Monday, October 28, 2013

Money Show 2013 - Peter Hodson updated

I am republishing this entry as I published it before I had not completely transcribed the whole talk. The original entry missed the last 5 paragraphs.

Peter Hodson is owner and editor of the Canadian MoneySaver Magazine. He put up a quote he wrote of "It pays to be cynical when it comes to your money".

Bull markets climb a wall of worry. The US is in a bull market and it is up 22% this year. We in Canada might be starting a bull market. There is too much cash on the sidelines. Interest rates are very low. There are good earnings. All these things can cause a bull or cause the market to rise and we have all three at the moment.

Stocks that can change your portfolio forever are stock like Google. Closed Mutual Funds start 7% lower than cash they raised because of fees. Do not do these IPO (initial public offering). IPOs in Canada have a horrible record in the market. Smart Tech's IPO was $18 and it is now $2.95. Sprott's IPO was 10 and it is now $2.55.

Research reports are not for you. They are designed to make money for investment bankers. Use them to get information, but not for making a decision. Never take action based on a research report's recommendation. Analysts stay conservative to keep their jobs, so they are always behind the curve.

Look at the accounts receivable. If they are growing faster than sales it means they customers are not paying up. This is a very easy thing to look at. Investor have problem whereby they hope things will get better. However, $5 now is better than $0 later. Sino Forest took 2 weeks to say that they are still checking ownership of the forest lots.

Poseidon Concepts Corp (TSX-PSN) deferred a declared dividend. This is the time to get out. It is a red flag. (This stock has dropped off the TSX.) If orders are delayed and pushed to the next quarter is also a red flag. If inventories are rising faster than sales, it is a red flag. For examples sales are rising at 2% and inventory is rising at 20%, this is bad. If Sales/Revenue is declining, this is bad.

Look at industry growth versus company growth and find out why it is different. For example Magna sales are growing faster than the industry. Magna's stock is hitting new highs. This is good.

Too much debt is bad. Dividend Payout History is important. Did a company pay dividends through the crisis? If a company increased the dividend this is even better. It is a positive sign always when a company increases dividends. A company declaring their first dividend is also a positive sign. An example is Stantec (TSX-STN).

DRIPs may not be good if a company is using them to conserve cash. You should watch executive compensation. Watch the level of shares versus options for executives. A company bringing in a new CEO and paying them lots of cash can be a problem. At Constellation Software (TSX-CSU) executives must buy shares.

Target prices generate commission on sales. They are designed to create uncertainty. Analysts reviewing starts are conservative when the price is on the way down and enthusiastic when it is on the way up. You should always ignore target prices as they are to given to generate commission.

Company presentations have everything looking good, too good in fact. They say finances - no problem. Permits - no problem. The issuance of shares is a dilution. It lowers per share profit and lowers share prices.

For mutual funds, it is fees, fees and more fees. It makes no sense to buy them. Performance Fees for fund managers is an incentive to the fund manager to gamble. Some mutual funds have 750 stocks. They should only have maximum of 50 with each stock having at least a 2% position. Best if number of stocks was at 35. If a fund has more stocks, you might as well buy the index instead.

If a mutual fund has cash the mutual fund manager is being paid to do nothing.

If a mutual fund is slightly above average that makes the fund a superstar. Something like 95% of mutual funds cannot beat the bench marker. Fund managers are basically salespersons. When money comes into a fund, the mutual fund manager gets paid. The fund manager feels that he must do something to earn the 3% fee, so they trade.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

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