Archive for November, 2005

To Not Diversify is Just Stupid

November 30, 2005


Robert Kiyosaki claims in his column on Yahoo! Finance that only amateurs diversify and professional investors should instead focus their investments. He even quotes Warren Buffett on the subject. Fair enough. But, the last time I checked there are just a handful of investors who are as successful as Mr. Buffett and there are probably millions of extremely smart professional investors. So, the odds are stacked against an investor who wants to focus.

Mr. Kiyosaki’s specious argument goes something like this: Mr. Buffett focuses his investments and is successful. Many rookie financial planners suggest diversification and their clients are not wealthy. Therefore, if you want to be wealthy don’t diversify!

Many very smart investors preach the virtues of diversification: Burton Malkiel, Ted Aronson, David Swenson to name just a few. And from my personal experience, beating a low-cost diversified portfolio of index mutual funds or ETFs is extremely difficult. Also, the vast majority of mutual funds, all of them run by professional investors, fail to beat their benchmark indices even before taking taxes into account. Not to mention, the sorry record of individual investors who focused their portfolios on technology and got killed in the bear market. Just don’t forget Mr. Buffett’s advice: “Rule # 1: Don’t lose money. Rule # 2: Don’t forget Rule # 1”.

Also, check out posts on this subject on Investing Intelligently and Consumerism Commentary.

Note: Just one day left to enter the One Year Anniversary Giveaway.

This and That

November 29, 2005

  • Forbes magazine is listing the 40 largest companies in Canada according to their methodology. No surprises here. The 5 big banks, 2 insurance companies, 2 energy companies and 1 telecom round out the top 10 list.
  • I am currently reading The Investment Zoo, so I read this interview with Jarislowsky Fraser with great interest. The recipe for investment success seems to be timeless: Buy good quality companies with sustainable competitive advantages at decent prices and hold for the long term.
  • Robert Kiyosaki’s column on Yahoo! Finance – To Diversify or Not To Diversify – is provocative, to say the least. Mr. Kiyosaki is suggesting that investors should focus their investments like Warren Buffett and not just diversify (which is for amateurs). Sounds easy, but in practice, it is really hard to beat the market.
  • Venture Capital funds are a lousy choice for almost every investor. Sky-high expenses (5% a year is not uncommon) and lousy returns for the asset class hardly make up for the tax credit. A story in the Globe and Mail is complementary of a fund that has posted 1.24% gains in 2 years.

Note: Don’t forget to enter the One Year Anniversary Giveaway. Less than 48 hours are left and your chances of winning are very good!

Where is the Leak?

November 28, 2005


The finance ministry is very concerned about real or imagined leakages involving taxes in the income trust sector. It should, however, be really concerned about who (if any) leaked and who (if any) benefited from the information about the impending favourable decisions regarding trusts last week.

The decision to cut dividends and income trusts was announced to the public on November 23, 2005 at about 6 p.m. EST, after the markets closed in Toronto. Check out the action in some of the popular income trusts and high-yield dividend stocks that are a play on a potential income-trust conversion:

Nov. 22 – Closed at $14.09 on a volume of 456,600 shares.
Nov. 23 – Closed at $15.02 on a volume of 1.51 million shares.
Price up 6.6%. Volume up 3.3x.

Nov. 22 – Closed at $22.45 on a volume of 665,800 shares.
Nov. 23 – Closed at $23.38 on a volume of 4.3 million shares.
Price up 4.1%. Volume up 6.4x.

Nov. 22 – Closed at $26.60 on a volume of 1.7 million shares.
Nov. 23 – Closed at $27.90 on a volume of 4.8 million shares.
Price up 4.8%. Volume up 2.8x.

Nov. 22 – Closed at $20.79 on a volume of 92,900 shares.
Nov. 23 – Closed at $21.60 on a volume of 323,500 shares.
Price up 3.8%. Volume up 3.5x.

Suspicious? You bet. But, I for one, am not holding my breath for any investigation by securities regulators.

Note: Don’t forget your entry into the One Year Giveaway. Hurry! Only 3 days left!