Investorial

One of the topics I’m constantly asked to explain is the concept of dividends, ex-dividends and other similar questions; often by people who think getting into a stock simply for the special dividends and getting out right away is a good idea. You’re only doing yourself the favour of turning your principle into a taxable liability.

I thought about doing more to debunk dividend myths, but why lift a finger when The Motley Fool has already done a 2 part story to debunk 7 common dividend myths. I’ll summarize them here.

1. Stock prices do not adjust downward when dividends are paid.
2. Only the stock price is adjusted.
3. All dividends are taxed at the special lower rate.
4. Everything is reported to you correctly on the 1099-DIV form.
5. Everything called a dividend is really a dividend.
6. Stock splits are not dividends.
7. I can buy just before the ex-dividend date, catch the drop in price, and record a capital loss.

Be sure to read part 1 and part 2 for the full details and explanations! A note to Canadian readers that some of these facts are geared towards American investors. But there are still tidbits well worth your time, especially if a large portion of your dividend companies are American!

If you’re wondering, the above title is a lame pun on the famous phrase “Who Watches The Watchmen?“. If you’re a regular reader of personal finance blogs, you should be familiar with the term “passive investing“. For the uninitiated, it means that you are investing in an index fund - a mutual fund that follows a well-known index such as the Russell 2000, or the most famous index of all, the S&P 500. The S&P 500 is the top 500 companies as determined by Standard & Poors to represent the stock market at large.

So What’s My Beef?
I have long contended that there is nothing passive about investing in index funds. Simply put, you’re paying a fund manager a little less than 1% management fee to enjoy having your portfolio actively managed by somebody else! Who’s that somebody else? The index of course! It’s no secret that indexes frequently add or drop companies from their list. How is this different from regular mutual fund turnovers? In the example of S&P 500 index funds, the only advantage achieved are (more…)

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

We’re starting off with this quote to remind us that we should not follow opinions, but rely on our ability to reason and gather facts. Easier said than done, what are facts? Everybody has a way to interpret numbers, figures. One analyst can recommend a stock while another is downgrading it. There can be no consensus in the market for the buyer / seller principle to work - one’s man junk is another man’s treasure.

I am going to look at this post using some numbers; some publicly disclosed, some calculated. But rest assured only to the level that I can understand. Being a Bachelor of Mathematics doesn’t mean anything when it comes to analyzing financial numbers. I’ll only refer to common sense numbers, hopefully nothing beyond comprehension! I’ll also use Canadian dollars for convenience!

The IPO Story
To recap, Wendy’s decided to spin off 15% of its ownership of Tim Hortons in a public IPO. In total, 29 million shares will be made available at C$25 to C$27 per share. Here’s the press release that explains that the preliminary filing prospectus showed an initial target range of C$21 to C$23 per share. The stock IPO has garnered national attention, appearing in newspapers, television, radio, blogs and virtually any media out there! There is a mania going on and that’s why this is a story for Investorial!

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Now that I’ve let slip about why my next blog post will be, you can tell I’m deciding to have a little fun with this! Behold, my preview interview with myself!

Okay, self. Why are you doing this preview? Why not come straight out with your reasons and write the article already?
It’s very simple, Investorial is not a site that recommends or dis-recommends stocks. There are many blogs out there that do a great job. I don’t know of any of the top my head but if you know some, please let me know. I’ll publicize them here!

Wait a minute, you’re not answering the question! Why beat around the bush?
I was just saying that I’m doing this preview to clear up some of the mis-understandings that might occur if I posted the article right away. I don’t want there to be a conflict of interest with Investorial’s mission. I’m going to be coming at this story with a different angle. A perspective that is relevant to discussing about investment/financial media and the information these media gives us. When I write the post, I want to really concentrate on the piece and not have to explain myself.

Why choose Tim Hortons and not any other stock?
I’m Canadian, eh? And Tim Hortons is as Canadian as it gets. When you think about it, Tim’s IPO is a funny situation; with it being a really boring business but yet garnering all the buzz and hype of the next big tech company IPO. It’s also set to (more…)

Blogs have tremendously revolutionize the way news and information are distributed. No longer do you need to be a traditionally trained journalist to get your words heard. Bloggers and blogs are obtaining scoops, exclusives just like their old media counterpart. Services are popping up like NowPublic.com that have fueled the citizen journalism movement.

However, from a financial perspective, the Web 2.0 has brought in some interesting applications that may point to a brave new world in the future. Prosper.com wants to become the online marketplace for people-to-people lending. Borrowers can shop for attractive from fellow lenders. These lenders are ordinary people like you and me, who can set their own rate. Members can also borrow and lend as a group! It seems like Prosper has put in place a lot of security features to prevent abuse of the system. However, the service network currently does not extend beyond the United States. It’d be interesting to see when someone from Canada will be borrowing from a lender in China!

Along the same lines is Fundable.org, which seeks to allow groups of people to pool money to make purchases and raise funds. Unique to its system is its ability to set fund raising goals and letting people pledge their contribution. Only when the goal is met will the pledges be binding.

Prosper.com and Fundable.org are 2 examples of the future in citizen banking, or citizen financing. No longer are consumers on the lowest end of the money game. Now, anyone can become a bank on both ends. Borrowers can scour for low interest loans to finance their investment activities, making the profit and paying little for the cost to use the money. Investors can charge high interest returns to people who are not looking to deal with banks. There are numerous applications possible in this realm. Will citizen CDs and term-deposits be far away?

I believe citizen banking is a offshoot of the micro-lending movement. It remains to be seen if this revolution will take off.

P.S. I wonder if the Pentagrams in both logos are trying to reference the conspiracy theories of a world bank or chosen to display connection between people. Just an observation, don’t read too much into it!

Sometimes, you missed those really small ambiguous charges on your credit card and they may come back to haunt you. I finally caught on about an $11 charge on my credit card recently that was billed to WLI*RESERVATIONREWARDS 800-7327031 CT. I do not remember this charge and promptly verified as to when it started. It was surprising to see I had not contested this charge since it started in November 2005.

This is an example where media information can be essential as various internet pages/posts/blogs helped me clarify the situation. The most informative one I found was a page on Adam Rosi-Kessel’s Fair & Balanced Weblog. Equally impressive was the information I found contained in the comments. This is a true testament to the conversational benefits of Blogs.

From the comments, I was able to determine that it was a previous purchase I executed on TigerDirect that led to this charge. After the purchase, (more…)

Finally, an ad-free aggregator for personal finance, real estate, and investing blogs! That’s the tagline for an innovative financial blog PFBlogs.org. If I remembered correctly, PFBlogs used to be a simple financial blog. Their transformation into a feed aggregator for financial blogs surprised me when I heard about it.

I really welcome PFBlogs’ efforts to unite all financial, investment and real-estate bloggers. PFBlogs is so comprehensive, that it can spell the end of Financial Blog Carnivals! I personally favour this format over blog carnivals (whom I have an unexplainable distaste). Blog Carnivals are weekly events where a different blog host site will make a post referencing all the different blog submissions of that week. Investorial has not participated in any previous financial blog carnivals.

I do see advantages to Blog Carnivals compared to PFBlogs. Bloggers will more likely submit their best posts to participate in the carnivals. However, I like the idea of being able to scan not just the ‘big boys’ but to sample all the less well-known Blogs for some hidden gems! I don’t mind taking the bad with the good as long as it is a complete view!

PFBlogs’ pledge to remain free of any advertising is admirable. I think most bloggers would not mind if they moved to a minimal advertising format on their webpage. It’s really the syndication feeds that will attract Bloggers like me, and that’s the format we will be leveraging. If PFBlogs ever decide to take up advertising, here are my suggestions!

• Restrict advertising for the blogs on your list! A feature financial blog of the week? Let them share their ad revenue with you to maintain the site!
• Combat feelings that being an aggregator gives you an unfair ad revenue advantage by instituting an opt-in, opt-out policy. So that only Blogs who don’t mind your aggregation remain on the list

P.S. To PFBlogs… how about allowing avatars/pictures besides those posts? Or maybe a ranking of sorts? PFBlogs might just become the technorati for financial blogs!

It’s only a matter of time when somebody exposes Principal-Protected Notes for the shady investment vehicle that it is. I’m glad that Duncan Hood was able to write a nice piece examining why Principal-Protected Notes (PPNs) are not a good idea.

In the end, I wouldn’t avoid PPNs just because they’re largely unregulated or because their “Information Statements” are so poorly written that even Glorianne Stromberg, a securities lawyer and former commissioner at the Ontario Securities Commission, admits she can’t understand them. I would avoid them because you can find better places for your money.

I first encountered PPNs approximately 2 years ago when CIBC partnered up with Mackenzie to introudce the FulPay series of PPNs. I’m not a historian of PPNs and don’t know exactly when these notes started, but their popularity are certainly a recent phenomenon. The financial industry’s marketing machine has again scored victory over the scarred pschye of the Canadian investor; successfuly reaching out towards their yearn for a “guarantee”. I say it’s a guarantee for you to overlook other investments vehicles that make more sense!

Remember this! When the industry introduces a new investment product, they are first thinking “how do we make money from this?” before they actually consider “how does this benefit the investor?“. And you can trust that they’ll always find a rationale, an angle to support this “benefit”.

By subjecting 70% of your PPN investment into a zero-coupon bond, you’re letting the bank borrow your money for their own investments on the cheap! We should always remember who has mastered the money game!

MoneySense.ca: “Protection racket: principal-protected notes” by Duncan Hood