Investorial

It’s Monday Night! The best night to take your mind off investments and finance by watching wrestling entertainment on television. But I did not imagine how wrestling and value investing could come together so interestingly!

John Bradshaw Layfield plays a rich tycoon heel on WWE’s SmackDown! For those who don’t know the term, a wrestler is a heel if he plays the bad guy. Imagine my surprise when I saw who the author was for an article about value investing at TheStreet.com.

In the article, JBL (as he’s called) talks about 2 blue chip stocks that have seen their fair share of controversy as of late. There are a breed of value investors, with Warren Buffett being the most famous, that love to look for strong brand names that will weather toughest of storms. Pfizer is absolutely the strongest player in the pharmaceutical field currently. Walmart’s strangle hold on retail distribtuion is unmatched.

The article proves interesting but I am more tickled by JBL’s analysis which is half decent! It seems he’s just started in October with a few articles with TheStreet.com. His style is very down to earth, easy to understand and filled with wrestling analogies. I feel that investment and finance should be explained in a simple way. Will he be a regular? Check it out!

TheStreet.com: ‘The Strong Survive’ by John Bradshaw Layfield

Do good value Stocks have to be from good businesses or good companies? Most value investing gurus will make the case to search for a fallen company that is fundamentally a good business. However, my favourite fund manager - Irwin Michael suggests the contrary as is his nature. I always enjoy Irwin’s writing, not because of his tremendous track record, but because I am opened to new ideas for value investing through his logical analysis of common stocks for uncommon return.

I don’t forget about a stock when I sell it. Instead, I file it in my mental Rolodex. I often check back to see how it’s doing since we parted company. And I frequently find that stocks I’ve bought and sold are tempting to buy again after they’ve settled back to bargain levels.

Irwin is also one of the most forthcoming fund manaagers out there, offering tremendous transparency of his stock selection process through ValueInvestigator.com. I wish more fund managers are more like him so that the public can learn from the managers and be able to evaluate them as well.

MoneySense.ca: ‘Why I Love Sequels’ by Irwin Michael

The age old question, does money buy happiness? One of my friends seem to think so, and I can’t say I disagree but I’ll approach it with a different angle!

I was messing around with my Friendster one night (thanks to Jen!) and was actually having fun doing it. I’ve been a bad card-carrying member of Friendster since September 2003 but have not actually linked anybody as my friend. But I was really waiting for everyone to join in to make my search easier (that’s my story and I’m sticking to it).

I came across an old acquaintance from my University days. James is a big fella who is in my opinion, extremely smart. If you’ve ever heard him speak or talk to him, you can tell that he has a unique perspective apart from other people. Jame’s blog, Random Thoughts, has a post about his thoughts on money and happiness. It is an interesting read, and “Big Jim’s” personality certainly shines through too!

My perspective, I don’t think “Money makes happiness”. There are many people with money that are not happy. Instead, I submit that “Lack of money makes you sad”. No matter what your dream of a lifestyle is, if you do not have the funds to make it a reality, you will not be happy. Do you agree?

Big Jim’s Random Thoughts: 7 Degrees of Happiness

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MoneySense.ca has a new article introducing Seggregated Funds (aka Seg Funds). Read the article if you want to know what is a Seg Fund. I want to use the article to talk about the age old concept of paying for a guarantee.

I have never been a promotor of Seg Funds. There is certainly a niche that it can fill; a small niche in my opinion. For some people, it is necessary to employ Seg Fund as a strategy due to its creditor protection abilities and their aversion to risk. The argument against Seg Funds has always been the high fees due to the cost of insuring the investment added to the MER of the funds. Usually this cost of insurance is around 0.5% - 0.75%.

But Seg Funds are not the only examples of paying for a guarantee. It’s only an explicit example. Whenever consumers buy CDs (USA) or GICs (Canada). You are in fact paying for a guarantee. Seg Funds take the fees from your explicit gains while CDs/GICs take these “fees” from your implicit gains. You would be naive to think that the financial institutions do not make better use of the term deposits that you give them. They are more than happy to reinvest your money for better gains and give you the guaranteed rate they promised you. Such is the way of the money game.

The article does a good job in exposing certain ridiculous concepts in Seg Funds. Why would I pay for a guarantee in a money market fund or bond fund through a Seg Fund concept? Yet such funds are offered and are being bought by consumers. The sales machine of the financial industry continues to roll on?

P.S. Are there American equivalents of Seg Funds? Please share!

MoneySense.ca: ‘Land of the fee: segregated funds’ by Suzane Abboud

I live in the Greater Toronto Area (GTA) and am one of the believers of the existence of the GTA real estate bubble, and its eventual burst. The real estate bubble is unlike the stock market bubble because there is no central marketplace. Bubbles exist in different areas of North America with varying degrees of severity. Investorial will be monitoring the big picture of the real estate situation as well as the Canadian and GTA scene.

Most analysts agree that low historical interest rates have been the primary driving force for the real estate bubble. Lenders also have a lot of influence on the perceived affordability of consumers. Creative financing arrangements have been pushed through by financial lenders in the United States. Here in Canada, mortgage lenders have loosen their requirements so much that “No Money Down” mortgages have become a possibility for the first time in Canadian history.

A side effect is that new home owners are having less equity in their home, putting them in a dangerous position if and when the bubble bursts. Another side effect is the windfall that the CMHC, a crown corporation of the government, is experiencing because of the high demand. The CMHC is making a killing due to high volumes of mortgage insurance being sold.

To avoid buying mandatory mortgage insurance, a home owner must be able to represent home equity of at least 25%. Most new buyers are already stretching their purchases due to the high prices and often elect to use whatever money left towards furnishings and renovations rather than equity.

My contrarian streak means that I will be looking for opportunities when the current seller’s market turns into a buyer’s market. Vacancy rates are rising as more renters keep buying to fuel the last phase of the bubble. As interest rates continue to rise, the supply and demand relationship will change. Those buyers who are ‘under water’ due to depreciating prices and low equity will also have the added burdern of mortgage insurance to worry about! The moral, what you think you can afford may not really be what you should be affording!

Canadian Business: ‘Mortgage Insurance: Homebuyer Beware’ by Peter Shawn Taylor

MSN Money contributor MP Dunleavey writes about her experience blogging about personal finance issues. She was mildly surprised by the enjoyment of the experience. MP discovered an online community of women, Women In Red, who blog and discuss about their personal financial issues and situations. They support and encourage each other, learn from the collective knowledge of the community. It’s great to see blogging put into such applications!

MSN Money: ‘Blogging Towards Financial Sanity’ by MP Dunleavey

There is a lot of focus in the Canadian financial services industry on income trusts lately? Ever since the late 2000 market crash, income trusts have been the darling of Canadian investors, promising tax efficiency and steady cashflow returns. However, the last few months have seen more turmoil for the asset class. Here are a few recent articles for your reading enjoyment

• Heating Oil Partners - 1^st Canadian Income Trust to file for bankruptcy
• Canadian Finance Minister to review income trust structure
• Globe & Mail article about income trust taxation review

Many companies such CanWest Global are preferring to go to market as income trusts. Investors are calling for companies to restructure themselves. A good example was when investors were calling out for Wendy’s to spin out Tim Horton’s as an income trust. Wendy’s does not mention income trusts in their official news releases. I would even say that investor mania about the income trust structure is slowly setting in.

Two trends are quickly recognizable. Companies that have no business operating as an income trust will quickly find the payout structure hard to maintain. The federal government is also losing tax revenue because the onus for reporting income now falls onto individual investors, something that is harder and costs more to enforce for the government.

Uncertainty befalls the income trusts, and its future could be deeply impacted by the upcoming federal review.

Did you hear this? In an effort to build an in house production studio for movies based on its comic book characters, Marvel essentially mortgaged 10 of its comic intellectual property for a revolving credit line of $525 Million dollars. In return, the financier Merrill Lynch Commercial Finance Corp secured film rights to 10 Marvel characters.

Marvel was tired of sharing profit with other companies. They collaborated with Sony, in a sour deal turned lawsuit, during the “Spider-man” series. The financing deal worked out very well for Marvel. I guess nobody at Merrill Lynch is a comic book fan. Just take a look at the list of Marvel characters involved.

The only characters that have commercial viability are Captain America, The Avengers, Nick Fury, Black Panther, Cloak & Dagger and Dr. Strange. The others are merely fillers for the agreement and will most likely never see one day of movie production. Why would anybody care about Shang-Chi?

Marvel has to get high marks for pulling off a creative financing deal with the help of sub par characters. Or is it that Merrill Lynch was simply operating in unfamiliar territory?

For more details of the financing arrangement, read this article.