Investorial

These days, water-cooler discussions at work may sound something like “I’m thinking of buying/selling my home. Is the real-estate bubble going to pop? Is there even a bubble?” Hmmm.. let’s just say that some regions are experiencing a state of instability in their real-estate market for the recent time period. How’s that for being politically correct?

No matter whether you think there is a real-estate bubble or not, you will find someone forcing you their opinion about the topic in the media — on the evening news, in your newspaper, on internet blogs. Everybody’s worried about buying and selling real estate! With all those noises in your head, why not step back from all that “marketing” or “fear-mongering” and discuss the media’s role / impact during these “bubbles”? (more…)

Irwin Michael, fund manager of ABC funds, has just put up his latest monthly commentary for April 2006. Investorial readers will know that Irwin is my favourite Canadian fund manager, and is often talked about in these articles.

What’s so refreshing about Irwin is that he lets everybody in on his thought processes so that you may learn about how he picks stocks. This month, Irwin focuses on the oil & gas run-ups and comments about metal prices.

… Interestingly, the oil & gas and mining sectors now comprise over 45% of the TSX index causing many investors to question whether the current market boom is akin to the high technology boom (and bust) of six years ago. In fact, for these investors who cannot recall, one TSE stock out of 300, Nortel, comprised at its peak price of $124½ over 35% of the TSX 300 index. Is the present resource boom reminiscent of the high tech mania of 1999-2000? Probably not, however, we are becoming increasingly concerned about the spectacular price rise in metals prices …

I was pleasantly surprised to see that Irwin has a podcast syndication feed on the site! Kudos to Mr. Michael for getting with the times!

Much has been emphasized about the current existence of an inverted yield curve heralding the oncoming of a recession. Does it have merit? What are its counter-arguments?

I won’t pretend to be an expert on the subject matter, nor am I a historian to confirm the truth in the past. However, we always stated that “the past is not a certain indication of the future”. We have to learn to take media information on both sides of the argument with a grain of salt. Draw your own conclusions from what you’ve gathered!

First a definition:

“An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession. An inverted yield curve is sometimes referred to as a ‘negative yield curve’.”

The definition already included what most people are fearing. Historical correlations have much wisdom to offer, however are we comparing apples to apples? (more…)

So I’m home for the holidays and the last thing I want to do is read or view any financial or investment related media. The markets can get by without my attention for a few days! In fact, I firmly believe in Warren Buffett’s assertion that you should buy a stock only if you can not worry about it for 10 years; even if the stock markets close for 10 years!

I love spending time with family and friends and inevitably my discussion will lead me to talk about investment related topics. My mother is a self-taught investor and we often discuss about little things that she wants to understand, for and from her trading experiences. One interesting topic came up: When should you hold onto a stock?

Now some people may not agree with me, and thank goodness for that! I’ll explain - its only rational for me to hold a stock if the stock can reward you for holding it. In other words, the stock should give you dividends while you own it! Let’s examine this closer!

(more…)

Jim Oberweis has written an article at Forbes.com to explain the economical impact of rising oil prices. I enjoy reading his explanation of how rising oil prices will have progressive effect on the economy. The 5 steps that Jim outlines reads like the theories of a course textbook, but is easily understandable by anyone.

I will briefly highlight here, the 5 oil pricing influences Jim outlined in his article.

1. Transfer of income from oil consumers to oil producers. People will buy less and it may lead to slower economic growth–maybe even a recession.
2. Cost of producing goods and services in the economy will rise, putting pressure on profit margins of companies.
3. Impact on price levels and inflation that also depends on monetary policy and the ability of the governments to maintain price stability.
4. The sum of these effects will stimulate (negatively) financial markets.
5. If the duration of the energy-price spike is not short, then the change in relative prices will create incentives for oil producers to maximize output and oil consumers to economize. Eventually dropping oil prices over the long term.

Jim also makes a few recommendations for sectors and companies to avoid, and keep track. Even though Jim runs a successful small cap investment newsletter, I feel the article is informative for everyone who wants to assess the economical impact by understanding but the advice is not necessarily suitable for everyone. Investors should not be rushing out to make changes to their portfolio just because somebody else says so. Investors who were already looking to make changes to their equity components in their portfolio, before reading this article, may find the tips more applicable.