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The Definitive Investment/Finance/Economics Thread

judge wopner

TRIBE Member
SJN said:
Anybody have a list of all ETF's that trade on Canadian (i.e., not US) exchanges?

theres a few different institutions that offer specialty ETF's but
www.ishares.ca from Barclay's has some of the most wide ranging and liquid ones for Canada.

you can also get bear ETF's like the HXD (HXD.TO) it moves opposite to the TSX 60 on twice the leverage, so it can act as a hedge against downward moves in your canadian portfolio.
 
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SJN

TRIBE Member
^^ Thanks, but I was looking for a full list of ETF's trading on a Canadian exchange. IShares is not a full list. I found what I was looking for anyway.
 

AdRiaN

TRIBE Member
lobo said:
I don't know if anyone has talked about it here on Tribe or not but I'm wondering if any of the financial people on here had any comments regarding the Smith Manoever to help pay off your mortgage?
It seems pretty risky.

You are basically borrowing money against your home equity in order to make investments with a (hopefully) higher return than the loan interest. It's a classic leveraging strategy. The relative benefits of the manoeuver also depend on the size of your tax savings from interest deductibility, so it's better suited to high income earners.
 

2canplay

TRIBE Member
AdRiaN said:
It seems pretty risky.

You are basically borrowing money against your home equity in order to make investments with a (hopefully) higher return than the loan interest. It's a classic leveraging strategy. The relative benefits of the manoeuver also depend on the size of your tax savings from interest deductibility, so it's better suited to high income earners.

I partially concur, but on the whole I would recommend this strategy as part of a long-term investment plan.

Here's the math:

Borrow $100K at prime or prime plus 1% = 7%
Pay the interest from your income and deduct the costs reducing your tax on earnings (drops your effective interest rate to 5%).
Invest the money at 10% and have $200,000 in 7 years.
AND, in 7 years, don't sell.

Of course, the trick is investing at 10% (or higher). However, it's really not that difficult, but it takes some effort and some time. However, consider the effort to be just the extra work you need to put in to building a great nest-egg down the road. It will beat working at Wal-Mart as a greeter when your 65 (apologies to anyone's parents/grandparents in that predicament).

All in all, as I have written many times before, the current investment climate is what could be called a golden age, and if you have the opportunity, you absolutely should be a buyer.

All you really need to do is buy well positioned firms, with good management, at good prices/valuations and with competitively defendable operations - then hold and watch your money grow.

Companies that qualify (off the top of my head)
All the banks in Canada
The big 3 insurers (Manulife, Great-West, Sun)
Money managers..never buy mutual funds, buy the companies that issue and manage the funds (Dundee Wealth, IGM)
Some well-run family firms (Saputo, Power, Leon's, Dorel, Reitmans, Samuel, E-L Financial, Empire/Sobeys, Dundee)
Well positioned firms in good industries (Livingston, Cogeco, Xceed Mortgage)

These firms all have in common good management, excellent track records, fairly or under valued, hold competitive positioning which allows them to raise prices when needed (yearly, at least) and fend off competitors. Of course, you will always have some dips, but the long-term will be well above 10% per year - and you pay no tax except when you sell (except for a small amount on dividends paid yearly).

In particular, because Canadian markets are so tiny and under followed, you always have stunning;y cheap stocks available. Dundee Corp is worth $74 dollars per share, right now, yet trades at $52. E-L Financial, worth $1000 per share, trades at $720. Sobeys, worth $60, traded at $39 last week, etc.

As for American stocks, the general story is the same except you have a better chance at getting excellent exposure to growth markets in China, Eastern Europe and India. Again, companies that come to mind are AIG (the biggest and best insurer in the world with HUGE operations and exposure to the Far East and Eastern Europe - and AIG is a bargain), Whirlpool (the biggest appliance maker with over half ot their sales coming from overseas), Anhueser-Busch, etc.

Basically, the situation comes down to borrowing cheap and investing long. The firms mentioned above and many others like them will continue to prosper as China, India and the global economy in general continues to move forward. No doubt, you are going to always have dips, but dips are just that - dips. Try to leave 20% in cash in order to top up on your holdings should the market decline.
 
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2canplay

TRIBE Member
Also, companies that don't generally qualify are firms you have to worry about. That means all commodity firms (precious metal miners, hydrocarbon firms, etc.), unless they are a screaming bargain based on what has already been discovered and built (processing facilities), almost all technology companies (Motorola, Nortel, Lucent, whatever) and companies in financial distress.

Commodities aren't great because they have no pricing power - they can't pass along costs to clients like Manulife can.

Technology is problematic because new entrants can easily and quickly take market share and pricing power away (as you can see with Motorola and Nokia every few years) - also, it's hard for anyone except for a technology expert to be able to really know who has the best products and margins

Anyways, hope this all helps
 

judge wopner

TRIBE Member
2canplay said:
Also, companies that don't generally qualify are firms you have to worry about. That means all commodity firms (precious metal miners, hydrocarbon firms, etc.), unless they are a screaming bargain based on what has already been discovered and built (processing facilities), almost all technology companies (Motorola, Nortel, Lucent, whatever) and companies in financial distress.

Commodities aren't great because they have no pricing power - they can't pass along costs to clients like Manulife can.

Technology is problematic because new entrants can easily and quickly take market share and pricing power away (as you can see with Motorola and Nokia every few years) - also, it's hard for anyone except for a technology expert to be able to really know who has the best products and margins

Anyways, hope this all helps

interesting breakdown, and you make a good case for the bull,

just playing devil's advocate because you bring up some well reasoned points,

do you think that the basis for investments in large cap blue chip stocks w/ borrowed money based on a %10 rate of return is a wise choice for only yonge people or any one not living off their savings at this point? are you basing your buy call on broad macroeconomic trends or an assesment of market returns and outlook for the TSX specifically?

%10 seems a bit high for a conservative portfolio, using rates of return the past few years may be deceptive considering so much of the TSX's gains in that period have been on the backs of commodity (oil/gas) and financial companies. (im saying this under the assumption you included large cap oil stocks in your comments about commodities, if not please disregard)

borrowing money to invest at this point could be a concern if you see interest rates on the rise, and a potential recession in the US.

i agree that regardless of month to month price fluctuations many blue chip stocks will earn dividends as you wait for them to grow, but is this really a "golden" time to invest in those vehicles any more than the 70's, 80's or 90's were when you consider the massive multi year bear markets that tore away people's portfolio's that followed many a golden period of growth?

stagflation and inflation are still issues of concern in north america, interest rates in most g-7 states are flat or going up accept for the US.

we have seen during each rise in emerging markets and asset bubbles the ensuing downturns, shocks and currency crises (sp?) .

5 year charts of most large indicies internationally show big gains the past few years, im a bit weary wondering if it can continue at that rate, and if investors are prepared to watch their investments take a hit or stagnate for a year or more should things cool off.

and how much of a fall in asset values does one allow in their portfolio before saying uncle?
does one's risk tolerance diminish when their porfolio is purchased via borrowed money?

id be hesitant to borrow money to invest in a defense stance, so it seems that borrowing to invest entails a bullish outlook on the market.

the US dollar has taken a beating the past while and i have not seen convincing arguements for a US dollar Bull, do you see sufficient stability in the global markets to maintain your golden age/buy stance for blue chips vs. more defensive gold/bond/contrarian oriented portfolio's?
 
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2canplay

TRIBE Member
Ultimately company valuations (share prices) are driven by earnings power - if earnings grow, valuations increase. Interest rates play a major role in valuations, but I don't believe interest rates are headed anywhere near a level that would seriously temper company valuations, and in any case, I would argue that in a high interest rate environment, you would WANT to be invested in equities.

Since 1920, equities have returned almost 10% per year - a double every 7.5 years. That's almost 90 years. This growth has been driven by the ability of corporations (private and publicly owned) to increase profits. We in the west have become immensely wealthy because we have taken a larger and larger share of the global economy (and it continues), and our corporations have led the charge. This will continue...I see no reason why it would not - it is in everyone's interest (at least everyone in the first and second world) for it to continue. As such, the conditions for increased profits will be protected and enhanced.

While the global political economy is favourably structured to allow continued growth in the first world, we have also been able to increase efficiency - we can do more with much less. Whereas General Electric, 20 years ago, spent 60% of their profits on capital expenditures (buying trucks, new plants, equipment, etc), they now spend 30%. GE's capital has become much more efficient - they make 5 times the profit with half of the capital. Technology is made for business - they drive its creation and they are the ones who benefit (this is why I say buy non-technology companies - Manulife and companies like it are the real winners in technology - each year they spend a pittance on new systems and continue to reduce their overhead (staff, branches, office space, etc) or drive new revenues). Again, this will continue. If you grab Value Line at your local library, look at the Dow 30 companies - take a look at their revenues and profits in 1993 and how much they "kept" in free cash flow (profits after capital expenditures), then look at is now - you'll be surprised. But, it will corraberate all that I have said.

As for dips and the vagaries of the economy: buy good companies and hold. That's it. Yes, you will have years that are down 25%, you will also have yeras that you are up 35%...never thrown in the towel.

If you just simply focus on your companies (ie, the ones you own), you don;t need to worry about all the shit they write about in the paper (interest rates, housing bubbles, currency rates, etc.) - all that stuff doesn't matter. They write that stuff to encourage you to trade (ie., to scare you into consuming something their advertisers sell).

I own Loews - it's run by the Tisch's in New York. They are some of the smartest people in the city. They own a cigarette company. They own an insurance company. They own hotels. They own an offshore oil rig company. After Enron, they bought a bunch of pipeline assets when no one wanted them. They also bought utility assets. They have tripled their money. I would never, in a million years, willingly sell this stock. I could care less what happens to currencies - that's the Tisch's problem - I'm just glad I get to invest alongside them.

Trust me on this: good companies, and hold. Doesn't matter if you're young or old.

Also, yesterday I forgot to mention Onex and Gerry Schwartz - I also like him running my money.
 

jebac

TRIBE Member
Does anyone here trade currency? I have a bunch of questions and have no idea who to turn to. Who here has dabbled in the spot market... comeon, show yourselves!

-jebac
 

Chris

Well-Known TRIBEr
lots of good info and interesting opinions. Anybody have comments on Dodge's comments as of late, ie Dollar, and interest rates? Seemed to hit a lot of the Banks security/exchange, etc, departments off guard?
 
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2canplay

TRIBE Member
jebac said:
Does anyone here trade currency? I have a bunch of questions and have no idea who to turn to. Who here has dabbled in the spot market... comeon, show yourselves!

-jebac

I have. Let me know any questions you have and I'll see if I can help. However, I'm plain vanilla - I don't know much about "trading strategies" and I never invest based on a technical basis. I mainly trade to hedge or to speculate on one off opportunities.
 

2canplay

TRIBE Member
ChrisD said:
lots of good info and interesting opinions. Anybody have comments on Dodge's comments as of late, ie Dollar, and interest rates? Seemed to hit a lot of the Banks security/exchange, etc, departments off guard?

The interest rates, inflation comments were quite interesting. The dollar comments had no value, and rarely ever do. Lower growth caused by retiring baby-boomers represents a potential paradigm shift. I've read a bit about this but it definetely deserves on going thought and evaluation as we move forward (and determine where/when to invest).
 
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judge wopner

TRIBE Member
ChrisD said:
lots of good info and interesting opinions. Anybody have comments on Dodge's comments as of late, ie Dollar, and interest rates? Seemed to hit a lot of the Banks security/exchange, etc, departments off guard?


the loonie had a dramatic rise the past few months making things difficult to gauge going forward,
parity may be in the cards by as soon as next year, or this sudden rise may just as quickly settle back under $.90 US.

the talk higher rates isnt surprising considering most world banks other than the US are raising rates.

the thing that worries me is that as a whole we may be doing well but in reality one sector (alberta/ commodities) is offsetting and exceeding losses in the other (ontario/manufacturing), higher rates and a higher dollar work against manufacturing, . its tough to accept this in the face of prosperity elsewhere when youre out of a job, or have to move to alberta to get a high paying position.

i still think the US dollar is in a long term multi year down-trend, holding stocks in US dollars can eat away at any gains earned after conversion.

J
 

fleaflo

TRIBE Member
Michlerish said:
or a student, or somebody who can't risk losing any money
Not sure what your time frame is, but you can do better than OSB’s by investing in Principal Protected Notes (PPNs) If you hold the note to maturity, (3,5,10, years etc), you get your principal back and also get paid any return on the index / fund / that the note is linked to.

All the Canadian investment banks are structuring them currently, and notes that are linked to various indices, or even various commodities can even be found. I’m invested in one where the return is tied to changes in the prices of natural gas / aluminum / copper and the S&P agricultural index.

There is a penalty for cashing the Note in early, but if your return on the note is substantial, that point becomes moot.

Example, you invest in a 5 year, PPN tied to the return on a certain Canadian mutual fund. Let’s say that it has a 3.50% early trading fee (penalty) which is what will be taxed off your initial investment if you cash out early. However, if the return from the fund is 10% for the year, net, net, you’re still up 6.50% on the year. Even if the fund manager does a shit job and loses money, if you hold for the 5 years, you get your initial investment back.

Where OSB’s do have the advantage for students is that you can invest in small denominations. Most PPN’s trade at a minimum investment size of $5,000.
 

judge wopner

TRIBE Member
fleaflo said:
Not sure what your time frame is, but you can do better than OSB’s by investing in Principal Protected Notes (PPNs) If you hold the note to maturity, (3,5,10, years etc), you get your principal back and also get paid any return on the index / fund / that the note is linked to.

All the Canadian investment banks are structuring them currently, and notes that are linked to various indices, or even various commodities can even be found. I’m invested in one where the return is tied to changes in the prices of natural gas / aluminum / copper and the S&P agricultural index.

There is a penalty for cashing the Note in early, but if your return on the note is substantial, that point becomes moot.

Example, you invest in a 5 year, PPN tied to the return on a certain Canadian mutual fund. Let’s say that it has a 3.50% early trading fee (penalty) which is what will be taxed off your initial investment if you cash out early. However, if the return from the fund is 10% for the year, net, net, you’re still up 6.50% on the year. Even if the fund manager does a shit job and loses money, if you hold for the 5 years, you get your initial investment back.

Where OSB’s do have the advantage for students is that you can invest in small denominations. Most PPN’s trade at a minimum investment size of $5,000.

or you could just open an ING direct or ICICI bank savings account and earn about %3.75 without any hassle.
 

judge wopner

TRIBE Member
fleaflo said:
Average return on PPN's, as measured by Scotia Debt indices is +11.5% annualized. The numbers I used were kept simple for explanation purposes.

this is using equity averages w/ their inherent risk which she is specifically trying to avoid getting tangled up in, especially if they need to be cashed out early and the penalty isnt offset by any gains.
 
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Michlerish

Well-Known TRIBEr
fleaflo said:
Not sure what your time frame is, but you can do better than OSB’s by investing in Principal Protected Notes (PPNs) If you hold the note to maturity, (3,5,10, years etc), you get your principal back and also get paid any return on the index / fund / that the note is linked to.

All the Canadian investment banks are structuring them currently, and notes that are linked to various indices, or even various commodities can even be found. I’m invested in one where the return is tied to changes in the prices of natural gas / aluminum / copper and the S&P agricultural index.

There is a penalty for cashing the Note in early, but if your return on the note is substantial, that point becomes moot.

Example, you invest in a 5 year, PPN tied to the return on a certain Canadian mutual fund. Let’s say that it has a 3.50% early trading fee (penalty) which is what will be taxed off your initial investment if you cash out early. However, if the return from the fund is 10% for the year, net, net, you’re still up 6.50% on the year. Even if the fund manager does a shit job and loses money, if you hold for the 5 years, you get your initial investment back.

Where OSB’s do have the advantage for students is that you can invest in small denominations. Most PPN’s trade at a minimum investment size of $5,000.


LOL, my Investment Advisor (20+ years experience) says:

don't you dare.

PPNs suck very badly.
 

judge wopner

TRIBE Member
fleaflo said:
Where are you getting equity from Scotia "DEBT" indices?

i didnt say you are getting equity,

lets rewind:

you initially said:

fleaflo said:
notes that are linked to various indices, or even various commodities can even be found. I’m invested in one where the return is tied to changes in the prices of natural gas / aluminum / copper and the S&P agricultural index

i said:

judge wopner said:
this is using equity averages w/ their inherent risk which she is specifically trying to avoid getting tangled up in

alot of indicies like the S&P agricultural index or 500 are equity indicies non?
its those i was refering to that carry the risk of investing in stocks which was noted as a bit too risky for someone who could not afford to chance losing their money.

i dont undertand fully these PPN's and i have heard some pro/con stroies from people, like any other product, but suggesting the risk is minimal based on gains of %10 is a bit dicey in the event of a market slow down and the possiblity of incurring a fee for cashing them in early non?
 
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