Financial Jungle

Not according to my real estate mentor, Ozzie Jurock, “In life, you don’t get what you deserve; you get what you negotiate.” In the end, I concede that real estate isn’t my real calling, but one can easily relate this marvelous quote to other aspects of personal finance. Salary comes to mind, but the less obvious is investing. We don’t realize this, but buying and selling stocks is a constant negotiation with the market. When you look at a stock like Scotia Bank, even though the intrinsic value of the bank doesn’t change much over the course of days, weeks or months, the share price swung widely by nearly 10% over the past two months. Luckily for us, negotiating with the market doesn’t require a thick skin. Just make a note of what you’re willing to pay, and wait for the right offer to come along. To quote Warren Buffett:

There are no called strikes so you can watch stocks come by and wait and wait until the right pitch and no one is going to call a strike.

That begs the question: how do you decide what price to pay? Well, I don’t have the secret formula. It’s often said that stock picking is more of an art than science. Some people accept good deals, but others may chance it by waiting for the real bargains. To help you develop a price target, let me share a neat little tool called the Big Charts. You can enter Scotia Bank, and pick various fundamental indicators such as Yield, Rolling Dividends and P/E. Looking at the 5 and 10-year graphs, you find that BNS normally trades between 2.75% to 3.25% dividend yield. Since the current yield is near the lower end of this range, the indicator suggests the market’s offer is too pricey.

Astute investors may criticize that valuing based on yield alone is always folly or too rudimentary. Most investors will develop their own process over time, but for now, I’d add Big Charts to your bag of tricks. Have fun!