Financial Jungle

• Jeffrey Strain concocts 10 reasons why we aren’t rich. In particular, I like number 7, You Rely on Others to Take Care of Your Money. Unfortunately, most people want to make money themselves, and this is their primary objective when they tell you how to invest your money. And number 8, You Invest in Things You Don’t Understand. Throwing in your money because someone else has made money without fully understanding how the investment works will keep you from being wealthy.
• Contrary to point 8 above, it may behoove you to emulate super investor, Warren Buffett. Between 1976 and 2006, Buffett’s Berkshire Hathaway eclipsed the market by a herculean 14.65% a year. Any dope who emulated Buffett’s every move one month after public disclosure would’ve surpassed the market by an equally impressive 14.26%. So much for market efficiency, eh? You can access Buffett’s holdings at this clean and easy-to-navigate website, DataRoma.
• Warren Buffett’s astute business sidekick, Charlie Munger, offers his timeless 10 investing principles checklist. Any new value investor should seriously consider this list as a starting point to draft his investment philosophies.
• According to Richard Croft’s article on longevity ultimately leads to success, an investor’s long-term success doesn’t depend on his investment style. Rather, it depends on how well the investor’s psychic agrees with the style in both good and bad times.
• Who says a dividend portfolio must overweigh financials? There are plenty of prosperous non-financial dividend-paying stocks in Canada. Aron Yeomanson is revealing his favourite five strong dividend stocks that aren’t bank stocks.
• Michael Sivy, a Money Magazine columnist, is a huge fan of dividend investing. In this article, Michael articulates the power of dividend yield and dividend growth, and why they’re superior investment vehicles over a more traditional portfolio that relies on capital gains and bond interests.
• John Heinzl explains that there’re no greater sins then dividend cuts. Despite the gloom and doom prognosis we hear in these vulnerable times, the market is still flush with dividend stocks that are still showing off their confidence in their ability to deliver by rewarding shareholders with pay raises.
• The heretic from Langley is convinced that the Vancouver real estate market is living on life support. In his article, he assembles a complete picture to formulate an informed view on the local real estate market.
• Mackenzie Investments just released results from a new test of theirs, and found a majority of Canadians under 50 are demonstrating troubling patterns of overspending. You too can take the Burn Rater Spending Test to see how your spending habits compare to the rest of Canada.

• Hold on to your belly and have tissue paper standing by. You might cry from laughing too hard while reading Blain’s 50 Ways You Know You’re An Emotional Investor. Ah, those were the good old days. These 50 items don’t apply to me no more. Yeah, right.
• If you want free advice from the world’s greatest investor, go check out Get Rich Slowly’s post on Q&A session with Warren Buffett. Many curious students are probably asking the same burning questions that you might have. Get inside the mind of this jewel, and learn about risk-taking, moats, branding, diversification, international investing, REITs and many more.
• Derek Foster, a Canadian dividend investor who retired at a tender age of 34, followed up with a new book, “Lazy Investor”, after his successful publication of a national best seller, “Stop Working: Here’s How You Can”. You can have a cursory view of his investment philosophy here. His $600k portfolio contains a mere 17 stocks, which include the likes of Royal Bank of Canada, Manulife Financial, RioCan REIT, Canadian Oil Sands Trust, Johnson & Johnson and Wal-Mart.
  

  Focusing on dividends changes one’s perspective on the stock market, he writes in The Lazy Investor. Instead of fearing market corrections, dividend investors welcome them as an opportunity to add to their positions at a lower cost. In effect, they get to purchase a stream of income at a discount.

• 20 timeless money rules - Money Magazine collected the best advice from some of the smartest investors (and other people) who have ever lived.
• Yes, buy growth stocks, but don’t overpay. Buy 3M, but shun Research In Motion. The Motley Fool explains that investors should seek unappreciated growth. You want to snap up some rotten growth stocks while the rest of the market is napping. When the market sets the expectation bar so low to the ground, all the businesses have to do is to roll over it to get the market cheering with pom-poms.
• Financial Planning and Personal Sanity shares a real life American story on how subprime has destroyed both the marriage and solvency of a young Seattle couple. This serves as a reminder to not rush in to the market with a high ratio mortgage because you’re afraid to be “priced out forever”. There’s also a link to an article demonstrating why Vancouver, with a P/E ratio of 26.81, is the 6th most over-priced city in the world.
  
  

  Moreover, Financial Planning and Personal Sanity highlights that the number of years of the average worker’s gross income it would take to pay off the benchmark single family home in Greater Vancouver is 9.4 years, far exceeding the historical average of 7. The previous 2 bubbles peaked at 8.1 and 8.8 respectively, so we’re living on borrowed time.

• It’s been a long time since Vancouver suffered any blows to real estate prices, and many young speculators are cajoled by the same headlines from prior bubbles. Langley Financial Planning revived a precious post from the Vancouver Housing Blog, who had amassed a collection of newspaper headlines just prior to the last 2 housing collapses. Here are my favorites:

  “To those who are waiting for Vancouver house prices to collapse, I can only advise them not to hold their breath . . . Unless there is a major recession or significant depopulation, house prices are unlikely to drop significantly.” - Jerry Jackman, VP Royal Lepage, November 18, 1988 in the Vancouver Sun. (In 1989, prices started to drop - with an eventual 30% or so drop. Real prices did not attain these heights again for 58 quarters, or around 15 years.)

  “The whole world wants Vancouver because everybody is moving here now and everything points up, up, up.” - Realtor David Goodman, December, 1989 in the Sun. (The market did not reach these heights again for 15 years.)

  “Price stability, rather than decline, would be expected for most of the housing stock . . . since underlying home ownership demand remains strong due to continued high immigration.” - Frank Clayton, January 18th 1981 in the Sun. (The market crashed by about 50% over the following year. )

• Before you visit eBay, try some of these shopping tips from Lisa, a guest from Get Rich Slowly. A few tips include sniping the goods to discourage pre-mature bidding wars, favouring gently used items, and keeping a watch on shipping costs.
• Can money buy you happiness? Not exactly, but it can help if you know where to spend it. Linda Stern, from Reuters, offers a few techniques to convert your wealth to happiness. It may surprise you that most of these techniques don’t include buying big toys like sport cars or big screen TVs. I’ve also written a topic on money and happiness.
• Despite recent hissing from investors, stocks remain cheap, according to professor Jeremy Siegel:

  Based on the S&P 500 Index, which constitutes 80% of the total market value of U.S. stocks, these stocks are now selling at 16.5 times a conservative estimate of 2007 earnings. In a world where government rates are below 5% and inflation is below 3%, stocks are not only reasonably priced, but cheap on a historical basis. - July 30, 2007

That’s all, folks!

1. I’m watching our Canadian exchange rate in complete disbelief as the dollar advanced to 95.33 US cents on Friday. While my US positions (30% weighting) are getting whipped, I’m contemplating if I should snatch up some global dividend-paying US blue chips. The higher Canadian dollar buys you more US shares. At the same time, businesses with significant international revenues should benefit from the cheaper US dollar.
2. Value Discipline explains why a diverse market is healthier than one with homogeneous thinking. Passive, value and technical investors need each other for the market to flourish. Group hug everyone!
3. If you have kids, don’t miss out on these free monies from the government: spousal amount tax credit, tax-deduction on day care expenses, Universal Child Care benefit, and Canada Child Tax benefit. Reference MillionDollarJourney and Canadian Capitalist for more juicy details.
4. Walter Updegrave warns against mixing your investments with insurance products. Tax saving is the sales pitch, but the humungous fees will drag the portfolio. I’ve written a similar piece on universal life insurance.

Two stock brokers, Jon and James, head out for their usual 18 holes of golf. Jon offers James a $50 bet. James agrees and they’re off. They shoot a great game. After the 8th hole, James is ahead by one stroke, but cuts his ball into the rough on the 9th. “Help me find my ball. Look over there,” he says to Jon. After a few minutes, neither has any luck. Since a lost ball carries a four point penalty, James secretly pulls a ball from his pocket and tosses it to the ground. “I’ve found my ball!” he announces. “After all of the years we’ve been partners and playing together,” Jon says, “you’d cheat me out of a lousy 50 bucks?” “What do you mean, cheat? I found my ball sitting right there!” “And you’re a liar, too!” Jon says. “I’ll have you know I’ve been STANDING on your ball for the last five minutes!”

A young man asked an old rich man how he made his money. The old guy fingered his worsted wool vest and said, “Well, son, it was 1932. The depth of the Great Depression. I was down to my last nickel! I invested that nickel in an apple. I spent the entire day polishing the apple and, at the end of the day, I sold the apple for ten cents. The next morning, I invested those ten cents in two apples. I spent the entire day polishing them and sold them at 5:00 pm for 20 cents. I continued this system for a month, by the end of which I’d accumulated a fortune of $1.37.” “And that’s how you built an empire?” the boy asked. “Heavens, no!” the man replied. “Then my wife”s father died and left us two million dollars.”

It’s time for another Jungle Bulletin to share some links.

1. Thicken My Wallet writes a very fulfilling piece on the merit of leverage investing. My favourite part is when he uses a struggling business as an analogy to an under-performing investor. You’ll have to visit his link as I won’t give it all away. Not to be outdone, Canadian Capitalist reinforces Thicken My Wallet’s post by reminding borrowers how swiftly the avalanche of dot-com money vanished in 2002, and investors should thread carefully when considering leveraging.
2. In a two-part series, Ed Rempel, a guest writer at Million Dollar Journey, debunks some common stock market adages, which include “High P/E markets are riskier than low P/E markets“, “rising interest rates are bad for stocks. Falling rates are good”, and “America has way too much debt”.
3. Find out why the likable and down-to-earth Krystal, from Give Me Back My Five Bucks, is getting an adrenaline rush from PayPerPost.
4. I’m giving Four Pillars my pom-pom support for picking BMO as his first leveraged stock. While I don’t advocate leveraging for everyone, from reading Four Pillars’ posts, I’m confident that he’ll manage his debts and invest responsibly. You can also read up on my BMO. A Poster Child For Cash Flow Leverging? post.
5. A picture is worth a thousand words. Canadian Dream demonstrates the art of sleeping through market dips with his patented sleeping pills.
6. Investoid reminds investors that the TSX is too concentrated in three particular sectors, but don’t worry. He has a few tricks in his bag to share.
7. This Money Diva post may be a couple of weeks old, but it has a lasting impression on me. I agree with Money Diva, Ellen Roseman and Krystal that the point of blogging is the personal connections. Anybody can look up facts by reading financial books, but blogging brings a personal touch that the media cannot compete with. Additionally, once in a while, it’s fun to embarrass yourself by revealing some personal goofs, so you don’t set yourself up with unnecessary pressure to always perform at your peak.
8. I always have this itch to snoop inside people’s stock portfolios to spot potential investment ideas. Thank you, Middle Class Millionaire and Money Gardener, for satisfying my craving.
9. I’m participating in a couple of carnivals this week: Carnival of Personal Finance and IBN Festival.

PS. Due to work commitments, I won’t be posting tomorrow.

1. Canadian Capitalist reviews the two bond ETFs offered by iShares: iShares CDN Bond Index Fund (XBB) and iShares CDN Short Bond Index Fund (XSB). In his article, Canadian Capitalist explains what investors should look for in a bond fund and offers a few links for further research.
2. Frugal Trader from Million Dollar Journey outlines his top 5 reasons why buying a home is better than building.
3. Big Cajun Man from Canadian Financial Stuff isn’t surprised by the disappearing of middleclass in Canada.
4. Middle Class Millionaire shares his view on the potential pitfalls to look out for when pursuing your dream job too early. This is a 2-posts series.
5. Before accepting the next “hot tips” from your friends, co-workers or family, be sure to read Investoid’s post on How To Access Hot Stock Tips.
6. The charismatic Money Diva announces to the world that she’s indeed an impulse shopper.
7. Who wouldn’t want to click on a catchy title like 5 Ways To Become A Millionaire by Generation X Finance?

1. Do you think it’s possible to accomplish the same amount of work with fewer hours? Timothy Ferriss claims he’s doing just that by applying the Pareto’s law to his sports-nutrition business.
2. Gas is $1.36/L in parts of Vancouver. There are many gas-saving tips out there. Here’s an article to weed out the myths.
3. Ian McGugan, a MoneySense editor, is admitting to the world he is, in fact, an unethical investor.

• Norm Rothery reveals a list of Canadian stocks that Benjamin Graham might like.
• Construct a will for free online.
• A quite mathematically detailed and negative critique of Canadian Universal Life Insurance programs.
• TSX Group will have to compete with a new trading system in 2008. I’m not pleased about this announcement as I hold shares in TSX Group. A discussion group is happening here.

• Economists used to think consumers made rational purchasing decisions. But a new field of research is revealing neural forces that leave classical theorists scratching their heads.
• Canadian Imperial Bank of Commerce released a report predicting that Canadian house prices are likely to double over the next two decades.
• Most owned stocks by admired investment gurus.
• Money, Matters and More Musings on Can You Save Too Much On Emergency Fund.

• Top 10 Signs Your Retirement Plan Is Not Going to Work - Pretty funny list.
• Looking for a sure thing? Dividends point the way - “There are no sure things in investing, but a select few dividend stocks come awfully close.”
• Ten great investors - Pick a mentor or two from this list.
• Seminar in Value Investing - Free lectures from famous value investors.