Archive for July, 2007

What’s on Your Shopping List?

July 31, 2007

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While it is painful to experience sharp losses, market downturns are typically a very good time to shop for stocks. In the market lows of 2002 or 2003, you could have blindly picked up a group of stocks and still made a decent profit. I have no idea if the sharp sell-off last week is a dip, a long-awaited market correction (I can’t recall if we even got a 10% correction in the current bull market) or the initial roar of a bear market but I do know that I have a shopping list ready:

  1. RioCan REIT (TSX: REI.UN): We don’t have any REITs in our portfolios and I’ve been watching them for a while now. RioCan is the largest public REIT in Canada and I would like to establish a position at the right price. REITs began correcting even before the equities market and RioCan is down by about 15% from its recent peak and would be interesting at around $20.
  2. Emerging Markets (VWO): Our emerging market exposure is about 2% but our allocation target for this asset class is 5%. Despite the recent sell-off, VWO is just 5% off the recent highs. Emerging markets would have to fall a lot more before I would be interested.
  3. TD Bank (TSX: TD): I first bought TD Bank many years ago and have periodically added to our holdings. TD is now trading slightly above $68, well off the recent high of $74. Still, as we have a slightly larger exposure to Canadian equities than our plan calls for, I’ll probably hold off on increasing our position. I am not planning to add to our other bank holding (BNS) because it is already at a higher percentage of our total portfolio.

Do you have your shopping list ready? If you do, which stocks are on it?

Revisiting High-Interest Savings Accounts

July 30, 2007

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A few years back, ING Direct was pretty much the only game in town, offering online savings accounts with much higher interest rates than anyone else. Today, Canadians have such an array of choices available that ING Direct is not the de facto or the best option anymore. Here are some of the recent (and not-so-recent) developments in high-interest savings accounts:

ING Direct is not the leader anymore
Despite what its commercials claim (“ING Direct offers the highest interest rates of any of the major banks…”), ING Direct is now a laggard in the field. Online savings accounts offered by competitors such as E*Trade (Cash Optimizer account offers 4.15%), Achieva Financial (Daily Savings Account offers 4.1%), PC Financial (Interest Plus pays 4% if you maintain a balance of more than $1,000), etc. sport a much higher interest rate than ING’s regular rate of 3.5%. When the Bank of Canada hikes interest rates, ING Direct is also a lot slower in increasing the interest rate on its savings account. For instance, the Bank of Canada raised interest rates on but ING Direct is still offering the old interest rate. Even Royal Bank was quick to match the BOC hike with its eSavings account now paying an interest of 3.75%.

Promotional rates
Online banks are taking a leaf from car dealers and furniture retailers and offering promotional interest rates (Hurry! Sale ends August 31st!). Typically, if you open a new account you are initially offered much higher interest, which will revert to the regular rate at the end of the promotional period. For instance, HSBC Direct is paying 5.0% until October 10, 2007 on new accounts opened between July 10 and October 10. ING Direct is even running a “Summer Savings Sale”, in which new money deposited into an existing savings account will attract a higher rate for a limited time. Presumably, this is done to prevent existing customers from bolting to the competition.

More Choice in US Dollar Savings Accounts
E*Trade’s Cash Optimizer is now a strong competitor in US Dollar Savings Accounts offering a rate of 4.75%, which is better than ING Direct’s 3.5%. I have personally tried the US Dollar Cash Optimizer account and it works smoothly. ICICI Bank offers a USD account that pays 5% but customer service problems were reported in the press last year and I haven’t personally parked money with them.

Primer on Warrants

July 30, 2007

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If you dabble in individual stocks (specifically small-cap stocks), eventually one of your holdings will offer you a warrant. A warrant allows you to buy a set amount of shares at a set price within a certain time period. Warrants are issued to entice investors to buy into an equity or debt offering by the company (putting lipstick on a pig) or to allow existing investors to increase their equity stakes.

If you receive a warrant, you have a few options:

  1. You can exercise the warrant by coming up with the cash for the extra shares. You simply have to call your broker with instructions and the one time I did this, there was no charge for the service.
  2. You can sell the warrants just like a stock and you’ll incur a trading commission. Obviously, this option makes sense only if you can net more than the trading commission.
  3. You can let the warrant expire if you don’t want to increase your stake or if the gross proceeds are less than your trading commission.