All posts by Pat McKeough

5 powerful long-term investment strategies for higher returns

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Here are five long-term investment strategies that we are certain will enhance your long-term investment results. They’ve long been part of the advice we give in our investment services and newsletters, including Canadian Wealth Advisor, our advisory for conservative investing.

1.) No stock can ever be so undervalued or desirable that it overcomes a lack of integrity on the part of company insiders

We’ve always believed that investors should sell a stock if they have any doubts about the integrity of the people who are in charge of the company. In other words, if you think a company is run by crooks, you should sell the stock right away, no matter how attractive it seems as an investment.

However, to enhance your long-term returns, not just avoid loss, you need to apply this tip in a moderate fashion. You need to distinguish between lack of integrity on the one hand, and naivete or poor judgment on the other. Many public companies unintentionally run afoul of tax rules or regulatory decisions, for instance. If you take that as a sign of low integrity, you can wind up selling sound investments at market lows.

2.) Compound interest — earning interest on interest — can have an enormous ballooning effect on the value of an investment over the long-term

Compound interest can be considered the mother of all long-term investment strategies. This tip is especially important for young investors to learn. This stock trading tip’s benefits apply to both stock and fixed-return, interest-paying investments like bonds. When you earn a return on past returns, the value of your investment can multiply. Instead of rising at a steady rate, the number of dollars in your portfolio will grow at an accelerating rate.

To profit from this tip, you need to pay attention to steady drains on your capital, even seemingly small ones: like high brokerage commissions, say. If you’re losing (or missing out on a profit of) even 1% a year, it can have an enormous draining effect on your investments over a decade or two.

3.) As a group, investment long shots are overpriced

If you have nothing but long shots in your portfolio, you are likely to make meagre returns or lose money over long periods, rather than making the high returns you seek. That’s why you need to be particularly cautious and selective when adding anything to your portfolio that offers the potential of high returns. Continue Reading…

11 tips successful investors use to find TSX Blue-chip stocks

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TSX blue-chip stocks are well-established companies with attractive business prospects on the Toronto Stock Exchange, like Bank of Montreal (TSE: BMO), RioCan Real Estate Investment Trust (TSX: REI.UN), and Enbridge (TSE: ENB).

Well-established firms have the asset size and the financial clout — including solid balance sheets and strong earnings and cash flow — to weather market downturns or changing industry conditions.

The best TSX blue-chip stocks have strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in ever-changing marketplaces. Blue-chip investments should always be prominent, if not dominant firms, in their industry.

True Blue Chips pay off

Blue chip stocks are your best promise of investment quality—and of strong returns for years to come. Pat McKeough’s new report shows how you where to find the best of Canada’s blue chips. And he identifies 7 of his top blue chip recommendations.

Read this FREE report >>

Because of this, blue-chip companies can give investors an additional measure of safety in today’s volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.

We feel most investors should hold the bulk of their investment portfolios in TSX blue-chip stock investments. All these stocks should offer good “value”: that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above average-growth prospects, compared to alternative investments.

11 tips for picking the best TSX blue chip stocks:

1.) Review the company’s finances going back 5 to 10 years. The types of blue-chip investments we recommend have a history of profits going back for at least that long. Companies that make money regularly are safer than chronic or even occasional money losers. Continue Reading…

How to cut your tax on capital gains — and keep more of your money working for you

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In Canada, tax on capital gains is at a lower rate than tax on interest. You can take advantage of that — and substantially cut your tax bill — by structuring your investments so that more of your income is in the form of capital gains.

(Our free report, “Capital Gains Canada: 7 Secrets for Managing Your Canadian Capital Gains Tax Liabilities,” is packed with simple strategies you can use to shift more of your income to capital gains.)

You have to pay tax on capital gains, specifically on the profit you make from the sale of an asset. An asset can be a security, such as a stock or a bond, or a fixed asset, such as land, buildings, equipment or other possessions. However, you only pay tax on capital gains on a portion of your profit. The “capital gains inclusion rate” determines the size of this portion.

About 20 years ago, the Canadian government cut the capital gains inclusion rate from 75% to 66.6% and, within a few months, to 50%. This cuts tax on capital gains, and had the effect of lowering the overall rate you pay on capital gains to one-half of what you would pay on income or interest.

By The Numbers: Tax On Capital Gains

For example, if you buy stock for $1,000 and then sell that stock for $2,000, you have a $1,000 capital gain (not including brokerage commissions). Continue Reading…

Avoid costly mistakes in penny stocks and venture capital by navigating Speculation Booms

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In the 1990s and early 2000s, many Internet stocks rose to extraordinary heights based on the number of visits to their websites, rather than dollars in their bank accounts. Back then, lots of analysts and investors believed that these stocks could go on rising indefinitely. Instead, the Internet stock boom ended suddenly, like almost every speculation boom does. Most of the top Internet stocks collapsed and brought huge losses to investors.

Investors need to be wary when the signs of a speculation boom appear, especially in both venture capital and penny stocks. 

Venture capital investing is subject to a speculation boom

We rule out some investment areas regularly when we feel they offer bad odds of making a gain. For example, venture capital investing is always highly volatile. What’s more, high management and other fees tend to offset lots of gains in good years, and eat up a lot of your capital in bad ones.

Now is a particularly bad time for individual investors to delve into venture capital. That’s because a number of highly innovative technology investments have done remarkably well, and this has helped spark an enormous boom in the field. Money has been flooding into venture capital investments in recent years. In speculation boom, a flood of money tends to bid up the prices of all opportunities, good and bad.

Note, however, that many of today’s venture-capital success stories have yet to reach profitability. They are taking in ever-larger amounts of money from outside investors, and expanding their revenues by using these incoming funds to finance negative cash flow.

Even the most promising opportunities can fail to make the transition from exciting start-up to self-sustaining, profitable company.

You run into the same problem in venture capital investing as in penny-stock investing: It’s easier to launch a venture-capital deal or a stock promotion than it is to create a profitable business.

If you profit during a speculation boom, consider the “sell-half” rule for your speculative stocks

Selling half of hot stocks that surge helps you guard your profits. But apply this rule only to more aggressive stocks, and not to the well-established stocks that may surprise you by going a lot higher in the long run.

Knowing when to sell a stock is one of the most important factors in successful investing: it’s almost as important as knowing when not to sell. That’s why we advise investors to follow a key rule when it comes to rising stocks.

Whether your approach to investing is conservative or aggressive, the quality of your investments matters much more than your skill at selling. Continue Reading…

Is now a good time to buy stocks? Look beyond the headlines to find out

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Examine The Theories That Forecasters Rely On To Predict Market Swing: And Learn Their Flaws

The universe is constructed in such a way that nothing is certain. You can always come up with perfectly rational reasons why something won’t work. But people find ways to overcome obstacles, and some businesses succeed despite risks.

Is now a good time to buy stocks? Below are a couple of factors to consider. 

Editor’s Note: This piece originally ran last July so is not specific to the current Coronavirus-induced volatility; however, the general principles still stand up nicely.

Also, see this Inner Circle hotline from Pat that appeared on Friday March 6th:

A special note from Pat…

Right now I’m working on a special report on the COVID-19 virus, which will go out to our Inner Circle Members [on Tuesday of this week.] It will tell you, among other things, that if you liked your portfolio when the coronavirus scare began a few weeks ago, you should probably hang on to it.

However, if you are like a lot of investors, you may often wonder if you should stick with your portfolio as is, or make changes.

In the upcoming special report, I’ll tell you what I’ve told our portfolio management clients what they should do in a variety of special instances that you may already be wondering about, such as:

  • How today’s market might affect your retirement plan if you’ve already retired…
  • How to decide if you should put more cash in the market…
  • What the market downturn means for the market for the rest of the year and beyond…
  • and How the “Conflict of Interest” factor can help you navigate through the “virus crisis.”

Look for Pat’s special report on COVID-19 and its impact on your investments in this coming Tuesday’s Inner Circle Q&A.

[For those not currently members, here is the link to join.]

 

Is now a good time to buy stocks? Understand pendulum theory and you will understand the past

You could sum up the investment version of the pendulum theory like this: stock prices alternate between periods of overvaluation and undervaluation; the degree and duration of each period of overvaluation is related to the degree and duration of the subsequent period of undervaluation, and vice versa.

In other words, pendulum theory says that when stocks head downward after a period of overvaluation, they won’t stop at fair value. Instead, they’ll keep dropping until they hit lows that are in some sense as out-of-whack as previous highs, or close to it.

Pendulum theory is a handy way to label the past, and it gives you a sense of how stock prices behave. But it’s useless at predicting the future or timing the market. That’s why pendulum theory generally plays a small part in successful investing. If you qualify as a “successful investor,” you probably recognize that the market never gets so high that it can’t go higher, nor so low that it can’t drop some more. This is a key part of understanding the stock market.

Is now a good time to buy stocks? Consider this valuable concept to gain another perspective

Here’s one of the most valuable things you should recognize as an investor: “A rising market climbs a wall of worry.” In other words, you need to recognize that a stock market’s rise automatically generates negative comments. The higher and/or longer the market rises, the more negative comments it generates. These are the bricks in that wall of worry.

The inevitable building of this wall grows out of human nature. Many people are instinctively cautious or conservative. When they see a stock or the stock market go on a rise, they look for reasons why the rise may falter or reverse. That’s especially true of stock market commentators. When a stock or the market rises beyond their expectations, they dig deep for hidden flaws. Continue Reading…