Peter Hodson was the second speaker at the Opening Ceremonies of the Money Show for 2015. His talk was called "Everything You Need to Know in 25 Minutes". He starts off with saying that with markets there is always something to look at; there is always something going on and there is always something to worry about.
He says that the thing with Doom and Gloom reports that if you keep predicting a crash you will eventually be right. People predict Interest rate panic, Equity Bubbles, Housing Bubblies, they say markets are near and new high and we have an artificial economy. Things do change and when things are bad, stocks are cheap.
For example look at Priceline Group Inc. (NASDAQ-PCLN). After the 9/11 attacks they put together travel packages. Of course at that time no one was ever going to travel again. The stock was priced at $6.60. Today the stock's price is at $1455.00.
A common mistake is saying a stock is too expensive. If a stock is a $1 more than you like pay the $1. Another mistake is gambling. It is a mistake to sell a stock too early. He waits for a pullback. Another mistake is holding on to loser and looking at where a stock has been. What a stock has been is currently irrelevant.
What you should do is buy a great company at a high price, not a mediocre company at a good price. The problem with Bay Street Analysts is that they follow trends and they are conservative. You should ignore their target prices.
There is the 20% rule. You should ignore minor price fluctuations. If there is a big move it that means change. Do not be scared off. Pull the weeds and water the flowers. That is you should sell your losers and keep good companies. A diamond is still a diamond even if it is in the garbage.
Sources of Ideas are too many to list. Looking for new highs is useful, especially if they are with high volumes. Initial dividends are significant statements. Some other places are BNN's Top picks, Canadian Business Magazine, Investor's Daily Business, increasing dividends, rising revenue with rising earnings, companies doing better, Sedar, Seeking Alpha. You should avoid internet chatrooms, newspapers and CNBC.
What you should not do. Do not follow the TSX, do not react, do no panic, do not trade too much and do not over concentrate your portfolio. You should have 20 stocks not 200 stocks in your portfolio. Also ignore target prices. The wealthiest people have concentrated portfolios. You should also sometimes take relatively high bets.
What are the best signals? One of the best is if a company announces its first dividend. Ensure that the dividend is sustainable. High yields are sometimes too good to be true. It is better to start with a small dividend and grow it.
You should look for dividend growth. You should consider payout ratios, debt/equity, interest cover and revenue/earnings growth when evaluating dividend sustainability. Be aware of various ways payout ratios can be calculated.
The Investment industry wants all of your money. They design products to sell. Dealers follow the trends and that is the exactly wrong plan. The fee grab on a $100,000 portfolio growing at 7% for 50 years makes fees of $1.8M. Over 60 years, fees will eat up 69% of your returns.
Leveraged ETFs are the very worst thing you can buy. There are high fees whether you are right or wrong. The GASL (US) ETF had a unit price of $4097 in 2011 and by 2015 the unit price was $28.16.
New closed-end Funds are the second worst thing you can buy. Startup fees are 7% plus. There are ongoing high fees. Usually there is an immediate discount to the NAV. These funds are designed to sell and move on.
Why would you buy Mutual Funds? You pay high fees for below average performance. Any fund that is hot will not stay there. This is a reversion to the mean. Mutual Funds are designed to fail and to keep your money. They are not designed to make you money.
What about Micro Caps? These are stocks with a market cap until $5 to $10M. The cost of a company going public would just eat into your capital. There will be constant dilutions (that is company selling more shares). For the company to go public it will cost around 5% of the value of the company. The odds are stacked against you big time.
Some of the best companies out there are ones that never issued more shares. Examples are Home Capital Group Inc. (TSX-HCG), Constellation Software Inc. (TSX-CSU), Enghouse Systems Ltd. (TSX-ESL), and AirBoss of America Corp. (TSX-BOS). Buy companies that do not use their shares like an ATM.
Consistency counts when you are investing in a company. If they screw-up the company is going to have a lower value. Examples are Sandvine Corp.(TSX-SVC) and WiLan Inc. (TSX-WIN).
They get 36,000 question emails and the biggest question is "Why is my Stock Down 2%?" If you are a long term investor this does not matter. Stocks go sometimes go down and it means nothing. Over a 10 year horizon, what happens today is immaterial.
In summary, you should buy companies in a strong industry; buy growing companies and ones with a competitive edge that can keep their advantage. Buy companies that are well financed, that are able to communicate to investors and have good management that own stock. Get the stock at an attractive valuation and you have a worthwhile investment. What is good amount of insider ownership is 30%.
On my other blog I am today writing about Pason Systems Inc. (TSX-PSI, OTC-PSYTF) ... learn more...
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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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