Investorial

Chicken Little is not just the newest Disney movie, it is defined as a confirmed pessimist, particularly one who warns of impending disaster. (Courtesty of Answers.com - a great web resource!).

Normally, people who constantly cry that the “sky is falling” can be very annoying and subject to my dismissal. But some of these “chicken little prophets” actually have many good things worth taking note. Case in point, I wish I had known about Herb Greenberg early in my investing career. Trust me, you want this guy on your side! Herb is an excellent writer whose main topics act as a watch-dog over the under-belly of the financial markets. He brings to light governance issues, accounting problems, suspicious earnings claims with various companies. Most notable is his on-going tussle with Overstock.com CEO Patrick Byrne.

If you are a investing novice, reading Herb’s articles will shorten your learning curve because you will be familiar with what to look for in financial statements and company news releases. If you are a seasoned investing veteran, you may want to subscribe to Herb’s newsletter ‘Herb Greenberg’s Reality Check‘ as his research is extensive and will definitely help you in your stock selection.

It might not be easy to find that flower that truly smells nice in a bed of roses, but Herb can certainly point out which ones are stinking and rotting.

MarketWatch.com: Recent articles by Herb Greenberg

More often than not, stocks, mutual funds and investments are ’sold’ to the general public. Investments is not like the furniture business where customers look for what they want. All the public has to do is say ‘I’m interested’, and there’ll be hordes of information waiting to sell you and tell you what you need.

Take a look at this article about managing risk through diversification. It is a sound article except for the sales tactics and overtones that fail to leave the article. I’m not saying that the author is trying to sell you something, rather I see that he is regurgitating the same sales talk from financial institutions and advisors alike. Let’s examine this closer!

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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