until 2014.
And this from the "experts"?
Why is it that no one can predict the market? -- Because no one can predict the future with any great certainty.
One can speculate based on the past and add a few variables here and there for spice and flavor, but in the end, human sentiment drives the market stronger than news and value--which would intuitively have us lean toward the "past repeats itself" model of human nature as a more reliable predictor of what's to come.
Why is Market Direction Such a Mystery?
Market Cycle Patterns
According to Walter Bressert in a February, 2011 article on newmonster.org, the order of the universe is cyclical and markets over time do in fact move in similar cycles. He notes a 4 year cycle in the US stock market that dates back to 1789. It averages 49 months from low to low and 36 months from high to high, leaning to the right in bull markets and to the left in bear markets.
Market Top or Minor Pullback?
In a February 25th, 2011 article at seekingalpha.com, Cam Hui feels that the current market weakness is a minor pullback and correction to be bought rather than an intermediate term top. Although Mr. Hui feels the top will develop later in the year, his technical indicators using a inflation-deflation timer model remain bullish and his secondary indicators are still trending toward "risk-on" trading. Hui believes that current market weakness is based on the effect of fears of Libyan oil flow barriers on a still fragile global economy.
Secular Bull or Bear?
Secular markets are basically described as those that "go on forever". According to a February 27th, 2011 article by USA Today reported on pittsburghlive.com, there are two types of bull markets--one that lasts a couple of years and mega-bull markets that go on for years. The current bull market which reportedly started in March 2009 will soon be 2 years old--the average lifespan of a cyclical short term bull market. The article quotes Tim Hayes of Ned Davis Research who believes that gains of late have occurred within the context of an ongoing long-term bear market that began in January 2000 when overpriced tech stocks crashed.
Thirty-four cyclical bull markets have occurred since 1900 with average gains of 86 percent. Four secular bull markets have occurred in the last 110 years that have lasted from 6 to 24 years. There have been 2 secular bear markets including 16 years between 1966 through 1989. According to Laszlo Birinyi, bull markets have 4 phases, including initial huge gains off the bottom, price consolidation, acceptance that the market will continue to rise, and finally exuberance that the gains will never end--which is when the top is reached and the market crashes. He sees the bull market in consolidation phase and forecasts a major uptrend ending in the middle of 2014.
Warning Shots for Market Correction?
Overextended Indexes: Sy Harding's February 25th, 2011 article at businessinsider.com points out global market corrections that occured in China, Brazil, India and Hong Kong in late 2010 due to rising inflation. As the North American market doesn't have an inflationary issue currently, markets are grinding along in the bull herd. The little spike from Libya's oil scare didn't make more than a blip on the Dow and SP500's long term charts. He considers this simply a warning shot. He feels that major market indexes are over extended above long-term 200 day moving averages and will take a 10 - 12% correction to retest support.
Oil Trading Over $96: Harding points out that the 2003-2007 bull market ended in October, 2007, when oil reached $96 a barrel and the recession began three months later. Oil traded around $97 at the end of last week.
Applications for mortgages and home sales at a 15 year low.
GDP for US came in lower at 2.8% than the expect 3.2%.
What Does This Mean for the New Investor
For me, I think I'll start researching ETF bears and how to short stocks over at my new discount brokerage, then consider the possibility of hanging out for a couple of weeks on the bench.
Or maybe I'll just keep buying Mr. Buffet! BRK.B:US
What Goes Up Eventually Goes Back Up
My first exposure to market investing was in 1999. The internet bubble was rising high and everyone I knew jumped into the day trading biz. I was enamored with the web, having riden the wave of affiliate sales before the majority of home-office net-hounds jumped into the game. By the time I joined the stock trading hype and signed up with an online broker, the markets had already begun to crash and my few purchases amounted to penny stocks, some of which still lie in tiny graves in my brokerage account as shadows of the giants they once were. I traded in my affiliate status with Linkshare for an application to university and moved my focus from the internet to the library for the next few years.
Enter 2004. Having stockpiled student loan debt amounting to well over 80,000, thoughts of investing, let alone saving money were abandonned for the more pressing issues of paying down debt, aquiring a mortgage, and a new profession. Saving money was at the bottom of the to-do list.
Then one day, out of the blue, I turned 45. Hellish and horrid day that was, not because I felt old, nor because I looked old, but because I suddenly realized that in 20 rather short years I was supposed to be able to retire. And for the first time in my rather penny-poor life, it dawned on me that I had better make a plan.
Missed the Bottom--Again?
And enter 2011. I missed investing in the last market bottom--not for lack of awareness. My colleagues were all lamenting their shrinking portfolios. My parents weren't certain retirement was in the near future after all. Companies that were once giants were suddenly exposed for the lack of value their stocks actually held--yet again. I watched as the market climbed and then paid off the last of my high interest debt this past fall. Now what? Do I enter and invest? Do I sit on cash? Do I wait for another bottom that won't come or invest in a raging bull that's about to crash?
Are We Topping Out or Just Getting Rolling?
In my search for an answer there appear to be four somewhat contrary schools of thought on this Winter 2011 Market:
1. We are beginning a Secular Bull Market that will go on for years to come with a few dips and alot of highs as the world money mongers try to avoid a deep dark depression in a wounded and post-recession world economy.
2. We are in the middle of a Secular Bear Market that actually started back in January 2000 with a few highs on the way down, down, down.
3. We are reaching the top of the market and it will soon glide slowly down to the Spring 2009 low.
4. We are half way up a bull cycle and other than a few corrections here and there, the next big swing won't occur until 2014.
And this from the "experts"?
Why is it that no one can predict the market? -- Because no one can predict the future with any great certainty.
One can speculate based on the past and add a few variables here and there for spice and flavor, but in the end, human sentiment drives the market stronger than news and value--which would intuitively have us lean toward the "past repeats itself" model of human nature as a more reliable predictor of what's to come.
Why is Market Direction Such a Mystery?
Market Cycle Patterns
According to Walter Bressert in a February, 2011 article on newmonster.org, the order of the universe is cyclical and markets over time do in fact move in similar cycles. He notes a 4 year cycle in the US stock market that dates back to 1789. It averages 49 months from low to low and 36 months from high to high, leaning to the right in bull markets and to the left in bear markets.
Market Top or Minor Pullback?
In a February 25th, 2011 article at seekingalpha.com, Cam Hui feels that the current market weakness is a minor pullback and correction to be bought rather than an intermediate term top. Although Mr. Hui feels the top will develop later in the year, his technical indicators using a inflation-deflation timer model remain bullish and his secondary indicators are still trending toward "risk-on" trading. Hui believes that current market weakness is based on the effect of fears of Libyan oil flow barriers on a still fragile global economy.
Secular Bull or Bear?
Secular markets are basically described as those that "go on forever". According to a February 27th, 2011 article by USA Today reported on pittsburghlive.com, there are two types of bull markets--one that lasts a couple of years and mega-bull markets that go on for years. The current bull market which reportedly started in March 2009 will soon be 2 years old--the average lifespan of a cyclical short term bull market. The article quotes Tim Hayes of Ned Davis Research who believes that gains of late have occurred within the context of an ongoing long-term bear market that began in January 2000 when overpriced tech stocks crashed.
Thirty-four cyclical bull markets have occurred since 1900 with average gains of 86 percent. Four secular bull markets have occurred in the last 110 years that have lasted from 6 to 24 years. There have been 2 secular bear markets including 16 years between 1966 through 1989. According to Laszlo Birinyi, bull markets have 4 phases, including initial huge gains off the bottom, price consolidation, acceptance that the market will continue to rise, and finally exuberance that the gains will never end--which is when the top is reached and the market crashes. He sees the bull market in consolidation phase and forecasts a major uptrend ending in the middle of 2014.
Warning Shots for Market Correction?
Overextended Indexes: Sy Harding's February 25th, 2011 article at businessinsider.com points out global market corrections that occured in China, Brazil, India and Hong Kong in late 2010 due to rising inflation. As the North American market doesn't have an inflationary issue currently, markets are grinding along in the bull herd. The little spike from Libya's oil scare didn't make more than a blip on the Dow and SP500's long term charts. He considers this simply a warning shot. He feels that major market indexes are over extended above long-term 200 day moving averages and will take a 10 - 12% correction to retest support.
Oil Trading Over $96: Harding points out that the 2003-2007 bull market ended in October, 2007, when oil reached $96 a barrel and the recession began three months later. Oil traded around $97 at the end of last week.
Applications for mortgages and home sales at a 15 year low.
GDP for US came in lower at 2.8% than the expect 3.2%.
What Does This Mean for the New Investor
For me, I think I'll start researching ETF bears and how to short stocks over at my new discount brokerage, then consider the possibility of hanging out for a couple of weeks on the bench.
Or maybe I'll just keep buying Mr. Buffet! BRK.B:US
Who is Warren Buffet?
How in the heck am I going to ever retire? OK, so I'm in my 40's, big deal, who thinks about this stuff at my age anyhow? I come from a generation of spenders, borrowers, aquirers and deferrers. Saving money is for old people. RRSP's and TFSA's are something of a mystery. And all I know about the stock market is that it's down on Bay Street beside some of my favorite restaurants.
After spending the first 4 decades of my life investing in my education, kids, a sizeable mortgage and finally a medical practice after what seems like an eternity of university training, I realize that I only have 20 years left to aquire enough cash to retire comfortably. Although that may seem like ample time to some, I'm still facing the expense of educating and marrying off three daughters, paying off my sizeable mortgage and hopefully contributing to the bottom line of a few exotic airlines, hotel chains and eco-travel companies along the way. And did I mention I'm a single mom?
How Much Money Do I Really Need to Retire?
I'm perplexed by this dilemma. Apparantly, according to the TMX retirement calculator, in order to accumulate 35 years of retirement income, which assumes I will retire at 65 and live to 100, I will need to save 30% of my income annually from now. Impossible. First of all, I really don't see living to 100 as fun. Secondly, I simply can't save that kind of money. My bottom line doesn't seem to bounce that way. 42% of my annual net income is gobbled up by Mr. TaxMan. And trust me, I've looked at multiple ways to decrease that rather hefty contribution to the national social support scene here in Canada. Of the remaining 56%, I have about 10% which I would consider "extra"--meaning I can choose to spend it on various assorted stupidities, take a trip, pay down my hefty mortgage, update my car, or SAVE it.
So after calculating how to pay down my Scotiabank mortgage without being dinged with a "fee" or payback fine, I'm left with a small but manageable amount of dough to work with in my nest egg. And it's just not enough to get me anywhere just yet. It seems I really won't be able to truly start accumulating retirement savings until the mortgage is paid off and that leaves only the last decade of my working life to accomplish this.
Am I doomed to live a homeless retirement eating cat food and pushing a shopping cart along Bay Street? Or is there some way I can take the financial district elevators up a notch from street level?
Who Is Warren Buffet?
Enter google search "how to retire wealthy" . Once I sorted through the hundreds of ads for get-rich-quick schemes from penny stock tips to real estate scams and entered the lower level of google's less ad-laden content, one name kept popping up: Warren Buffet. An 80 year old guy who's lived through 5 wars, nearly every major stock market swing this past century, and is worth somewhere between 1 and 5 gazillion dollars.
After spending a few moments daydreaming about becoming his long-lost great-niece-in-law, I started looking at the man behind the fortune and found myself in very good company. It seems Mr. Buffet has been studied in more depth than the Amazon jungle and with more interest than the planet Mars. This legendary investor, "oracle of Omaha", has done everything from selling chewing gum door to door as a kid to buying up large corporations for his Berkshire Hathaway empire in a single gulp. He's currently the second richest man in the world next to Bill Gates having left the number one position in 2008 after donating billions of dollars to charity.
Currently worth an estimated 67 billion dollars, Mr. Buffet reportedly pulls a meagre 100,000 a year salary from his huge financial locomotive of a business.What?! How can that be? Well it seems that Mr. Buffet has been personally investing in some healthy dividend stocks throughout his life which apparantly net him somewhere in the area of 45 million bucks a year in dividends. Nice. Imagine the personal income tax he'd pay if he lived in Canada--even with the tax breaks on dividend income.
The Buffet "buffet"
So what philosphical pearls can one gleam from Mr. Buffet. Surely a man with his breadth and depth of market knowledge can leave me with a few ideas on how to turn cat food retirement plans into a decent strip loin!
So I ask, WWBD: "What Would Buffet Do?"Google search results: a 5 page article in Sydney Australia's Morning Herald written in February, 2010, What Would Warren Buffet Do, presents a 5 step approach to aquiring wealth in today's market.
1. Dismiss convential notions of blue chip stocks. Blue chip companies don't tend to deliver returns on equity. According to the article, Buffet tends to "buy companies with little or no debt and high rates of return on equity driven by a sustainable competitive advantage that allows them to charge more without affecting sales adversely".
2. Invest in companies with good growth prospects. "You need to pay below intrinsic value to give yourself a margin of safety and only buy businesses whose intrinsic value is rising over time".
3. Diversify--don't put all your eggs in the same basket. "If you pick a quality, diversified portfolio with a spread of companies across different industries and sizes, it boosts your chances of long-term success"
4. Smaller companies may leave more room to grow. "Small, well-managed companies with products and services that are in demand have a higher growth profile than larger companies. The trick is to assess the sustainability of the company's earnings with a steely eye and avoid being carried away by hype about blue sky and new paradigms".
In 10 Things I’ve Learned From Warren Buffet , by "John" a blogger at cashmoneylife.com, a list of buffetisms are offered for our consideration which include:
1 – “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
2 – “Our favorite holding period is forever.”
3 – “Never Pay Retail”
4 – “Know When to Cut Your Losses”
5 – “If a business does well, the stock eventually follows.”
6 – “Wide diversification is only required when investors do not understand what they are doing.”
7 – “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
8 – “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
9 – “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
10 – “Risk comes from not knowing what you’re doing.”
Alright, so what is Warren Buffet investing in these days? Other than gobbling up companies for his whiz-kid Berkshire Hathaway and spouting 80 years worth of catch-phrases at us through his media followers, what does he hold in his private portfolio? According to George Traganidas of ThePracticalWay.com,
"These are your grandfather’s and great-grandfather’s stocks. Most of the equities Buffett personally invests in are large, recognizable multinational names representing basic and long-standing business categories like banks, health care, consumable goods, food, and retail. These are stocks with very wide moats, making it difficult to compete against them, and are, therefore, a favorite of Berkshire’s financier."
"As with his recent–and largest, acquisition of a railroad, Buffett continues to make an all-in wager on America with his private holdings."
Back to Bay Street
So what does a Canadian with no capital behind her and no war experience do to start eeking out a simple retirement plan based on the experience of Buffet and his contemporaries? Well, I can either throw my money at a financial adviser and hope he beats the Index with his choices, buy some Berkshire Hathaway Stock, contribute to a simple Index fund and watch it bounce around without my input, invest in the Couch Potato Philosophy and pick 4 ETF's to hold forever, or I can up the ante, add some personal input, get off the couch and swim the sharks.
I choose the shark swim understanding that I may need some stitches along the way!
My first purchase? I think I'll buy me some Buffet! BRK.B:US
Stay tuned!
After spending the first 4 decades of my life investing in my education, kids, a sizeable mortgage and finally a medical practice after what seems like an eternity of university training, I realize that I only have 20 years left to aquire enough cash to retire comfortably. Although that may seem like ample time to some, I'm still facing the expense of educating and marrying off three daughters, paying off my sizeable mortgage and hopefully contributing to the bottom line of a few exotic airlines, hotel chains and eco-travel companies along the way. And did I mention I'm a single mom?
How Much Money Do I Really Need to Retire?
I'm perplexed by this dilemma. Apparantly, according to the TMX retirement calculator, in order to accumulate 35 years of retirement income, which assumes I will retire at 65 and live to 100, I will need to save 30% of my income annually from now. Impossible. First of all, I really don't see living to 100 as fun. Secondly, I simply can't save that kind of money. My bottom line doesn't seem to bounce that way. 42% of my annual net income is gobbled up by Mr. TaxMan. And trust me, I've looked at multiple ways to decrease that rather hefty contribution to the national social support scene here in Canada. Of the remaining 56%, I have about 10% which I would consider "extra"--meaning I can choose to spend it on various assorted stupidities, take a trip, pay down my hefty mortgage, update my car, or SAVE it.
So after calculating how to pay down my Scotiabank mortgage without being dinged with a "fee" or payback fine, I'm left with a small but manageable amount of dough to work with in my nest egg. And it's just not enough to get me anywhere just yet. It seems I really won't be able to truly start accumulating retirement savings until the mortgage is paid off and that leaves only the last decade of my working life to accomplish this.
Am I doomed to live a homeless retirement eating cat food and pushing a shopping cart along Bay Street? Or is there some way I can take the financial district elevators up a notch from street level?
Who Is Warren Buffet?
Enter google search "how to retire wealthy" . Once I sorted through the hundreds of ads for get-rich-quick schemes from penny stock tips to real estate scams and entered the lower level of google's less ad-laden content, one name kept popping up: Warren Buffet. An 80 year old guy who's lived through 5 wars, nearly every major stock market swing this past century, and is worth somewhere between 1 and 5 gazillion dollars.
After spending a few moments daydreaming about becoming his long-lost great-niece-in-law, I started looking at the man behind the fortune and found myself in very good company. It seems Mr. Buffet has been studied in more depth than the Amazon jungle and with more interest than the planet Mars. This legendary investor, "oracle of Omaha", has done everything from selling chewing gum door to door as a kid to buying up large corporations for his Berkshire Hathaway empire in a single gulp. He's currently the second richest man in the world next to Bill Gates having left the number one position in 2008 after donating billions of dollars to charity.
Currently worth an estimated 67 billion dollars, Mr. Buffet reportedly pulls a meagre 100,000 a year salary from his huge financial locomotive of a business.What?! How can that be? Well it seems that Mr. Buffet has been personally investing in some healthy dividend stocks throughout his life which apparantly net him somewhere in the area of 45 million bucks a year in dividends. Nice. Imagine the personal income tax he'd pay if he lived in Canada--even with the tax breaks on dividend income.
The Buffet "buffet"
So what philosphical pearls can one gleam from Mr. Buffet. Surely a man with his breadth and depth of market knowledge can leave me with a few ideas on how to turn cat food retirement plans into a decent strip loin!
So I ask, WWBD: "What Would Buffet Do?"Google search results: a 5 page article in Sydney Australia's Morning Herald written in February, 2010, What Would Warren Buffet Do, presents a 5 step approach to aquiring wealth in today's market.
1. Dismiss convential notions of blue chip stocks. Blue chip companies don't tend to deliver returns on equity. According to the article, Buffet tends to "buy companies with little or no debt and high rates of return on equity driven by a sustainable competitive advantage that allows them to charge more without affecting sales adversely".
2. Invest in companies with good growth prospects. "You need to pay below intrinsic value to give yourself a margin of safety and only buy businesses whose intrinsic value is rising over time".
3. Diversify--don't put all your eggs in the same basket. "If you pick a quality, diversified portfolio with a spread of companies across different industries and sizes, it boosts your chances of long-term success"
4. Smaller companies may leave more room to grow. "Small, well-managed companies with products and services that are in demand have a higher growth profile than larger companies. The trick is to assess the sustainability of the company's earnings with a steely eye and avoid being carried away by hype about blue sky and new paradigms".
In 10 Things I’ve Learned From Warren Buffet , by "John" a blogger at cashmoneylife.com, a list of buffetisms are offered for our consideration which include:
1 – “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
2 – “Our favorite holding period is forever.”
3 – “Never Pay Retail”
4 – “Know When to Cut Your Losses”
5 – “If a business does well, the stock eventually follows.”
6 – “Wide diversification is only required when investors do not understand what they are doing.”
7 – “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
8 – “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
9 – “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
10 – “Risk comes from not knowing what you’re doing.”
Alright, so what is Warren Buffet investing in these days? Other than gobbling up companies for his whiz-kid Berkshire Hathaway and spouting 80 years worth of catch-phrases at us through his media followers, what does he hold in his private portfolio? According to George Traganidas of ThePracticalWay.com,
"These are your grandfather’s and great-grandfather’s stocks. Most of the equities Buffett personally invests in are large, recognizable multinational names representing basic and long-standing business categories like banks, health care, consumable goods, food, and retail. These are stocks with very wide moats, making it difficult to compete against them, and are, therefore, a favorite of Berkshire’s financier."
"As with his recent–and largest, acquisition of a railroad, Buffett continues to make an all-in wager on America with his private holdings."
Back to Bay Street
So what does a Canadian with no capital behind her and no war experience do to start eeking out a simple retirement plan based on the experience of Buffet and his contemporaries? Well, I can either throw my money at a financial adviser and hope he beats the Index with his choices, buy some Berkshire Hathaway Stock, contribute to a simple Index fund and watch it bounce around without my input, invest in the Couch Potato Philosophy and pick 4 ETF's to hold forever, or I can up the ante, add some personal input, get off the couch and swim the sharks.
I choose the shark swim understanding that I may need some stitches along the way!
My first purchase? I think I'll buy me some Buffet! BRK.B:US
Stay tuned!
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