tag:blogger.com,1999:blog-81940202845796812602024-03-12T20:39:35.112-04:00Matthew Clarke ConsultingBusiness and Financial Education: A Canadian Perspective. Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.comBlogger175125tag:blogger.com,1999:blog-8194020284579681260.post-5745119791222627372023-12-12T17:57:00.004-05:002023-12-12T17:57:32.842-05:00Interest Rates Beginning to Settle. What's Next for Your Portfolio? <p>With the Bank of Canada holding the policy rate steady this month at 5% (<a href="https://www.msn.com/en-ca/money/topstories/bank-of-canada-holds-interest-rate-at-5-as-economy-stalls/ar-AA1l5V2R?ocid=socialshare" target="_blank">Financial Post</a>), it might be time to reconsider some of the interest rate sensitive securities that have been beaten down in the marketplace. </p><p>Since reaching a low of 0.25% in 2022, rates have been steadily rising as the Bank of Canada combats inflation (<a href="https://www.ctvnews.ca/business/bank-of-canada-expected-to-hike-rates-again-here-s-a-timeline-of-how-we-got-here-1.6245125" target="_blank">CTV News</a>). With inflation now starting to turn lower, and consumers showing some signs of fatigue, policymakers at The Bank have let off the gas, indicating that there might be some relief (or at least no new pains) in sight for rate sensitive borrowers.</p><p>What does this mean for your portfolio? Utilities, REITs, Preferred Shares, and other rate sensitive assets might start to look a lot more attractive on a real return basis. Canadian Utilities (CU.TO), Riocan (REI-UN.TO), and George Weston Preferred Series A (WN-PRA.TO), are down 15%, 17%, and 7% respectively Year-to-Date. Fear of further rate increases have pushed these assets lower. Now that rates have paused, investors might start taking another look. </p><p>Is the Bank set to lower rates soon? Likely not, at risk of stoking further inflation. However, Canadian households are heavily indebted, which makes further rate increases a particularly risk proposition for the Bank of Canada, which is tasked with promotion financial stability. In a report by the CMHC: ""Canada's very high levels of household debt — the highest in the G7 — makes the economy vulnerable to any global economic crisis... When many households in an economy are heavily indebted, the situation can quickly deteriorate, such as what was witnessed in the U.S. in 2007 and 2008" (<a href="https://www.cbc.ca/news/business/household-debt-gdp-1.6852027">CBC News</a>). </p><p>This also might mean the return of the 60/40 investment portfolio, which has been a bit of a pariah as of late. This portfolio allocates 60 percent to equities, and 40 percent to bonds, and was popularized by financial gurus of the past, including John Bogle at Vanguard (<a href="https://www.nytimes.com/2023/12/01/business/60-40-portfolio-investing-stocks-bonds.html">New York Times</a>). With bond yields rising over the last year, bond prices were getting hammered, and this was leading to poor returns for many 60/40 investors. With yields starting to stabilize, and even turn lower, you have seen much more positive returns for the 60/40 balanced portfolio. </p><p>Remember, don't put all your eggs in the same basket, and maintain caution. </p><p>Happy investing everyone. </p><p>- Matthew. </p>Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-52292091324760236122022-12-07T18:54:00.003-05:002022-12-07T18:54:52.131-05:00<p><span style="font-family: inherit; font-size: medium;">With the Bank of Canada announcing another interest rate
hike, it’s a great time to revisit your investments that are more sensitive to fluctuating
interest rates.</span></p><p class="MsoNormal"><span style="font-family: inherit; font-size: medium;"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit; font-size: medium;">Canada’s central bank has raised its key benchmark rate
another 50 basis points (0.5%), to 4.25%. This is bad news for those holding
variable rate debt (such as adjustable-rate mortgages and lines of credit), and
those holding investments that are highly sensitive to changes in borrowing
rates (such as longer-term bonds). <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit; font-size: medium;">When investing in bonds, there is an inverse relationship between
bond prices and interest rates. This means that when interest rates rise, bond
prices fall, and vice versa. This occurs because the present value of future
interest and principal payments falls as the opportunity cost of tying up your
money rises (you could invest your money into other assets now paying a higher
rate of interest if given the opportunity – this makes your existing fixed rate
investment assets less attractive). Preferred shares, which often have fixed
dividend payments, also experience this problem. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit; font-size: medium;">When investing in stocks, the present value of any future
cash flows also falls as rates rises. These future cash flows could be dividends,
or the anticipated value of earnings that new projects might bring. For this
reason, as well as more than a fair share of economic uncertainty on the
horizon, we have seen many stock prices fall in tandem with bonds year-to-date.
Often, those stocks most sensitive to declines of this nature are those with
fixed payments coming from their customers, such as utilities, or those with
cash flows only coming far into the future, such as some in the technology
space. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit; font-size: medium;">On the bright side, the Bank of Canada might be nearing an
end to the rate tightening cycle. Perhaps even just another 25-basis point, or
50-basis point move coming down the road in January. The housing market is showing
signs of weakness, and inflation pressures are easing. These are both good
sings for those waiting for lower rates.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit; font-size: medium;">Thank you. <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit; font-size: medium;">Matthew Clarke<o:p></o:p></span></p>
<p class="MsoNormal"><o:p><span style="font-family: inherit; font-size: medium;"> </span></o:p></p>
<p class="MsoNormal"><span style="font-family: inherit; font-size: medium;">Some additional reading: <o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit; font-size: medium;"><a href="https://financialpost.com/pmn/business-pmn/bank-of-canada-makes-big-rate-hike-hints-it-may-the-last-one">https://financialpost.com/pmn/business-pmn/bank-of-canada-makes-big-rate-hike-hints-it-may-the-last-one</a><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-family: inherit; font-size: medium;"><a href="https://www.bankofcanada.ca/2022/12/fad-press-release-2022-12-07/">https://www.bankofcanada.ca/2022/12/fad-press-release-2022-12-07/</a><o:p></o:p></span></p>
<p class="MsoNormal"><a href="https://www.ctvnews.ca/business/what-the-latest-bank-of-canada-rate-hike-means-for-inflation-consumers-1.6184636"><span style="font-family: inherit; font-size: medium;">https://www.ctvnews.ca/business/what-the-latest-bank-of-canada-rate-hike-means-for-inflation-consumers-1.6184636</span></a><o:p></o:p></p>Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-52888393712879894062019-02-13T17:14:00.000-05:002019-02-13T17:14:48.591-05:00<br />
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;">Don’t let investment costs ruin your retirement plans.<o:p></o:p></span></b></div>
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<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;"><br /></span></div>
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<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;">In <i>Common Sense on
Mutual Funds</i> (2009), John Bogle clearly and methodically articulates the
importance for investors to maintain a simple and low-cost investment strategy.
Throughout his book, Bogle demonstrates how high-cost mutual funds siphon off
vast amounts of investor wealth over the long-term. He uses American
statistics, noting that many popular mutual funds charge investors between 1-2%
per year in management fees, in addition to other portfolio transaction costs
associated with frequent portfolio turnover and trading activity. These fees
may not seem like a lot to a typical investor, but over-time they consume a significant amount of the total investment return. For instance, if a stock mutual fund's portfolio
returns 6%, and 2% is charged in fees, this equates to 1/3 of the total
investment return. With many bond mutual funds currently yielding around 2-3%, even a 1% management fee is quite burdensome. In the long-run, this could mean many more years spent working until you can enjoy retirement.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;">In Canada, the
situation is worse for many investors. According to Morningstar data, the
average Canadian management expense ratio (the management cost of the mutual fund per
year) is around 2.35%. On a million-dollar portfolio, that amounts to $23,500
per year in management fees. Of course, what should matter to investors is not
just the cost, but their net return. Essentially, if higher investment
performance compensates investors for higher fees, then the cost may be
warranted. However, evidence completed by Vanguard clearly indicates that
low-cost passively managed index funds continue to outperform most actively
managed mutual funds (2018). <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;">What’s the
solution? A well-disciplined investment strategy that limits costs and
emphasizes a sensible long-term asset allocation. John Bogle recommends the use
of passively managed index funds (stocks and bonds), but he does
note that a well-designed portfolio of actively managed mutual funds could do
the trick (though perhaps not as well). The caveat to going with actively
managed funds being that they must have reasonable fees, relatively low portfolio
turnover, trusted management, and consistency. Finding all of that in a common mutual fund is no easy feat. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;">Thanks for reading,
and happy investing.<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;">Matthew. <o:p></o:p></span></div>
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<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;">References<o:p></o:p></span></div>
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<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;">Bogle, John.
(2009). <i style="mso-bidi-font-style: normal;">Common Sense on Mutual Funds</i>.
Hoboken, NJ: Wiley & Sons. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="font-family: "Times New Roman",serif; font-size: 12.0pt; line-height: 107%; mso-ansi-language: EN-US;">Vanguard Research.
(2018). <i style="mso-bidi-font-style: normal;">The case for low-cost index-fund
investing</i>. Retrieved from, https://www.vanguardcanada.ca/documents/case-for-low-cost-index-fund-investing.pdf<o:p></o:p></span></div>
<br />Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-20986782129476530732018-04-02T19:06:00.000-04:002018-04-02T19:18:06.748-04:00A few important things to consider when looking for a mortgage loan.<b style="mso-bidi-font-weight: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">The
right down-payment:</span></b><br />
<div class="MsoNormal">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">Home buyers in Canada are required to make a
down-payment of at least 5% of the purchase price of the property. But
remember, anyone that has less than 20% down-payment is required to pay a CMHC
Premium, which is the cost of insuring your new mortgage against default
(non-payment of the loan). With only 5% down, the CMHC Premium will be 4% of
the total loan amount. For a $300,000 mortgage, that would be a $12,000 premium
(</span><a href="https://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">https://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm</span></a><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">).
So, what’s the upside of paying for this premium? It usually results in the
home buyer having a lower interest rate on the loan, which could save them
money over the long-term. <o:p></o:p></span></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><br /></span></b></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">The
right type of mortgage: <o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">When speaking about mortgage rates, most people in
Canada refer to the 5-year fixed rate. Currently, the Bank of Canada quotes the
5 year mortgage rate at 5.14% (</span><a href="https://www.bankofcanada.ca/rates/daily-digest/"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">https://www.bankofcanada.ca/rates/daily-digest/</span></a><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">),
even though most Canadians can negotiate lower rates than this from a lender.
Borrowers are free, however, to negotiate a range of mortgage terms, including
anywhere from an “open” mortgage, which allows the borrower to pay off the
balance of the loan at any time, to a 10 year mortgage, which locks in the
client’s interest rate for 10 years, but with the consequence that should the
client choose to pay off the balance of the mortgage before that time is up,
they would have to pay a penalty. For borrowers that believe market interest
rates might stay the same, or even drop, a variable rate mortgage might be
appropriate. Variable rate mortgages allow borrowers to borrow money at a lower
rate than the current 5 year fixed rate, but with the condition that if market
rates rise, so will the interest rate of the client’s mortgage. <o:p></o:p></span></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><br /></span></b></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">The
importance of an underwritten pre-approval: <o:p></o:p></span></b></div>
<div class="MsoNormal">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">With all of the recent changes to mortgage rules in
Canada (</span><a href="https://globalnews.ca/news/3897942/new-mortgage-rules-2018-canada-guide/"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">https://globalnews.ca/news/3897942/new-mortgage-rules-2018-canada-guide/</span></a><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">),
it is important for home buyers to carefully obtain the right pre-approval
before agreeing to buy a home. An underwritten pre-approval means that a
professional took the time to ask for, and validate, several key documents that
lenders and the government require from borrowers before they can grant them a
mortgage loan. These documents might include employment letters, pay-stubs,
credit reports, savings account statements, and even Notice of Assessments from
Revenue Canada. These documents are meant to ensure that borrowers have
consistent and stable income, that they can afford the mortgage over the
long-term; they now even seek to ensure that the borrower could continue to pay
the mortgage if interest rates rose a couple of percent. Many lenders will
issue pre-approvals without asking for key documents, and this could leave the
client open to the risk of not actually being able to obtain the mortgage later
in the process once the key documents are properly reviewed.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">Matthew Clarke. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">BA (Hons.), B.Ed., MBA. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">Mortgage Agent and Financial Consultant serving
Ontario since 2007.<o:p></o:p></span></div>
<div class="MsoNormal">
<a href="http://www.ygkmortgages.com/"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">www.ygkmortgages.com</span></a><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><o:p></o:p></span></div>
<div class="MsoNormal">
<a href="mailto:matthew@limestonemortgages.com"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">matthew@limestonemortgages.com</span></a><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><o:p></o:p></span></div>
<br />Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com1tag:blogger.com,1999:blog-8194020284579681260.post-91161684414280628812015-07-08T18:38:00.002-04:002015-07-08T18:44:13.761-04:00Debt Levels on the Rise Provincially and Federally: First Ontario's Credit Downgrade, Then What?<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-A1hTz30zrDk/VZ2ldszICUI/AAAAAAAAAmk/XpuiPh8wgC0/s1600/debt%2Bburden.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="http://2.bp.blogspot.com/-A1hTz30zrDk/VZ2ldszICUI/AAAAAAAAAmk/XpuiPh8wgC0/s200/debt%2Bburden.jpg" width="147" /></a></div>
<span style="font-size: large;"><span style="font-family: Times, Times New Roman, serif;">Debt levels continue to increase in Canada's most populous province. Recently published reports by both Fitch and S&P, international bond/debt rating agencies, explain that Ontario's government debt will reach $289.9 billion in fiscal year 2015-2016. This figure alone doesn't tell us much unless we compare it to another measure, the provincial GDP, or gross domestic product.<br /><br />Much like a home-owner compares their mortgage debt to how much their home is worth, known as a loan to value ratio, or LTV, a government compares their debt level to how much economic output the province achieves in a given year, known as GDP. For a home-owner, the maximum loan to value allowed, unless we buy CMHC mortgage loan insurance, is 80 percent. For a government, there is no easy rule of thumb, but for most developed economies 80 percent would be seen as reasonable.<br /><br />Ontario has a relatively healthy GDP of $721 billion. At first glance, this would seem like Ontario is in fine shape compared with most other developed economies. So why are the rating agencies concerned about Ontario? Because Ontario's citizens are also responsible for the federal debt, kind of like being responsible for two somewhat related but distinct mortgage loans. We are heavily mortgaging future generations both federally AND provincially, and this will cost us dearly.<br /><br />Canadian federal government net debt reached $688 billion in 2014, which is an increase of over $170 billion since 2008. Combined, Canada and the provinces now have over $1.2 trillion in debt! That is a staggering amount for a population of only 35 million people, many of whom are children, seniors, unemployed citizens, and students with poor job prospects. Sadly, this does not even include personal debts, such as mortgages, credit cards, car loans, et cetera, which are also rising to record levels for Canadians.<br /><br />The only provinces showing signs of improvement since 2008 are Saskatchewan and Newfoundland, which managed to pay off a combined $3 billion dollars in debt by 2015. All of the other provinces are in worse shape. There are two broad solutions being proposed to improve the situation for Canadians. Firstly, to grow the economy, or GDP, through investments in infrastructure, new trade deals, and other ways of creating jobs and economic activity. Secondly, there is austerity, or cutting back spending to start paying down the debt.<br /><br />The first solution is being attempted</span><span style="font-family: Times, 'Times New Roman', serif;"> by the governing Liberal party in Ontario. They are proposing billions of dollars in transportation infrastructure that is being promised will improve economic activity in Ontario, and thus reduce the provinces debt / GDP ratio.</span></span><br />
<div>
<span style="font-family: Times, Times New Roman, serif; font-size: large;"><br />Austerity is being practised in many American states, such as Wisconsin, and within many government agencies at home as well. Austerity practices are evidenced by layoffs and wage freezes for many public sector workers, and cutbacks and outsourcing in many government departments. Essentially, the idea is to reduce the overall overhead and operating costs of government, and use any savings to pay down debt.<br /><br />Why is this so important to think about? Interest rates are currently low, which means the cost for Canadians to finance their debt is relatively low by historical standards. A 5 year fixed rate mortgage can currently be obtained in Ontario by those with good credit at a rate of below 2.6 percent. The federal government can currently borrow for a 5 year period at a rate of below 1 percent. This means that interest costs are relatively low for both your average Canadian, and their governments. However, when interest rates rise so to will the expense to carry the debt, and we may find this crippling due to the high overall levels of debt that we have become addicted to in a low rate environment.<br /><br />Rising interest costs will mean less money for health care, education, and other government programs. In addition, much like a typical borrower has a credit rating, so too does the government. Right now Ontario's credit rating is relatively high, at A+ according to Fitch, but should our debt situation get worse in Ontario the rating can decline, as it did this month. All else being equal, a rating downgrade means higher borrowing costs and more taxpayer dollars that need to be devoted to interest instead of social programs.<br /><br />It is time for Canadians to start taking our debt seriously by encouraging governments to not only get spending under control, but also find new and inventive ways to increase revenue and GDP. The Ontario government is trying to boost GDP through infrastructure investment, but they are going to pay for that by selling part of Ontario's crown power assets, which will reduce our future revenues and ability to pay for public services. The federal government, for their part, is promising new international trade deals with European and Pacific countries to boost GDP, but it is notoriously difficult to measure their benefits to Canadians. We must do more, and Canadians themselves can practice this at home by borrowing less and living more within our means. Wages have stagnated in North America, but our spending has not.<br /><br />Thanks for reading, </span></div>
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<span style="font-family: Times, Times New Roman, serif; font-size: large;"><br /></span></div>
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<span style="font-family: Times, Times New Roman, serif; font-size: large;">Matthew. </span></div>
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<span style="font-size: large;">__</span></div>
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<span style="font-size: large;"><br /></span></div>
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<span style="font-family: Times, Times New Roman, serif; font-size: large;">References</span></div>
<div>
<span style="font-family: Times, Times New Roman, serif; font-size: large;"><br />The CBC - <a href="http://www.cbc.ca/news/canada/toronto/ontario-credit-rating-downgraded-by-s-p-fitch-over-budget-underperformance-1.3140921">http://www.cbc.ca/news/canada/toronto/ontario-credit-rating-downgraded-by-s-p-fitch-over-budget-underperformance-1.3140921</a><br /><br />Ontario Ministry of Finance - <a href="http://www.fin.gov.on.ca/en/economy/ecupdates/factsheet.html">http://www.fin.gov.on.ca/en/economy/ecupdates/factsheet.html</a>.<br /><br />The Fraser Institute - <a href="http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/cost-of-government-debt-in-canada.pdf">http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/cost-of-government-debt-in-canada.pdf</a><br /><br />The Bank of Canada - <a href="http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/">http://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/</a></span></div>
Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com1tag:blogger.com,1999:blog-8194020284579681260.post-25361643023152060482015-05-26T20:08:00.001-04:002015-05-26T20:09:27.979-04:00The Kingston Rental Market<!--[if gte mso 9]><xml>
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<span style="font-size: small;"><a href="http://2.bp.blogspot.com/-OWbmd0zIdwc/VWUKxavVl6I/AAAAAAAAAmE/A6PtzrwdQXU/s1600/for-rent.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="http://2.bp.blogspot.com/-OWbmd0zIdwc/VWUKxavVl6I/AAAAAAAAAmE/A6PtzrwdQXU/s200/for-rent.jpg" width="200" /></a></span></div>
<span style="font-size: small;">According to the Spring 2015 report published by the Canada Mortgage and
Housing Corporation (CMHC), the vacancy rate in Kingston remains low. The
most recent data shows a vacancy rate (or percentage of rental units that
remain empty) of only 2%! In addition, average rents have been increasing. In
2012, the average rent received for a 2 bedroom apartment in Kingston was
$1,005. By 2015, the average rent for a 2 bedroom apartment in Kingston has
risen to $1,095 per month. </span><br />
<span style="font-size: small;"><br /></span>
<span style="font-size: small;">The above news, of course, is great for existing landlords, which is
partially why we are starting to see an influx of new units onto the market.
There are some large proposals for the construction of more condo and apartment
units in Kingston, especially to help satisfy some of the demand in the down-town area surrounding Queen's University. Indeed, a new proposal in
Kingston calls for a large multi-unit residential building to take over the
site formerly occupied by the Famous Players Cinema. This new development is
expected to be well over the current height restriction in the down-town core,
and offer a healthy number of new 2 bedroom units.</span><br />
<span style="font-size: small;"><br /></span>
<span style="font-size: small;">With mortgage rates still very low, investor demand for borrowing to finance
the purchase of new rental properties is still quite strong. It is important,
however, for any new investors to carefully consider if the property will still
remain profitable should mortgage rates rise in the future. I would advise to calculate
the break-even point for your new rental property, and carefully evaluate if you
can still earn an income should interest rates rise 2-4 percent.</span><br />
<span style="font-size: small;">If you have any mortgage or financial questions, feel free to send me an
e-mail. </span><br />
<div style="tab-stops: 198.8pt;">
<span style="font-size: small;"><br /></span></div>
<div style="tab-stops: 198.8pt;">
<span style="font-size: small;">Thanks for reading
: )<span style="mso-tab-count: 1;"> </span></span></div>
<span style="font-size: small;">Matthew Clarke BA (Hons.), B.Ed., OCT.</span><br />
<span style="font-size: small;">Mortgage Agent & Financial
Consultant </span><br />
<span style="font-size: small;">275 Ontario Street, Kingston </span><br />
<span style="font-size: small;">matthew@limestonemortgages.com</span><br />
<span style="font-size: small;">www.limestonemortgages.com</span><br />
Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-18950519114623161482015-01-20T14:13:00.001-05:002015-01-20T14:13:17.872-05:00Inflation and the Investor: Keep a Close Eye on Your Real Returns.<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-L3P9g19Kd-w/VL6ouN2GuYI/AAAAAAAAAj4/eIE26k3e-QA/s1600/inflation.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://3.bp.blogspot.com/-L3P9g19Kd-w/VL6ouN2GuYI/AAAAAAAAAj4/eIE26k3e-QA/s1600/inflation.jpg" height="216" width="320" /></a></div>
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<u><span style="font-size: 14.0pt; line-height: 115%;">Inflation</span></u><span style="font-size: 14.0pt; line-height: 115%;">, or the increase in general price levels over time, slowly erodes the
purchasing power of investors. Inflation is not always a constant, as there
have been periods of <u>deflation</u>, or a general decrease in the price
level, but periods of deflation are fewer and farther between. In Canadian
history, the harshest and most prolonged period of deflation was during the
Great Depression, when general price levels declined by more than 20 percent
over a four year period. Inflation, on the other hand, is a regular and much
more pervasive problem for the investor. In the early 1980’s, the Canadian rate
of inflation was over 12 percent, but it has since fallen to a level within the
Bank of Canada’s prescribed rate of 2 percent per annum. For the investor, this
means that any asset you own must appreciate in value, or return to you in
dividends or interest, a minimum of 2 percent per year. However, should
inflation increase, which it will at some point, you must be careful to
increase your minimum required rate of return.<o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">In simple terms, investors or owners of wealth face the
danger that their money will purchase less and less goods and services over
time, while borrowers of money actually benefit from being able to pay back
their loans with money that is actually worth less and less over time. Should
inflation be higher than expected, the loaners of wealth suffer, and the
borrowers of wealth benefit. Typically, the average investor loans money by
investing in fixed income securities, such as Canada Savings Bonds, Corporate
Bonds, GIC’s, etc. And in return, the borrowers promise to pay back the loans
with interest. Determining what the interest rate should be can be very
complex, but to start with, we will discuss why inflation is such an important
component of this decision.</span></div>
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<u><span style="font-size: 14.0pt; line-height: 115%;">Fixed income</span></u><span style="font-size: 14.0pt; line-height: 115%;"> (investments that promise to return a fixed amount) investors
must be particularly attuned to the ever present threat posed by inflation
because it will have a major impact on their overall returns. Since most
conventional fixed income securities return your <u>principal</u> (the amount
you invested) at a future date, you want to make sure that your principal still
has a certain measure of value once you can re-invest or spend it at <u>maturity</u>
(the date when you are scheduled to receive your principal). For instance,
should you purchase a 10 year, $5,000 bond, when you go to redeem your bond in
10 years, if inflation has ran at 3% per year, it has eaten away almost $1700,
or 35 percent of your purchasing power. Now, if your bond had been paying you
3% per year to own it ($1500 in total), you have limited the danger that
inflation has on your portfolio by achieving a real return (or return after
deducting for inflation) of about 0%, assuming that you re-invested any
interest payments. If you spent the interest money, you would have actually lost
$200 in real terms. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">Note the uncertainly present in the above discussion of
owning the 10 year bond. What if inflation is more than you expect? What if you
purchase the 10 year 3% bond and inflation over the 10 years is an average of
5%? You essentially have a fixed income investment losing you 2% per year in
real terms. To help mitigate the risk of higher than expected inflation, investors
can do a few things: 1) you can buy bonds that <u>mature</u> (pay back your
principal) sooner rather than later, 2) you can stagger when your bonds mature
so that you can re-invest your principal at different times, 3) you can purchase
a fixed income security called a real-return bond, which adjusts its return
based on the inflation rate. Of course, the reverse of higher than expected
inflation could occur, and you could experience a period of lower than expected
inflation. In this scenario, your bond investments would result in a higher
than expected real rate of return, and in some cases, you could even sell your
bonds for a capital gain before they mature. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;"> In contrast to bonds, <u>equities</u>
(partial ownership in a business, or most commonly called stocks) provide the
investor with a more natural way to protect themselves from inflation. There
are a number of reasons for this. To begin with, equities (excluding preferred
shares), do not provide the investor with a fixed rate of return. Should the
business increase its profits over time, shareholders should experience an
increase in the price of their shares, their dividend payments, or both. An
effective and well-run business in the right industry will also be able to
increase its prices and pass the costs of inflation on to the consumer rather
than its investors. This should result in higher revenues to help compensate
for any increased costs that the business might face. This is common for many
businesses in food retail and processing, such as Loblaw (TSE: L), Metro (TSE:
MRU), and Hershey (NYSE: HSY). Should their cost of inputs rise by 4%, they
often pass those costs on to the consumer through higher prices over time. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;"> Additionally, an investment in a
business with tangible assets, such as land and buildings, gives you ownership
in things that increase in value over time as inflation eats away at the value
of everyone’s money. For instance, a corporation such as CN Railway (TSE: CNR)
owns large tracts of land, another such as RioCan Real Estate (TSE: REI.UN) owns
an array of retail properties. Both investments hold assets that generally
increase in value during periods of inflation. As the value of a company’s
assets increase over time, share prices should follow, which helps provide the
investor with the capital appreciation that they need to keep ahead of
inflation. <o:p></o:p></span></div>
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<br />
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<span style="font-size: 14.0pt; line-height: 115%;"> Other popular investments available to
help protect the investor during periods of high inflation might also include
gold, silver, and other minerals, or even commodities like oil and natural gas.
Typically, when investors fear that the value of money is going to decline,
gold acts as a “safe-haven,” or place where people store the value of their
money for a certain period of time. Investors can purchase physical gold
bullion, or they can buy shares in gold producers, such as Goldcorp (TSE: G);
in both cases, returns often vary wildly, and they can be very hard to predict.
There are many supply and demand factors and other risks to consider when
investing in metals and mining, or oil and gas. However, there is room within a
well-diversified portfolio for many of the above mentioned ideas. These include
fixed income, equities, metals, and commodities. As mentioned in the last
article concerning Investment versus Speculation, be careful to always do your
research on any and all investments, develop a well coordinated plan for buying
and selling, and stick to your plan. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">Happy Investing! </span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">Matthew. </span></div>
Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com1tag:blogger.com,1999:blog-8194020284579681260.post-73297908064511302482015-01-13T21:02:00.004-05:002015-01-13T21:02:56.918-05:00Investment versus Speculation: Don’t Be a Money Loser.<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-spXl-U3hk70/VLXOFB7_T6I/AAAAAAAAAjo/4BzHN3lbpVE/s1600/roulette%2Bwheel.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-spXl-U3hk70/VLXOFB7_T6I/AAAAAAAAAjo/4BzHN3lbpVE/s1600/roulette%2Bwheel.jpg" height="212" width="320" /></a></div>
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<span style="font-size: 14.0pt; line-height: 115%;">As a “value-investor,” I follow the teaching primarily of
Benjamin Graham. Graham wrote the definitive book on value investing, “The
Intelligent Investor,” and in the following series of articles I will discuss
and synthesize Graham’s core lessons, as well as relate and apply them to our contemporary
investment climate.<o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">A primary theme often returned to by Graham in his writings
is that of Investment versus Speculation. An investment is noted as something
that “upon thorough analysis, promises the investor safety of principal and an
adequate return.” Of course, that sounds perfectly clear and reasonable to
most, but the sentence does require some unpacking. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">Many people that call themselves investors are actually
speculating, which means they are basing their decisions on market graphs,
emotions, investment fads, and inadequate analysis of the securities or assets
that they buy. Sometimes “speculation,” or buying and selling assets without
doing your research, can be fun, but it should never be confused with true
investing. And never, and I mean NEVER, should it occupy more than 5% to 10% of
your total portfolio. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">So what is considered “investing”? Firstly, a true
“investment” is made upon thorough analysis and research. What does thorough
analysis involve? At its basic level, it would involve evaluating the financial
statements of a company for at least a 5 year period, and preferably more. This
would include their balance sheet, cash flow statement, and income statement.
What exactly one is looking for in each of these statements will be covered in
a later article, but at the present, keep in mind that, at a minimum, this
needs to be done by yourself, or by whoever you pay to look after your
investments, on a regular basis. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">A thorough analysis must also include an examination of the
current competitive position and atmosphere for the company. For instance, does
the company dominate its industry? Or does it have a veritable barrage of
competition in the marketplace? Does the company need to keep inventing
products to stay profitable in the foreseeable future? Or does the company
possess a “durable competitive advantage” in the marketplace? Does the company
appear to be on the right side of the blowing social and political winds? Or is
it about to face massive lawsuits that might cost billions? These, and many
others, are questions that need to be asked by an “investor.”<o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">Secondly, an investment must have a certain “safety of
principal.” This in no way means that GIC’s or Canada Savings Bonds are a great
investment, what it means is that an investor must be assured that the business
they are investing in has a certain degree of insulation from competition, and
a safety net or bottom for the share price. Let’s say that XYZ Corporation has
shares selling for a <u>market capitalization</u> (the value of all outstanding
company shares) of $500 million. If the company has buildings and land valued
at $400 million, those <u>assets</u> (something a company owns) provide the
investor with a safety net, or some safety of principal if the market value of
the shares fall below $400 million. Why? Because it is possible for the company
to sell its assets and return to the shareholders the proceeds from the sale. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">The reverse side of the above discussion is a warning against
investing in companies that do not contain a “safety of principal,” or assets
that help limit your “downside risk.” Even worse, there are many companies that
actually owe more than they own. Large manufacturing companies that sink a lot
of borrowed cash into inventory and equipment can easily run into this trap
(think General Motors circa 2008). Financial companies that hold large values
of loans on their books, for which they might not actually get re-paid, are
also a cautionary tale. In the case of financial companies, however, “the
assets” are often the loans and the “liabilities” are the customer deposits. The
many risks associated with investing in financial companies will make for an
interesting future discussion.<o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">Thirdly, an “investment” must provide an adequate return. The
obvious nature of this rule leads people to not delve into it in as much detail
as they should. What is an adequate return? Of course, it depends on the
individual investor, but at a bare minimum, it should be more than inflation so
that you are not actually losing money in <u>real dollars</u> (after removing
inflation). Inflation will be discussed at length in a later reading, but for
now, suffice it to say that whatever the current rate of inflation is, we need
to beat it.<o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">In order to stay ahead of inflation and consistently earn an
adequate return, it is important for investors to demand a future stream of
cash payments from the assets that they own. We can all try to earn our returns
through <u>capital gains</u>, (selling our assets for more in the future than
we paid for them), but they can swing wildly from one year to the next and be
hard to predict with any degree of certainty. For simplicity, we should buy
assets that provide a stream of payments in the form of dividends or interest.
Dividend and interest producing assets provide us with evidence, in cash, that
our investments provide a real adequate return. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">Does the above discussion regarding what constitutes an
adequate return imply that we can never rely on capital appreciation or capital
gains for our returns? Absolutely not! What it does mean though is that we want
to rely on dividend and interest payments first as the base for our investment
recipe, and then capital gains as the icing on the cake. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 115%;">In order to be intelligent investors, we must look at each
investment and calculate what kind of adequate return we should be able to
expect. In this case, we will use the example of Bell (TSE: BCE) </span><span style="font-family: Wingdings; font-size: 14.0pt; line-height: 115%; mso-ascii-font-family: "Times New Roman"; mso-char-type: symbol; mso-hansi-font-family: "Times New Roman"; mso-symbol-font-family: Wingdings;">ß</span><span style="font-size: 14.0pt; line-height: 115%;">
(Exchange: Ticker/Symbol). Around the beginning of 2015, Bell paid its
shareholders a dividend of 4.50% on an annualized basis. If inflation at the
beginning of 2015 was 2.0% per annum according to the Bank of Canada
(http://www.bankofcanada.ca/), then we can assume that our investment in BCE
will provide us with the minimum adequate return we need, as long as they
continue paying this cash to shareholders. Beyond this, BCE could experience
earnings growth, and increase our dividend, which could result in higher share
prices and capital gains if we sell our shares. <o:p></o:p></span></div>
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<br />
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<span style="font-size: 14pt; line-height: 115%;">Could earnings in the above example decline? Or could something
else change that eliminates our dividend? Of course, but that is where the
first two principles of thorough analysis and safety of principal come into
action. The intelligent investor only invests in companies after assuring
themselves of all three: 1) that they have completed a thorough analysis of the
company, 2) that the company provides them with a certain degree of safety of
their principal, and 3) that the company provides them with an adequate return.
Should the situation with their investment change, the investor must then undergo
a re-examination to see if their capital is more useful elsewhere. “Buy and
hold” </span><span style="font-size: 19px; line-height: 21.4666652679443px;">doesn't</span><span style="font-size: 14pt; line-height: 115%;"> work if your original investment thesis no longer holds true. </span></div>
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<span style="font-size: 14pt; line-height: 115%; text-indent: 36pt;">Happy Investing! </span></div>
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<span style="font-size: 14pt; line-height: 115%; text-indent: 36pt;">Matthew. </span></div>
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Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-31715760430032971752014-08-08T14:40:00.002-04:002014-08-08T14:54:40.861-04:00Glittering Goldcorp: How do you evaluate a gold miner and its earnings report?Gold and precious metals are a perennial favourite for many investors and speculators. It is often viewed by many as a hedge against the risk of inflation destroying our wealth, and the business model can often be relatively clear to understand.<br />
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The primary determinant of price movements for many gold stocks is, quite understandably, the price of gold. To recognize whether or not a gold miner is operating effectively, however, you must pour through the quarterly and annual earnings statements. In this article, we will look at <a href="http://www.goldcorp.com/English/Investor-Resources/News/News-Details/2014/Goldcorp-Announces-Strong-Second-Quarter-Financial-Results/default.aspx">Goldcorp's recent earnings release for July 31, 2014</a> to help understand how to evaluate a gold producer's performance.<br />
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According to the company, <b>Goldcorp</b><a href="https://www.google.ca/finance?cid=675379"> (TSE: G</a>, <a href="https://www.google.ca/finance?q=NYSE%3AGG&ei=5RTlU9ipLsSY9AbTkoCwAw">NYSE: GG)</a> is "<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">one of the world's fastest growing gold producers. Its low-cost gold production is located in safe jurisdictions in the <span class="location" style="border: 0px; font-style: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Americas</span> and remains 100% unhedged." This statement illustrates a number of important points that should be examined more closely when evaluating a gold company for investment:</span></div>
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><b>1) Production levels</b> is one of the primary performance indicators for a gold mining company. The vast majority of a mining company's value lies trapped within the Earth. Unlocking this value is a very expensive and complex process. Increasing or decreasing production levels gives an investor some indication of operational growth in the company, and helps the investor track whether or not the company is on target for any growth plans. </span><br />
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">In the quarter we are</span> examining, Goldcorp notes production of 648,700 ounces, compared to production of 646,000 ounces in the second quarter of 2013, which is a positive sign as production is increasing slightly. </div>
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><b>2) Reserves</b> are the metals a mining company still has trapped in the ground for future production. If reserves are declining quarter after quarter, the company will have to start building up reserves so that production does not hit a stand still or eventually decline as existing reserves become more difficult to reach. </span><br />
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">There are a couple of primary ways that mining companies increase reserves: </span><br />
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">1) They can do it the old fashioned way, by discovering and developing their own mining opportunities. This becomes increasingly more expensive over time as the easier to find deposits are developed and exhausted. </span><br />
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">2) They can acquire existing discoveries or developments from other companies. This method tends to be more common for massive multinational gold miners like Goldcorp or Barrick. The significant danger with this method is overpaying for developments that do not pan out, and then the company has to "write down" or essentially take an accounting loss when they admit their mistake. </span><br />
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Mineral reserves are expected to have economic viability, which means an actual likelihood of being developed in the future, whereas "mineral resources" do not necessarily pass this economic viability test. It is important to note the distinction between the two in a company's reports. <a href="http://www.goldcorp.com/English/Investor-Resources/Reserves-and-Resources/default.aspx">Goldcorp's reserves</a> are broken down by mineral type, and it is essentially up to the investor to decide whether or not there appears to be significant value located there. </span></div>
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><b>3) Geo-political risk</b> is important to examine for all investments, but with mining companies it tends to be particularly relevant. Gold mining operations that exist in stable and developed economies often have less risk of being shut down due to political concerns, and their value is generally easier to determine. Operations in Canada, the United States, and Australia, therefore, deserve a premium to those produced in less stable countries, such as those located in South America and Africa. </span><br />
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><br /></span>
<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">In the image below, we can see the geographical distribution of Goldcorp's 2014 production levels. Note the strong presence in Canada, Mexico, and the United States. This is a positive sign as these areas are generally investment friendly environments for miners. It is important to keep an eye on the location of production, as it can shift over time as companies seek new reserves to replace declining ones. </span><br />
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<a href="http://1.bp.blogspot.com/-YODIWx5KN3A/U-UQyNIMg6I/AAAAAAAAAiA/47428BORBzI/s1600/Goldcorp+Production+2014.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-YODIWx5KN3A/U-UQyNIMg6I/AAAAAAAAAiA/47428BORBzI/s1600/Goldcorp+Production+2014.png" height="255" width="320" /></a></div>
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><b>4) All-in-costs</b>, or essentially the total costs that the company calculates it takes to produce one ounce of gold, is important to look at when examining a mining company because it helps us to determine something like a break even point for the company. These costs may vary between mining companies as the metric is not completely standardized, but for Goldcorp these costs include</span>: by-product cash costs, sustaining capital expenditures, corporate administrative expense, exploration and evaluation costs and reclamation cost accretion and amortization.<br />
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Essentially, all-in-costs are the miner's way to help define the total costs associated with producing gold. For Goldcorp, the all-in-sustaining cost is estimated to be $852 per ounce of gold. By product costs can be a little confusing, but essentially if a gold mine is also producing copper, the money that the company earns from selling the copper is deducted from the costs of production, and it lowers the all-in-sustaining costs of producing gold. </div>
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);"><b>5) Gold prices</b> are often the primary factor determining the price fluctuations in gold company stock. The difficulty here for the investor is that gold prices act relatively independently of the decisions made by company management. Gold prices can swing wildly from year to year, and company management can try to limit the effects of price changes in the price of gold by implementing hedging strategies. </span><br />
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Hedging strategies primarily sell certain amounts of future production levels (futures) for an agreed upon price. Hedging bets can make a company money if they sell future production at say $1500 per oz and gold prices on the global market decline to $1000. On the other hand, hedging can lose significant amounts of money if future production is sold at a price lower than the actual market price that materializes in the future. In the case of Goldcorp, they have decided to not hedge their sales, which indicates they they are very bullish, or confident that gold prices will rise in the future.</span><br />
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<span style="-webkit-text-size-adjust: auto; background-color: rgba(255, 255, 255, 0);">Below is an image illustrating gold prices in U.S. dollars. It highlights prices inflation adjusted and in nominal dollars. Gold prices, though often seen as a natural hedge against inflation, or something that will naturally keep pace with rising prices, are often unpredictable. Because of this, gold mining companies will experience large swings in their share prices as the price of gold rises and falls with changes in investor sentiment and concerns about inflation over time. </span></div>
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<a href="http://4.bp.blogspot.com/-ojwvvavVYQY/U-UTuU6oBrI/AAAAAAAAAiM/yuZO-gvCZXk/s1600/historical-gold-prices.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://4.bp.blogspot.com/-ojwvvavVYQY/U-UTuU6oBrI/AAAAAAAAAiM/yuZO-gvCZXk/s1600/historical-gold-prices.jpg" height="261" width="400" /></a></div>
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The information above provides a good introduction to understanding some key information to look for when examining the earnings report of a gold mining company. Remember, as for any investment, it is important to consider other factors, such as earnings per share, dividends, investment alternatives, et cetera. </div>
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Thanks for reading, and Happy Investing!</div>
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Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-57732403050159006902014-07-24T13:34:00.000-04:002014-07-24T13:34:38.157-04:00Loblaw: Losses never looked so good. Understanding Adjusted Earnings and Free Cash Flow.<br />
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Loblaw (TSE: L) announced earnings recently (<a href="http://www.loblaw.ca/English/Media-Centre/news-releases/news-release-details/2014/Loblaw-Companies-Limited-Reports-a-651-Increase-in-Adjusted-Operating-Income2-for-the-Second-Quarter-of-20141/default.aspx">Loblaw Press Release</a>), opening with the statement by Galen Weston that "the second quarter of 2014 marked the opening of the next chapter for Loblaw, combining the number one food retailer in Canada with the number one pharmacy and beauty retailer." <br /><br />The acquisition of Shoppers Drug Mart by Canada's largest grocery chain marks a clear avenue for future expansion by the retailer, and millions of dollars in synergies as it combines the operations of the two companies into a more efficient Canadian corporate behemoth.<br /><br />Including the results from Shoppers, Loblaw announced revenue of $10,307 million, an increase of 37.1% over the second quarter of 2013. Adjusted basic net earnings per common share were also up 17.2% to $0.75 compared to $0.64 in the second quarter of 2013. <br /><br />The headline numbers, however, highlight that the company lost $1.13 per share in the second quarter of 2014, due primarily to costs associated with the purchase of Shoppers. This distinction provides us with an important lesson in "adjusted earnings," which can be used regularly by a number of publicly traded companies.<br /><br />Adjusted earnings figures are used when a company believes that earnings for a particular financial period are distorted either positively or negatively by "one-off" or unusual events. In this case, the distortion is the artificially high loss caused by costs incurred due to buying Shoppers Drug Mart. Since Loblaw will not be incurring those costs regularly in the future, it does not believe that those costs reflect the company's true performance in the last quarter. To help shareholders better understand the company's true operational performance, it reports what the company would have made if you exclude the irregular costs. In this case, the difference is quite large, from an actual loss of $1.13 per share, to a profit of $0.75 per share. <br /><br />Intelligent Investors should beware of adjusted numbers, and investigate why the adjustments were made, and if they seem reasonable. In this case, it is clearly understood that the costs are associated with the purchase and integration of another major Canadian retailer. This will not be a standard or common occurrence for Loblaw in most quarters, so the adjustment is most likely reasonable. <br /><br />Many investors, such as <a href="http://www.cnbc.com/id/101603463#.">Olstein</a>, are calling for an end to adjusted earnings, as they think it misleads investors. However, the Intelligent Investor simply needs to investigate why the earnings are being adjusted, and how often the company utilizes adjustments. If the company regularly adjusts earnings by a large margin, be careful, but otherwise, the practice can be perfectly reasonable. <br /><br />To help better understand how the company is performing, it is always helpful to look at Free Cash Flow during the quarter. Free Cash Flow represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. This can be calculated by taking operating cash flow, and subtracting capital expenditures. In the case of Loblaw, the company had Free Cash Flow of $801 million for the quarter, a very healthy number. <br /><br />Loblaw now has its fingers in a number of very profitable business pies. It is engaged in the financial business through its thriving credit card division (PC Financial now has over $2.5 billion in credit card receivables), the clothing business through Joe Fresh, the real estate business through Choice Properties, the drug business through Shoppers Drug Mart, and of course, the good old fashioned grocery business through entities such as Loblaws, No Frills, and Real Canadian Superstore. <br /><br />For those Intelligent Investors looking for portfolio diversity, a decent dividend, and strong Free Cash Flow, take some time to look at Loblaw.<br /><br />Happy Investing!<br /><br /> </div>
Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-881141022546502282014-01-05T17:21:00.001-05:002014-01-05T17:24:39.782-05:00What Does the Investor Need to Know About Financial Statements? The Cash Flow Statement<div dir="ltr">
They say that "cash is king," and indeed, cash forms the lifeblood of any business. For the Intelligent Investor, it is cash that is used to pay dividends, buy back stock, and fund daily operations. When companies experience a cash squeeze, they find themselves at the mercy of lenders and often find it difficult to concentrate on their long-term corporate goals. This can lead to hurried and poor decision making. Healthy levels of cash lead to the flexibility corporation's need for continued success. <br />
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So how can the investor examine the cash flows of a potential business opportunity? They should start by referencing the "Statement of Cash Flows" found within a companies financial statements. The <b>Statement of Cash Flows</b> should be publicly issued every three months with the quarterly reports, and can be found in the Investor Relations section of most publicly traded companies' websites. </div>
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<a href="http://www.timhortons.com/ca/pdf/THI_Q3_2013_Financial_Statements.pdf">The 3rd Quarter 2013 Statement of Cash Flows for Tim Horton's (TSE: THI) is found by clicking on this link and scrolling to page four. </a></div>
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Whereas<a href="http://capitalaccumulation.blogspot.ca/2013/12/what-should-investor-look-for-in.html" target="_blank"> <b>balance sheets</b></a> present a snapshot in time for a companies overall financial health, the cash flow statement shows activities over a period of time. Because the ever important earnings per share numbers are not found within the cash flow statement, this statement is often overlooked by investors. However, it is crucial for properly understanding the health of any business. </div>
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What does the Cash Flow Statement commonly look like and what does the investor need to know? At its most basic level, the cash flow statement is segmented into three parts:</div>
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Section # 1) <b>Operating Cash Flows</b></div>
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Section #2) <b>Investing Cash Flows</b></div>
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Section #3) <b>Financing Cash Flows</b></div>
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Net Cash Flows</div>
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Each section can have a positive or negative balance, and the sum total of these three sections will result in a number titled "Net Cash Flows." Generally, a negative number is displayed in brackets. <b>Net cash flow</b> helps the investor to identify whether or not the business had a net inflow or outflow of cash during the period of time being measured. It is very important for the Intelligent Investor to remember that a positive or negative net cash flow is not necessarily good or bad, it all depends on HOW the inflow or outflow of cash was realized. This can be understood by examining the three sections highlighted above. </div>
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The investor must act like a detective to discover the story behind the net cash flow number. You can begin doing this by asking some basic key questions:</div>
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1) Is the Operating Cash Flow positive or negative? Why? 2) Is the Financing Cash Flow positive or negative? Why? 3) Is the Investing Cash Flow positive or negative? Why?</div>
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By examining the information listed below for a hypothetical corporation, we can see the following: </div>
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1) Operating cash flow is positive, primarily due to large income levels experienced during the period, there is not excess depreciation being added into this equation. This is a good sign. </div>
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2) Financing cash flow is positive, and this is primarily from a share issuance. As an existing investor, you generally do not want there to see more shares issued, as this decreases your stake in the company. This could be a warning sign... especially if these funds are needed to pay off debt or to pay dividends. </div>
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3) Investing cash flow is negative, and we can see that this is due to the purchase of new fixed assets. If these assets contribute to increased profits in the future, this may be a worthy cash outflow, and not a negative sign. If, however, there are large inflows of cash from asset sales... you should investigate why. Sometimes it is a sign that a company may be experiencing trouble and selling existing assets to raise money to cover other obligations. </div>
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<u>Hypothetical Statement of Cash Flows for Acme Corporation</u></div>
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<b>Operating Cash Flows</b></div>
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Income for the period +$64,795</div>
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Depreciation +$2,000</div>
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Equity Income -$5,000</div>
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Minority Interest +$2,000 </div>
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Net Operating Cash Flows = + $63,795</div>
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<b>Financing Cash Flows</b></div>
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Proceeds from a Share Issue +$10,000</div>
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Repayment of Debt -$2,000</div>
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Dividends Paid -$1,000</div>
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Net Financing Cash Flows = +$7,000</div>
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Acquisition of Fixed Assets -$15,000</div>
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Net Investing Cash Flows = -$15,000</div>
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Total Increase or Decrease in Cash (<b>Net Cash Flow</b>) = +$55,795</div>
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The Intelligent Investor must always look for warning signs within the cash flow statement, such as: </div>
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1) a business continuing its operations through the use of debt and equity financing (borrowing money or issuing shares), and using that money to fund losses highlighted at the start of their Operating Cash Flows. </div>
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2) a business that is essentially "borrowing from Peter to pay Paul," which may appear as outflows of cash in the form of dividend payments, but inflows of cash in the form of share issuances or the issuance of new debt. This might be evident by seeing new shares being issued and/or new borrowing happening, while at the same time relatively large dividends are being paid. </div>
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3) a business that is experiencing higher levels of depreciation than it is investing in new assets. This might result in positive cash flow numbers for a period of time because decaying assets are not being replaced with new ones, but eventually this might cause trouble as technology becomes obsolete or assets need to be replaced to maintain day to day operations or keep attracting customers. </div>
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An interesting cash flow statement to examine is the one issued for <a href="https://www.google.ca/finance?q=NYSE%3AXOM&fstype=ii&ei=qtrJUoigLMnHqAGm4QE">Exxon Mobil (NYSE: XOM)</a>, which generally experiences positive levels of Operating Cash Flows, and negative levels of Investing and Financing Cash Flows. This means that the company is taking large positive influxes of cash from sales to its customers (Operating Cash Flow), and utilizing that cash to heavily invest in new assets (Investing Cash Flow), and return profits to shareholders via share buybacks and dividend payments (Financing Cash Flow).</div>
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Below you can see a graphic illustrating this activity from 2008-2012. </div>
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<img src="https://chart.googleapis.com/chart?cht=lc&chs=323x200&chbh=0&chdlp=t&chls=3%7C3%7C3&chg=25%2C25&chm=%0A%20s%2C0066FF%2C0%2C-1%2C5%7Cs%2CFF9900%2C1%2C-1%2C5%7Cs%2C990033%2C2%2C-1%2C5%0A%20&chdl=Operating%7CInvesting%7CFinancing&chco=0066FF%2CFF9900%2C990033&chds=-60000%2C60000%2C-60000%2C60000%2C-60000%2C60000&chxt=x%2Cy&chxl=0%3A%7C2008%7C2009%7C2010%7C2011%7C2012%7C1%3A%7C-60000%7C-30000%7C0%7C30000%7C60000&chd=t3%3A59725%2C28438%2C48413%2C55345%2C56170%7C-15499%2C-22419%2C-24204%2C-22165%2C-25601%7C-44027%2C-27283%2C-26924%2C-28256%2C-33868" /></div>
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As with the Balance Sheet, you can dig deeper into the Cash Flow Statement, and I encourage you to do so. Please ask if you have any questions, and Happy Investing!</div>
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Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-90887553449277540782013-12-11T20:51:00.001-05:002013-12-11T20:53:49.381-05:00What Should the Investor Look for in the Financial Statements? The Balance Sheet. <div dir="ltr">
The first section to tackle when examining the financial statements of any investment enterprise is the <b>Balance Sheet</b>. The balance sheet shows the company's financial situation on a certain date, and is like a snapshot of a company's financial health. <br />
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<b>There are three primary sections of the balance sheet:</b></div>
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1) <b>Assets</b>: what the company owns and has owing to it from others. </div>
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2) <b>Liabilities</b>: what the company owes to others. </div>
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3) <b>Shareholders Equity</b>: the net worth of the company, or the shareholders' interest in the company. It will always equal the Assets minus the Liabilities. </div>
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The reason it is called a "balance" sheet is because both sides of the balance sheet equation must always be the same. </div>
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<b>Assets = Liabilities + Shareholders Equity</b></div>
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Often, the Shareholders Equity will be referred to as the <b>Book Value</b> of the company, and can be thought of theoretically as what the value of the company would be if it sold all of its assets and paid off all of its debts. </div>
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In reality, for a variety of reasons, the business could be worth more or less than its Shareholders Equity or Book Value. This is primarily because the company will either have a certain degree of earning power to generate more assets in the future, or lack earning power, and its assets may decrease in value over time with future losses and depreciation. </div>
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Also, sometimes the real value of a company's assets may be difficult or hard to determine, and an example of this might be the value of a patent on a new technology that a company owns. </div>
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<b>Assets, Liabilities, and Shareholders Equity can be categorized into a wide number of different items, such as: </b></div>
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Assets: Cash, Temporary Investments, Accounts Receivable, Prepaid Expenses, Inventories. </div>
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Liabilities: Current Liabilities, Future Income Taxes, Non-Controlling Interest in Subsidiary Companies, Long-Term Debt</div>
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Shareholder Equity: Share Capital, Contributed Surplus, Retained Earnings</div>
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There are additional categories to be explored later, but <b>the crucial thing for the Intelligent Investor to understand is the importance of a "healthy" balance sheet</b>. </div>
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A healthy balance sheet is one showing ample assets to cover any future liabilities, and no warning signs that would indicate limited amounts of cash or "liquid" assets to fund ongoing operations.</div>
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A number of seemingly great businesses, upon further inspection, are buried in liabilities that seriously limit shareholder gains over time, and can pose a serious risk to shareholders during a tough economy or business environment. </div>
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To highlight an example of a poor balance sheet, below is some information on <b>Wynn Resorts Limited</b>, <a href="https://www.google.ca/finance?q=NASDAQ%3AWYNN&ei=eBOpUriHL4SwqgHwSA">(NASDAQ:WYNN)</a>:</div>
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<img src="https://chart.googleapis.com/chart?cht=bvg&chs=323x200&chbh=18&chdlp=t&chls&chg=0%2C25&chm=D%2C990033%2C2%2C-1%2C3%7Cs%2C990033%2C2%2C-1%2C5&chdl=Total%20assets%7CTotal%20debt%7CDebt%20to%20assets%20(%25)&chco=0066FF%2CFF9900%2C990033&chds=0%2C8000%2C0%2C8000%2C0%2C100&chxt=x%2Cy%2Cr&chxl=0%3A%7C2008%7C2009%7C2010%7C2011%7C2012%7C1%3A%7C0%7C2000%7C4000%7C6000%7C8000%7C2%3A%7C0%25%7C25%25%7C50%25%7C75%25%7C100%25&chd=t2%3A6755.78809%2C7581.76904%2C6674.49707%2C6899.49609%2C7276.59424%7C4293.10889%2C3569.10303%2C3267.52905%2C3217.71899%2C5782.81982%7C63.547123%2C47.0748062%2C48.9554329%2C46.6370163%2C79.4715195" /></div>
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The current balance sheet of Wynn highlights $7.3 Billion in Assets and $5.8 Billion in Debt... if all Liabilities are included, the number rises to $7.5 Billion. Therefore, the following is true for Wynn:</div>
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<b>Assets ($7.3 Billion) = Liabilities ($7.5 Billion) + Shareholders Equity ($-0.2 Billion). </b></div>
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As a shareholder, this would not be a positive situation, and for the Intelligent Investor, in general should be avoided. </div>
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In future, we will examine more characteristics of the Balance Sheet, and in particular the <b>Earnings Statement</b> and the <b>Cash Flow Statement</b>.</div>
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Cheers, and Happy Investing. </div>
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Matthew. </div>
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Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-24034219723733181382013-07-30T17:05:00.001-04:002013-07-30T17:05:23.679-04:00Investing in the Future of Natural Gas: Making Money Reducing the Carbon Footprint.<div dir="ltr">America's current plan for tackling climate change is less than stellar... or even all that existent in reality. But of particular note has been some recent comments by President Obama in a <a href="http://www.georgetown.edu/news/obama-old-north-2013.html">speech at Georgetown University</a>. <div> <br></div><div>President Obama declared that America would reduce its annual carbon pollution by 50% over the next 20 years. To achieve this, he plans to empower the Environmental Protection Agency to create carbon emission standards for new and existing power plants. </div> <div><br></div><div><b>Why should this news be relevant for the Intelligent Investor?</b></div><div><br></div><div>If electricity producers have to limit the amount of carbon pollution that they emit, a strong and natural incentive will develop to shift from coal to natural gas. Natural gas has been an alternative for years, but in the last few years the price has dropped to such a level to make it increasingly more attractive when compared to coal, especially if emissions become a concern.</div> <div><br></div><div>Natural gas reached its lowest level in a decade last spring, but there is a very long lead-time from when a power plant is planned, and when it actually begins buying fuel for production. This means that the low price point reached last spring, could be the start of a very long up-ward trend in natural gas prices as large scale buyers of natural gas, such as power plants, finally start utilizing the fuel in their completed operations. </div> <div><br></div><div>Other key demand drivers for natural gas are: transportation fuel, <a href="http://en.wikipedia.org/wiki/Liquefied_natural_gas">LNG exporters</a>, and residential and commercial heating.</div><div><br> </div><div>People have long been declaring the growth of natural gas utilization for transportation, but there is now increasingly more evidence that predictions are finally coming to fruition. Major companies such as Waste Management and UPS have already made the commitment by buying fleets of natural gas trucks, while other key transportation players in the rail-road industry, such as Norfolk Southern and Union Pacific, are seriously considering converting many engines to natural gas. </div> <div><br></div><div>Right now, supply for <a href="http://www.eia.gov/naturalgas/weekly/">natural gas in North America is very high</a> (especially from recent shale gas production), and for an investor, that means prices will remain low right now and profit margins may not currently be as high as investments in oil, but once demand for natural gas increases, and price comes up to an equilibrium, a lot of the investment money will already be made by those in on the ground floor. </div> <div><br></div><div><b>Where can the Intelligent Investor find an investment in natural gas?</b></div><div><br></div><div>Encana is Canada's largest natural gas producer, and easily one of the markets purest ways to invest in natural gas production. Second quarter operating profit at the company increased <a href="http://www.4-traders.com/ENCANA-CORPORATION-1409827/news/Encana-operating-profit-rises-25-percent-as-production-jumps-17121361/">25 percent recently</a> as volumes at the company soared.</div> <div><br></div><div>Capital spending at Encana for the year is expected to be in the $3 billion range, which will be above current cash flow levels. This means that the company will have to sell some assets or borrow money in the short-term, but as natural gas prices rise, or capital expenditures decline, free cash flow at Encana will leave shareholders with plenty of money leftover for dividends and share buybacks.</div> <div><br></div><div>Cheers and Happy Investing.</div><div><br></div><div>Matthew Clarke. </div><div><br></div><div>(Full Disclosure: Matthew Clarke's clients and family may own or hold shares in Encana)</div></div> Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-71454715927880648112013-03-14T13:07:00.002-04:002013-03-14T14:38:17.341-04:00Fee-Only Financial Planning: How do Most Canadians Pay Their Financial Advisors?<br />
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Today’s Globe and Mail sheds light on the industry of
fee-only financial planning. Most Canadians are completely unfamiliar with the
concept of hourly-rate financial planners, but as the Globe and Mail notes, a
small shift is beginning developing within the financial consumer’s mindset.</div>
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How do Most Canadians Currently Pay for Financial Advice?</div>
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Most Canadians pay for financial advice in one of two ways:<span style="font-size: 7pt; text-indent: -18pt;"> </span></div>
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<li><span style="text-indent: -18pt;"><b>A commission on the dollar amount of investments
being managed</b>. Most often this is reflected as a percentage of a particular financial transaction.
For instance, if John and Jane Smith invest $100,000, they would pay a
commission of anywhere from about $1500 to $2500 for the service. Some
investment companies may charge as high as 5%, or $5000, but that is getting
increasingly rare.</span><span style="text-indent: -18pt;"> </span></li>
<li><span style="text-indent: -18pt;"><b>A percentage fee charged annually on the amount
of money invested</b>. Most often, this charge is hidden within a wide range of
investment and/or mutual funds fees and charges that is simply deducted from
the investment returns of the customer. For instance, if John and Jane Smith
invest that $100,000 in a balanced mutual fund at the bank, they would most
often pay about $2,000 to $2,500 per year in mutual fund fees. Now, if the bank
actually showed those charges to the customer, there would be an outrage… so
they simply hide them in the prospectus and reports. How do they do this? Let us imagine that John and Jane earn 5% on their investments valued at $100,000, or $5000. In order to pay their fees of 2% per year, the bank or financial institution would simply show them a net return of $3,000 or 3% (Their $5,000 actual investment return, minus 2%, or $2,000 in fees).</span></li>
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There is, however, a third, and much more transparent way
that Canadians can pay for financial advice: </div>
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<b>3. Hiring a fee-only
financial consultant or planner.</b> This method generally involves the
individual financial consultant billing the customer an hourly rate for the advice that they give.
For instance, if the advisor charges $75 per hour, and the customer seeks an
hour of advice, the bill would be $75. Plain and simple, with no hidden charges
or secret fees buried inside the prospectus or report. Obviously, this method would not earn as much for the planner or financial institution, so it is less common and little advertised.</div>
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Why don’t more Canadians use fee-only financial planners /
consultants? It is easy for the population to be manipulated by the financial industry into thinking that they are not “paying” their advisors or planners when
they do not get an obvious bill for services rendered. Of course, the truth is that they are often paying more than necessary. Perhaps it is time for a change!</div>
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Cheers, and Happy Planning and Investing!</div>
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Matthew. </div>
Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-78629651059853050322013-03-12T11:05:00.001-04:002013-03-12T11:08:35.934-04:00Leon's Takeover of The Brick Almost Complete: Competition Hurdle is Cleared.<div dir="ltr">
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The takeover of The Brick Ltd (TSE: BRK) is almost complete as the Leon's Furniture corporation (TSE: LNF) received a "no-action" letter from the Competition Commissioner in Canada. This means that the retail operations of both companies will be able to consolidate, and profit from any associated synergies, without have to sell any stores or significantly alter their businesses. </div>
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The Brick's shareholders are going to receive $5.40 per common share from Leon's, and the deal is expected to be completed by the 28th of March, 2013. </div>
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Currently, Leon's has 73 stores, and The Brick has 230. Combined, they should be able to share warehousing and distribution, and head office and administrative employees, which should reduce costs, as well as increase their overall buying power with their suppliers. Increased buying power can result in lower per unit costs for retailers, and either lower prices for customers or higher profit margins for the stores.</div>
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Are other Canadian retailers ripe for more activity down the road?<br />
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Sears Canada has long been struggling to survive under the rule of its American parent (Sears Holdings (Nasdaq: SHLD), but their days seem to be numbered as profits and sales continue to fall. Also, the newly re-listed Hudson's Bay Company (TSE: HBC), despite recent re-branding efforts and an apparent reversal of fortune, will continue to be pressured to release even more of its valuable real estate holdings into the marketplace. </div>
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Continue to keep an eye on both going forward.<br />
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Cheers, and Happy Investing!</div>
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Matthew. </div>
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Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-70586205556487662672013-03-11T11:40:00.001-04:002013-03-11T11:40:14.187-04:00Here We Go Again! Student Loans Being Packaged as Investment Vehicles.<div dir="ltr"><div dir="ltr"><div><div style><a href="http://1.bp.blogspot.com/-ZV1YTw90Elk/UT363nhLL7I/AAAAAAAAAUQ/TvB-DI3XSrw/s1600/student%2Bloan%2Binvestments-714187.jpg"><img src="http://1.bp.blogspot.com/-ZV1YTw90Elk/UT363nhLL7I/AAAAAAAAAUQ/TvB-DI3XSrw/s320/student%2Bloan%2Binvestments-714187.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5854110924059389874" /></a>The Wall Street Journal has reported that billions of dollars in student loans are now being packaged together as investments for investment banking clients around the world. </div> </div><div style><br></div><div style>Reminiscent of the recent mortgage loan crisis that occurred only 5 years ago, and that we are still feeling the pain from today, thousands of student loans are being bundled together so that they can be sold as "safe and secure" interest bearing securities. </div> <div style><br></div><div style>SLM Corporation (NYSE: SLM), the largest student loan company in the United States, sold $1.1 billion of the loans recently, and demand was high enough to make it glaringly obvious that few lessons were learned from the mortgage crisis, and investors are willing to "reach for yield," or take a lot more risk if it means earning some extra percentage points in return. </div> <div style><br></div><div style>Interest rates in the current investment environment are at historically low levels, and SLM Corporation is taking advantage of the climate by offering investors the chance to make a little extra money, while at the same time ridding their balance sheet of billions of dollars in loans to students with limited job prospects in a dismal market for young graduates.</div> <div style><br></div><div style>Interestingly, student loan levels are rising, delinquencies and defaults are rising, and yet many banks are now choosing this time to package the loans and sell them to investors... if only these banks had some sort of responsibility to actually care for their clients or customers.</div> <div style><br></div><div style>Cheers, and responsible investing : )</div><div style><br></div><div style>Matthew. </div><div style><br></div></div> </div> Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-71787585064368408852013-01-17T12:30:00.001-05:002013-01-17T12:32:59.205-05:00Death of ING Direct Almost Complete. Scotiabank and Capital One Implementing Takeover. It was a Good Idea While it Lasted.<div dir="ltr">
The slow death of ING Direct in North America is almost complete. After Capital One's $9 Billion purchase of the American unit of ING, and ScotiaBanks's $3.1 Billion purchase of the Canadian unit, both banks have been shuttering a number of ING's once thriving business units.<br />
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In Canada, Scotia announced that they will be <a href="http://business.financialpost.com/2013/01/16/scotiabank-cuts-off-mortgage-brokers-at-ing-direct/?__lsa=f3e2-7445">closing ING Direct's Mortgage Broker unit</a>, which offered discount mortgage loans to Canadians via mortgage brokerage offices. Clearly, this is an attempt to consolidate and direct business to the traditional ScotiaBank unit, and hopefully raise costs and rates for Canadians through reduced competition. This is happening after ScotiaBank just recently promised everything would stay as-is at the ING unit, and that they would not attempt to reduce competition through their acquisition. Did Scotia lie?... I am sure everyone is very surprised : )</div>
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In the United States, Capital One is <a href="http://www.forbes.com/sites/chrisbarth/2012/11/07/ing-direct-gets-a-new-name-following-capital-one-acquisition/">renaming ING Direct</a> "Capital One 360," and eliminating the firm's iconic orange branding. The new colour for ING? Dark blue and maroon. Capital One, however, promises ING clients no change in services, which sounds familiar to what Scotia said in Canada. </div>
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Undoubtedly, both Capital One and Scotiabank will start enacting "cost saving measures" to increase "efficiency" at their new banking units, and this will mean job losses for many of ING's North American employees. This will be good news for Scotiabank and Capital One shareholders, but undoubtedly bad news for those employees, their families, and probably ING Direct's North American customers as well.<br />
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Less competition is good for corporate profits, but bad for banking customers. Continued consolidation in the banking sector leads to reduced options and higher prices. This means higher interest rates on loans, lower interest rates on savings, and higher banking fees. For investors in Scotia and Capital One, it means higher profits.</div>
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Cheers, and Happy Investing! </div>
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Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-32398248122780499612013-01-15T10:59:00.001-05:002013-01-15T11:04:57.795-05:00Canadian House Prices. Sales Down, but Prices Hold Firm. Toronto and Vancouver Real Estate Weigh Heavily.<div dir="ltr">
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The average resale housing price has risen to $352,800, up 1.6 percent over last December. That is the good news. Overall, sales of existing homes in Canada declined by 17 percent from the level last year.</div>
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In addition, the supply of new homes onto the market has been steadily declining for three months. This reduced level of supply has helped to ensure that prices have remained relatively steady, as has a reluctance from home-owners to accept prices lower than they have become accustomed to in hot markets. <br />
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According to the CREA's chief economist, <a href="http://www.cbc.ca/news/business/story/2013/01/15/business-crea-housing-december.html">Gregory Klump</a>, sellers are simply taking their homes off the market and holding firm if the prices they desire are not materializing. This has made for a slower market, but at the same time, there is a strong semblance of stability. </div>
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The national average is being particularly weighed down by Toronto and Vancouver, which if removed from the sales data, results in a 3.3 percent price increase. </div>
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Bad news for home owners and real estate investors? Not necessarily. Stability and consolidation in the marketplace is a good thing. A long slow period of price consolidation can help to familiarize buyers and sellers with more realistic and current price levels, and help mitigate a price collapse in the future. Also, as indicated above, Toronto and Vancouver are seriously weighing down data, so for those buying in many smaller urban centres across the country, the current situation is actually better. </div>
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Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-36598028451202375092013-01-14T15:29:00.001-05:002013-01-14T15:30:41.882-05:00A Business Plan for Entrepreneurs, Investors, and Business Owners. Stay on Target.<div dir="ltr">
<a href="http://4.bp.blogspot.com/-3ioXSj0LcVg/UPRqkfbcC9I/AAAAAAAAASA/_Lh-hP3_JQk/s1600/Business%2BPlan-745317.jpg" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="" border="0" height="150" id="BLOGGER_PHOTO_ID_5833404592496053202" src="http://4.bp.blogspot.com/-3ioXSj0LcVg/UPRqkfbcC9I/AAAAAAAAASA/_Lh-hP3_JQk/s200/Business%2BPlan-745317.jpg" width="200" /></a><span style="color: black; font-family: georgia, serif;">A recently published <a href="http://blog.cx.com/business-tips/how-to-prepare-a-sales-plan-eight-strategic-questions/">CX Blog</a> article highlighted some strategic questions that have to be asked when preparing your sales plan. Though written primarily for the eyes of entrepreneurs, the information and message is very useful for independent business owners and shareholders alike. </span><br />
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<span style="color: black; font-family: georgia, serif;">If you had to reflect on the sales plan for any of your investments, do they make sense? Are they clear? Or are they convoluted and lacking focus and attention? </span></div>
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<span style="color: black; font-family: georgia, serif;">Below I have highlighted 7 strategic business questions for you to consider as owners, entrepreneurs, and investors: </span></div>
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<span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;">1. Why should people want what you're selling?</span></span></div>
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<span style="color: black; font-family: georgia, serif;"><span style="line-height: 22.3828125px;">What does the product or service help people do? What need does it satisfy? </span></span></div>
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<span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;">2. Who are you selling to?</span></span></div>
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<span style="color: black; font-family: georgia, serif;"><span style="line-height: 22.3828125px;">Are there target markets for the product or service that you want to sell? Do they have specific demographic characteristics? Are you focusing on a specific region really well? Or are your efforts scatter-shot all across the map?</span></span></div>
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<span style="color: black; font-family: georgia, serif;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Who is your competition?</span><span style="line-height: 22.3828125px;"><br /> </span></span></div>
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<span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;">Who are the top competitors in this industry? How are you different? What do you do better? What can you learn from your competitors, and what are they not doing well? Is there a hole in the market that they are not satisfying?</span></span></div>
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<span style="color: black; font-family: georgia, serif;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. What is your price point?</span><br /> </span></div>
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<span style="border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;"><span style="line-height: 22.390625px;">You need to consider what the current price range is for the product or service that is being offered? Where do you fit into the mix? Is there something you are offering, or that you can offer that can put you into a higher price point? Or do you want to be at the bottom? If you want to be at the bottom, make sure your costs are less than those of your </span><span style="line-height: 22.3828125px;">competitor</span><span style="line-height: 22.390625px;">. </span></span></span></div>
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<span style="border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. How many customers do you need to reach your profit goals?</span><span style="line-height: 22.390625px;"><br /> </span></span></span></div>
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<span style="border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;">Or, how much volume do you need to do? Have you established your break-even point, above which you start to make a profit, and below which you are operating at a loss. Not knowing key information such as this leads to a lot of business failure early on. </span></span></span></div>
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<span style="border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">6. How will you reach your market?</span><br /> </span></span></span></div>
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<span style="border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;">How will you gain new customers? Will you utilize referrals, advertising, sales promotions, et cetera? Try to track what works and what does not. For instance, have you had any success with old media like newspaper ads, or do you need to shift your focus on-line? </span></span></span></span></div>
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<span style="border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;"><br /> </span></span></span></span></div>
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<span style="border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;">7. Is there a clear sales pitch?</span></span></span></span></div>
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<span style="border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="border: 0px; line-height: 22.390625px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="color: black; font-family: georgia, serif;">Often referred to as the 30 second elevator speech, a business needs to have a directive clear and transparent enough to be explained in 30 seconds or less. You need to be able to state what need you are satisfying in the market, and either differentiate yourself from the crowd or place yourself in a target niche. Will anyone remember or be able to explain to someone else what exactly it is you or the business does? </span></span></span></span></div>
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<span style="color: black; font-family: georgia, serif;"><span style="line-height: 22.3828125px;"><br /></span>Try to read the above noted points a few times, and think about them in relation to your own business interests, or even perhaps your own personal brand. </span></div>
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<span style="color: black; font-family: georgia, serif;">Cheers, and Happy Investing. </span></div>
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<span style="color: black; font-family: georgia, serif;">Matthew.</span></div>
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Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-13277380993158688122012-10-31T13:00:00.001-04:002012-10-31T13:00:37.615-04:00What Makes the Perfect Stock? Five Key Components.<div>There are a lot of different factors that combine to make the perfect stock, and even then, there is no guarantee of success. Nonetheless, this article will try to identify some key components every investor should consider when hunting for the next money-making opportunity. </div> <div> </div><div>What to look for in your next stock investment?</div><div> </div><div>1. Growth: Healthy growth in revenue is a good start for any quality investment. Preferably, a rate of 15% over the last five years would be ideal, but sometimes there may be glitches along the way due to recessions and business restructuring. </div> <div> </div><div>2. Profit Margins: How much money the company actually earns in profit for each dollar the company generates in revenue. Somewhere in the range of 15% or more would be healthy, and provide some cushion for pricing pressure and new competition in the market. Some businesses, like grocery stores, however, have chronically low profit margins, which is evidence of stiff market competition. </div> <div> </div><div>3. Balance Sheet: Essentially, the more money the company has borrowed, the less of a stake in the company its shareholders have should things turn south. Try to find a company that has a lot of assets compared to its liabilities. If a company has no long-term debt, that would be ideal, but of course this is rare. A debt-to-equity ratio is often utilized in this area, and if so, try and keep it below 50% debt. </div> <div> </div><div>4. Valuation: This is generally a comparison of the price of the stock in relation to its earnings. Anything over 20 times a 3-5 year earnings average is too expensive for most businesses, and under 15 times would be best as long as the company displays other signs of health, like those mentioned above. </div> <div> </div><div>5. Dividends: A dividend is how much money the company returns in cash to its shareholders. Dividends vary widely, and it is important to remain principled in this area. It is easy to go chasing stocks that do not pay a dividend, but it can become dangerous as dividends can be used as a good indicator of overall financial health. Ideally, a dividend of over 2% would be considered healthy. </div> <div> </div><div>Cheers,</div><div> </div><div>Happy Investing Intelligent Investors, and please remember to share this blog with others!</div><div> </div><div>Matthew. </div> Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-24674860887605597992012-10-21T11:52:00.001-04:002012-10-21T11:52:04.383-04:00Why Gold? Inflation and the Dollar.During economic uncertainty it has become essentially economics canon to purchase and stockpile gold as an investment or hedge. Why is this the case? Clearly, gold has little or no practical uses. Of course, it used as jewellery, and has a number of uses in the field of electronics manufacturing, but not nearly enough to support present-day production and supply. <br> <br>Prior to Nixon removing America from the gold standard in 1971, the U.S. dollar was pegged at $35 per ounce of gold. After 1971, the U.S. dollar essentially became a free-floating currency backed by nothing but our imagination. To help hedge against this uncertainty, it became increasingly important for a lot of investors and wealthy individuals to store a certain amount of their savings or reserves in the form of gold to prevent being stung by a collapse in the U.S. dollar. <div> <br><img src="http://cdn.marketcalls.in/wp-content/uploads/2010/07/gold_price416x310.gif"></div><div><br>Currently at $1721, gold has continued its stratospheric move upward, primarily due to perceived instability and over-supply of the U.S. dollar. So why do people buy gold? They expect inflation, or a general decline in the purchasing power of their currency. One ounce of gold, for instance, could buy a fine suit in 1971 and in 2012, but in dollar terms, the same suit would have increased in cost from less than $100 to $1700... If someone had held their reserves or savings in cash during this period, their buying power would have essentially completely collapsed. If, therefore, you have a reasonable amount of savings, you do not want to hold it in cash or low-interest savings accounts for any extended period of time! It is almost guaranteed to lose its value. <br> <br>Some other more generalized reasons for why people choose to invest in gold are as follows:<br><br><ul><li>It is durable - it doesn't corrode.</li><li>It is divisible and homogeneous - you can break it up into smaller amounts.</li> <li>It is easily recognisable and hard to counterfeit.</li><li>It has a stable supply because it is hard to get out of the ground.</li><li>It is portable.</li><li>It has a strong history accepted as a medium to facilitate exchanges. </li> </ul><div>Keep in mind, however, that gold does experience wild swings in popularity amongst both central governments and investors, and thus can leave even astute and Intelligent Investors in substantial negative territory for some time in dollar terms. So buying gold is not a sure-fire way to curb against inflation, but included in a basket of resources it is a nice start.</div> </div><div><br></div><div>Cheers and happy investing!</div><div><br></div><div>Matthew. </div> Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-44235276871895860042012-10-20T19:59:00.001-04:002012-10-20T19:59:41.497-04:00HP (NYSE:HPQ): Un-Loved and Under-Appreciated.<div>Investors have driven shares in HP down over 41% this last year, and down over 71% in a five year period. The turnaround plan under Meg Whitman seems to be going nowhere, and investors are concerned that a trend toward tablets will destroy personal computer sales. We are seeing this same concern drive down shares in both Intel and Microsoft as well recently.</div> <div> </div><div>There are, however, some things to love about Hewlett Packard:</div><div> </div><div>1) The company is expected to earn over $7 Billion in profits next year. With a market capitalization currently of about $28 Billion, that represents a multiple of only 4 times! Paying four times earnings for a company represents an earnings yield on your investment of 25%! Not bad for a brand-name technology titan that definitely has the balance sheet to stay competitive for some time to come.</div> <div> </div><div>2) The company recognizes that it is facing problems, is not in denial, and is actively engaging in cost-cutting and turnaround efforts. </div><div> </div><div>3) The company pays a dividend of 3.65%. In today's low-rate environment a dividend over 3% represents a reasonable return on your savings, and since the company is currently trading at a low multiple to next year's earnings, there is up-side potential in the stock as well. </div> <div> </div><div>4) The company is #1 or #2 in a wide number of product markets. Though many think of HP as primarily a PC manufacturer, it has leading positions in servers, storage, networking, software, systems management, and printers as well. Essentially, the company began diversification efforts long-ago, and they have paid-off. As PC sales decline, other units of the company should be able to pick up the slack. </div> <div> </div><div>Of course, no technology investment is without a higher degree of risk, but HP is definitely worth a look for the Intelligent Investor. </div><div> </div><div>Cheers, and happy investing!</div><div> </div> <div>Matthew. </div> Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-51576444346014529492012-10-01T14:11:00.001-04:002012-10-01T14:11:07.706-04:00Tim Horton's Rises in Zagat Survey. Now 5th in the United States. Expansion Continues.Tim Horton's is now listed as one of the best fast-food restaurants south of the border. Having put itself up against stiff and entrenched competition from global super-powers, such as Starbucks and McDonald's, Tim's has proven itself to be a formidable Canadian competitor.
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<br>Last year, Tim Horton's was ranked 22nd in the same survey, so this represents a small victory for the Canadian chain. Brand recognition is still nowhere near as strong as it is north of the border, but it is successfully using its Canadian stronghold to pour resources into the American market.
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<br>There are now over 700 Tim's locations in the United States, and another 80 to 100 Tim Horton's stores will be added in 2012.
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<br>Intelligent Investors, be sure to keep a pulse on Tim Horton's shares as they further expand in the United States. The American market is huge and has lots of opportunity.
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<br>Cheers,
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<br>Matthew.
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<br>Sent with the BlackBerry Bold 9900.Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-37076371829999388002012-09-17T14:21:00.001-04:002012-09-17T14:21:08.681-04:00Cash Rich Canadian Companies.Bank of Canada governor Mark Carney has been complaining recently that Canadian businesses are not doing their fair share to boost the economy. He is demanding that they spend some of their cash hoards, or return it to shareholders in the form of dividends so that they can spend it.
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About 70 percent of all economic growth is from personal consumption, so the governor's words are warranted in the sense that cash sitting in corporate bank accounts cannot exactly help you and I go buy more stuff to boost national GDP. But what is the other alternative? Raise corporate taxes and use the increased government revenue to pay for infrastructure development and other government programs... Most business leaders, however, would protest at the prospect of tax increases so loudly that any common sense would be quickly thrown aside.
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So who are the cash-rich Canadian companies referred to so much by Mark Carney? Below I have listed some of the biggest:
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George Weston Ltd. ($3.6 Billion)
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Air Canada ($2.38 Billion)
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Research in Motion ($1.9 Billion)
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Suncor ($5.1 Billion)
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Teck Resources ($3.64 Billion)
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Bombardier ($2.47 Billion)
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For the Intelligent Investor, try to always keep a nice portion of your portfolio concentrated in cash-rich enterprises. As a shareholder, their bank account is your bank account, and you want to make sure to avoid businesses with a poor record of accumulating and saving cash on the side for emergencies.
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Cheers, and Happy Investing!Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0tag:blogger.com,1999:blog-8194020284579681260.post-28801638301440627292012-09-12T14:00:00.000-04:002012-09-12T14:01:08.960-04:00Acquisitions are Good Investment Catalysts for Canadian Investors. Shoppers Drug Mart, Bell Alliant, Manitoba Telecom, and Corus Could be Potential Targets.One of the most important things to examine regarding a potential investment opportunity is whether or not there might be a catalyst in the coming months or years. What do I mean by a catalyst? Something that will cause the price of the stock, and the associated value of your investment, to change. Potential catalysts might be a dividend increase, an upward revision or increase in a company's earnings guidance, a new product development et. cetera. Another key catalyst, and one which will be examined in this posting is that of a potential acquisition.<br />
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A potential acquisition generally causes an upward movement in the price of the company being acquired, and often a downward movement in price for the company making the purchase. Why? Existing shareholders of the company being acquired need to be compensated enough to encourage them to want to sell their stock, and the company making the purchase often has to pay well-over fair or book value for the company it is buying in order to get the shareholders to agree to the offer. </div>
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Are there any Canadian companies that might be the target of an acquisition going forward?</div>
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Below I have listed four Canadian companies that appear to be nice targets for a number of large and cash-rich businesses:</div>
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1) Shoppers Drug Mart (TSE:SC)</div>
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Shoppers is a healthy and profitable company with a loyal following. U.S. Based Walgreen Company (NYSE:WAG) is poised for Canadian expansion. </div>
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2) Bell Alliant (TSE:BA)</div>
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A declining land-line revenue stream, but an acquisition hungry and cash-rich partner in Bell Canada Enterprises (TSE:BCE). </div>
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3) Manitoba Telecom (TSE:MBT)</div>
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With limited growth, and a declining land-line revenue stream, Manitoba Telecom management could look kindly to cash-in and take a healthy buyout from Telus (TSE:T) or Bell (TSE:BCE).</div>
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4) Corus Entertainment (TSE:CJR.B)</div>
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With the rampant media consolidation happening in Canada right now, Shaw Communications (TSE:SJR.B) would be a likely suitor for Corus.</div>
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Full Disclosure: Matthew Clarke owns or indirectly controls shares in Shoppers Drug Mart and Bell Canada. </div>
Matthew Clarke, BA (Hons.), B.Ed., MBA.http://www.blogger.com/profile/05012543786035857193noreply@blogger.com0