Financial Jungle

Suppose you are in the market for a hotdog stand business, and a vendor is offering to sell his. Making sure no rocks are left unturned, you do your due diligence like any sensible businessman would. You ask for the previous financial statements. After crunching the numbers, you conclude that the hotdog stand is worth $5,000.

Here are 3 possible outcomes:

1. The vendor asks for $5,000. Although it’s a fair offer, you negotiate anyway in case your calculation is off.
2. The vendor asks for $3,000. You contain your excitement, and accept the offer promptly.
3. The vendor asks for $8,000. You walk. It’s pointless to maintain a dialog, because you don’t have enough wiggle room.

It’s funny. When it comes to investing, many of us don’t think like businessmen, even though when you buy a share, you become a part-owner of a company. During the dot com era, I was buying and selling concept stocks strictly by price movements. In fact, I was doing the complete opposite of the hotdog stand example; buying when the price jumped, and selling when the price fell. Needless to say, I was traipsing the financial jungle until the wolves finally got to me during the infamous NASDAQ calamity. The lesson was harsh, but hey, better learn it while I’m still young.

My attitude is different nowadays. Nothing gets my tail wagging than watching my favorite dividend paying stocks tumble. The lower the price, the more shares I get, and the more dividends I receive. Conversely, I shun at stocks that soar to new highs. That would be like paying $8,000 for the hotdog stand. A key ingredient in keeping my emotions in check is to stick with boring, tried and true Canadian blue chips, most notably banks, insurance, mutual funds, pipelines, telecom, exchanges, railways, big integrated oil and gas companies. They’re predictable, profitable, and have long track records. The only action on my part is to wait for the right asking price.