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My search for the next great stock

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By Aman Raina, SageInvestors

Special to the Financial Independence Hub

I get asked a lot about how to find companies and stocks to invest in. Where do you start? It’s a great question and also an overwhelming question to people. They’ve set up the broker account. They put in some money. They’re now ready to buy stocks. Where to start?

A few years ago I wrote a blog on how to find stocks to invest, where I suggested a simple and easy starting point in identifying companies to evaluate. The premise was identify the core necessities of life that we need on daily basis and find those stocks that offer that value proposition. The necessities of life are essentially food, clothing, shelter, and transportation (I may add another one communication). Identify the companies in each pillar and evaluate them to find the best run, best managed, best performing.

These days, one of the prominent business thought leaders is Scott Galloway. He is a walking market research machine and can hit with you with so much data you’ll faint. If you want proof check out one if his presentations.

Galloway blogs as well and awhile back he posted a piece of how Uber could get its groove back after all the leadership missteps. He mused on the following:

“…Begin thinking of Uber as an OS. The most impressive firm of the nineties was the original gangster leveraging the operating system — Microsoft. The most influential firms of the last decade, the Four (Amazon, Apple, Facebook, and Google), have become operating systems for retail, media, connections, and information, respectively … and extract serious rents from the apps that sit on top of the OS. What firm has busted a move and blown through $100B market cap that isn’t effectively an OS? The latest, Netflix, has taken advantage of the extraordinarily lame cable industry and now occupies the second-most-important screen, the television. Netflix has increased its market cap 2400% in the last five years.

In sum, the only way Uber gets from $70B to $700B is to become the OS for travel, becoming the user interface / API / rules for all transportation. Leveraging AI, cheap capital, and relationships with 40M of the planet’s wealthiest consumers each month, Uber should expand its offering (dramatically). Same interface, but instead of entering “ACK airport,” where I’m headed Sunday morning, I type in “London,” and using AI — connecting the dots of my preferences, economic weight class, deals at the time, APIs — Uber presents the best options for not just the ride to the airport, but the flights to JFK, then London, the car that picks me up, and the hotel I stay at. Uber has the license to do this. The ride-hailing firm can’t get there on its own and will acquire other firms…”

It’s a pretty compelling argument and it made me wonder what other “OS’s” are out there in other industries? Then I thought about my pillars, food, clothing, shelter, transportation? Has anyone staked their claim as owning the OS for these pillars? Where would Google, Amazon, Facebook, Apple play in this? I thought it would an interesting exercise to carry out and may it can uncover some interesting investment opportunities. My search for the next great stock had begun.
Continue Reading…

GreedyRates.ca: The 5 degrees of Financial Freedom

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Image: GreedyRates.ca/Shutterstock

My first article for GreedyRates.ca ran over the weekend. Click on The 5 Degrees of Financial Freedom for the full article. It talks about how many terms in personal finance are used interchangeably, and often imprecisely: financial security, financial independence, retirement and especially financial freedom.

I suggest that most of us travel through a financial life cycle as predictable as the human life cycle, and there is a corresponding hierarchy of growth stages that we need to keep in mind in order to continually meet and exceed our financial goals. But because the term financial freedom can apply to so many stages, I argue it’s better to use more precise terms to identify the various degrees of Financial Freedom.

From the 5-stage hierarchy below, I argue that the key milestone in our financial lives is Findependence (a contraction of Financial Independence), a turning point that I define as the moment all sources of passive income exceed your monthly living expenses. Note that the full version at GreedyRates.ca contains three key bullet points for each of the stages, for a total of 15. Below, I summarize just the stages themselves.

Stage (Sub) 0: Indebted Wage Slavery

We may start out our financial lives with student debt, credit-card debt or mortgage debt in the early years of forging careers and raising families. Whatever its nature, debt keeps you chained to employment or work of some type.  Since those starting their financial journey in debt haven’t really begun their financial journey at all, I call the preliminary stage Stage 0. As a character in my financial novel, Findependence Day, tells a young Millennial couple still in debt: “You can’t climb the tower of wealth while you’re still mired in the basement of debt.”

Stage 1: Financial Security

The next level to aspire to in the ascending hierarchy is Financial Security. In this stage you have eliminated your debts and have accumulated enough wealth so that your absolutely necessary monthly expenses (rent/mortgage, food, utilities, travel and basic entertainment) are taken care of for the near future.

Stage 2: Financial Vitality

It can take a long time just to establish a modicum of financial security but I argue you need to aim higher than mere financial survival and embrace what Tony Robbins dubs Financial Vitality. You want enough flexibility in your cash flow that, after the necessities are taken care of, you can enjoy little luxuries like new clothing or intangibles like gym or yoga memberships, and attend the occasional sporting or cultural event. It’s the difference between financially surviving and financially thriving.

Continue Reading…

How to stop worrying and embrace market Volatility

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By WisdomTree ETFs
Following one of the most tranquil years in stock market history, volatility came roaring back in late January and early February. Many investors were calling for the inevitable return of volatility in 2018, ourselves included. That said, few foresaw how quickly and how violently that prediction would come to fruition. While there was some debate as to what exactly prompted the pickup in volatility (with everything from inflation to inverse volatility exchange-traded products to the all-encompassing “quants” being blamed), the bottom line is that the spike in the Volatility Index (VIX) left equity investors running for cover.

 

One thing we found interesting was that during the height of the correction, the MSCI Emerging Markets Index outperformed the S&P 500 by almost 150 basis points on the downside, with other emerging market (EM) strategies holding up even better.1 Given that the EM asset class historically has had a standard deviation about 50% higher than that of the S&P, EM investors who may have expected the performance of EM to be worse than that of the U.S. were likely pleasantly surprised.

Valuation’s impact on Beta

The EM outperformance brings to mind a concept that Jeremy Grantham has written about: beta is a critical component of explaining relative performance, but valuation can influence beta. Assets that are more expensive relative to their history may experience volatility above their expected levels (and vice versa). When an asset’s price outruns its fundamentals, a downturn in the market can be disproportionally negative when the music stops.

This is the exact same idea that underpins WisdomTree’s original investment philosophy and why we focus on fundamentals. Regarding those fundamentals, within EM we remain encouraged by corporate earnings and believe that the attractive valuation currently offered by the asset class is being underappreciated. As such, the recent sell-off may have provided us with a live case study that validates the dynamic beta concept.

Using Volatility as a Buy signal

As our Chief Investment Strategist Luciano Siracusano recently noted, when the VIX spikes upward, the following 12 months historically have seen strong returns for the S&P 500. Taking it a step further, while elevated VIX levels have portended good times for U.S. equity investors, EM equity investors have had even greater reason to cheer. Continue Reading…

Stop cheating yourself out of tax savings: Tips to get the biggest refund

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By Clayton Brown

(Sponsor Content)

The CRA might not exactly be falling over themselves to help you get a nice tax refund. A recent audit showed the agency blocked more than half the calls it was getting (that’s 29 million calls out of 53.5 million) because … well, it just could not handle all of the call volume.

And even when Canadians did get through, agents gave the wrong information about 30 per cent of the time. So, Canadians might need a little help in figuring out how to file their taxes the right way; ideally, so they get the maximum refund they deserve.

Here are some things you can do around tax time to make sure you get the money that should be coming to you:

Take your deductions and claim your credits

The CRA likes its revenue but successive governments have created various options to give the taxpayer some breathing room. Deductions are one of the few variables in your favour, lowering your taxable income, so make the most of them.

Probably one of the best known ones comes from RRSP contributions.

You can contribute up to 18 per cent of your previous tax year’s earned income, plus unused room carried forward from previous years. This helps you pay less tax now, and assuming your income is lower in retirement, also helps you pay less tax later on. By now, you should have all your RRSP receipt slips from your financial institution. (Make sure you keep those receipts, in case auditors come calling).

Another tactic: claiming deductions for child care costs. The government wants to encourage parents to buff up their skills and improve their job prospects. For instance, you can deduct up to $8,000 per child who is under 7 years old. For children aged 7 to 16, you can deduct up to $5,000 for those eligible child care expenses.

Canadians can also claim the interest on certain student loans as a credit. This credit is not like a deduction (where a $1 deduction translates into $1 less taxable income, up to a limit). However, it can still significantly lower a tax bill for those struggling to finally pay off student debt after they’ve finished school.

There are many more deductions and credits available, so don’t leave money on the table!

Love those Spousal RRSPs

Marriage is a beautiful thing. Being with the person you love, sharing memories … and don’t forget about those tax advantages! (Technically, they also apply to common-law spouses, so you don’t have to get hitched to reap the rewards).

These tips generally apply where one spouse earns quite a bit more than the other. In that case, it can make sense for the higher-earning partner to contribute to a Spousal RRSP.

So, let’s say Ned makes $80,000 in salary at his engineering job. Meanwhile, Ned’s wife, Claire, earns just over $50,000 as a manager in an electronics store.

They are both contributing to their own individual RRSPs (Ned saved $6,000 in his. Claire saved $4,000). But Ned also puts $5,000 into a Spousal RRSP. Since Claire’s income is lower, she is the holder of the Spousal RRSP and she will be the one withdrawing income from it. The ideal result, if they’re doing it right: when she makes a withdrawal, it will be taxed at a lower rate than if Ned withdrew it from his own RRSP. Continue Reading…

Retired Money: The Four Phases of Retirement

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As anyone who has left full-time employment probably knows, these days Retirement is seldom a one-time sudden event. Just as an airplane doesn’t vertically descend instantly in order to land but begins its descent hundreds of kilometres away, so too do formerly fully employed workers usually gradually cut back. In fact, as my latest MoneySense Retired Money column says, there are at least four phases of Retirement. Click on the highlighted text to retrieve the full online column: The Four Phases of Retirement.

That’s according to former financial adviser and retiree Riley Moynes, who has prepared thousands of clients for retirement over his long career. His views are encapsulated in a short booklet titled just that: The Four Phases of Retirement. The subtitle is What to Expect When You’re Retiring, which is a clearly a nod to the bestselling book on pregnancy. 

Having just reached the traditional retirement age of 65 earlier this month, I can attest to the gradual nature of Retirement, which in earlier Retired Money columns referred to the glide path analogy made above.

So what are the 4 phases?

Phase 1: Extended Vacation

This is the classical honeymoon phase that full-time workers imagine amounts to a permanent vacation. It typically involves extended travel, the chance to indulge in hobbies, spend more time with the family and (especially!) one’s spouse.

Phase 2: The plunge into the abyss of insignificance

This “drop from the top” can be one of the top ten traumas human being faces in their lives. With it comes the reality of five “unavoidable losses”: structure, identify, relationships, a sense of purpose and a sense of power.

Phase 3: Trial & Error

The retiree starts to realize the sands of time are starting to slip rapidly away and that if you are to accomplish anything with what time remains, it had better be soon. The dominant question here is “How can I contribute?” You tentatively start a few ventures and eventually commit to one but are prepared to go back to the drawing board if it doesn’t work out.

Phase 4: Reinvent and Repurpose

Not everyone reaches this stage (indeed, some may go back to Phase 1 and just kick back and enjoy themselves again) but for those who yearn to  leave a legacy, Phase 4 is the place to do it. The retiree ask three questions designed to identify one’s unique ability: What do you absolutely love to do? What do you do very well? And what attributes or skills have led to success in the past?

Moynes now gives workshops on Retirement (see www.thefourphases.com) and also published a companion book in 2017 titled The Ten Lessons: How You Too Can Squeeze All the “Juice” Out of Retirement (see www.thetenlessons.com).