Nov 062014
 

How Midterm Elections Affect the Stock Market

Imagine if you knew an investment strategy where the historical odds are almost 100% in your favor! :D Well here’s how. :) Since 1942 there has been 18 midterm elections, not counting the one that just happened earlier this week. Every single time the S&P 500 has gone up after one year following each of those elections. The average stock market gain over the 12 month period following all 18 elections was 16%. :) If we only look at what happened after just 6 months following the midterm elections, once again 18 out of 18 times the S&P 500 rallied, and on average by 15%. Chart below for details. (source)

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As we can see, the chart shows the percentage change of the stock market index after 3 months, 6 months, and 12 months following each midterm election. The only negative change is after the 3 month period following the 2002 midterm when the S&P 500 dropped 8.7% as shown in brackets. Every other time the stock market has gone up. :) This indicator has been very consistent because regardless of which party wins in the house or the senate the results of a midterm election adds certainty to the political landscape. And certainty gives confidence to the financial markets. :)

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Oct 192014
 

Overreaction leads to market turmoil

Over the last several weeks investors saw a 10% correction in the Canadian stock market, and a 9% correction in the U.S. Someone with a $100,000 portfolio invested in index funds could have just lost $10,000. Ouch. :| Is this market sell off justified or is it simply an overreaction to some recent bad economic news? First, let’s review what those news are.

  • The Canadian dollar has dropped to a 5 year low
  • Germany’s economy is weaker than expected
  • The rest of Europe is still in a mess of unemployment and stagnation
  • Last week the Athens Stock Exchange in Greece tumbled more than 6% in one trading day.
  • ISIS is causing havoc in the Middle East
  • Ebola fears

I currently own shares in the Bank of Nova Scotia (BNS.) It’s one of the largest companies in the country and has been around for over 180 years. Over the last month the price of this stock fell 8%. Instead of asking where the stock will go from here, we should instead be asking does all the recent bad news justify an 8% drop in value for one of the largest banks in Canada? My answer is absolutely not. :P It’s important to remember that when we buy a stock we are literally owning a part of that company. This means we, as stakeholders in Scotiabank, are still entitled to split the $6.5 billion profit that the company makes every year, regardless of how the price of BNS shares performs in the short term.

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A lower loonie will likely spur economic growth and will not hurt Scotiabank’s profitability. Europe’s stalled economy is nothing new and Canadian banks don’t lend that much to Europeans anyway. The media has succeeded in sensationalizing the threat of Ebola in the U.S. Yes it’s a terrible disease, and there’s an outbreak in Africa. But Ebola will not hinder businesses in the U.S. and Canada from continuing to rake in profits. Literally more Americans have been married to Kim Kardashian than have died from Ebola – both a terrible fate. :(

For the intrinsic value of Scotiabank to actually fall by 8% substantial circumstances would need to be met, such as major accounting fraud or a 10% national unemployment rate, that would legitimately jeopardize the company’s ability to make money. The recent news is relatively trivial so an 8% correction of BNS shares seems like an overreaction. Imagine selling our stocks now only to see the markets rebound next month and regain all its losses. :|

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Oct 162014
 

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What to do when the stock market goes on sale? A smart option would be to double up on some current positions. :) A couple months ago I bought 50 shares of Avigilon Corp for $25 each. However due to the negative sentiments in the overall financial markets recently AVO’s share price is down. But there’s no need to be alarmed because the company makes high definition security cameras and software. Now is the perfect opportunity for me to turn a current paper loss into a capital gain in the future! I noticed over the last week AVO has bounced around the $13 to $14 range but has never fallen below $13, which to me signals a strong support and a good time to average down. So earlier today I deposited $1,500 of savings into my brokerage account and picked up 100 more shares of AVO.TO. :)

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Sep 252014
 

With the recent pull back in the stock market I thought it would be a good time to add a couple of new stocks to my portfolio :) So earlier today I bought 13 shares of Time Warner Inc, (TWX) at $75.69/share, as well as 26 shares of Twenty-First Century Fox (FOXA) at $34.06/share. Both are U.S. companies so I purchased them inside my RRSP using Canadian currency.

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The part I enjoy most about investing is learning how businesses work. By looking through the financial statements and analyst’s reports on large media conglomerates I’ve learned how television programs get funded, how much actors and writers are paid, how advertising works, and many other interesting titbits.

Why Invest in Time Warner Inc

I wanted to invest more money into media and entertainment because this is a relatively stable sector with predictable earnings growth. After some thorough research I have decided to go with Time Warner Inc. Check out the impressive earnings per share (EPS) growth on this bad boy.

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Those are some pretty good numbers eh :) Time Warner is most well known by consumers to be the parent company of Warner Bros. Entertainment. But to investors Time Warner represents a collection of highly valued multimedia businesses and brands, not the least of which is HBO :D

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…Which includes HBO on Demand, HBO Entertainment, Cinemax, HBO International (Asia, Europe, Latin America,) etc. About 30% of all households in the U.S. with television service receive an HBO channel. HBO broadcasts in over 150 countries, covering about 114 million subscribers worldwide, wow 8-O

Time Warner also owns Turner Broadcasting System which includes Turner Sports, NASCAR Races, websites like NCAA.com, NBA.com, and other television channels like Cartoon Network, and Adult Swim. It also owns the CNN News Group, which includes CNN.com, CNN Money, and a bunch of other media outlets.

TWX’s total market capitalization is $64 billion, which is about twice as big as BCE (Bell Canada.) Below are some brands, tv shows, and logos that you may already know about, but perhaps didn’t know they belong to Time Warner, or was premiered through one of Time Warner’s distribution channels.

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