Merry Christmas everybody, I have not been updating the blog recently due to the holiday season. One thing I can mention is all the delicious food I've been eating -- it's going to be tough to burn those calories off.

Oh, and Happy New Year!!

As most of these posts usually start, I'll begin with a definition from somewhere (wikipedia?) and try to explain it in layman's terms. I like this approach the most.

"A bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity.[1] Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, i.e. the ownership of the instrument can be transferred in the secondary market."
-Wikipedia.org

So, firstly, let's begin with the first part of the definition. No, a bond is not an instrument like a guitar or a piccolo. It's an abstract device that's used by corporations and governments. Essentially, companies sell bonds as a way to raise money to fund for capital expenditures. If a company says "Oh, we need $200,000 more dollars to expand our operations into China.", then they might raise that money by selling bonds. This is a key concept to remember, and one that I had trouble with when I just started learning all these business terms.


Buying Bonds = Lending money to Government/Corporations
Selling Bonds = Borrowing money

Now, why would anyone want to lend corporations or the government money anyway? Is there a benefit to this? The answer is yes. The seller of the bond pays the bond back in payments, with the interest either being blended into the payments, or the payments being pure interest and the principal being paid fully at the end. So if you buy a $200,000 10 year bond with an interest rate of 10% payable annually then the interest payments are either $20,000 a year with a $200,000 lump sum payment at the end or the $200,000 gets blended in with your interest payments (this will lead to higher payments) and you get nothing at the end. There really isn't a difference though, depends on your desire for current income.


The maturity date is self-explanatory; it's when the bond matures a.k.a when it expires and the full payment + interest must be repaid. Bonds are further complicated by being issued in the secondary market, similar to stocks. To be brief, if the bond pays 10% and the market (other bonds) pay 8%, the 10% bond can sell at a premium and you can make a quick buck because the market interest rates went down. When interest rates go down, this is typically how you can profit and sell your bond if you think interest rates might rise again. If you have an 8% bond and the market (other bonds in the market) is paying 12% then you're really at a loss if you're buying bonds because other bonds are paying a higher interest than the ones you have. These are sold at a discount (lower than facevalue).

Valuing a bond is much easier than valuing a stock, since it can be done mathematically. However, this will be discussed further in a later post as I'm not exactly time-inclined to give a financial math lesson.

Good luck!

Simply put, if you drop a basket that has all of your eggs in them, every egg will break, and you'll have no eggs left. In investing terms, as an extreme example, imagine you invest all your money into one company. If that company manages to go bankrupt, you literally lose all that money. The beauty of diversification is that you can minimize risk and potentially minimize losses too, if you do it correctly. It's a very advanced topic and will thus only be covered briefly for the fundamentals.

To minimize risk in the basket of eggs case, imagine having 10 baskets each with 1 egg. If you drop one basket and the egg breaks, you only lose 1 egg instead of all 10 if they were in the same basket.

2) Don't just invest in stocks

In order to maximize diversification, this cannot be done only with stocks. As Benjamin Graham's book "The Intelligent Investor" states, a portfolio should typically have 25% bonds and 75% stocks. This is a very general statement as things can get further complicated as an investor becomes more adept. This leads us to the next rule.


3) Don't just invest in bonds and stocks, GIC's and TFSA are important too

To further diversify and minimize risk and losses, one can structurally plan to buy stocks in different countries, invest in real estate, private equity, infrastructure, and commodities. If you live in Canada, it is of utmost importance to invest in GIC and Tax-Free Savings Accounts. These are virtually zero risk and although the return is low, it is better than having money vacant.


Summary

Although this post wasn't in depth and possessed a little redundancy, I hope it got the point across. Diversification is a complex topic and there are people who work in risk management -- in fact there are risk management departments at many banks. A solid investor allocates his investments so that if, for example, stocks manage to give subpar returns in Canada, this can be partially offset by higher returns in bonds, foreign stocks, etc.

What is OCI?

Once again, I'll start with a definition from investopedia and go a little deeper.

An entry that is generally found in the equity section of a corporation's balance sheet. Accumulated other comprehensive income measures gains and losses of a business that have yet to be realized.

Basically, each company has a balance sheet which lists at a given date how much the company is worth. (Assets = Liabilities + Shareholder's Equity) Unfortunately, I assume basic accounting knowledge terms are already known so if you're having trouble understanding I would suggest a few very basic accounting textbooks to get you started. The shareholder's equity section of a company's balance sheet simple states how much equity a company has (stocks, retained earnings, etc). Also included in equity is accumulated other comprehensive income. What this does is simply measure gains and losses where the company has not actually received any cash yet. This means they are unrealized gains. Examples of this are simply gains on securities, pension liabilities, options/futures, etc. They are typically intangible objects of some sort.


Why OCI? Why not just include it into net income?

Well to begin with, the fair value of unrealized gains/losses in OCI eventually make it to their way to net income. This happens once companies sell the asset (security, option/future, etc). Companies keep OCI separate at first from net income because, in actuality, OCI really isn't part of a company's main operations (unless it's an investment bank/hedge fund etc). Disregarding financial companies, OCI does not include assets involved in normal, continuous operations of a company. Also, OCI would create higher volatility in net income. From an intuitive standpoint, investments in derivatives in securities are generally a lot more volatile than a company's normal operations and will therefore be very high in some periods and low in others. To keep this bias and volatility at a minimum, it's easier to just create a separate section for it.


What does a smart investor take away from this?

Simple. A smart investor knows that when the equity markets do good, a company's total OCI will increase and can use that as a predictor, even if the company's operations/earnings do bad. It is of course an assumption that a company has relatively competent investing knowledge and performs in a way similar to the market.


Good luck!

One of the points I found most interesting in this article was how even when capital gains were still taxed relatively heavily, people still invested. This shows some evidence against Romney's beliefs that people/businesses will invest more if the rich are taxed less.


Source: http://www.bloomberg.com/news/2012-11-26/buffett-mocks-norquist-idea-on-taxes-thwarting-investment.html

Warren Buffett, the second-richest man in the U.S., pressed his call for more taxes on the wealthy by mocking the idea that higher rates discourage investment.

Legislators should increase taxes on those earning more than $500,000, including minimum rates of at least 30 percent on all income above $1 million, Buffett said in an opinion piece in the New York Times today.


U.S. lawmakers returning this week from the Thanksgiving recess are seeking a budget deal to avoid a so-called fiscal cliff with more than $600 billion in tax hikes and spending cuts set to begin in January. Republicans including Mitt Romney, the defeated presidential candidate, and Grover Norquist, who encourages lawmakers to sign a pledge shunning tax increases, have said lower rates can boost the U.S. economy.

“Let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if -- gasp -- capital gains rates and ordinary income rates are increased,” Buffett wrote. “Only in Grover Norquist’s imagination does such a response exist.”

Buffett, worth $46.5 billion according to data compiled by Bloomberg, is using his clout to urge Congress and Obama to include measures that raise revenue as part of a deal to resolve the fiscal cliff, which may push the U.S. economy back into recession.

“We need to get rid of arrangements like ‘carried interest’ that enable income from labor to be magically converted into capital gains,” Buffett, chairman of Berkshire Hathaway Inc. (BRK/A), wrote. “And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.”

Cayman Islands

Romney’s returns show investments in funds located around the world, including Ireland, the Cayman Islands and Bermuda. The former governor of Massachusetts has said it is fair for him to pay a lower tax rate than a worker making the median annual income of about $50,000.

“It’s the right way to encourage economic growth, to get people to invest, to start businesses, to put people to work,” Romney said in an interview with “60 Minutes” on CBS, broadcast on Sept. 23. Romney, who paid a 14.1 percent tax rate on $13.7 million in income last year, makes most of his income from investing a fortune estimated at $250 million.

Buffett has said his tax rate is the lowest among the about 20 employees at Berkshire’s headquarters in Omaha, Nebraska. Capital gains from most assets held for longer than a year are taxed at a top rate of 15 percent, while wage income is taxed at a top rate of 35 percent. The difference between those two accounts for Buffett’s lower rate.

Middle Class

Buffett managed funds for investors from 1956 to 1969 through partnerships. Taxes never led any of his clients to forgo an investment during that period, he wrote today, even though the capital gains rate was as high as 27.5 percent and the top marginal rate was at least 70 percent.

“Under those burdensome rates, moreover, both employment and the gross domestic product increased at a rapid clip,” Buffett wrote. “The middle class and the rich alike gained ground.”

Buffett continued to make investments under Berkshire, a textile maker he took control of in 1965 through a partnership. Since then, he has built the firm into a business with operations in insurance, retail, energy, freight and manufacturing. Its market value as of Nov. 23 was $220 billion. Buffett is the company’s largest shareholder.

Hi guys,

As a person who wants to learn as much as possible about finance, I have taken a little interest in trading. I am going to be doing paper trading first (trading with fake money) to get the hang of it. I will be doing it on this website:  http://questrade.com/platforms/free_trial.aspx . After that, I plan on learning futures. Since many people have serious trouble with these concepts, I feel it'll definitely give me an edge of competition. As someone mentioned about finance, "It's not hard, nothing is really hard. There's just a lot to know", and this is 100% true. In order to be absolutely great in finance and make accurate and sound decisions, you have to really know how everything works. You have to know all the terms, you have to know all the different types of investment strategies. These things, in my opinion, are the fundamentals. Many people say "blahblah you need a good temperament, focus on emotions first". This helps once you know actually how the heck to invest in the first place. If you have no idea what a bond, derivative, or even a security is, then even with the perfect temperament you will still suck at investing.

In preparation for paper trading, I've been watching a few of these videos as of late.  http://www.youtube.com/user/InformedTrades It's a guy named Simit (if I recall correctly) who works as a trader and teaches you important skills in a concise way. Really informative and great.

Over the past while I've been reading a few articles on Bloomberg here and there. Some of the articles are really interesting and informative and really give you some insight on how certain industries work. For example, I was reading an article on how the Hewlett-Packard share price has dropped significantly due to a write-down of $8.8B. HP wanted to expand into the software industry due to a competitive disadvantage (Apple, Microsoft, etc are all hardware and software producers) and an attempt to reach new markets. They acquired Autonomy, a software company, and everything went great, until auditors figured out that Autonomy counted resales of Dell computers as revenue, when in fact it was Dell's revenue. Therefore, the executives at Autonomy cooked the books and let's just say they're in some deep doo-doo. Unfortunately, HP had to pay the price since it now owns Autonomy.

Recall that price per share = Total Equity ($) / (Total Shares Outstanding)

It's easy to see that if equity goes down, price goes down. If shares outstanding increase, price goes down. Simple math.

..until next time folks.

With people becoming excessively worried over the fiscal cliff in the U.S and the debt crisis in Europe, stocks dropped significantly. What they did wrong is that they sold low and bought high. This is no way to invest, and it is definitely the easiest way to lose any potential gains.

S&P rose 0.5 percent, or 50 basis points to 1359.88 at 4 p.m eastern U.S time. As Walter Hellwig mentioned, any good news is going to cause prices to rise significantly, and any bad news is going to cause them to drop to the pits of... yeah. This is mostly due to the market being oversold and there being a lot of foolish investors. Anybody who can understand basic psychology can really see that the market is full of these type of "reactors" who react on impulse on good or bad news. Thus, with the prices dropping, it's a perfect time to buy in as they rise. The saying "no news is good news" doesn't take effect here. It's "good news is good news" and "bad news is bad news".

As the European debt crisis begins to solve itself, international purchases of U.S assets are down the drain, plunging from $90.3 billion in August to $3.3 billion in November. The U.S needs to take action, and when news comes out that action will occur, it's time to buy those stocks as the prices fly up.

Today we will discuss three "golden" rules regarding debunked myths around these two precious metals.

Let's first define what volatility is, as mentioned on investopedia:

"1. A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

2. A variable in option pricing formulas showing the extent to which the return of the underlying asset will fluctuate between now and the option's expiration. Volatility, as expressed as a percentage coefficient within option-pricing formulas, arises from daily trading activities. How volatility is measured will affect the value of the coefficient used."

This is basically saying that volatility = risk, however volatility does not equal risk when considering gold and silver stocks. This is because banker cartels can easily manipulate the price volatility of gold and silver derivatives. This in actuality has nothing to do with the actual physical supply and demand of gold and silver. Hence, in this case, volatility is not a valid indicator regarding risk.


Next, it is absolutely imperative that you have patience for small upcoming companies to come out on top. A huge mistake that investors can make is immediately selling out after the price dropped. Gold and silver's volatility is NOT an indicator for actual risk. It is in many cases artificial, so you have to be patient for the price to rise again. For example, a gold company in the great depression lost 50% of its share price, everybody sold out, and then for roughly 6 years it earned 1258% of its share price a year. Patience is a virtue.

Typically, when gold/silver have a low risk high reward setup, the news, bankers, etc are very likely to say there is no opportunity. This is a decent point to buy in, since there's a fair chance risk is actually a lot lower than it is made out to be. Conversely, when silver/gold prices are rising, many will try to persuade you (directly or indirectly) to purchase stock. Interestingly enough, right after this, the price will drop a ton. This is all based on historical evidence.

So in conclusion, this all sounds like a conspiracy theory, however as I mentioned above it's based on factual evidence. Good luck!

Our research group pitched Bombardier today. Here are a few relevant facts that we gathered, however the most important was the introduction of their new CSeries aircraft. Q3 was just released today too, and it fulfilled our expectations, which were to depress the stock even more just so it rises in due time.

Business Aircraft
At a total retail price exceeding $6.7 billion US, NetJets' order is
the second largest aircraft purchase agreement in the history of
private aviation, second only to NetJets' unprecedented aircraft order
in June of 2012 which included firm orders and options for upto 275
Challenger jets from Bombardier with a potential value of $9.6 billion
US.

-Net ordersf or business aircraft have been increasing

Commercial Aircraft
Subsequent to the end of the quarter, we received a conditional order
from an undisclosed customer for
5 CS100 and 10 CS300 aircraft and we signed a letter of intent with
Air Baltic Corp. for 10 CS300 aircraft. Based on list prices, firm
orders would be valued at $1.02 billion and $764 million,
respectively.

-Lower demand for commercial aircraft, however the CSeries may spark
some bullishness

Emerging Markets
Significant orders:
Nordic Aviation Capital A/S (Denmark) 12 CRJ1000 NextGen - $595 million
PrivatAir (Switzerland) 5 CS100 5 CS100 $309 million
PT. Garuda Indonesia (Persero) Tbk. 6 CRJ1000 NextGen 18 CRJ1000
NextGen $297 million
Eurolot S.A. (Poland) 8 Q400 NextGen 12 Q400 NextGen $246 million
Ethiopian Airlines 5 Q400 NextGen - $160 million

Transportation
Signed several significant contracts, with: San Francisco Bay Area
Rapid Transit District (BART), U.S., for
410 metro cars, valued at $897 million



Other points:
In the second quarter of 2012, the regions Asia-Pacific and Other had
moderate levels of activity mainly explained
by a temporary slow-down of rail investment in China. We expect growth
in rail investment to resume in China as
well as in other emerging markets, driven by the strong need for
mobility to support rapid urbanization and
continued economic growth

Growth in rail investment in the region Other will continue to be driven
by the Middle East, Brazil and Russia.

In India, investment in mass transit continues to be promising with
multiple cities
expected to invest in metros and monorails

We continued our long-term investment in emerging markets, with: the
opening of the monorail facility in
Hortolândia, Brazil, in April 2012

In North America, the level of activities increased due to major metro
contracts awarded in New York and San
Francisco, which represent a significant share of this marke

Many people seem to be having trouble with understanding what this number means. Let's start off with a definition, from investopedia:

"A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk."

What the heck does this even mean, really? What is a cost of capital? What's a beta? Valuation? WHAT?!


WACC stands for weighted average cost of capital. 

The cost of capital is simply the minimum rate of return that investors expect when they buy stocks, lend etc to the company. More concisely put, it is the rate of return an investor should expect on a project given a specified risk.

The beta of a firm is simply its overall volatility compared to a benchmark, usually the market (S&P 500).
Ex// The beta of a new technology company is 2.0 and the market is ALWAYS 1.0. This means the volatility is 2x more risky than a company with average volatility. This company will either do extremely well given good conditions, or hit rock bottom. It is very sensitive to changes in economic activity, etc.

Valuation is simply the value of the company/stock. If the WACC increases, then its minimum return on projects are larger and thus riskier. In summary, a lower WACC (2%, e.g) will always be better than a higher WACC (10%, e.g) although the case of 2% is quite rare and may not be realistic. Certain industries will always involve higher WACCs, such as precious metals.

Hope you learned as much as you can -- I had to be concise. Time is money.

Buy, Hold, or Sell?

Overview

Bombardier is experiencing significant growth in emerging markets, and is taking advantage of this by shifting its focus towards non-US customers. Demand in many regions remains high and above the world average, including Brazil, Latin America, and Asia-Pacific. China and Europe, with their recovering economy, are going to be one of the major players in the company's growth. Bombardier also secured a $7.3 billion order with Buffet's NetJets. This is quite important, as its the largest purchase agreement in the history of private aviation. In addition, its new CSeries of jets, being more environmentally friendly and so on, has a significant amount of orders and may play a part in company growth. It is expanding its operations too -- in April 2012, it opened a new sales and marketing office in Shanghai. In Nouaceur, Morocco, it built a new manufacturing plant. This is big news.

Risk

The company experiences quite a variety of risk, being in such a volatile industry. Oil prices, appreciation of the Canadian dollar (less exports), subordinate voting share structure (The CEO Pierre Beaudoin and his family own 64% of total shareholder votes), volatility of airline customers (Air Canada, anyone?), etc. These all impact the company and impact our decision on whether to buy, hold or sell.

Conclusion

Based on analysis of EBITDA and FD EPS, I suspect the price will go up to $4.65-4.80. This is over $1.00 of a capital gain.

Buy it.

After a massive low, this company seems to be doing some justice regarding increasing stock prices. It is virtually dominating competitors, with the exception of First Majestic Silver (TSX: FR). Also, its stock prices closely correlates with S&P. Whether investing in precious metals is a good idea or not, many consider it to be an excellent hedge against inflation. If you know this or not, more money supply being injected into the economy allows for gold/silver prices to inevitably increase. This is happening as we speak especially in the Asian countries.

Silver Wheaton has been closing tons of deals lately, so people are definitely going to be optimistic. The company risk is generally low, since it doesn't own mines at all -- just the silver. Its market cap is around $13.5 bln, where the average silver company is around $4.5bln. This is an enormous difference, and this goes hand in hand with their earnings that have been increasing over the past few years.

Their EPS is expected to skyrocket for 2013, so many feel this is the best time to buy in. However, it is just important to note that after the price goes up, get out as fast as you can. A goal of buying in around $37 and selling at $43 may very well be a viable choice. As many know, after silver goes up, it goes down like crazy. You make the choice.

Hi all,

After some thorough analysis on SNC-Lavalin, I came to a few conclusions. If you noticed, they had a new CEO October 1st, 2012. Interestingly enough, after this date, the stock price began to rise gradually again. Actually, they've been going up finally instead of dropping significantly. The 52-week high is $55 or so, so I believe the stock still has a lot of room for growth.

You can see this >here<.

Moreover, SNC-Lavalin is winning quite a significant amount of contracts, in which their revenues should continue to experience respectable growth. The problem with the company is not cash flows or revenues though, it is their expenses. Due to the previous CEO and other key executives cooking the books and breaching the code of ethics in various foreign countries, this has put a lot of undue stress unto the company in forms of expenses to various stakeholders and also contingent liabilities. In fact, they have a contingent liability of $1.5B from a class-action lawsuit from stakeholders. More than likely this won't go through, the company seems to be doing all it can regarding getting back on track and so forth, and it is a solid company in general.

In case you're interested, here are the remedial measures the company has been doing to get back on its feet:
1) Management override policy (specific procedures if management does unethical things/tries to force certain things)
2) Code of ethics amended (whistleblowing encouraged)
3) New financial management solution in individual business units

Note: this is taken directly from the MD&A, rewritten a bit in simpler more concise terms

The stock price should be going anywhere but down. They have a new CEO, new policies, and a solid foundation for a company. I am sure shareholders are wide aware that such a scandal will very likely never be happening again. Things are looking optimistic.

Bottom-Up Company Analysis: SNC-Lavalin

Company Fundamental Analysis'

Step 1: Review Public Information

Transportation is everywhere, essentially when you move it's a form of transportation. This does not pertain to our interest, though. What we're interested in is the transportation sector, which is a type of stock related to the transportation of goods or customers. Typical examples of this include: airlines, railroads, shipping, and trucking companies.

Hi all, it has indeed been awhile since my last post. To be brief - I have taken this blog into a new direction. A direction that will hopefully provide you and myself with advice, ideas, and perspective on how I will slowly become an adept investor.

First things first - I have been accepted to an investing club as a research associate for the industrial sector. The position is a lot more work intensive than I thought it'd be, but that is a main factor for driving my motivation. Yes, this is indeed a good thing.

We had a somewhat long-somewhat brief training session today that lasted about 90 minutes. An executive of the club very briefly went over fundamental analysis and technical analysis. Going in, I had no idea what to expect.

I however recognized most of the "fundamental analysis" of investing due to some finance and accounting courses. These include: a company's health, management, competitive advantage, and an economic/industry/company specific analysis. Most of this is derived from the financial statements (10-Ks). Moreover, management discussion and analysis will be analyzed in great detail. In addition, certain ratios are used heavily in fundamental analysis - some in certain sectors more than others.

The topic that will be the most troublesome not because of its intricacies and complexities, but because of the obligation to learn two different software programs (Bloomberg and Reuters Eikon). They are extremely complex to use at first, but after awhile it becomes quite basic and almost instinctual. Technical analyses include trendlines, relative strength index, and a few other indicators. Most of these graphs can be snagged almost instantaneously from Bloomberg, but Google Finance/Yahoo is a viable source if you have some time to waste.

Bi-weekly research reports and stock pitches are the norm with a position such as this. The template for the report is a bit intimidating, but doable. All in all, it will be a great experience for real-life practical investing knowledge and it is a huge competitive advantage as an individual interested in finance.

Back to e-valuating stocks I go!



Here is a Relative Strength Indicator.