What will be the best stock picks for 2011? I don’t know yet but I can tell you that I didn’t make the right choices in 2010 for our stock pick competition! So before I write about my best stock picks for 2011, I’ll review what happened in 2010 with my stock picks…
When bad news comes in waves
I still believe I had good picks for 2010 and that, over the long run, those companies will perform. The proof is almost there as my 3 loser picks (RIM, MFC and GS) had grown in dramatic fashion over the last quarter. Too little, too late, I’m stuck with a losing hand for 2010!
RIM was hit big time as Apple entered in the smartphone ring with a huge uppercut. Bad news and rumors are now driving down RIM stocks towards the bottom of the pile. Fortunately, the company showed positive results and the stock is now back up.
When I first wrote about my best stock picks, I thought Manulife’s problems were over. I thought 2010 would be a great year for them and that the management team was strong enough to overcome their maelstrom…. Bad move, Manulife got hit by more bad news and was eventually downgraded by Moodys.
My last bad news bearer is one of the strongest investment banks that survived 2008 credit crisis; Goldman Sachs. If the SEC didn’t fill a lawsuit against them, they would have been pretty good in 2010. The stock is now back to where it was at the beginning of 2010, so just a small loss for a great stock pick…
And the Winner is….
Here’s the final result of our 2010 stock pick contest. If you click on each name, you will get their latest post on the stock pick competition. Wild Investor is winning our stock competition this year but one of my reader beat all of us: Brian end-up with 94%! (here’s his picks: RHIE, ISCO, BTIM, ACTC)
Intelligent Speculator -0.45%
The Financial Blogger -1.64%
Wild Investor 27.15%
Million Dollar Journey 3.79%
Where Does All My Money Go 26.56%
Four Pillars -35.25%
Zach Stocks 20.87%
My Traders Journal 10.39%
Dividend Growth Investor 26.08%
HUZ – Silver ETF, There is a problem with gold
I’m not a big fan of commodities. Why? Because they are based on pure speculation…but this is also the goal of our stock pick contest, isn’t? I’m taking a Silver ETF because I think it is undervalued compared to gold. The price of silver usually follows gold by 1/16 and now we are at…. 1/46! So either the price of gold is too high, or the price of silver is too low. I’m betting on the latter.
RIM – Research in Motion Strikes Back!
I still believe RIM is a good stock pick. And I think that it will be one of the best stock picks in 2011. RIM is the best player in emerging markets and now that the economy is restarting, they should increase their sales. At least Apple shouldn’t be able to play in this market for now as the iPhone cost and network coverage are too expensive for emerging markets for now.
CVX – Chevron, For those who are scared
I am slowly converting to dividend investing with my latest buy; The Dividend Guy Blog. I have a Chevron stock analysis over at this blog and I think this will be a good stock pick to stabilize my gambles. I think that Chevron will continue to pay a good dividend and the stock should be stable throughout the year. Therefore, it will be a good pick if silver or RIM fail at some point ;-).
POT – Potash, once investors are converted to believers, it will blow!
In 2010, we almost lost the biggest potassium producer in the world with the hostile bid by BHP Billiton. While this event helped Potash to be one of the best stock picks in 2010, its value will increase as the commodity will continue to rise. Potash seems like a good bet for such a competition.
Here’s the chart with all the participants. If you click on each name, you will get more details on their stock picks (more to come in the upcoming days )
Last year, a few readers posted their picks, I want to encourage you to do it and I’ll offer a prize to the winner if you can beat our group of bloggers for the 2011 Best stock pick contest. If you want to participate, you simply have to put your 4 stock picks in the comment section and use the tweet box on the top of this blog (or the following: Best Stocks Picks 2011 Contest @FinancialBlogr : http://bit.ly/gooxCw. Enter your 4 stock picks in the comment section to be in!) . I like Apple products, do you?
disclaimer: I do hold RIM in my portfolio (and Chevron is on it’s way!)
I actually like what is going on in the markets right now as I believe there is a huge opportunity for us to make money over the long term. While many investors thing the stock market is sick, I’d say it is just another rough patch to ignore.
The good side of things is that our Canadian dollar is still pretty strong (fluctuating between $0.95 and $1.00 US) and the US stock market hasn’t recovered as it should have (keep reading to know why).
This should give you 2 great reasons to think about investing in the US stock market:
Our dollar is strong
The fact that our dollar is strong compared to US money is really good news. We presently benefit from the good reputation of our economy (thanks to our Canadian Banks ). This brings more foreign investors to invest in Canada (either in our stock market or via Canadian bonds, government and corporate). We also host several major players in the oil and gold industries. Since China and India are still very hungry for these resources, our Canadian dollar has remained at a higher level than usual.
However, I think that once the concerns about the US economy are resolved, our dollar will start going down again. The US has a more diversified economy and was built with strong companies with a lot a liquidity and positive cash flows. Sooner or later, this will have an impact on their economy and it will recover from their housing-bubble-credit-swap mess.
In the meantime, it gives you a great opportunity to convert strong Canadian dollars into weak US dollars and buy US stocks. And this leads me to my second point:
US Stocks are being ignored
Since the credit crunch in 2008, there is a cloud of fear over the head of the US stock market. People seem to think that all companies have the H1N1 virus and we best kept our distance from them.
After further analysis, I have realized there are several interesting plays to make on the stock market. If you just take into consideration their PE ratios, you will notice that some US stocks are just ignored by most investors:
|Company||Ticker||Price (Aug 13th 2010||PE Ratio||Dividend Yield|
|Johnson & Johnson||JNJ||$58.52||12.09||3.69%|
|Procter & Gamble||PG||$59.99||17||3.21%|
As you can see, you can probably find great investing opportunities with some companies providing serious dividend payouts as well. If you are looking for a long term investment such as inside an RRSP, I think that some US investments couldn’t hurt ;-).
If you are not completely decided as to which stocks to buy, you can also consider US index ETFs or mutual funds (you can look at this article for more small portfolio investment ideas: investing a $1,000 or less). But take one that is not hedged against the currency to make sure to benefit from the future Canadian dollar drop (it may happen faster than we think if you agree with the idea that we are about to burst the Canadian housing bubble soon…).
Comments: 4 Read More
I have an important dilemma to debate right now. When it’s time to talk about investing, I have 2 convictions:
- Index investing is probably one of the best way to make money without worrying too much about the trades to make.
- Dividend investing is also a great way to build a strong portfolio that generates income.
And yet the 2 strategies are not serving the same purpose:
- Index investing is looking forward to produce long term growth.
- Dividend investing is looking to produce a steady flow of income right now and benefit from an eventual growth.
But what really bugs me in this dilemma is not the purpose of investing but the results you get when you compare the 2 strategies (beware, this is going to be ugly!):
In order to make a comparison between index investing and dividend investing, I have taken one of the best index funds vs one of the best dividend funds. How did I choose them? I looked at established mutual fund companies and took funds that have more than 10 years history to be able to make a real comparison. Then, I took one of the best yields for both of them (looking at 3, 5 and 10 year annualized yields). So I have the Altamira Canadian Index fund Vs the RBC Dividend fund. Since the Altamira fund was created in 1998, I had to take this point to make the comparison. So here we go (click on image to enlarge)
So there are 2 things that you can see while comparing index investing vs dividend investing:
#1 Over the past 11 years, investing in dividends shows a better return.
#2 When you look at the annualized rate year by year, you can see that the index funds will out beat the dividend fund easily in periods of growth but drop rapidly and lose the advantage as soon as it hits a market drop.
So, after looking at those two graphs and taking a good sip of coffee, I still wonder if it really worth it to suffer bigger fluctuations and ending-up with a smaller yield with an index.
On the other side, there are a few considerations to take for the upcoming year if you think of buying a dividend fund versus dividend stocks:
#1 Growth is unlikely to come from Canadian banks. They will do fine but I don’t see them increasing their profits like Apple!
#2 If you buy dividends funds, they usually include bonds and preferred shares. Therefore, their value will drop upon increases in interest rates.
#3 If we are going to enter another period of economic growth (most major companies in the US show strong financial results), chances are that index investing will be a winner for the upcoming years.
#4 We are taking 11 years to make the comparison where we had 2 majors economic crisis. If we take the same 11 years period in a few years, we would start our calculation after the techno bubble and chances are that the same graph will show different numbers.
So I’m still not convinced which one is best for a long term project…
What about you? Dividend investor or Index investor?
and if you want to learn more about dividend investing, I suggest you go look at our new blog; The Dividend Guy Blog.Comments: 15 Read More
Oh boy, oh boy, oh boy! This is not my year to make the right stock picks! See how things can go sideways even with good companies?
First: Goldman Sachs Lawsuit
What can you expect from a good financial stock when the company is being sued by the Federal government? Nothing but a severe plunge! While I still think that Goldman Sachs is a great company and that they will bounce back (I would buy more of them if I had liquidity right now!), I really picked the wrong time to choose it as a good investment pick in 2010
Second: Research In Motion Investors‘ Disappointment
While Investors were astonished by RIM for several years, they all seemed to turn their back on this amazing company and prefer Apple’s gadgets. I actually have an iPod and will probably buy an iPad eventually so I have nothing against Apple’s iDepartment. However, I still think that the best tool to work with is a Blackberry. The income and revenues are increasing but nothing seems to be enough for investors now that they have found their next flavour of the month!
Third: Manulife Going Down To Hell
I thought that the problems were over with Manulife and I had figured it was a good gamble for this year. Unfortunately, this is not the best pick either… investors seem to be reluctant to give Manulife credit for their operations… hopefully the wind will turn during summer time!
Fourth: Emerging Market On The Sideline
My best pick so far is also negative… man! It’s a bit depressing but I still have faith in emerging markets. They can surge at any moment and this is the kind of stock that can make me gain a few positions in our contest in no time.
So How Did It Go for the Others?
Take a look at the result so far at Q2: only 1 positive portfolio: Dividend Growth Investor at 6.39%!. You can click on each blog to view their comments about their stock pick experience so far this year:
Blog Best Stock Picks for 2010 Ytd
Intelligent Speculator UNG
Wild Investor BAC
The Financial Blogger RIM
Four Pillars DZZ
Where Does All My Money Go FUN
Dividend Growth Investor O
Million Dollar Journey HE.TO
My Traders Journal UUP
Zach Stocks BX
Looking to trade other stocks ? Try these introduction videos about:
Chances are that if you own an RRSP, you hold at least a few foreign shares. Why? Because first of all, diversification is an important part of any portfolio. Canada has been performing incredibly well at all levels for a good decade now and odds are that this cannot continue like this forever. Most Canadian investors hold a significant portion of their portfolio in American and also foreign (especially emerging markets) companies. Most research has been very clear about the numerous benefits, both in terms of higher returns and diminished risk.So what exactly is the problem then? In this era of cheap trading, most brokers charge less than $20 for executing a stock trade. The problem is that there is more involved than commission here. If you own shares of a US company on a US market from a $CAD account, you will end up paying an exchange rate in order to execute the USD transaction. The spreads on such trades are incredibly high, often about 2%. Let’s put that in perspective for a minute. Let’s say you keep each position on average for 2 years, that means you are paying 2% of costs every year (2% to open the trade + 2% to close). Remember hearing about the power of compounding? If you end up paying an additional 2% in fees every year, these will accumulate very quickly. Of course, you will rarely notice because these fees are not written anywhere. If you invested $20,000 for 30 years paying 2% per year, that would add up to $16,300!!!!! Incredible isn’t it? How can they get away with that? Because consumers generally do not care. They prefer shopping for the lowest commission rate and will usually not even bother to ask about forex spreads (the actual cost you are incurring). Don’t believe me? Try buying a US stock and selling it right away. You will see that in addition to the fixed rate commission you will have paid a fee of over 3% in “exchange rate costs”. Are there any solutions? Thankfully, there are a few things you can do to diminish these costs, here are a few:
- If the stock is traded in Canada, trade it here. Buying and selling Research in Motion or Potash in Canada for your $CAD account will save you tons of money
- if you are looking for indices traded as ETFs, many are now traded in Canada and you end up getting the conversion done by iShares or others. If you are buying for a long period of time, it might not be worth it because you will be paying management fees annually. But as a short term investment? Absolutely!
- Canadian Capitalist had discussed a strategy that might be liked by more advanced investors although it has to be used for fairly significant amounts and will not really work for RRSPs (at least not done exactly as suggested).
- Open a USD RRSP: This is by far my favourite method because USD investments will be bought and sold in US dollars so apart from the initial cost, you will not be paying such fees. So you completely avoid the compounding effect. On the previous $20,000 example, the cost would be close to 2% of the initial 20K and the same thing at your retirement (hopefully on much more than 20K). Now unfortunately many brokers do not offer USD RRSPs but most are working on it. QuestTrade is probably the one we recommend that offers this valued option.So my question to you is: Are you aware of these costs and if so how are you dealing with them?Comments: 5 Read More
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