Investing In Canada

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October 2007

Monday, October 29, 2007

Online Broker Survey: Who Should You Invest With?

The online brokerage business has been growing rapidly within Canada and the United States. The Big Banks are not the only major players as there are many independent Brokerages participating and this has lead to dramatic cost cutting and improved services.

According to the latest Globe and Mail Survey of the online brokers dated October 6, 2007, more and more brokers are now charging under $10 a trade as long as the investors account has a minimum of $50,000 to $100,000; this is a huge reduction in costs to investors who were previously paying $24 to $29 per trade.

This Globe and Mail Survey evaluated the online brokers based on 7 points: Costs and Fees, Customer Satisfaction, Tools and Research, Website Utility, Website Security, Trading Platform, and Investment Selection. The survey results were interesting because the top two brokerages were independents followed by the cash rich banks.

The online brokers surveyed included 14 and ranked as follows:

1. Qtrade Investor
2. E*Trade Canada
3. TD Waterhouse
4. BMO InvestorLine
5. Credential Direct
6. RBC Direct Investing
7. ScotiaMcLeod Direct Investing
8. Questrade
9. TradeFreedom
10. Disnat
11. CIBC Investor’s Edge
12. National Bank Direct Investing
13. HSBC InvestDirect
14. eNorthern

In this ranking, the target audience considered is mainstream investors who have RRSPs, are interested in more than stocks and the focus for the evaluation was online service.

To determine if opening an online direct investment account if right for you answer the following 5 questions:

1. Have I acquired the amount of investment knowledge to invest successfully?

2. Do I know where and how to research stocks, bonds, options, futures?

3. Do I know what types of investments are RRSP eligible?

4. Do I have the time to research investments to make informed decisions?

5. Will the cost savings outweigh the time and effort required for me to invest effectively?

If you answered no to any of the above questions then opening an online brokerage account is not the best method for you to invest. Under this scenario an investors is better served by receiving guidance from an investment professional such as an investment advisor. Why face the ‘sink or swim dilemma’ when there is a boat?

Personally, I have toyed with the idea of opening an online brokerage account; however, I feel that I get a lot more out of employing an investment advisor who can provide me with lots of great ideas and opportunities that I otherwise would not encounter; further, I feel spending my time on my career and family is more important than saving $50 a trade.

Monday, October 22, 2007

The Best Place to Start Investing in Stocks: Canada’s Big 5 Banks

Royal Bank of Canada (RY)

Toronto Dominion Bank (TD) * Michael Assoline’s Pick (Analyst @ Raymond James Financial)

Bank of Nova Scotia (BNS)

Bank of Montreal (BMO)

Canadian Imperial Bank of Commerce (CM)

Add National Bank of Canada (NA) to get ‘the big 6 banks’

If you wanted to find consistency and a healthy income stream from a stock where would you turn?

Investing in Banks is a great base for stock portfolio investment because of the steady cash flows they offer and there performance consistency. Banks are ‘cash cows’ as they are mature businesses with relatively slow yet consistent growth and produce steady cash flow streams through dividends.

According to Michael Assouline, investment analyst at Raymond James, “Want to beat the market? Put your money in Canada’s Big Five banks. It’s as close to a sure-fire bet as you can make.” Mr. Assouline’s claim is not speculative, data from the past decade is proof: The top performing of the big 5 banks, the Royal Bank of Canada (RY) has blown the S&P/TSX index out of the water producing an average annual return of 19% while accumulating a 484% return inclusive of dividends over the decade, beating the S&P/TSX index by a substantial 330%.

Well of course the Royal Bank of Canada (RY) outperformed the market; it is the top performer of the big 5 you say! However, even the laggard of the group, the Bank of Montreal (BMO), outperformed the market by 160%. This seems outrageous; however, the cumulative return inclusive of dividends over the past decade for the Big 5 Banks was about 18% a year.

So when should I buy and which Bank stock should I buy?

The Key features that must be considered when evaluating Bank Stocks are P/E ratios and Dividend yields; although, many other variables may be considered. My advice is to look to the P/E and Dividend yield for entry points and if you think yourself more astute than the market sell when things become too good in your view.

If you buy any of these banks your investment is very likely to beat the market if you hold the investment long enough. This means even if you bought at a market top you can still be profitable over the long run. The best time to buy though is when the market turns its back and beats up the stocks: probably when yields creep up above 4 or 5 %.

Wednesday, October 17, 2007

Ethical Investing and Socially Responsible Investing: Where to Begin

Ethical Investing and Socially Responsible Investing

Ethical Investing and Socially Responsible Investing tend to be used by investors interchangeably.

So what exactly is Ethical Investing and Socially Responsible Investing?

Before discussing Ethical Investing you must first have a basic understanding of Investment in general.

Investment can be though of as placing discretionary funds (money that is left over after paying all expenses) to work with the anticipation of use at some point in the future. In return for saving those funds today, an investor requires compensation.

When determining how an investor would like to be compensated they will need to consider two elements simultaneously: risk and reward.

Risk refers to the amount of risk investors are prepared to take in order to receive a certain return. A very basic definition of risk would be the probability of a successful outcome investors may assign to a certain investment, generally, the greater the uncertainties the greater the risk. To determine what investments are right from a riskiness perspective an investor will need to consider the following: Are you risk averse (don’t want risk)? Risk neutral (willing to take on a degree of risk in order to receive a greater return)? Or Risk loving (willing to take large risks with the potential of receiving larger returns)?

Reward is the desired amount you would like to receive from an investment. Risk and Reward tend to be correlated very strongly—as the potential reward increases so does the potential risks.

Ethical Investors just throw a third variable into the mix: Responsibility.

Responsibility can mean different things to different people. This is a variable Taylor made to individual preferences; however, a generic definition is the way that a corporation conducts its business: Is there goal to increase profits or leave the world a better place?

For example, an investor who deems investing in weapons or cigarettes to be unethical would not invest in a company that produces either because they believe it irresponsible.

To determine what a company invests in and to what degree you will consider a company unethical can take some detective work. You will need to ask yourself questions like: would I invest in a company that supplies companies involved in what I deem as unethical and will I invest in companies that buy products from companies I deem as unethical.

For example: Would I be willing to invest in a mining company that sells iron to a weapons manufacturer who will turn this raw material into a weapon. Or would I invest in a company that buys paper from a company that also makes cigarettes. Another concern would be whether an investor would consider investing in a company that produces alcohol for example but donates to an AA Group to help alcoholics with their problems.

Combining these three variables you get the 3 R’s of Ethical Investing: Risk, Reward and Responsibility. The degree to which you incorporate each variable and the significance of each in your investment decisions will guide your investment strategy.

Some valuable resources for ethical investing include:

Ethical Funds
Social Funds

Socially Responsible Investing
Corporate Socially Responsible News Wire

Just remember when engaging in Socially Responsible Investing or Ethical Investing personal choice is key to the Responsibility Variable while the goal is still to maximize profits while minimizing risk. Also, it has been displayed over the past 20 years that many investments deemed socially responsible have outperformed peers and this may be a direct result of management at many companies adhering to higher standards.

Thursday, October 11, 2007

Investing in Uranium: Playing the Recent Slump in Prices

Investing in Uranium

The price of Uranium has been extremely volatile over the past year from a high of just over $300 (USD) per Metric Tonne in June of 2007 to a recent low of $75 (USD) per Metric Tonne as of October 11, 2007.

Uranium charts on

This price drop has drastically affected major Uranium producers with some stock prices dropping by half. As the world commodity boom and demand for energy continues to escalate, it is time to invest in Uranium while stocks are extremely cheap to reap the benefits of the rebound in Uranium prices.

Many analysts have stated that Uranium has hit a bottom and is ready for a rally as Demand from China, India and other expanding economies will continue to drive prices higher. Investors thinking about playing this scenario should look to Canada for Uranium investment opportunities as Canada is the largest producer in the World.

As a result of the price slide in Uranium there are many great bargains to invest capital. The following investments may be appropriate for those who believe in the long term appreciation of uranium prices:

Cameco (CCO): The stock is currently over 30% below its recent high in June.

Cameco is the worlds largest producer of uranium concentrates. Cameco Corporation (Cameco) is primarily engaged in the exploration for and the development, mining, refining and conversion of uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and other countries. Its mines are principally located in the uranium-rich Athabaska basin in northern Saskatchewan.

The Company has a 31.6% interest in Bruce Power L.P. (BPLP), which operates the four Bruce B nuclear reactors in Ontario. The Company wholly owns Zircatec Precision Industries, Inc., whose primary business is the fabrication of nuclear fuel bundles. Cameco's 52.7% subsidiary Centerra Gold Inc. (Centerra) is involved in the exploration for and the development, mining and sale of gold. Cameco has four segments: uranium, fuel services, nuclear electricity generation and gold. In June 2006, the Company acquired a 19.5% interest in UNOR Inc, whose principal properties are 226 mineral claims in northwestern Nunavut on the Hornby Basin.

Dension (DML): The stock is currently trading at over a 60% discount from its 52 week high.

Denison Mines Corp. (Denison), formerly known as International Uranium Corporation, along with its subsidiary companies and joint ventures is engaged in uranium exploration and production. The company’s principal assets are a 22.5% interest in one of the world’s largest uranium facilities at McClean Lake in Northern Saskatchewan and a 25.17% interest in the Midwest Uranium Project. Denison also has embarked upon an active exploration program at the McClean, Midwest, Wheeler River, Wolly, Waterfound and Mongolia properties.

Denison also acts as manager for Uranium Participation Corporation. Uranium Participation Corporation is a publicly traded company that is involved in the buying, holding and selling of uranium in concentrates.
Further, Denison is engaged in mine decommissioning and environmental services through its Denison Environmental Services (DES) division.

Uranium One Inc. (UUU): Currently trading at over a 22% discount to its 52 week high..

Uranium One, Inc., formerly SXR Uranium One Inc., is engaged through its subsidiaries in the acquisition, exploration and development of properties for the production of uranium in South Africa, Australia, Canada and the United States and gold in South Africa. The Company owns 70% of the operating Akdala Uranium Mine in Kazakhstan and is also developing the South Inkai and Kharasan Uranium Projects in Kazakhstan. Uranium One owns the Dominion Uranium Project in South Africa, as well as the Honeymoon Uranium Project in South Australia. In the United States, Uranium One has extensive property holdings in Wyoming, Texas, Utah and New Mexico, including the Shootaring Canyon Mill and the Hobson ISR facility. Uranium One is also engaged in uranium exploration activities in the United States, the Athabasca Basin of Saskatchewan, South Africa, Australia and the Kyrgyz Republic.

Paladin Resources (PDN): Currently trading at of a 40% discount to its 52 week high.

Paladin Resources is an Australian uranium exploration and development company. Paladin Resources Ltd operates in the resource industry, with a principal business of evaluation and development of uranium projects in Africa and Australia. Its wholly owned projects include the Langer Heinrich Uranium Project, which is located in Namibia, Southern Africa, and hosts surficial, calcrete type uranium deposit; the Kayelekera Uranium Project, which is located in northern Malawi, Southern Africa; the Manyingee Uranium Project, which is located in the north west of Western Australia, and hosts sandstone deposits, and the Oobagooma Project, which is located in the West Kimberley region of Western Australia, and hosts sandstone deposits. Its joint venture with Quasar Resources Pty Ltd covers two exploration licenses in the northern Frome Basin in South Australia.

An investor that wants be diversified within Uranium investments may want to consider investing in an investment vehicle such as The Uranium Participation Corporation (, which invests the majority of its assets in uranium.

Thursday, October 4, 2007

How to compare Mortgage Products

The best way to compare mortgage products from various lenders is to make a Mortgage Comparison Chart. From the chart it is easy to compare the positive and negative features and characteristics of any mortgage. This will help an investor make informative decisions about which mortgage product best suits their risk level.

The following Mortgage Comparison Chart is only a brief method of analysis and you should consult with a mortgage professional. Completing a chart such as the following will help an investor make more informative decisions regarding debt financing before purchasing a property.
This examples draws on mortgage products offered by the Canadian Imperial Bank of Commerce (CM) and the Scotia Bank (BNS).

Mortgage Comparison Chart

InstitutionCIBCScotia Bank
MortgageBetter Than Prime MortgageUnlimited Rate Mortgage
Mortgage FeaturesTerm: 5 years
Rate: Variable
Term: 3 years
Rate: Variable
CharacteristicsRate: 1.01% below CIBC Prime for first 9 months, 0.25% below CIBC Prime rest of 5 year term.Rate: 0.25% below ScotiaBank Prime Rate for full 3 year term.
Current Prime Rate6.25% APR6.25% APR
Current Rate on Mortgage5.24% (first 9 months)

6.00% (rest of 5 year term)
6.00% (full 3 year term)
Amortization PeriodUp to 40 years (additional insurance charges apply)Up to 40 years (additional insurance charges apply)
Payment FrequencyWeekly, bi-weekly, semi-monthly, monthlyWeekly, bi-weekly, semi-monthly, monthly
May fluctuate with changes in interest ratesStay the same: if rates increase more of payment goes to interest, if rates decrease more of payment goes to principle
Lock in to a closed, fixed rate mortgage with a term of 3 years or more without prepayment costs.

Prepay up to 15% of original mortgage amount annually without penalty.

Original payments may be increased up to 100% during the term without penalties.
Early renew at any time to any closed term, fixed rate mortgage product with term of 3 years of longer with no interest penalty.

Prepay up to 15% of original mortgage amount annually without penalty.

Original payments may be increased by 15% each year for current term without penalties.
Special Deals
May choose between either 0.25% Below Scotiabank Prime Rate or Cash back of 1% of loan amount with Scotiabank Prime Rate

* with cash back you must repay the prorata amount provided if the mortgage is paid out, assumed, transferred or renewed before maturity.

How to adjust your Mortgage Payments and Total Mortgage Payout

The top 2 variables affecting your mortgage:

1) The Amortization Period
2) Interest Rates

Amortization Period: Full time period until the mortgage debt matures (commonly 25 years, and now up to 40 years)

Increasing the amortization period lowers the monthly payment amount while increasing the total payout for the mortgage as less of your monthly payment is attributed to the principle debt and instead is applied to the interest. Decreasing the amortization period would have the opposite effect: higher monthly payments, decreasing the total payout on the mortgage as more of the payment is applied to the principal debt and less to interest payments.

Interest Rates: Whether a variable rate or a fixed rate.

Generally, the interest rate tied to the term increases with the length of the term—a normal yield curve (risk tends to increase with time); however, at this point in time the yield curve is very flat and inverts slightly at the 4 year horizon. This is significant because normally as the term increases, so does the monthly mortgage payment and total mortgage payout; as a result of the inverted curve, locking in a 5 year term will afford a mortgagor a lower rate than locking in at with a 2, 3, or 4 year term producing lower monthly payments and a lower payout.

The difference between the Term of the mortgage and the duration or amortization period of the mortgage:

Term: this refers to the time period negotiated by the mortgagor and mortgagee and the underlying contract negotiated. Usually this will be 5 years or less and will include details such as interest rates--fixed or variable, and at what rate; also included are any options such as early repayment without penalties.

Amortization period or duration: this refers to the entire length of the mortgage. Commonly this is 25 years; however, due to the fact that wages have not risen as quickly as housing costs in much of Canada or the past 20 years you can now amortize a mortgage debt over up to 40 years. This will normally require additional mortgage insurance however.

Other things that need to be considered when negotiating a mortgage: closed term vs open term, legal fees, property surveys, moving costs, and unforeseen costs.

Closed term means you can not pay the mortgage back without penalty over the term while open term means you are able to pay the mortgage back early--normally you will pay a higher rate for this option.

So how do I lower my payments?

1) Get a lower rate: consider a variable mortgage--interest rates tend to be lower. Also, consider a closed term--interest rates also tend to be lower this way.

2) Change the amortization period: how is this done?

Consider changing your payment frequency. It is surprising how much faster a mortgage is payed off when your payments are made weekly as opposed to monthly or semi-monthly. You can keep the same total payment for the month but divide it up into 4 weekly payments.

To make your payments lower you could also increase the amortization period; however, this will mean a larger total payout in the end.

Here are some useful links for estimating what size of mortgage you can afford and how changing a few options will effect your payments:

Canada Mortgage -Great Calculators for estimating what you can afford

Don't forget that buying a home is usually the biggest investment a person makes in their life so make sure you get the most from your mortgage. Owning Real Estate tends to be a good hedge against inflation; however, investing in the stock market on average will yield a much greater return so do diversify.

Wednesday, October 3, 2007

When to Buy and Sell Stocks

When to Buy and Sell Stocks:

Slow Growers (Cash Cows): utilities, railroads, banks, financial companies

AT&T (T), Verizon (VZ), Duke Energy (DUK), ExxonMobil (XOM), Union Pacific Railroad (UNP), Bank of America (BAC), Bank of Montreal (BMO), JPMorgan Chase (JPM), Bear Stearns (BSC), Goldman Sachs (GS), etc.

How to Buy: check for cushion in earnings to eliminate risk that a fall in earnings could erase dividend. Buy when yield is attractive relative to stock’s’ history.

When to Sell: Fundamentals start to deteriorate (losing market share, adding too much debt, acquisition of unrelated business, no research and development or share price has appreciated 30 to 50 percent and yield becomes unattractive)

Medium Growers (Stars): Large established companies that continue to grow at a moderate pace.

Often huge companies: Coca-Cola (KO), Procter and Gamble (PG), Colgate-Palmolive (CL), Kraft Foods (KFT)

Grow in 10 to 12 percent range with high degree of certainty.
Can be bought when undervalued for 30 to 50 percent gain.
Offer good protection from recessionary times, (Sub Prime Mortgage Meltdown)

How to Buy:
Value, with historically low P/E

When to sell:
P/E rises above historical average, or if growth starts to slow down, or new products fail

Fast Growers (?): smaller aggressive companies with growth estimates above 20% a year (Most will have very high P/E’s). A lot of tech companies can be found here.

iROBOT (IRBT), 1-800 Flowers (FLWS), Baidu (BIDU), Google (GOOG), etc.

How to Buy: Make sure plenty of room for expansion, Note whether expansion is speeding up or slowing down. Be careful if the P/E on the stock is greater than the growth rate of the business.

When to Sell: Watch for end of rapid growth phase. Sell if P/E ratio is well above the current growth rate or if company has expanded as much as it reasonable can (Watch out Starbucks (SBUX)). Also, look upon unanimous Wall Street buy recommendations and heavy institutional ownership as sell signals.

Cyclicals (Boom and Bust): autos, airlines, tire companies, steel, chemicals, defense, manufacturing.

Ford (F), Honda (HMC), Toyota (TM), Boeing (BA), Delta Airlines (DAL), Michelin Group (ML), Alcan (AL), Dow Chemical (DOW), Allied Defense Group (ADG).

Sales and Profits rise and fall in response to an expanding or contracting economy. Timing is everything and stock swings are huge.

How to Buy: Watch sales and inventory trends and cost cutting plans. Buy after extended period of misery when business conditions start to look better.

When to Sell: economic slow down begins potting up in the media, inventories begin to rise, hiring ceases, the Fed indicates possible rate cuts may be necessary. Some Cylicals are front runners while others are laggards so look for where a specific industry falls in its cycle.

Turnarounds (Nightmare to Love Affair): Normally established companies with turbulent times. If they can turn things around huge stock movements can occur (Be the Vulture).

Magna International (MGA), General Motors (GM), Merck (MRK), Pfizer (PFE)

How to Buy: Ask touch questions. Can company survive raid by creditors? How much cash and debt? What’s left for shareholders? Is the company simultaneously cost cutting and growing sales?

When to Sell: After it’s turned around and all troubles are over. Also if inventories start to rise faster than sales, or debt increases, or if P/E ration gets too high in light of earnings growth. At least take some of your profits once the company is back on track.

Asset Plays (Finders Fee): Railroads usually land rich, may have mineral and timber rights that the market is unaware of.

Canadian National Railway (CNR.TO), Union Pacific Railroad (UNP)

How to Buy: Ask probing questions: What’s the value of the assets? How much debt is there and is debt increasing? Is there a catalyst (corporate raider) in the wings to help unlock the value?

When to Sell:
After the market appreciates the value of the assets. Once it’s in the news you know it is time to, at minimum, take some profits.

Monday, October 1, 2007

Major Stock Categories

The Major Stock Categories:

Slow Growers (Cash Cows): utilities, railroads, banks, financial companies

AT&T (T), Verizon (VZ), Duke Energy (DUK), ExxonMobil (XOM), Union Pacific Railroad (UNP), Bank of America (BAC), Bank of Montreal (BMO), JPMorgan Chase (JPM), Bear Stearns (BSC), Goldman Sachs (GS)

Medium Growers (Stars): Large established companies that continue to grow at a moderate pace.

Coca-Cola (KO), Procter and Gamble (PG), Colgate-Palmolive (CL)

Fast Growers (?): smaller aggressive companies with growth estimates above 20% a year (Most will have very high P/E’s). A lot of tech companies can be found here.

iROBOT (IRBT), 1-800 Flowers (FLWS), Baidu (BIDU), Google (GOOG),

Cyclicals (Boom and Bust): autos, airlines, tire companies, steel, chemicals, defense.

Ford (F), Honda (HMC), Toyota (TM), Delta Airlines (DAL), Michelin Group (ML), Alcan (AL), Dow Chemical (DOW), Allied Defense Group (ADG).

Turnabouts (Nightmare to Love Affair): Normally established companies with turbulent times. If they can turn things around huge stock movements can occur.

Magna International (MGA), General Motors (GM)

Asset Plays (Finders Fee): Railroads usually land rich, may have mineral and timber rights that the market is unaware of.

Canadian National Railway (CNR.TO), Union Pacific Railroad (UNP)

What is the Bottom Line?

It does not matter which Major Stock Category an investment falls under. A successful investor will always need to answer to the best of his or her ability the 5 most important stock investment questions:

1. Why this company?
2. Why now?
3. What return is expected?
4. Over what period of time?
5. What could turn this into a mistake?