Buy Canadian!

I am in the market for a iPhone 4, because Logos Bible Software, a program in which I have most of my personal library, can be used on the iPhone or the iTouch.  But iPhone is having supply issues, and I can’t get one.

Last night after my wife had spent too much at a Rotary Club banquet in the live auction for a gas barbecue, I said in front of her chief rival bidder that she was supposed to buy me an iPhone.  He pulled out his Blackberry and said to me that I support a Canadian company and buy a Blackberry.

A couple of weeks ago, I almost sold a put on RIMM.  It was down around US $42.  I don’t know anything about technology stocks, so this was a bit unusual for me.  Too bad the put didn’t go through.  RIMM has improved by over $6.  Another lost opportunity!

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The successful DIY investor

 

Would you have bought this stock in January 2009? If yes, you too could become a DIY investor

Both Preet Banerjee at the Globe and Mail (see also his Lap of the blog) and Jonathan Chevreau at the National Post have written recent articles recommending that DIY investors use financial advisers.  I chose to step out completely on my own a few years ago, moving all our assets from full brokerage accounts to DIY discount brokerage accounts–the transfer fees were all paid by the receiving firm as a incentive to move our assets.  That was February, 2007.  Since that time, our retirement accounts are up a total of 154%.  I have also done well in our TFSA’s (up 40%) as well as our non-registered accounts.  Thus, I am not in the least tempted to follow their advice because I am confident that I can do well without a financial adviser.

I have learned through experience and here are some things that make DIY investor successful:

(1) Financial education:  I’ve learned through reading as much as I can from blogs and internet Newspapers including the Financial Post and Global and Mail financial page.  I’ve a limited number of books.  Benjamin Graham, The Intelligent Investor and Neill Ferguson, The Ascent of Money.  This is time consuming work, and those who don’t have the desire or the time to do it, should probably stick with index funds or a full-service financial adviser.  I’ve also occasional taken advantage of seminars or webinars to increase my knowledge–but these can be expensive so I am careful about them.

(2) Control of cash flow and leverage:  It is important to understand and control cash flow.  For example, it is probably a bad idea to buy a momentum stock using leverage.  You can never tell whether it is going to go up or down and the hold period may be much longer than expected.  By the time it goes up, the return may be greatly diminished by the interest paid.  However, it is much safer to use leverage to buy a dividend stock–as it can cover or exceed the interest rate during the entire period that it is held.

(3) Accurate tracking of results:  I keep track of such things as total net worth, total net sales of stocks, total value of stock portfolio and its net gain or loss, total debt to equity ratio, and the total amount invested in each sector (e.g., oil & gas, mining, food, banks, cash-GIC-bonds).  This makes it possible to know whether my strategies are effective or losing money and it helps me to manage risk.

(4) Specialization.  I can’t know everything about every sector.  So I invest most heavily in the oil and gas sector and am becoming more comfortable with how to evaluate the risk of buying into an energy company.  I do rely on published reports by professional analysts (at TD Waterhouse and Scotia Capital).

(5) Familiarity with different trading and investing strategies.  I use the following strategies:  Averaging down, selling of cash covered puts, and value investing–particularly the attempt to buy companies close to book value, a.k.a. shareholder’s equity.

(6) Control of emotions.  The best investors are probably not always geniuses; it is probably incorrect to say that the reason Warren Buffet succeeds is because he is smarter than everyone else.  Rather, it is his ability to control fear and greed.  He can bring himself to buy when everyone else is selling and to sit on cash while everyone else is buying.  A DIY investor must be cool and collected and must be able to buy into market when all the numbers are red and sell in a market where all the numbers are green.  My most successful move was averaging down on a company whose book value per share was $3.40 but its market price had dropped to a tenth of that: that was Trafalgar Energy (now MEL).   One day it fell so low that I called their office in Calgary and the investor relations guy said that they were still generating positive cash flow.  So I overcame my utter fear of loss and bought thousands of shares that day and the next.  It turns out that it may have been the trade of a lifetime.

The education bubble IV: In celebration of $1300 gold

To celebrate gold hitting $1300 per ounce today, I dedicate this post to the schools that trained the beaming luminaries who have helped to make it all happen.  It was a group effort and we commend your universities for the brilliance of their alumni:

Barack Obama, Columbia, Harvard

Ben Bernanke, Harvard, MIT

Alan Greenspan, Columbia, NYU

Hank Paulson, Harvard (MBA)

Paul Krugman, Yale, MIT

Tim Geitner, Dartmouth, John Hopkins

Larry Summer, MIT, Harvard

By the way, I attended what is now the top ranked university in the world.  John Maynard Keynes was also a Cambridge man.

The Education bubble III: Dumb smart people

Academics are very smart people who excel at school.  Those who do well in school are promoted to the highest levels of academia itself.  They are often very self-assured, smug  people who are convinced of the superiority of their smarts over such people as might find themselves working in a job somewhere or running a small business. These working people probably did not do that well in school–perhaps they were only ‘B’ or ‘C’ rather than ‘A+’ students.  Yet when it comes to tasks in the real world, I prefer the those who have actually worked at a real job in the productive world at least at some point in their lives.  The academic is likely to make a shambles of a real-world situation.  I agree with William F. Buckley who once said, “I’d rather entrust the government of the United States to the first 400 people listed in the Boston telephone directory than to the faculty of Harvard University.”  Yet nothing reveals the true nature of the education bubble better than when such academics fail in the real world.

Now the Obama administration is made up of a lot of the Harvard-type academics who are very smart.  In this video at CNBC, Bernie Marcus, co-founder of Home Depot, talks about what is wrong with the Obama administration and the Democrats who control Congress: none of them have real business experience–they are predominantly academics who have tenure, not business people who have to risk their fortunes in order to make their small business succeed.  They seem to have no clue that their offer of federally assisted loans is not what is needed.  Washington is over-regulating small business, and every new regulation costs  money and forces businesses to downsize their workforce.  The best thing, according to Marcus, if you want to help business, is to shut-down Congress for a couple years, so that they can’t pass any more stifling regulations.  This is a must-see interview for understanding the malaise that is facing businesses in America.  It also helps us to understand the education bubble.  Perhaps only people with real world experience, who have worked, for example, as a truck driver or a commercial fisherman, should ever be allowed to teach in universities.  That way the theories that they teach in universities might have a chance of being related to practical realities on planet earth.

The education bubble II: Cost vs. results

A couple of charts illustrate keenly how costs in education, both at the K-12 and post-secondary levels, have escalated.  The first is from Carpe Diem (hat tip: Business Insider):

The second chart is from the Cato Institute (via American Thinker):

Perhaps the writer who has most exposed this bubble related to higher costs vs. quality of results, is Glenn Reynold of Instapundit.  See for example, this article in the Washington Examiner.