The Sky is Falling!

OK we’ve had a 5 year bull market and then the markets correct? How could this have happened? What China isn’t going to go straight up forever!? Now that we know this, it must be time to panic...board up your window, stockpile supplies and sell all your assets...

But seriously, before you panic and sell all your holding look at them and ask yourself why you were holding them yesterday?...once you figure that out ask yourself has anything changed today? Maybe it has...but probably it hasn’t...Anyways, my point is follow the markets but not blindly, if you’re going to sell a stock have a reason. The same is true if you’re going to buy a stock have a reason. Personally, I’m still holding everything I did yesterday and am going to revisit some names I’d looked at in the past and thought were too expensive.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)

Keeping Up With the Jones - A Middle Class Rant II

You know what? I hate the Jones. But you know who I hate even more? People who try to keep up with them. The concept of keeping up with the Jones crosses all socio-economic groups of our North American society, it’s not just a problem within the middle class. It seems to be part of our culture in North America to compare ourselves against others in our socio-economic class. Don’t believe me? Well if you live in a middle class neighbourhood you compare yourself to your neighbours (things they own, what their yard looks like, what trips they’ve been on, what kind of cars they drive, how nice their kids camp was etc…). These same problems are also prevalent in lower class, upper class and ultra-upper class neighbourhoods. I have a friend who is a multimillionaire, he’s never not been a millionaire, as his father hasn’t made any less than 2 million dollars a year for the last 30 years (I could live comfortably for the rest of my life if I sold either my friends or his parents cottage). You would think with money like that they’d be happy, but the truth is they are probably one of the most miserable bunch of people I know. My friends’ house is beautiful but there are nicer houses on the street with better cars in their driveways (one actually has a helicopter landing pad). Instead of being happy with what he has he’s jealous of some of the neighbours and is constantly trying to keep up with them. On the other side of the coin I have friends that are in the lower socio-economic class who think that $20 an hour is a really good paying job, and they are completely happy and satisfied with their used Caravan…but… they too try to keep up with the Jones (who were able to send their kid to camp this year). So… the whole point of this rant is STOP TRYING TO KEEP UP WITH THE JONES because just as you think you’ve caught the Jones there is always another “Jones” family waiting to appear…so…sit down and really think about what will make you happy, and what you really need or want in your life. Once you figure out what you want, figure out how much that is going to cost you each year, and make a plan to get there.

Questrade

I currently do all my trading online with one of the big banks and have been quite satisfied with the services, research reports and functionality of their systems. However, I recently sent in an application to open a Questrade account. I plan on using this account to buy securities that I don’t plan to hold forever ie- any cyclicals.

For those of you that are looking into a discount DISCOUNT broker Questrade has the following 2 account options available.

1. $4.95 Plan – this plan charges $0.01 a share (minimum charge of $4.95 a trade).
2. $9.95 Plan – this plan charges $9.95 a trade for an unlimited amount of shares.

Personally I went with the $4.95 plan because I don’t really dabble in penny stocks and would rarely be buying over 500 or 1000 shares in one shot.

I’ll let you know what I think about the account once it’s setup.

Bought a Global Fund

Yesterday I bought some units in James O'Shaughnessy’s global fund (RBF594). I purchased it for the following reasons:

1. He has a long, proven track record as a manager.
2. I think American and Canadian markets are getting expensive and I wanted some global exposure.
3. He has a disciplined approach to investing (which I like)

Here are some highlights of the fund and his investing style:
•Provides exposure to 50 growth, 50 value and 50 blend securities within North American, European and Asian markets-it may also invest up to 20% of its assets in emerging markets
•Maintains a focus on selecting securities with the best potential, wherever they are located (the fund is not bound by country or sector lines)
•Only invests in securities meeting rigorous quantitative criteria (based on a combination of value and growth measures)
•Does not hedge currency exposure.

If you are interested here is a link to his fund info:

http://www.rbcam.com/RBC:RcCIgI71A8UAA8hYW-c/news/oshaughnessy-funds-global-equity.html

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice

Mutual Funds

Ok I’ve received a few emails about mutual funds so I just thought that I’d share my general thoughts on them. Ok investment advisors plug your ears. In general I think mutual funds are a total waste of money (2% to 3% MER makes a huge difference in the long run) additionally I don’t think that 95% of the fund managers out there are any better than a savvy amateur (because of the amount of money they have to move). I can’t remember the exact stat (and I’m too lazy to look it up) but I seem to remember that it was something like 80% of fund managers don’t beat the market.

That being said there are a few situations that I personally would buy a mutual fund.

1. If I think the fund manager is smarter than me.
2. If I want exposure to a very risky area (ie- biotech)
3. If I want exposure to a market that I don’t follow (ie-outside of North America)

Two of my favorite managers are Francis Chou and James O'Shaughnessy. I’m currently taking a hard look at O'Shaughnessy’s global fund and will probably make a purchase in the near future.

On Vacation

I'm on vacation way out the country and won't be back to high-speed until Wednesday Feb, 21rst...it took me 25mins to post this message.....I'll post again on Wed though.

Saving Money - A Middle Class Rant I

I’ve decided that I’m going to start posting some of my rants about things that make me angry. In each post I’ll vent about whatever topic got me angry that day. Today the topic will be lunch.

I can’t stand listening to the money complaints of people who routinely buy their lunch. It makes them look like an idiot and makes me mad that they're so stupid. For example, an acquaintance was recently complaining that she didn’t have enough money set aside this year to contribute to her RRSP, meanwhile she buys her lunch every day (and many of her suppers). Let’s just see how much her lunches are really costing her.

Lets assume the average crappy cafeteria lunch with a drink costs about 7 bucks a day (doesn’t sound like much) but add that up 5 days a week, 52 weeks a year and it totals $1820(and remember that’s after tax). So, lets assume you're only in the 30% tax bracket ---that means that you spend $2600 of your pre-tax income on lunch. If your spouse does the same your spending over $5000 of your pre-tax income on crappy, cafeteria lunches (good lunches are usually more expensive). Now, I’ve heard almost every excuse under the sun from people who have “tried to make their lunch” but just couldn’t stick with it and the most common reason is “I just don’t have time” ---This makes me laugh--what kind of life are you living that you don’t have time to make a sandwich and put a pop can into a bag!? Or even better remember supper? You know that meal you had before bed – next time you make supper cook a little extra and put it in a container for lunch the next day.

SP 500

I recently read a report by Standard and Poor’s that stated that if the SP 500 advanced in January, it continued to rise during the remaining 11 months of the year 85% of the time. With an average price advance of 11.8%

I'm not a firm believer one way or another but...stats don't lie (usually...)

Just some food for thought.

MMM Update

It looks like I might have bought this one just in the nick of time. They just increased their dividend 4.3% (not a huge increase but bigger than inflation). Additionally, "3M authorized a $7 billion 2-yr stock buyback plan. Soleil Securities upped MMM to Buy from Hold with an $86 tgt. Deutsche Bank upped 3M to $90 from $87."

Well that's my good news for the day.

Dividends & Taxes

I would just like to point readers to an interesting post on another blog that I’ve recently started reading. The author of Million Dollar Journey has posted a chart that shows you how much you could earn and not pay tax if your income consisted entirely of dividends. Interesting to note the huge difference between Newfoundland ($29,500) and BC ($68,700).

You can check it out at.
http://www.milliondollarjourney.com/how-to-optimize-dividend-income-tax.htm

Diversification II

Ok so after my rant about diversification I’m sure some of you scrolled down to see what my holdings are (and to judge if I’m diversified or not). I got a few emails from people who noticed that I have very little fixed income and no technology companies. Well you asked for it so here it is...my thoughts....I don’t hold any technology companies for the simple reason that I think most of them are over-valued and don’t have a sustainable competitive advantage. A lot of tech companies seem to be trading on the next-big-thing, take the Motorola Razor for example, it was all the rage and now apparently it’s a piece of crap, it’s the reverse for Apple, they went from piece of crap to cool and I’m sure that if something better and “cooler” came out their ipod or iphone would go from cool to crap again---don’t think so? find someone with a teenager and ask them. I on the other hand think banks are cool, insurance is trendy, and nothing is “awesomer” on a nice winter day than oil and pipelines, not to mention a building that houses seniors (CSH.UN)….Radical Dude!

As for fixed income…well that ones easy…
1. The rates sucks
2. I’m young (I can ride the stock market ups and down)
3. Longer term I think high quality dividend paying blue chips will beat the yield of any 10 year bonds (not including junk bonds).

US Dollar - MMM & GE

Some concerns have been raised about buying MMM or GE because of the potential of a rollover in the US economy and a depreciation of the dollar. Although I’m also a little concerned about the US economy and the dollar I am comfortable holding MMM in a downturn because 60% of their revenues now come from outside the US. In my opinion this acts as a natural hedge against a depreciation in the US dollar ie- US dollar goes down, but because they report in US dollars 60% of their revenues have to be converted back into US dollars which would inflate their earning, which will hopefully offset all (or some) of the losses you would incur from a depreciating US dollar.

MMM vs GE

For those of you that are toying between MMM and GE here is a breakdown of the two companies. (I originally posted this on a forum at www.moneysense.com)

MMM

PE: 14.5
ROA: 18.65
ROE: 37.82
Dividend Yield: 2.5
Price/Sales: 2.37
Price/Book: 5.44
2007 projected P/E: 15.7
2008 projected P/E: 14.2

-Dividend History: Paid quarterly since 1916
-60% of their revenues now come from outside the US
-Have a long history of innovation
-S&P Rating: 3 stars, Hold, $83 target price (12% upside)
-Argus Rating: Buy, $89 target price (20% upside)


GE

PE: 18.22
ROA: 3.02
ROE:18.65
Dividend Yield: 3.09
Price/Sales: 2.29
Price/Book: 3.33
2007 projected P/E: 16.33
2008 projected P/E: 14.6

-Dividend History: Paid quarterly for over 100 years
-significant % of their revenues now come from outside the US (couldn’t find the exact number)
- S&P Rating: 5 stars, Strong Buy, $45 target price (23.5% upside)
-Argus Rating: Buy, $42 target price (15% upsside)

I’d just like to note that I like the fact that GE has clearly defined goals (8% organic growth) and is definitely moving in the right direction with their “ecomagination” concept. I don’t think it will be long until green technologies will start to really sell, and GE is taking an aggressive stance on their green (and profitable) technologies. I really like GE and plan on buying them in the future. I chose to buy 3M strictly on a valuation (and ROA, ROE) basis but I would take a serious look at GE if it pulled back another 10% or so. I would be more comfortable buying them when their forward P/E is in the 14X range. I just don’t feel that 8% organic growth deserves an 18X multiple (especially with a company as huge as GE).

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Large Cash Position

As you can see from my last networth statement I’m very heavy on the cash side with about 20% of my portfolio in money markets (yielding about 3.4%). This is a position that I hate to be in. Ideally, I’d like to be 95% invested (keeping 5% of my powder dry for buying opportunities) but I just can’t find anything that I consider to be good value (especially in Canada). Most sectors seem to have historically high valuations right now (financials, utilities, telecoms, oil/gas and generally I don’t invest in either Canadian tech or medical companies because I think there is better value elsewhere). So where am I going to be looking for value in the coming month? Well here is a list of the stocks that I’m going to be reviewing over the next couple of days/weeks/(hopefully not months). As you can see most are boring old tried and true blue chip stocks. Some I’ll be waiting for a pullback, while others I will just be following and deciding if they are worth investing any capital into at current levels.

BNS
T
BCE
ECA
GNY
TLM <=hope to buy on a 10% to 15% pullback
MMM – purchased recently
TEVA – US
GE – US
FDX – US
UPS – US

I am also taking a look at a recently launched global mutual fund managed by James O'Shaughnessy (not to be confused with his international fund).

I might not be able to spot anything of value right now but… if you think you have leave me a comment or send me an email at middleclassmillionaire@yahoo.com and I’ll get back to you with my thoughts and opinions.

MMM

I took a position in MMM yesterday at $74 a share and here is why.

- They got hammered this week (on an earnings miss).
- Have a history of innovation.
- Have a historically low multiple 15X last years earnings.
- 60% of their revenues are now outside of North America.
- Projected earnings growth of 10% annually.
- 2.5% dividend yield that increases yearly (paid since 1916).
- Diversified product offerings.

The only real negatives I can see in this name are the possible slowdown of the US economy.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Retirement Nest Egg Feb 1 - 2007

Networth at the close on Jan 31th, 2007 (up 1.8% since Jan 18th )

TRP - 4.59%
ABX - 4.43%
CSH.UN - 3.96%
GWO - 5.06%
PFE - 4.86%
POW - 4.19%
BA.UN - 0.40%
L - 4.53%
UNS - 2.91%
GZ - 3.26%
TD - 14.23%
American Growth Fund - 1.17%
CDN Value Fund - 4.06%
Small Cap Growth Fund - 3.94%
Deep Value Fund - 11.53%
Health Science Fund - 1.00%
Bond (9% yield) - 5.91%
Money Market Fund - 19.96%

You might have noticed the big cash position (don't worry I'll have something to say about that when I get a chance to post)