Investing In Canada

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August 2009

Thursday, August 27, 2009

Best Online Broker in Canada 2009 / 2010

Best Online Broker 2009 / 2010

I have written about the best online broker in Canada to use before and come to a different conclusion than the one I currently hold to be true; previously, I had made my decision based on reading the Globe and Mail's survey of online brokers. Their survey is great for the average investor—an investor who knows very little about the stock market and needs to have his or her hand held when walking down Bay Street or Wall Street.  I myself was very inexperienced with the ways of online brokers only a short time ago, but what I have learned over the past couple of years, by using a couple of the well know online brokers, is that price point, and execution are by far the most important criteria to differentiate the top of the pack from the bottom.

Let me be more specific by providing my experiences and then my decision for the top online broker in Canada.

My first experience with online brokers came via Qtrade.  According to the Globe and Mail they were and still are the best online broker in Canada.  I have to admit at first they did seem like a great online broker: my trading costs were much lower, the research platform is very good, and the customer service was very good.

Did I just say their customer service is very good? What I meant to say was their customer service is very good unless you need to dip below the $1000 minimum account balance.  I ran into a bit of a shocker when I asked to dip about $200 below the minimum account balance to pay a bill before my pay cheque came in the next day.  Because they would not let me move below the minimum balance in my account for a single day I decided to close all 3 of my accounts and look for a better online broker.

This time I did my own research. I reviewed a number of online brokers: Qtrade Investor, E*Trade Canada, TD Waterhouse, BMO InvestorLine, Credential Direct, RBC Direct Investing, ScotiaMcLeod Direct Investing, Questrade, Trade Freedom, Disnat, CIBC Investor’s Edge, National Bank Direct Investing, HSBC Invest Direct, eNorthern. Just in case you didn’t guess it, this is the 2009 list from the Globe and Mail from top to bottom of the online brokers in Canada.

You have to start somewhere right.  I did my research on each myself, but don’t worry I won’t bore you with the gruesome details here.  What I decided in the end was that #8 on the list of 14 was the best for me.

#8 is Questrade.  By a long shot Questrade has the lowest fees of all the online brokers and has the best sign up process—all documents can be filled out online and then all you need is an online banking transfer and an email of your Driver’s License and SIN Card.  The process was seamless.  The trading tools are identical to the other online brokers; they all use the same software and just reorganize a little. Also, they have a 10/10 in customer satisfaction.

Trade Costs: $4.95 minimum to a $9.95 maximum no matter how many shares you trade. It’s based on $0.01 per share up to the maximum. So If I trade 100, 200, 300, or 400 shares I pay $4.95. At 500 I pay $5, at 700 - $7, at 1,200,000 shares I pay $9.95 flat.

So where are they lacking? Let’s be honest here and just say, there research sucks. They don’t give you the keys to an onslaught of analyst reports like many of the other brokers; however, if you are at all serious about investing then you should be able to find this info very easily through the web since there are tons of sites that give that info away for free.

I have used Questrade's protrader platform with streaming live quotes and their webtrader addition.  I now use the web trader without streaming live quotes because they are extra unless you make over 20 trades a month.  As I am now considering myself more of a long term trader, the webtrader system seems very fine indeed.

Don’t just take my word for it though.  Just remember most of the online brokers are begging for your business so try and get something out of them. Questrade offers a $50 credit in free trades if you are referred and gives the referee $100 in free trades. The catch though is that you must use the credit within 3 months or it vanishes. Unless the person referring you trades a lot there is no way they are going to use their credit.  If you don’t know anyone that is currently trading with Questrade and you want a referral, post a comment with your name and email and I will send you a referral and not post the comment.

Wednesday, August 26, 2009

New Cell Phone Competition: What’s in store for Canadian Telecom Giants?

Stock Talk
   My Advice! Don’t touch Bell BCE Inc (Public, TSE:BCE), Telus (Public, TSE:T), or Rogers (Public, TSE:RCI.B), the big 3 wireless providers in Canada with a 10 foot telephone pole.


   There has been an iron grip in the Canadian Wireless Communications Industry for years held by the duopoly of Bell, Telus, and Rogers-They hold 95% of the Canadian wireless market according to the Economics Division of the Parliamentary Information and Research Service. New competitors have been blocked time and time again through legal action and other restrictive barriers to entry in the cell phone communication sector. The Canadian Radio-television Telecommunications Commission (CRTC), has not helped anyone but the commanding corporations in the past so what’s about to change?

    There is a price war starting between the big boys, but it’s not just Bell, Telus, and Rogers on the battle field; there are 8 new wireless carriers. At first you might think, does that mean Fido, Solo, Koodoo, and Virgin plan to fight? No, no, don’t be silly Fido is run by Rogers, Koodo by Telus, and Virgin and Solo by Bell.

   So who are these Guerrilla Warriors?

  Globalive Wireless – Backed by Eqyptian Billionaire Oraxcom’s Sawiris 
   ($442,099,000 on 30 Licenses)

   Data and Audio-Visual Enterprises Wireless (DAVE)
   ($243,159,000 on 10 Licenses)

   ($65,690,000 on 3 Licenses)

   A number company from Montreal
   ($52,385,077 on 4 licenses)

   Manitoba Telco MTS Allstream
   ($40,773,750 on 3 licenses)

   3 have TV / Internet / or Land Line to offer bundle discounts

   Shaw Communications
   ($189,519,000 for 18 licences)

   Quebecor’s Videotron
   ($554,549,000 for 17 Licenses)

   Bragg Communications’ Eastlink
   ($25,628,000 on 19 Licenses)

   In 2008 the federal government, hoping to lower wireless prices through competition, reserved 40% of the spectrum licenses for new companies entering the wireless market. This was the first time in 13 years that new licenses became available and these licenses allow providers to broadcast cell phone frequencies. To stop Bell, Rogers, and Telus from out bidding the new entrants, 40% of the licenses were set aside for new providers only.

   The new entrants are expected to begin operating in the second half of 2009. Get read for a price war.

   Price = Lower Profit Margins for the Big 3 and less subscribers = Lower profits = Stock Prices Decline to reflect the new profit levels.

   This price competition has not be limited to cellular phones. Much of this battle is also being fought through bundling of Television, Internet, and Home Phone as well. A perfect case of this was Shaw’s most recent predatory pricing that has been discussed by many on . This is not the end.

   There are more offers coming in the mail from competing companies as well. Telus just sent me an offer in the mail for 75 HD TV channels for $20/month.

   This price war will really heat up if the anticipated new national carrier headlined by Globalive Wireless is created.

   If you’re renegotiating your wireless, home phone, TV, or internet then get ready to squeezes these companies for all you can get.

   If you’re thinking of buying shares of Bell, Telus, or Rogers than heed my warnings.

Tuesday, August 25, 2009

Income Trust Pick: A&W Revenue Income Fund (Public, TSE:AW.UN)

Main competitors: McDonald's Corporation (Public, NYSE:MCD), Burger King Holdings (Public, NYSE:BKC), Wendy's Arby's Group Inc. (Public, NYSE:WEN), Jack in the Box Inc. (Public, NASDAQ:JACK),  Yum! Brands, Inc. (Public, NYSE:YUM).

A&W Revenue Income Fund (AW.UN) is one of my top picks for a TFSA or RRSP. The fund is currently trading around $13.75 and the most recent monthly distribution was announced August 5, 2009 @ $0.106 per share which works out to a yield of 9.25% annual. The dividend distribution is very good, especially if you hold this investment in an account that benefits from no taxes; however, this is not the main reason why I like this income trust so much.

Over the past month I have done a bunch of research into AW.UN and the morning of Monday August 24, 2009 I pulled the trigger and bough some in my TFSA account. The following details are what I based my decision to purchase this stock on:

1. I have reviewed the past few weeks of analysts’ reports prepared by Thomson Reuters. They rank stocks on a scale of 1 to 10 and AW.UN-T has not ranked below a 9/10 over the past year. It is currently ranked a 9 while the Travel & Leisure Sector average is a 6.8.

2. Thomson Reuters lists the trust under TRAVEL & LEISURE / TRAVEL & LEISURE / RESTAURANTS & BARS and I am not currently exposed to this sector. This has been one of the harder hit sectors during the recession since people have gone out less often and traveled less often.

3. The income trust made a new 6 month high in the beginning of August and the long term up trend has continued since October of last year. This has been a strong investment throughout the recession and the next point 4 has a lot to do with that.

4. A&W Restaurants is the fastest growing Fast Food Chain in Canada Today. Sure they are growing and they have great brand recognition with the Baby Boomers but do you think this growth will continue or their distributions continue? I would have to say yes, and yes; now let me explain:

Will A&W restaurants continue to grow in Canada?

Yes they will and I am sure you have not heard this reason before—over the past year A&W has been aggressively poaching experienced real estate professionals. They have hired a number of professionals specifically for the purposes of finding new properties to lease for their franchises. Each professional was given a Province and then they were sent travelling all over Canada looking for places to expand. How do I know this? I visited the Sauder School of Business career website over the past year on a number of occasions to see what kind of positions are out there for professionals. I remember reading the job descriptions and they required a significant amount of experience and willingness to travel within the designated areas.

Will A&W restaurants dividends continue to grow?

Yes they will because the recession has influenced peoples spending habits. During the recession more people went to A&W restaurants instead of middle of the road restaurants like Cactus Club, White Spot, Boston Pizza, the Keg, etc because they wanted to save money. The only restaurant that has seen a larger increase is McDonalds. The mentality of the North American consumer has changed during this recession from one of shopaholic living on credit to credit conscious savers. We are now more like our Grand Parents ready and willing to save for emergencies.

5. The Price to Earnings ratio of A&W Royalties Income Fund is currently only 9.91. I think anything in the single digits presents lots of upside potential.

As a result of these factors I bought A&W Royalties Income Fund and I plan to hold this in my TFSA for the long term.

I still am bearish on the overall outlook of the TSX and S&P indices, believing that a correction will take place in September; however, I do not think we will retest the lows achieved a few months back anymore, even if the commercial real estate shock occurs in the United States. Even if another correction occurred, this stock would just become a better buy for the long haul.

Sunday, August 23, 2009

How to Create a Personal Budget

Personal Budget 101

Household budgeting has become popular again because of the current recession and consumers are bombarded with buzz words from fraudsters looking to scam an easy buck. We have all heard the terms - debt consolidation, debt counselling, credit counselling, Debt freedom; the list can go on and on. There are tons of services being offered to help straiten consumers out and save them from their in abilities to save. Some of these services could be useful; however, the overwhelming majority are a bunch of BS. The solution is so simple ‘live within your means’.

I will provide the process I go through to budge via an excel spreadsheet screen shot showing the formulas I use to produce my budget and this discuss the process briefly.

Here is a sample personal budget:

Things to include in your budget: Revenue, Expenses, Amount you want to Save, Discretionary spending.

Revenue: I only include employment income after deductions. You use the net income of you pay because you won’t have the extra income to use throughout the year, even if you are expecting a tax refund. Also, I do not include investment income because that is all for retirement and not a part of my day to day spending allowance.

Expenses: There are many different expenses to include. I just include all the expenses that I know I will have to pay over the month. The largest of those is usually rent followed by food, etc. You should also budget for food here and gas you will likely use in your car. If you spend less than you budget or more than readjust the budget afterwards.

Savings: realistically you should be saving something. Even if you are only saving for a vacation or a new sofa you need to be living within your means.

Discretionary: This is the amount that you can blow on a given day for items that are not part of your normal expenses, for example, movies, concerts, the bar, etc. Once you have figured out your excess income over and above your expenses and savings this is the money that you get to have fun with. If you don’t have any discretionary income then you must do one or both of two things – make more money or spend less. Obviously the easiest is to cut down on your spending and then focus on increasing your income.

If you have problems with excel here is a screen shot of my budget with formulas included:

Just remember the key is to live within your means.  2vetny8hg5

Friday, August 21, 2009

Long Term Investor - How much of a stock should you buy? There are many different strategies that will alter the amount of a single stock that you should buy. This article will focus on the Long Term Investor and provide an example using Potash Corp./Saskatchewan Inc. (Public, TSE:POT).

The method that I am about to explain comes from Van K. Tharp’s ‘Trade Your Way To Financial Freedom.”

The CPR method (best method for long term traders)

The CPR stands for Cash / Position / Risk. The simple formula is this P = C/R.

P: Position, this will be the amount of shares to buy

C: Cash, this will be the total $ amount of your portfolio you are willing to risk on one trade. (Usually between 1-3% of your total portfolio)

R: Risk, the total $ amount of the stock you are willing to risk. For example, the stock is currently $100 and you set a stop loss of $4 then your R = $4.

To come up with the amount of shares to buy solve the formula.

Here is a real example using Potash Corp (TSE: POT)

Assumptions: My portfolio size is $70,000. As a long term trader I want to set my stop loss at a point that I will not likely get forced out in the near term so I set it at 3 times the weekly volatility (3x the difference between the Maximum and minimum price of the week).

Today the ask on POT is $104.38. If I look at the chart in Google Finance I can see that the max this week was $106.72 and the min was $100.54 which is a volatility of $6.18. To set my R I want to use 3 times the volatility: 3x $6.18 = $18.54.

Since this is a personal investment I am will to risk more that if I were managing the account so I will risk 3% of my entire portfolio: 3% x $70,000 = $2,100.

Set up the formula:

P = C/R = $2,100 / $18.54 = 113.27 shares.

Because most stocks trade in lots of 100 shares I will round down and buy 100 shares. By doing this calculation I am not over exposing the risk of my portfolio to a single trade. I will be investing $10,438 in this position and the most I am willing to lose is $2,100 or 3% of my entire portfolio.

Next step: If I get into a profitable position of greater than $2,100 than I will set a trailing stop to lock in some profits.

Obviously this is an expensive stock so if your portfolio is smaller than $40,000 it probably doesn’t make sense to own this stock since your risk exposure will be too large. The CPR method works for any stock though so test it out with anything from penny stocks to expensive stocks.

This article can be seen in the August 29th, 2009 edition of the Weekly Dividend Roundup
This article can also be seen in the September 3, 2009 edition of Carnival of Pecuniary Delights#22

Tuesday, August 18, 2009

Canadian Penny Stock Investment Opportunity: LIFEBANK (LBK)

Canadian Penny Stock Investment Opportunity: LIFEBANK (LBK)

Biotechnology / Pharmaceuticals Industry: LIFEBANK (LBK)

I’m always actively looking for great investment opportunities and when I came across LIFEBANK (LBK) I was shocked by the potential. At first thought, you would think the services this company provides would be mandatory and run by the Federal Government at an extreme cost to tax payers. This is a unique opportunity to own a stock that may provide a required health service in the future and what I consider to be a no brainer investment opportunity.

LIFEBANK is listed on the TSX Venture Exchange, based out of Burnaby, British Columbia, and is in the biotechnology/pharmaceuticals industry. As of the date this article is written, the share price is currently $0.16 with a 52 week range from $0.10 to 0.19. I believe there is huge growth potential for this company. There are currently no analysts following the stock; however, I am sure that will change in the coming year. This is a high risk investment; although, I believe it is an essential service and will prosper over time.

To enter such a trade I do not recommend using stop losses initially, but I do recommend the following: Once you enter the trade calculate your maximum risk as a full loss of the position – so in my case $0.16 per share. If the stock increases in value to 3R = 3 times the maximum risk ($0.48), then set a stop loss at break even so $0.16. From this point I would suggest you start to employ a trailing stop of 2R ($0.32 below the highest high) so that as the stock moves higher you can lock in some profits just in case things turn sour.

Given that there will be low volume on the stock it is very likely that when you purchase the stock you may have to chase the asking price higher. Since a $0.01 move in the stock represents a 6.25% move in the stock and the bid ask spread is $0.03, an expected entrance for 5000 shares will likely drive the price up over 20-30%. This is not necessarily a bad thing since it will only bring more interest to the stock. If a big move occurs it will likely bring more traders in search of an explosive stock.

News on the company: May 4, 2009 Lifebank Grants Stock Options The company issued options to directors and offices of the company to purchase stock at $0.175 per share until May 7, 2014. This bodes well for purchasing shares today since they are currently bid at only $0.17. Further, after searching around SEDI (This is where you can see what the insiders are doing), it looks like none of the directors or officers are unloading stock.

Now, more about LIFEBANK. Basically, LIFEBANK is the first service in Canada to offer storage and processing of Umbilical cord blood stem cells for the general population. The Umbilical cord blood stem cells can be used in many applications, but the main purpose is their ability to help save a person’s life in the future from diseases related to blood disorders such as many cancers. I for one could have used this service to help save my own life from Lymphoma; instead I had to rely on treatments with much lower success rates that cause much more damage and increase your susceptibility to many other forms of cancer in the future.

For more information about this company including Quarterly and annual reports visit their corporate website @

Income Trust Pick: The Brick Income Fund (BRK.UN)

Income Trust Pick: The Brick Income Fund (BRK.UN)

The Brick Income Fund (BRK.UN) is in the process of making a large scale recovery. I recommended this stock a couple of weeks ago as a potential candidate for a TFSA account. The stock is up only slightly; however, I am becoming more and more bullish on this stock for the long term.

In Canada where the Brick Income Fund operates under logos such as The Brick, and United Furniture Warehouse, sales have been slow; although, this can been seen as partially the result of a slow housing market. When housing sales decline I would assume in all probability so do furniture and appliance sales. If you have read any of the new housing sales reports in Canada then you should be very familiar with the fact that over the past month housing sales have been the highest every on record.

When I think of people moving to a new home I am always rethink my last move when I asked the moving guys, “do you want my old couch and TV.” Of course they responded yes and then went on to say that during moving season they are given so much furniture because people like to move into a new place with new things. I believe this to be the norm so with the latest housing sales data I suspect the Brick Income Fund will be flush with cash by the fall and able to weather a further decline in sales if this recession is not over and if the recession is over then distributions will definitely be on the mend.

For more insight into the current situation at The Brick Income Fund refer to the Globe and Mail news article dated August 14th, 2009 titled ‘The Brick Putting its House in Order’ The article highlights many of the blunders that have led the company towards bankruptcy over the past year.

According to the article, some of these blunders were ramifications due to the company’s poor response to a liquidity squeeze, inventory shortages, and poor demand forecasts. These mistakes included cost cutting through layoffs of sales staff and slashing ad spending, which further decimated sales revenue.

The article then goes on to highlight some of the changes being made by the newly appointed CEO-Bill Gregson. Mr. Gregson has a track record for saving retail chains as the previous CEO of Forzani Group (Largest National Sporting Goods Retailer in Canada). With a $25 million life line provided by The Brick Income Fund's largest shareholder and a $130 million loan from GE Capital, the new CEO has some room to manoeuvre. Now that the liquidity crisis has been abated the plan is to replenish inventory in stores, beef-up the sales force, and bombard the public with advertising.

If you are still looking for opportunities for your TFSA definitely take a closer look at BRK.UN

Sunday, August 16, 2009

10 Steps to Insider Information

How to Find Insider Information

Have you ever wondered how to find insider trading information for a stock you are interested in buying or selling? Did you ever want to know if the CEO or Director of a company was dumping the stock or buying it up?

This information is all free to the public and required by law that the insiders file their transactions for the public to see. It’s really a very simple process and can be a real life saver if you are on the fence about whether to buy or sell a stock.

For Canadian stocks, simply go to SEDI – System for Electronic Disclosure by Insiders. This is a free website to use with no sign up or any garbage like that. The site is run by the Canadian Securities Association.

Steps to use SEDI:

1) Go to the site: – I have this bookmarked so I don’t forget.

2) Click English or French

3) On the top right hand side of the page click ‘Access public filings’

4) Near the top of the Left hand side of the page click ‘View Insider Information’

5) Click view summary report

6) Click Insider Transaction Detail at the bottom of the page

7) Enter the Company name to search

8) Set the date range for transactions you want to know

9) Select the type of investments you want to view

10) Click search – There’s the information you were after.

Friday, August 14, 2009

Casino Stocks to Invest with Big Upside

Casino Stocks to invest with big upside.

Some of the hardest hit stocks during the current recession have been Casino stocks. The majority of people seem to have decided that they would rather eat than risk the house and farm. The main casino stocks contain a combination of Casino and hotel revenue and this list includes many household names: MGM Mirage (MGM), Las Vegas Sands (LVS), Wynn Resorts (WYNN), Penn National Gaming (PENN), and Melco Public Entertainment (MPEL).
These stocks are just the largest in the industry by market cap, but there are many others and they have all been decimated in the same way – down from their 52 weeks highs ranging from (-11% to -78%).

If you are a believer in the ‘green shoots,’ then you should really be focused on industries with the highest rebound potential such as Casino Stocks. Any of the larger names provide a bit more protection just in case the recession is not V-shaped and we experience another dip. I would suggest using at least a 3 times weekly volatility stop as predicting when a stock will jump is very tough. This way you remove the noise of the market from your investment.

On a side note, if you have ever gone to Vegas as a Canadian than you would be aware of the nasty surprise you receive when all your casino winnings are taxed to the max by the IRS. Because as a Canadian you are a non-resident of the US, you can get this money back as long as you’re willing to jump through the right hoops. There are many companies that will navigate this mess for you and get that money back. One of my friends used Casino Tax Rebate last time he went to Las Vegas.

Wednesday, August 12, 2009

Best Way to Profit from Over Valued Oil Prices

Best Way to Profit from Over Valued Oil Prices

Oil prices have increased dramatically over the past few months and Goldman Sachs Group GS is now calling for $200 oil again. If that isn’t a huge reality check than I don’t know what is. Last time Goldman Sachs had an analyst made a prediction like that the peak of the oil market occurred and prices tumbled off a cliff.

The problem I am having with a $200 oil prediction is exactly what fundamentals are providing for such a scenario?

First, even if the US economy recovers from recession it will not demand the same amount of oil energy as before the recession began. People’s mentalities have changed and with that their habits have been forever altered. Why put yourself on the line to buy a new SUV that sucks back gas when gas prices may again go through the roof? The notion is still on the tongues of consumers in America and caution will keep them from suffering the next oil price shock in the near term. Even if the demand did come back that would through the United States back into an inflation spiral that leads back to recession, lowered demand again and so on.

Second, where has all that oil supply gone over the past 8 months? Just 2 months ago all that was heard in the media was ‘all the oil tankers have been leased up to store all the excess capacity.’ On which spreadsheet can you see where all that supply is stored? It’s definitely not shown on the US weekly oil storage supply reports. This oil is just sitting there.
Supply is still fundamentally way out of whack and demand still weak, so why have prices increased so dramatically? I think it all boils down to greed and this is producing an oil bubble that I think will burst before the end of the year. So if you are thinking about buying Suncor (SU), Exxon Mobile (XOM), Chevron (CVX), Beyond Petroleum (LON:BP), or even Royal Dutch Shell (LON:RDSA) think very carefully.

Whether you own any of these stocks or you think oil will be back in the dumps anytime soon there is a very easy way to leverage and contain your risk to make a potential windfall. To do this I have a simple strategy, Buy Put options on levered Energy Bull ETF out of the money some time after Christmas.

Why Put options on the Levered Energy Bull ETF you might ask?

1) A Direxion Daily Energy Bull 3x Shares (ERX) because it is levered 300%. Levered means this exchange traded fund is paying interest costs for a loan and this will subtract from the funds performance whether good or bad.

2) The Direxion Daily Energy Bull 3x Shares (ERX) is very well diversified. The Top 10 Holdings include: XOM Exxon Mobile, CVX Chevron, COP Conoco Phillips, SLB Shlumberger, OXY Occidental Petroleum, APA Apache, DVN Devon Energy, APC Anadarko Petroleum, XTO XTO Energy, and MRO Marathon Oil.

3) Buying puts that are out of the money because then your total dollar risk is low while a significant correction in oil will produce a win fall profit.

This Article is Featured in Festival of Stocks 155.

Monday, August 10, 2009

4 Steps to Lower Stock Market Risk

Position Sizing to Limit Investment Risk

1) Determine the maximum amount of your capital you are willing to lose on a single position. You may consider this in dollar terms or as a percentage of your entire investment portfolio. For example, if your account size is $10,000 you may consider your maximum loss to be 1% of your entire portfolio or $100.

2) Determine your stop loss on the investment. Many people employ a 3 times the weekly volatility stop. To do this you need to calculate the range a stock moves during a week, multiply that by 3 and then subtract that number from your entry point if you purchased a stock. Set that as an automatic stop trigger so that your position sells immediately if the stock drops below that point. If you are a longer term trader 10 times the volatility is often more beneficial. For example on Yellow Pages Income Fund YLO.UN 3 times the weekly volatility (maximum price to minimum for last 5 trading days $5 to $5.21) represents a stop loss of $0.21 * 3 = $0.63, which translates into a stop for a Tuesday Morning Entrance of ($5.01 – 0.21 = $4.80. This helps eliminate the noise of the market from your investment.

3) Take the maximum loss in dollar terms determined in step 1 and divided that number by the percentage loss the stop loss would represent ($0.21/$5.01 = 4.19%). For example, on Yellow Pages Income Fund YLO.UN you would calculate $100/4.19% = $2,386. This represents the dollar amount that your could hold of the stock while sustaining the maximum loss you are willing to tolerate in your portfolio.

4) The amount of shares you should buy is simply the dollar amount determined in #3 divided by the current share price ($2,386/$5.01 = 476 shares). It normally only makes sense to buy shares in lots of 100 so you need to decide whether you want to round up or down since it will affect the overall risk slightly here.

Obviously, the lower the volatility in a stock the larger the position size your could have. Also, the larger your account size the larger the positions.

Everyone is different and can sustain different levels of losses and still sleep at night. Investing should be fun so if you find you lose sleep at night thinking about your profits or losses you probably need to lower your risk.

The next step is then to determine when do you take your profit; this is the hardest part of investing.

Thursday, August 6, 2009

Income Trust Picks for my TFSA

If you read the last post than you should know why I believe Income Trusts are the best investments to put into your TFSA currently. After some intensive research I have come up with a list that I believe would be great additions. The only issue I am currently having is that I believe the TSX and all Canadian Stocks are due for a serious correction so I will need to figure out a time line for before I make my entrance.
My search for Income Trusts to add to my TFSA led me to 6 that I will now list in order of my top to bottom choices: aw.un, wte.un, liq.un, cfx.un, ylo.un, brk.un .
AW.UN (A & W Revenue Royalties Income Fund)
I came across this one by chance, but found it to be a great investment opportunity. The reasons why I like this one are as follows: Thompson Reuters gave the fund an overall ranking of 9/10 in their latest analyst report, the Dividend yield is currently 9.62%, people buy more burgers during a recession, and after the recession people will be more conscious of their spending and continue to eat relatively cheap food. My only real concern at this point is that the current price at $13.72 is less than $1 from the 52 week high.
WTE.UN (Westshore Terminals Income Fund)
I have been looking at this Income Trust for over 6 months now and am very interested in owning it in my TFSA. The income stream from this fund is very easy to understand, which is a huge plus. The funds income comes from coal shipping. They are paid based on volume so the price of coal is not a huge issue for the fund providing less volatility than some of the coal producers. The dividend yield is strong at 8.74% currently and Thompson Reuters gave them a 10/10 on their latest analyst report. This one is still way off the 52 week high and the income should be stable for the next 2 quarters according to their latest press releases.
LIQ.UN (Liquor Stores Income Fund)
I have also been following this one for a while. The fund’s income stream comes from a number of liquor stores throughout Western Canada and there is growth potential for new additions here. The dividend is a healthy 12.79% and Thompson Reuters has ranked them at an 8/10 for some time now. This one is also still over $2 from the 52 week high.
CFX.UN (Canfor Pulp Income Fund)
Canfor is one of the strongest forestry companies around. The forestry sector has been in a major downturn for well over 5 years so the stocks have been demolished. Canfor has the benefit of being well capitalized compared to competitors and should make it though this recession even if it turns into a depression. The dividend yield is only 3.7%; however, there is so much upside potential in the distributions and in the stock that this one needs to be considered. Thompson Reuters also rated this one an 8/10.
YLO.UN (Yellow Pages Income Fund)
I have owned this before and would like to own it again. Many people feel the phone book business is dead but this company is so much more. Their online phone directory is used by millions of people everyday including myself and they are well diversified into many other online advertising types. They cut their dividend a couple of quarters ago yet the yield is still around 16%. It is near its 52 week low so I am liking this income trust again. Thompson Reuters gave them a 9/10 recently and the P/E is so low at 4.5. My only real concern is that they plan to convert back to common stock in 2010.
BRK.UN (The Brick Group Income Fund)
This one I am on the fence on. The recession has not been nice to furniture stores and that’s all the brick does. They have many different brands including ‘the Brick’, and ‘United Furniture Warehouse’. There is a ridiculous amount of upside here if the recession ends this year; however, if things continue like I think they might, this one may continue as a dog. Thompson Reuters gave them a 5/10 recently and there are currently no distributions. This one I would not risk in my TFSA but might buy in my main account.
The thing to remember about buying any investments is to think about it with reference to your entire portfolio. We don’t want to just gamble away our hard earned cash. I will discuss in my next post how to use position sizing and stops to distribute your portfolio affectively and discuss how I will do this with my TFSA positions.

Sunday, August 2, 2009

TFSA - Tax Free Savings Account - Best TFSA Investments

I have thought long and hard about the best investments for a TFSA account. There are so many potential investments and strategies that can be employed; however, I have concluded that my TFSA will be used for investments that are relatively low risk and tax inefficient to make the most of the TFSA tax implications. I will provide a link to a Government of Canada Website with information pertaining to TFSAs and then describe what I consider to be the best investments for your TFSAs.

The TFSA became active during the 2009 tax year in Canada. The Government of Canada decided that it was in the best interest of the Country to encourage more savings. The lack of savings became a problem over the past decade. It helped spur the last major bull market on the TSX; however, this was unsustainable as has been displayed by the recession that followed.

For more information about the new Tax Free Savings Account (TFSA) please view the government website at

Now, let me discuss what I think the best investments for your TFSAs are.
In my opinion, your TFSA should be used for an investment instrument that is relatively safe since you cannot write off potential tax losses against your investment income; and should be an investment that is taxed more heavily by the government. There is one investment that comes to mind immediately and after much research I do believe it is the BEST investment for TFSAs - Income Trusts.

Income Trusts have become an eye sore for many investors since the government announced the increased taxation and then the down turn that followed. Here is why I think Income Trusts are the best investments for the TFSA: Firstly, even after all the reductions in distributions due to lower profits during the recession, Income Trust on average are currently yielding around 9% annually in income distributions; Secondly, since the new tax implications remove a sizable portion of the income gained when held outside of an RRSP or TFSA, these are very inefficient investments for the majority of the money in the market place; thirdly, if the government ever decided they were too harsh by changing the taxation on these investments they would increase in value dramatically; forth, Income Trusts also increase in value with regular stocks.

Market Valuation of Income Trusts

The market valuation of Income Trusts will continue to be driven by the big money; this means the RRSP and TFSA money that does not need to consider the high tax implications does not determine the market price for these investments. As a result, the market will continue to demand very high pre-tax income distributions.

Increasing Distributions

With current distributions cut by most income trusts at least by half and share prices declining to the point that annual distributions are still in the 9% range, there is a ton of upside in distributions and capital appreciation to maintain the same 9% range as distributions increase again. At pre-recession levels, where distributions will go back in the future, the pre-tax income at current prices represents returns around 25-35% Just in Income Distributions.

Increasing Share Prices

As the recession ends that share prices of income trusts will increase while distributions increase.

Personally, I will be using my TFSA to buy 3 income trust positions the week of August3-7th, 2009. Check back if you want to know exactly which investments I bought.