Wednesdays market action contained enough set-up failures to move the leading stock portion of our risk model to a current reading of negative from neutral. An even more obvious clue of faltering leadership was F5 Networks price response to earnings announced after Wednesdays close; the stock traded down more than 20% in afterhours trading. The weakness in FFIV caused a spillover of selling in other leading names, specifically cloud computing and related stocks such as VMW, CRM, ARUN, AKAM, APKT, RDWR, RVBD, JNPR and NTAP; they were all down in extended trading.

Like many names that have led this market, F5 Networks had formed a number of price consolidations along the way during its price advance; the most recent was clearly late stage. As we have pointed out in recent weeks, many leading stocks have emerged from late stage bases. Although our risk model has not yet flashed a sell signal, its important to keep a close watch on leading stocks and the stocks in your own portfolio. Market and sector weakness will generally show up in individual names first.

We continue to see more and more evidence that the start of a market correction may be underway or near. At the very least, we see it becoming increasing more difficult to make money in the market over the near-term.

To reiterate our recent advice: take smaller than normal positions, tighten stops, and nail down profits when you have them. Most importantly, religiously cut your losses on the names that move against you in order to protect yourself.

Mark Minervini

If youve ever wanted to go into the mind of a professional money manager and learn a bit about what makes them tick, I suggest you read The Single Best Investment.  If you want to learn more why dividend investing is considered a viable, long-term plan to build wealth, then read The Single Best Investment.

Lowell Miller, the author, is the President and lead portfolio manager of Miller/Howard Investments Inc. a firm that manages over $1 billion of other peoples money. Hes been a professional investor for more than 30 years.  In his spare time, Miller is a sculptor, a writer and holds a 5th degree black belt in Aikido, all pretty cool for a money guy.

After hearing about this book from various bloggers, DIY Investor I recall, I figured Id buy it and put it on my nightstand.  I finally got through this a few months ago.  It took some time, but it was worth it.

The title of the book, first of all, certainly intrigued me but the pages that followed were more than enough to keep me captivated. One of the things that made this book enjoyable to read was the writing style of Miller. He speaks plainly and openly with little technical jargon. There are no complex terms or theories to decipher. There are no graphs to be hoodwinked by. The graphs that are included are pretty much common knowledge: when inflation is factored in fixed-income investments always lose to equity investments, and holding cash does even worse. Instead labouring on these facts, Miller instead wrote a book for financial builders, people who want to understand how best to leverage the forces of time, modest, reliable and compounding growth to their advantage. Miller reminds his readers that investing is really, investing a methodical accumulation of capital through a sensible, disciplined plan that recognizes shares are not as he puts it little numbers that jump around in the paper every day. They represent a partnership in a real business.

Miller prescribes than any investor, can and should have a reasonable set of financial goals to work towards because they will always be plagued by financial doubts and uncertainties. Unlike many aspects of ones life, price and market changes cant be explained away. They just are. Therefore, because the market is always beyond our control and will frequently give us some emotional discomfort, you are wise to select a strategy that avoids playing the market but being an investor in it.  Buying and holding established companies that have a great history of rewarding investors in good times and in bad through consistent dividend payments, can be one such strategy Miller explains. Like a well-made old wool blanket, investing can be solid and comfortable, if you approach it sensibly.

Overall, I found The Single Best Investment an enjoyable read. It galvanized many dividend investing concepts and also highlighted a few new ones for me. The novice or experienced stock investor will enjoy this book. Each chapter is summed up quite nicely with key messages extracted from the chapters essays. Although the book has a distinct U.S. stock market bias, Canadian investors will benefit from Millers plain, blunt mantra – invest in the compounding machine that is dividend paying stocks and avoid story stocks or what the talking heads will praise.  Stick with what has worked (and rewarded investors) and dont look elsewhere Miller claims. Steady and dependable (dull and boring) will undoubtedly win the race.  

In the weeks to come, I hope to share my favourite takeaways and quotes from Millers book. Stay tuned for that post. 

What about you, have you read The Single Best Investment?  If so, what was your take?  If not, are you intrigued?

Cheers,
My Own Advisor

Ken Fisher Interview Part 8
Please note: The original interview took place on Wednesday, October 27, 2010

Stockerblog: What sectors and industries look good to you?

Fisher: I’m still in the exact same place I’ve been in for quite a while. We’re in a period of where, domestically and globally, the economy will do better than people think it will do, when they don’t think it will do well, and therefore in an environment like that, the stock area that will do well are materials, industrials, the more capital intensive parts of technology, consumer durables but not consumer staples, and to a lesser extent, energy.

The parts that do worse tend to be consumer staples, health care, utilities, finance, all the things that aren’t economically sensitive.

Another way of saying it is that things that are rising right now are things that are economically sensitive. Because most people think that the economy is not doing so well. For example, something that’s perfectly observable that nobody wants to write is that nominal GDP in America is already at an all time high. It’s a simple fact, but nobody wants to write that, and if you write it, nobody will believe it. Because the mythology around us in the media is that we’re mired in a slump. ‘It’s a dismal world.’

That’s real GDP that’s at an all-time high, inflation adjusted GDP isn’t quite to its all time highs yet but it will happen in the first quarter. It’s not that far away. It’s been expanding for 14 months now. When the NBER came out and said ‘we’re officially saying the recession is over and it ended in the third quarter of last year’, the media reacted to that with catcalls.

The fact is, the economy on a global basis, with some places better than average and some places worse than average which is normal, the economy’s been expanding globally earlier than that.

Stockerblog: What countries do you think look good right now?

Fisher: Overall, the next step is you want to be overweighted in emerging markets, you want to be lightly overweight to America, and you want to be lightly underweight to the English-speaking world and most of Europe. We continue to have a world where people are skeptical of emerging markets, but emerging markets continue to do better than people think they will, with a couple of exceptions, and one of them is China. China continues to do well economically but there is so much interest in China relative to the rest of the emerging markets that the Chinese markets don’t do well, because there is too much optimism and expectation about them and excitement. Latin America, Brazil, Chile, obviously not Venezuela, the broad spectrum of Hispanic America, the broad spectrum of the rest of Asia, India, and Eastern Europe. America is slightly over-weighted because America is doing better than people think it is.

End of Part 8

The Debunkery book is available at Amazon.

Ken Fisher obviously doesn’t give individual stock recommendations in his interviews, but some stocks he likes that were mentioned in his recent Forbes columns, including high dividend stocks, are available in the form of a free Excel list at WallStreetNewsNetwork.com.

Part 1 of this interview is available HERE.

Part 2 of this interview is available HERE.

Part 3 of this interview is available HERE.

Part 4 of this interview is available HERE.

Part 5 of this interview is available HERE.

Part 6 of this interview is available HERE.

Part 7 of this interview is available HERE.

By Fred Fuld at Stockerblog.com

Disclosure: Interviewer doesn’t own any of the stocks mentioned in this interview series at the time the articles were written.

Copyright 2010-2011. All rights reserved. Reproduction of this interview prohibited without permission. All opinions are those of Ken Fisher, and do not represent the opinions of Stockerblog.com or the interviewer. Neither Stockerblog nor the interviewer nor the interviewee are rendering tax, legal, or investment advice in this interview. If you want tax, legal, or investment advice, contact the appropriate professional.

The engine behind this bull market are low interest rates driven by economic weakness. Bull markets are born out of recessions and this one is no different than many past bulls.

Despite recent relative strength in home building stocks, the housing market is still depressed as there remains an oversupply of homes as well as an abundant supply of foreclosures. Commodity prices are on the rise again however, core inflation and wage inflation remain weak. The employment picture has not yet improved enough to allow the Fed to normalize rates. Therefore, the proverbial punchbowl remains on the table with additional re-fills likely.

Bottom line: There is little competition for stocks.

The Feds commitment to stimulus is likely to persist throughout 2011. The extension of the Bush tax cuts and the 2% cut in the employee payroll tax rate and a 2-year extension of depreciation incentives for business investment is also a form of stimulus. The above coincides with a favorable election cycle period and a market that is trading at a reasonable multiple when the current interest rate environement in considered.

Certainly, the fundamental tailwinds remain strong. More importantly, our longs continue to work and the market refuses to give up much ground. Therefore, we continue to stick with our plan and add new names as they emerge on a stock-by-stock basis.

The big question is: how far out is the market looking forward and when will it cease discounting the positive side of the coin? The answer: no one knows. This is why regardless of how great all the rhetoric sounds, we adhere to strategy.

To put it in simple terms, all the statistics, analysts opinions and pundit predictions on Wall Street wont change the fact that we sell our stocks when they stop us out and we stop buying stocks when they cease to set-up constructively. In my 30 years as a stock trader, I have learned that this is by far more important than opinions and forcasts, including mine.

Until then, we continue to trade the best SEPA situations as we remain on a buy signal, and the party continues.

Mark Minervini

Let’s first start with the disadvantages. First, you won’t get a 1099-DIV form for filing your taxes on the partnership income. You will instead receive a K-1 Form which involves more tax forms to attach to your Form 1040. This means that if you prepare your own taxes, it will take more time. If you have an accountant prepare your taxes, he or she may charge more due to the extra time involved with the K-1 . Also, you shouldn’t invest in partnerships through a retirement plan such as an IRA due to Unrelated Business Income Tax issues (your tax preparer can provide you with more details).

Now the advantages. Partnerships can provide high yields which may be partly or completely tax sheltered. They distribute substantially all of their income, thereby avoiding double taxation. Income distributions are fairly high and are paid quarterly.

Most of these partnerships are producers and distributors of oil and gas. WallStreetNewsNetwork.com just updated its list of high yield US Master Limited Partnerships, and found over 15 with yields above 5%.

As an example, Boardwalk Pipeline Partners, LP (BWP), a natural gas pipeline owner and operator, yields 6.4% and trades at twenty times forward earnings. The company has been making quarterly payouts since 2006.

NuStar Energy L.P. (NS) stores transports, and markets fuels. It has a yield of 6.3%, and has a forward price to earnings ratio of 21. Quarterly distributions have been made since 2001.

Buckeye Partners LP (BPL) is an operator of petroleum product pipelines. The yield is 5.7%, paying distributions since 1994, and the forward PE is 20.

For a free downloadable list of these high yield partnerships with yields as high as 7%, go to WallStreetNewsNetwork.com.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

Last year was the first year I set some personal finance and investing goals in black and white. I posted them on my blog for the world to see and scrutinize. I also posted them on my blog to keep me accountable. In years past, while I set financial goals, they were not written down and consequently not followed up on very well they floated around in my head. In hindsight, I think this blog was a huge enabler for meeting many financial objectives in 2010. I hope this year will be just as successful.

To recap, our goals from last year were:
Goal # 1 – Put down $20,000 on our mortgage.
Goal # 2 – Maximize TFSAs.
Goal # 3 – “Clean-up” RRSP Accounts (ETFs instead of high-MER funds).
Goal # 4 – Frequent contributions to DRIPs.
Goal # 5 – Optimize RRSPs.
Goal # 6 – Save for and take a great trip.

We were fortunate enough to accomplish every one above, 100%, except for #1. That goal was indeed lofty but I think you need to have stretch assignments, at least we like them. In the end we hit 55% of our target for goal #1 and while in grade school 55% means you almost failed, I dont think our efforts were too bad.
Writing about mortgage payments brings me to our first personal finance goal of 2011:

Goal # 1 Increase mortgage payments by $200 per month

With a new place there are lots of expenses. Lots. I dont need to list them because Im sure youve moved enough yourself and you know what they are. The list never seems to end. For us, the initial big ticket items were appliances and window treatments last month. These things werent cheap and neither are the small things when you add them up. Recognizing we can never do it all at once, weve decided to strike a balance in 2011; live for today, make our house a home and take small steps at paying off the mortgage.  If we increase our mortgage payments this year by $200 per month, we figure well save almost $30,000 in interest costs over the life of our mortgage and payoff the house about 4 years earlier – sounds pretty good to us.

Goal # 2 Contribute $5,000 each to TFSAs

Our government has been pretty good to us in recent years, OK, at least in one area with the introduction of the TFSA in January 2009. We figure we better take advantage of this financial tool because who friggin knows when, if or how the rules will change. Governments are famous for that. You already know the deal:

Including this year, you could have contributed up to $15,000 into a TFSA.
The money can be earned or withdrawn completely tax free.
Contribution room can be carried forward indefinitely.
You never lose contribution room when you withdraw money.
More benefits, more benefits

With $10,000 contribution room each, weve got lots of room to manoeuvre in 2011. Wed like to contribute $5,000 each to our TFSAs. We had to withdraw money from our TFSAs in 2010 to purchase those appliances I wrote about. We dont regret this transaction (because we need to eat!) but this purchase left a big hole to fill in our financial plan. 

Goal # 3 Optimize our RRSPs

Thanks to some savvy DIY investors and financial tutors like Canadian Couch Potato, Canadian Capitalist, Michael James on Money, Andrew Hallam, DIY Investor and others, Ive been schooled on the importance of managing our RRSPs efficiently. For many years, my wife and I werent managing our RRSPs, they were managing us. For almost 10 years we held various equity and bond mutual funds in our RRSPs. That changed last year when we accomplished our financial goal called clean-up our RRSP accounts. These knowledgeable DIY investors re-emphasized the drag management fees had on our retirement savings. Armed with this knowledge we made changes last year and now were using a few ETFs in our RRSPs to match returns of the S&P/TSX 60 Index and the DEX Universe Bond Index respectively, instead of equity and bond mutual funds that charged us 2% per year. These changes lowered our management fees by over 80%!

For 2011, we intend to optimize our RRSPs that is contribute only enough needed to avoid paying any more taxes come tax time. This way, we pay ourselves first but we also retain necessary funds for the rest of our financial plan. We figure optimizing our RRSPs in 2011 will cost us a few hundred dollars every month.

Goal # 4 Continue my full Dividend Reinvestment Plan (DRIP) with Bank of Nova Scotia

After making major investments (for us anyhow) into businesses like Bank of Montreal, Sun Life, CIBC and Enbridge some time ago, my focus early in 2010 turned to Bank of Nova Scotia (BNS).  I started investing in BNS for many reasons, one of the main reasons being they behaved (not just survived) very well out of the financial storm of 2008-2009.  They too, are a dividend stalwart:  paying dividends for over 150 years.

Many savvy dividend investors like The Rat, themoneygardener, Passive Income Earner and Echo from Boomer & Echo I recall got their invitations to the BNS dividend party years ago, now Im with them.  Glad to be with you gentlemen!   Last year I managed to contribute at least $50 per month into BNS stock, no commission fees, just the cost of a stamp and an envelope.  Hopefully sometime later this year I’ll be at a point whereby I’ll be earning at least one free Bank of Nova Scotia share via my full DRIP every quarter.   I look forward to seeing that compounding machine running.

Goal # 5 Start my full Dividend Reinvestment Plan (DRIP) with Fortis

Ive been meaning to do this for some time and I think 2011 should be the year, enough procrastinating already. An overview of Fortis:

Fortis Inc. is the largest investor-owned distribution utility in Canada, serving approximately 2,100,000 gas and electricity customers. Its regulated holdings include a natural gas utility in British Columbia and electric utilities in 5 Canadian provinces and 3 Caribbean countries. Fortis owns non-regulated hydroelectric generation assets across Canada and in Belize and upper New York State. It also owns hotels and commercial real estate in Canada.

Fortis (FTS) pays a healthy (and steady) dividend and is considered a Canadian dividend aristocrat, consistently raising its payout to shareholders year after year.  I want to be part of that payout.

Goal # 6 Build up our emergency fund to $10,000

We have some funds set aside for emergencies but not enough to satisfy our comfort level. Everyone has their own level and ours is $10 K. Weve got some work to do and 2011 is the year to do it.

Unlike last year, we wont be taking any grand trips to South America or any distant lands for that matter.  My wife and I have decided that 2011 is a year to get some work done around the house and furnish it the way we want to. Lawn chairs in our living room are not an option! Those efforts will take time and money and so in 2011, any additional savings beyond our emergency fund will be going towards home improvements.  Were still planning some weekends away, together, with friends and family but no big voyages. Although wed like to travel and experience new worlds there are things to do at home, literally. On the flipside, getting some objectives accomplished around the house in 2011 should give us much more freedom in 2012 – something to look forward to for sure.  I guess thats what goals are all about

What do you think of our financial goals for 2011?  What are yours?

I look forward to hearing from you, have a good weekend!
My Own Advisor

Gas Natural Inc. (EGAS), formerly known as Energy, Inc., is a distributor of natural gas in Montana, Wyoming, North Carolina, and Maine. It was founded in 1909. The stock pays a yield of 5.1% and carries a price to earnings ratio of 7.03.

Baytex Energy (BTE) is an investment trust which generates income from petroleum and natural gas properties. It generates a yield of 5.1%, and has been paying monthly since 2006. The company trades at 23.5 times forward earnings.

Blackrock Apex Municipal Fund Inc. (APX), founded in 1987, owns medium-to-lower grade or unrated municipal bonds, and sports a yield of 6.2%. It sells at a discount to net asset value in excess of 12.7%. Management fees are 0.68%.

Realty Income Corp. (O), with the great single letter stock ticker symbol, yields 5.1%. This real estate investment trust which specializes in commercial retail real estate, has been around since 1969. The stock trades at 16.9 times forward earnings.

Calamos Convertible & High Income (CHY) has a fairly high yield of 8.2%. It trades at about a 1.5% discount to net asset value. However, the management fee is a bit on the high side at 1.13%. This CEF, founded in 2003, invests in high yield fixed income securities and convertible securities.

Provident Energy Trust (PVX) is a Canadian income trust which generates a yield of 8.7% through the marketing of natural gas liquids. It was founded in 1993. Be aware of Canada’s new legislation taxing trust income in effect this year, which would tax the trusts at the corporate level in addition to the shareholder level. However, many analysts believe that this taxation is build into the price of these Canadian trusts.

Some things to keep in mind when you are doing your due diligence and analysis on these investments. Be careful of the ones with high management fees, watch out for the ones with limited liquidity and which trade very few shares on a daily basis, and if you invest in the municipal bond closed end funds, make sure you know the consequences of the Alternative Minimum Tax. You also want to find the ones that trade at a discount to net asset value, and avoid the ones using excessive leverage.

To see the latest updated list of over 275 monthly dividend stocks, including many that have yields of 8% or more, go to WallStreetNewsNetwork.com. Remember, very high yields may not be sustainable.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

Back in October last year, I announced the purchase of Aqua America (WTR:US), a water and wastewater services company that has over 3 million customers across 14 states.  At the time, I was pretty pleased with my purchase. Why?

o Aqua America provides what everyone needs; clean, safe, reliable water.
o Theyve been a dividend payer since 1939.
o Theyve paid quarterly dividends consecutively for more than 60 years.
o Their five year average dividend growth rate is over 8%.

With a market cap of about $3 billion they are not a small company and they have lots of room to grow through both acquisitions and service diversification.

So why did I sell them with mostly upside to be had?

Although I consider Aqua America a good company with long-term growth prospects, I recently found out that Aqua America is not eligible for any dividend reinvestment plan with my discount brokerage institution. This is in contrast to what Aqua America offers with their transfer agent Computershare in the U.S. Here are some highlights from their website:

o Aqua America, Inc. has a Dividend Reinvestment and Direct Stock Purchase Plan (the “Plan”) that offers investors a convenient and economical way to purchase shares of the Company’s Common Stock.
o Computershare Shareholder Services, Incwill administer the Plan and act as Agent for the participants.
o As a shareholder, you can buy additional shares of our common stock at any time for as little as $50. You can pay by check or by a one-time online bank debit through the Buy Stock Direct option noted above, or have your payment automatically withdrawn from your U.S. bank account.

While DRIPping Aqua America through Computershare has its merits, I do not want to go through the hassle of setting up a U.S. bank account or always commit to a minimum $50 cheque to purchase more WTR:US shares. Unfortunately when I made my Aqua America purchase in October I assumed because they offered a full DRIP via their transfer agent they would offer a synthetic DRIP with my discount brokerage institution. This was not the case. This was alarmingly clear when dividends were paid to me in December in cash.  

My lesson learned?

Before I make another U.S. stock purchase, Ill check with my discount brokerage institution to ensure the stock is synthetically DRIP eligible. Not all U.S. companies who offer DRIPs with their transfer agents offer these plans synthetically with brokerages. Im not sure why WTR:US Board of Directors made this decision (maybe they want to keep more control over the companys shares?) but it was an annoying revelation for me.

Sure, I could have kept Aqua America shares and not had the dividends reinvested but I think that goes against my strategy as a dividend investor. For every stock I own, I want to have enough shares of any company to DRIP at least one full share every quarter. I can do that for almost every stock in my portfolio, except for a couple Canadian stocks. 

o My DRIPs will provide me with dollar-cost averaging.
o My DRIPs take the emotions out of my investing.
o My DRIPs will not cost me anything to buy more shares.
o My DRIPs will take advantage of the magic of compounding.
o My DRIPs help me set and forget part of my retirement plan.

 
What can I say? I made another investing mistake and Ill probably make more.  How about you? Any investing mistakes you care to share?

My Own Advisor

Tis the season for stock picking contests…

Mike from Money Smarts Blog is participating with a few other savvy DIY investors in a stock picking contest. You can read about that here.

HUZ Silver ETF
RIM Research in Motion
CVX Chevron
POT Potash

After visiting The Financial Blogger, I decided I would send in my selections for this year. He has encouraged folks to submit their 4 stock selections to compete against his and his peers offering a prize to the winner if you can beat our group of bloggers for the 2011 Best stock pick contest.
Here is what I picked:

Amongst other savvy DIY investors, click here to view Passive Income Earners selections.

Click here to see Beating The Index selections.

Click here to see Million Dollar Journey selections.

Again, go check out The Financial Blogger for your opportunity to speculate in 2011!

What do you think of my selections?
Who would you pick?

Cheers,
My Own Advisor

Scotiabank motives aside (selling products) that seems like a pretty high number almost 4 in 10 Canadians will retire but work in retirement to make ends meet.

The study goes on to state:

56% of Canadians think they will need less than $1 million to fund their retirement, half of those believe they will need less than $300,000 to retire on.
28% of Canadians think they will need between $1 to 2 million to retire on.
16% believe they will need more than $2 million to retire on.

 Financial necessity is a pretty vague term but I hope this doesnt include travelling for a few months each year, playing golf every day, going back to school or buying a house on the ocean like some retirees plan to do. None of these come cheap.

I wonder if they work at a Bell call centre in Toronto?

Whats your magic number? Do you have one?

Cheers,
Financial Cents/My Own Advisor