Nov 292011
 

Did you see the markets today? Normally when we, average citizens, talk about “the markets” we mean the stock market of course. Not long ago I thought the stock market was where all the rich people hung out, and where most of the money went to create jobs, companies, and the economy.

But I was wrong…

The stock market IS big, no doubt, worth about $60 Trillion globally. But that’s a nothing sandwich when compared to the world financial markets. The Financial Markets as a whole is made up of many individual markets, (stocks, bonds, commodities, etc) Most investments, and financial resources in the world, are actually not in stocks.

The bond market, for example, is worth almost $100 Trillion. It’s so big that it influences the stock market, (like last week when dire European bonds triggered a stock market tumble that lasted an entire week.) Understand the bond market, and the stock market will make more sense. But if you really want to play with the big boys, look towards the forex market. $4 Trillion worth of money switch hands on a daily bases, much more than the daily volumes of stocks/bonds. And we haven’t even talked about the derivatives market which globally is valued at $615 Trillion.

We mostly talk about the stock market because it’s the easiest market (out of all the financial markets) to understand, plus anyone with pocket change can buy stocks. But all the smart money in the world, and all the institutional investors and hedge fund managers, worry about the larger, more influential markets. The stock market will never bankrupt or collapse a nation. But sovereign bonds, derivatives, and currency manipulation, can cripple the entire world’s economy if people aren’t careful.

Stocks are certainly one way to grow a portfolio, but it is far from the only place we can invest. A true investor will find a way to gain access to, and utilize all the investment opportunities offered by the financial markets, in its entirety. I will give an update once I have figured out how to do this :D

Nov 252011
 

Happy Black Friday. And hello to friends from Victoria. I’ve only visited once but had a great time. Butchart Gardens was my favorite part.

Image source from www.canada.com

New payroll and employment numbers just came out. On average Canadians make $873 per week, up 1.1% from last year. While that’s better than no growth at all, the inflation rate has been about 3% so in real terms, we are actually losing purchasing power, despite having a bigger paycheck. Trying to beat inflation with wage hikes is not easy, that’s why we need a hedging strategy, which will match the inflation rate, if not surpass it. But not all jobs are created equal. There will always be opportunity out there for those who know where to look.

Growing industries with demand for new workers and increasing wages:
Forestry, logging and support. - Pay = 22% above national average, 10% yearly wage growth
(the world wants our lumber)
Construction  - Pay = 28% above average, 5.2% wage growth
(more buildings for our growing population)
Professional and technical services - Pay =29% above average, 4.6% growth
(lawyers, engineers, accountants, modern society cannot function without these people)

Weaker industries (at least for now):
Manufacturing - Pay = 12% above average, 0.1% yearly wage growth
(many of these jobs are going off shore to cheaper labor)
Finance and insurance - Pay = 12% above average, -5.2% yearly wage contraction
(low interest rates + clients switching from high fee mutual funds to etfs = less revenue)
Educational services - Pay = 5% above average, -2.7% wage contraction
(tighter gov’t budgets)

Wages are based on what companies can afford to pay their employees, so it’s mostly about supply and demand. And when you think about why some industries are strong and others are weak, it should all make sense. You don’t need to study or work harder to get ahead. Just work smarter. Enter a field with less competition. Learn to market yourself. Invest your savings, and you’ll do great.


Nov 222011
 

Here’s an extensive research on xkcd about how much things cost, including where government is spending tax payer’s money.  There is A LOT of information in there. Below, I’ve copied some of the more interesting facts to me…

- Median household net income in the States = $104.12 per day (A bit lower than I expected.)
- Cell phone avg monthly fee = $77.36 (Seems a bit high, I pay less than $20 for mine)
- Annual cost of cat/dog ownership = $670/$695 (cheaper than owning a rabbit)
- Typical 2007 CEO income = $5,420 per hour (Yes, PER HOUR!)
- Estimated one-year Hogwarts cost (incl. tuition) = $43,000 (That’s a bargain considering what you will learn there :0)

- Flower cost for William and Kate’s wedding = $800,000 (Imagine planning a wedding of that scale)
- Annual cost to run Wikipedia = $18.5 Million (I had no idea)
- Amount needed to live comfortably off investments = $4 Million (Depends on the individual/household)
- Most expensive car sold (1957 Ferrari 250) = $16.4 Million (Who would pay that much for such an old car?)
- Treskilling Yellow postage stamp = $83.7 Million = (Wish I was a stamp collector..)

- Mona Lisa assessed value = $731 Million (Art is a good investment)
- Mitt Romney’s net worth = $210 Million (I would retire if I were him)
- One F-22 Raptor = $154.5 Million (What an accomplishment for the engineers who worked on these)
- One B-2 Bomber = $2.5 Billion (0.o)

- The US’s 400 richest people have a greater combined wealth than the poorest 50% of the country (But some rich people still think they don’t have enough)
- A human life is valued at $8.4 million (How does one go about calculating this anyway?)
- Size of the derivatives market = $439 Trillion (Scary number, considering how un-regulated derivatives are)
- Total US public debt = $10.2 Trillion (That’s about $33,000 per person)
- Total Canadian public debt = $1.1 Trillion (Also about $33,000 per person, coincidence?)
- Total economic production of the human race so far $2.4 Quadrillion (That’s $2,400,000,000,000,000)

Nov 172011
 
     A government decision has created an indirect benefit to investors. Canada has started to roll out the new plastic banknotes starting with the $100 bill.  I think these are much better than our old paper money because they’re more durable,  harder to counterfeit, waterproof, recyclable, and they look amazing. I guess this gives a new meaning to the term “paying with plastic.” ( ゚∀゚)

The Australians invented these polymer banknotes and many countries around the world  have been using this technology for years. Now it’s our turn. These notes will be printed on a polymer substrate manufactured by Securency International in Australia. Yes, unfortunately we have to import our own currency material. The actual printing of the banknotes, however, will still be in Canada of course.

 

But I think there’s an opportunity here for investors looking to cash in on this transition. The base material for these notes, biaxial-oriented polypropylene, is just a fancy term for durable plastic, and we all know plastic comes from hydro carbons made from oil and gas. So going long in energy companies will most certainly prove fruitful as more of these notes are printed in Canada, and are being adopted by other nations around the world. Large integrated names like Suncor Energy, and Exxon Mobil, produce both oil and natural gas. Pipelines like TransCanada Corp, and Enbridge Inc, are also great ways to ride the energy wave.

10 year Investment Returns
Average Stock Market (S&P; 500) = 13%
Suncor:                                          =206%
Exxon:                                           = 99%
TransCanada:                                =102%
Enbridge:                                       =220%

This isn’t a coincidence. Smart investors have been invested in energy/pipeline companies for decades. Natural resources are a necessity in modern society and the demand will only go up in the decades to come. Invest early and get time on your side.

Disclaimer: I own shares of Suncor and Enbridge, and plan to buy TransCanada soon.

Nov 142011
 

This idea came to me after watching an episode of The Big Bang Theory in which Leonard and Penny bicker about which movie they should see. Morale of that episode seems to be that guys are willing sit through boring movies with their girlfriend if it means they can score afterwards. I did a little research on the whole film distribution business and found that Cineplex Inc (TSE:CGX) practically has a monopoly in Canada.

After further scrutiny I put about $2000 into this company. I purchased 80 shares at $25.28/share. I think this will be a very good investment in the long run. They serve over 70 million guests every year and operate all the largest theaters in the country like Famous Players, SilverCity, Scotiabank Theatres, and IMAX. They make serious doe from concession sales as well. 85% margin on popcorn and drinks! And they are still growing and opening up new locations.

Their financials hold up nicely too. A long track record of solid earnings, a 5% dividend yield, and 50% payout ratio. What does that mean? Well, even if the economy and Cineplex’s earnings stagnate forever then one year from now this company will still be worth 10% more than today. Even if it drops in the short term, no big deal, I’m getting paid $100 in cash every year just for holding on to it. Patience begets wisdom. Or was it the other way around?