I was looking back at some of the content that I have been sharing lately, and I noticed just how often I have been warning people of precarious situations; about investing based on flawed assumptions, about the dangers of reckless speculations, and about frauds and deceptions.
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On a related theme, lately I have fielded some questions from people looking for guidance in an ocean of investment choices. We have seen some sizable short-term gains lately, and that always gets people’s attention. It can also lead to enthusiastic interest in what otherwise would probably be considered an unsuitable investment.
Given all this, lets talk about what I think makes for a good investment. There are two parts to this: the first part is to identify what makes for a good business.
A good business sells things that people want and need. You may have the world’s best 8-track tape manufacturer. But people don’t want, and they certainly don’t need, 8-track tapes anymore.
But even further, a good business doesn’t just sell stuff that people merely want and need, but it provides things that are difficult to live without.
Imagine, for instance, not having banking services in your life. Financial institutions are where we obtain mortgages, where we borrow money to either get the things we want or to bail us out of a tight spot, where we can write cheques and pay bills online so we can settle up with people we owe, where we deposit our paycheques, and how we keep our money safe until we need it. You may be able to live without a financial institution in your life, but it would be difficult. Every adult reader of this column probably has at least one banking relationship.
A good business is difficult to replicate. Take, for instance, a railway. We use rail to transport people and things. But good luck starting a railway from scratch. Just laying the track across the width of a nation would be a massive task. Trying to replicate a railway could be done, but not easily.
A good business is difficult to compete with. Here’s an example. Tell me the name of a soft drink. What is the first thing that pops into your mind? Chances are very good you said Coca-Cola. The impressive thing is you could go anywhere in the world and people will say Coca-Cola. It has worldwide brand domination.
Warren Buffett calls this an “economic moat” around a business that keeps competitors from gaining market share. The moat could be from exceptional service, from the quality of the product, from cost advantages, patents, or location. But some thing that makes a business hard to compete with.
Having found a good business as a potential candidate to invest in, its time to look at the second part, which is just as important. The second part is paying the right price. This is also the part that many people spend not enough time considering, to their eventual, inevitable regret.
The difference between a great busines and a great investment is the price you pay. Write that down, tattoo it on the back of your hand if you need to.
I get people asking me about what I think about some potential investment all the time. They are excited about an idea and the equate that to the potential for future investment growth, but probably 90% of the time they have not considered the price that the investment is trading at.
Folks, this is real simple. It comes down to this: If you pay to much for something, it’s real hard to make money. Doesn’t matter what it is. A stock, an apartment complex, Pokémon trading cards. Pay too much, and it’s hard to make money.
The bottom line: A good business is difficult to live without, difficult to replicate, and difficult to compete against. But don’t forget that the difference between a good business and a good investment is the price you pay.
Brad Brain, CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
