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Investing in Non-Chinese Rare Earth Producers

The trade war shows more and more signs of becoming a permanent fixture in our lives and especially in the world of investments. In our article about the possibility of the trade war becoming permanent, we discussed how both China and the U.S.A. view this issue in the broader scope of global power and homeland security. As such, both sides are ramping up their tariffs and making no-so-hidden threats about what comes next. One of the things that especially caught our attention was the Chinese threat to cut off the export of rare earth metals to the U.S.A. At this point, investing in non-Chinese rare earth producers might be a really good idea. The Street’s Real Money has an informative article about how rare-earth stocks strike gold at the prospect of a Chinese rare earth export cutoff.

Rare-earth miners toil in obscurity, operating a fancy-sounding but grungy business. They have hit pay dirt on the stock markets late this month, with it looking increasingly likely that China will restrict U.S. supply of the minerals they produce.

The Global Times, a mouthpiece for the Communist Party on foreign affairs, has run an article stating that it’s only a matter of time before China will “weaponize” its rare-earth exports in the trade war.
The shares of the listed miners operating in this space have surged. The CSI Rare Earth Industry Index (index code 930598) tracks 50 of these stocks, companies that mine, extract, process, trade or apply the minerals. The index is up 45.4% so far this year.

Real Money goes on to state this.

There are 17 rare-earth elements, metals used to make magnets for electric cars, earphones and computer hard drives. China accounts for 90% of global production and 80% of worldwide export shipments.

They go on to talk about a Chinese rare earth producer whose stock trades on the Hong Kong Exchange. We don’t think that Chinese producers will be a good investment choice in this situation because they stand to lose if 1) they cannot export to the U.S.A. and 2) if more and more companies follow the ABC (anywhere but China) course for outsourcing their manufacturing. We think that investing in non-Chinese rare earth producers may be a better idea in case Chinese exports get cut off. And, if the trade war becomes even uglier, we may see countries like the U.S.A. find ways to subsidize rare earth producers through tax incentives and more.

Investing in Rare Earth Mining Operations

There are rare earth mining operations scattered across the globe. Here are the companies in the U.S.A, Australia, and Canada that mine rare earth elements and produce rare earth metals.

Rare Earth Producers in the U.S.A.

The one active rare earth mining operation in the U.S.A. is Alkane Resources Limited. (Mining Feeds Rare Earth U.S.A.)

This company has been a penny stock for the last twenty years with the exception of 2011 and 2012 when it “surged” as high as $2.52 a share before falling back. Its mining operation was shut down for a while about a year ago but is open and producing again.

Rare Earth Producers in Australia

Australia has seventeen companies that do rare earth mining as part of their operations. (Mining Feeds Rare Earth Australia)

 

For investing in non-Chinese rare earth producers, Australian mining companies are a good choice.

Rare Earth Mining Operations Australian Companies

 

The list of Australian stocks is a better place to look for investing in non-Chinese rare earth producers because it includes mature and strong mining operations that are not totally dependent on profitable rare earth extraction and processing for their survival.

Rare Earth Producers in Canada

There are seventeen Canadian mining companies that extract and process rare earth elements as part of their operations. (Mining Feeds Rare Earth Canada)

 

 

Canadian mining companies are good choices for investing in non-Chinese rare earth producers.

Canada Rare Earth Mining Companies

 

As with the Australian companies, investing in non-Chinese rare earth producers will work better with Canadian companies that are large, have been in business for years, and have operations in numerous countries extracting numerous metals.

Rare Earth Elements Are Not Really Rare

Rare earth elements are not rare. They simply don’t occur in the kinds of concentrations seen for copper, gold, silver, and other minable metals. This makes them more expensive to mine because a lot more ore needs to be extracted and processed than with other metals.

For more insight into Australian rare earth elements and rare earth production, you can look at information about rare earths published by the Government of South Australia.

Rare earths were named by Johann Gadolin in 1974 for a group of chemically similar, metallic elements with atomic numbers 57 through to 71.

In order, these are lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), promethium (Pm), samarium (Sm), europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb) and lutetium (Lu).

These elements are commonly known as the lanthanide series and are divided into light rare earths (lanthanum–gadolinium) and heavy rare earths (terbium–lutetium). Scandium (Sc, atomic number 21), yttrium (Y, atomic number 39) and thorium (Th, atomic number 90) are also generally included in the rare earth group because of their similar chemical properties.

The rare earths were originally thought to be rare in crustal abundance but this is now recognised not to be the case and they have a similar crustal abundance to elements such as nickel, copper, silver, lead and tin. However, mineable concentrations are less common than for most other ores.

And, the lack of easily minable concentrations is what has hindered mining operations outside of China. China still has a lower wage scale than countries like Australia, Canada, or the U.S.A. And, the government heavily subsidizes these operations in various ways, not all of them plainly visible from outside the country.

Investing in Non-Chinese Rare Earth Producers

Our considered belief is that threats of cutting off rare earth exports by China will at least temporarily drive up stock prices and make investing in non-Chinese rare earth producers more profitable. Over the longer term, governments in countries like the U.S.A., Australia, and Canada will be able to mine these elements because they are common and can be extracted from things like coal deposits. Higher prices will make these operations more profitable and to the extent that their production is seen as critical to national economies and national defense, governments will find ways to subsidize such operations to ensure their long term survival and success.


Swine Fever Risks to Investment in U.S. Agriculture

African swine fever has killed about 200 million pigs in China and U.S. hog and soybean farmers are worried. A good measure of the swine fever risks to investment in U.S. agriculture is the fact that local news outlets are featuring this story in farm country. The Herald Sun, published in Durham, North Carolina writes about the spread of African swine fever in China.

It first appeared in China last August and since then it has spread like wildfire, decimating China’s pork industry and affecting millions of pigs across that entire country.

From there, African swine fever has spread to Vietnam and crept into Cambodia, killing even more pigs.

Now, farmers in North Carolina watch nervously, hoping the disease doesn’t make it across the Pacific Ocean.

“I am terrified. Every pig farmer I know is terrified,” said Jan Archer, an owner of Archer Farms in Goldsboro, which has more than a thousand pigs.

African swine fever isn’t harmful to humans, but it is especially fatal to pigs and spreads quickly. Rabobank, a Dutch bank, estimated the disease will affect 150 million to 200 million pigs in China, the biggest pork producer in the world, this year.

One side of the coin is that China’s loss could be a huge gain for U.S. pork producers as they could export massive quantities of pork to China to make up for their production shortfalls. The other side of the coin is that this disease could spread to the USA to hog producing areas and devastate herds just like is happening in China.

Even if just a few cases occur in the USA and the disease is otherwise contained, it would kill U.S. hog exports. That is because African swine fever is a “trade-limiting” disease.

If just one outbreak were reported in the nation, then exports of that product from anywhere in the nation would halt, until further studies could be done or the disease is cleared. Concern is so high that the disease could travel to the U.S. that the World Pork Expo in Iowa was canceled for just the second time in its history.

North Carolina hog producers export about 25% of their product. Having to store instead of export hog products would drive many farmers and meat packers out of business. Farmers are gearing up for strict quarantines where anyone coming onto a farm will need to strip, shower, and change clothes. They won’t even be able to bring their glasses onto the farm.

Soybean Farmers and Others Are Hurt by African Swine Fever in China

Pigs need to eat and soybeans are a major part of a hog’s diet. Because China has (or had) three times as many pigs as the USA, they need to import soybeans to feed their herds. The reduction in the pig population in China translates into a lesser demand for soybeans and reduced U.S. soybean exports. This means that U.S. soybean farmers will be hurt but so will allied industries. CNN reports that Wall Street fears could hit Deere and other stocks.

A trade fight with the U.S. isn’t the only war China is fighting. African swine flu has decimated the pig population in China and sent pork prices soaring. As many as up to 200 million Chinese pigs have reportedly been lost due to the disease.

Now, Wall Street analysts are scrambling to assess the fallout from the fast spreading illness and how to invest around it.

J.P. Morgan has downgraded Deere to underweight on concerns about the “rapidly deteriorating fundamentals in U.S. agriculture.” This is due not only to the trade war, but also the decline in soybean demand in China as a result of the reduction in the hog herd due to the outbreak of the African swine flu.

Swine fever risks to investment in U.S. agriculture include companies like Deere. Deere makes tractors, combines, and other farm machinery. If U.S. soybean farmers lose customers in China because they have fewer pigs, they will buy less equipment from Deere. If U.S. pig farmers are hit with the swine fever and have to cull their herds, the results for companies like Deere will be even worse.

 

One of the Swine Fever Risks to Investment in U.S. Agriculture is sales of Deere farm equipment.

Deere Combine Harvesting Soybeans

 

Other companies mentioned in the CNN article include the venerable meat packer, Hormel as well as Philbro, Darling Ingredients, and Blooming Brands.

Trump Trade War Multiplies Risks for U.S. Agriculture

Forbes writes that handouts from Trump won’t save soybean farmers. The swine fever epidemic in China is not the first problem for American soybean farmers. But, it may be the nail in the coffin for many.

The price of soybeans has plummeted over the past year since Trump started putting tariffs on Chinese products and China retaliated. The USDA estimates that the average price per bushel fell from $9.33 in 2017 to $8.60 last year. At 4.54 billion bushels that was a $3.3 billion impact to soybean farmers. However, the shortfall should be worse this year since last year farmers were able to forward sell a portion of their crops at $10 per bushel.

As the chart shows below shows with a per bushel price in the low $8 area, unless prices turn up soon 2019 will be a disastrous year for soybean farmers. For a business that runs on low margins losing over 20% of revenue with high fixed costs is a recipe for bankruptcies.

Here is their chart.

 

One of the swine fever risks to investment in U.S. agriculture can be seen in the fall of soybean prices.

Soybean Prices Fall

 

The key to understanding this problem for soybean farmers is that soybean farming works on margin. When there are heavy rains, like this year in the Midwest, farmers plant later and get less of a yield. When the price falls because demand is less, they make less even with a bumper crop. And, when a trade war cuts off their largest foreign customer, many soybean operations working on margin go bankrupt.

Investments in U.S. Agriculture and Tracking Bankruptcies in Farm Country

American Banker writes about soaring bankruptcies in Farm Belt and how banks need to become more defensive or get dragged down by debt defaults.

Banks that serve U.S. farmers are increasingly restructuring existing loans and boosting the collateral needed for new ones as the numbers of late and missed payments have risen.

While regional banks are healthy, they’re clearly boosting their defenses against the risks they face. In March, a report by First Midwest Bank in Chicago showed past-due agricultural loans up 287% in 2018 over the previous year. Meanwhile, cases handled by the Iowa Mediation Service involving farmers unable to make payments rose 20%.

Farmer bankruptcies in six Midwest states rose 30% to 103 in 2018, according to the Federal Reserve Bank of Minneapolis. To hold back the tide, Farmers National Bank in Prophetstown, Illinois, is restructuring more and more loans to keep growers solvent while trimming the bank’s own risk.

The point here is that this situation is a threat to the banking industry as well. This problem for investment in U.S. agriculture predated even the Trump trade war. But, reducing orders from the largest market for U.S. farm exports like soybeans made things worse. Now the swing fever risks to investment in U.S. agriculture have compounded the dilemma along with an unusually wet spring, late planting, and a smaller-than-hoped-for crop. The swine fever risks to investments in U.S. agriculture may be felt very widely and bear close attention.


FANG Regulatory Risk

One of the many concerns in today’s stock market has to do with potential regulation of FANG stocks. Facebook has come under heavy criticism for not policing its social media against Russians interfering in the US elections, data privacy breaches, and terrorists posting videos murdering innocent people. Now Market Watch believes that FANG stocks are going to be “smacked down” by regulators.

Stock-market investors live by the FANGs, and they die by the FANGs.

That may be one takeaway from recent comments made by Savita Subramanian, head of US equity and quantitative strategy at Bank of America Merrill Lynch. The strategist said investors should wean themselves from off the handful of fast-growing techy companies known by the acronym FANG and sometimes FAANG that represent a cadre of highfliers that have helped to supercharge the current bull market run for equities.

The stocks in question are Facebook, Amazon.com, Netflix Inc., and Google’s parent company, Alphabet. Sometimes Apple is included in this bunch and the name is changed to FAANG. The companies are world leaders in technology and especially its application to social media. And, that is where the regulatory concern lies.

Have FANG Stocks Run Too Far and Too Fast?

The opinion of the analyst from BoA echoes that of many who believe that the rally of these stocks is not sustainable, purely on fundamental and technical grounds. Their prices have been bid up based on their being the best bets in an otherwise stagnant market. But, at some point, investors will start to get out and start a stampede. The best bet according to the analyst is to take a little off the table now.

The next step for these evolving companies and technologies will be government regulation. This is a natural step as no one regulates a brand new business but regulation occurs when a business becomes large and has strong effects on the lives and welfare of the citizens of the country.

FANG stocks may have run too far and too fast from a stock market pricing perspective but they have also done so in terms of their out-sized effects on society. Thus, regulation to some degree is a certainty. The question for an investor is how does this FANG regulation risk affect stock prices and investment opportunities.

 

Is there a FANG regulatory risk today as these companies become monopolies controlling more and more personal and financial data?

FANG Stocks

 

Is It Time to Regulate FANG Social Media?

An interesting view of this subject comes from the oil and gas industry, which is highly regulated. Rigzone, a publication in that industry, asks if it is time to regulate social media’s FANG.

A number of newspapers have reported that policymakers are considering various options to regulate use of personal data by various social media and internet service providers. One of the options mentioned is that of treating the social media companies as “public utilities.” This leads to the question of what criteria has been used in the past to identify a private business as a “public utility” or using another historic term as a “public service” company. Could those criteria be applied to internet social media giants such as Facebook, Amazon, Netflix, and Google? These companies are sometimes collectively referred to as “FANG.”

This sort of useful, albeit boring, discussion of what constitutes a public utility and if that designation will be applied to the FANG is basic to understanding FANG regulatory risk. In their discussion, they quote for Principles of Public Utility Rates the two attributes of a company that typically lead to regulation.

Two attributes of public utility business have received emphasis in the literature. The first is the special public importance or necessity of the types of service supplied. The second is the possession of specific physical and human assets like utility plants, distribution networks and technical expertise that lead almost inevitably to monopoly or at least ineffective forms of competition.

Thus public importance and necessity are one factor and possession of specific and special assets making competition difficult is the other.

Some already believe that social media companies exhibit both “public utility” attributes thus leading to the “necessity of regulation”. The FANG companies clearly have “special public importance” and are considered by many, due to their high penetration rates, as “necessary.” They also own tangible and intangible “assets” hard to reproduce and “networks and technical expertise” difficult for competition to develop.

A basic concern is that these companies have become monopolies and their use (and misuse) of consumer data has become integral to their operations. This threatens to cross the threshold of what is acceptable in American society if it has not already. Thus, we may see regulation of FANG companies in the national interest. What does FANG regulatory risk do to the value of those investments, their ability to make profits?

Do Regulations Kill Growth?

Regulations in the extreme break up companies, like AT&T. However, the breakup of this monopolistic behemoth ushered in an era of fantastic growth and innovation in the communications sector. On a less aggressive level, regulations may or may not impede corporate profits and growth. Pitch Fork Economics asked the question, Do Regulations Kill Growth.

Deregulation for the powerful is a central tenet of the trickle-down myth, embraced by Democrats and Republican alike. Government regulations, we’re told, are costly and inefficient intrusions that slow grow and kill jobs. But Robert Reich explains that when thoughtfully applied, regulations are absolutely essential to growing a safe, secure, and broadly prosperous economy.

This is a forty-minute discussion of the issue in audio form with an attached transcript. The discussion is focused on deregulation but the argument works for supporting a degree of regulation. The basis of the discussion is that trickledown economics do not trickle down and help anyone except the very rich. And, the follow-up argument is that a reasonable degree of regulation results in an ordered society and a safer and more prosperous financial system.

Starting with the AT&T example, we can see that the extreme case of breaking up a monopoly results in financial and societal gains not previously envisioned. Like the banking rules that so long protected depositors and the financial system, rules that control information gathering, storage, transfer, and use will help stabilize society and protect both individuals and business. The result might be a loss of power and money for the FANG stocks but a greater benefit for society as a whole. As such, those investing in FANG stocks may be wise to hedge their risk a little with investments like those that don’t lose any money, ever.

 

With a FANG regulatory risk on the horizon, AAA bonds are a reasonable option until the situation becomes clear.

AAA Bond Rating


Are There Safe Investments in China?

China has been the land of investment opportunity for decades with many investments in China doing very well. The benefits of investing in China came from its emergence as a developing economy, huge population and consumer base, and cheap workforce which attracted lots of foreign direct investment. Over the years China’s stock market matured, offering investment opportunities for average investors and many Chinese companies became listed in the USA as ADRs (American Depositary Receipts). Likewise, many mutual funds provided reasonably safe investment options by including Chinese stocks in their portfolios. There has always been risk associated with investments in China as they are believed to fudge their numbers from time to time but the situation may be more worrisome today as China’s debt increases, its economy levels off, and a trade war with its largest customer (the USA) threatens to become permanent. Are there safe investments in China today considering all of this, plus the likelihood that Chinese tech companies have become suspect of being pawns in the service of Chinese cyber warfare?

Investments in China

For the average investor, the best ways to invest in China are through a mutual fund or other stock fund that holds Chinese assets or by purchasing ADRs. You don’t need to speak Mandarin or deal with a foreign stock market and can let someone with the time and expertise pick the individual stocks. But, if you want to pick and choose the right individual stocks, you can buy ADRs of large Chinese companies who provide financial reports on a par with what US companies provide when they are listed on the US stock exchanges. In regard to our concern about safe investments in China, here is where our focus is. Investor Place looks at 3 Chinese stocks which they say you should buy and hold. Their article not only offers three stocks that may be safe investments with high returns over the years and therefore safe investments for retirement. They also give us some insight into the current state of the Chinese economy what the future holds for investing in China.

To say that Chinese stocks have been a roller coaster over the last year would be an understatement. Already, China has seen slower growth as it shifted from being a solely manufacturing-based economy to one based on services/consumerism. But with the trade war, Chinese stocks have been hit even harder, only to bounce back as a deal with the United States seemed to be within grasp.

Then, President Trump tweeted. With no deal in sight, tariffs rising and even lower growth on the horizon, Chinese stocks have continued to sink over the last week or so.

But this could be an interesting opportunity for long-term investors. China continues to dominate on the world stage and is arguably one of the most important economies. And while a deal may not be in sight today, there’s a good chance that one will be ironed out eventually. Meanwhile, with its huge and growing consumer base, domestic growth continues despite various trade pressures. In the end, Chinese stocks could be a wonderful long-term play. And the recent hiccups have provided a “reset” in valuations ripe for the picking.

At this point, we are looking for safe investments in China and investments with high return. As China’s foreign sales level off or are rolled back due to trade war and cybersecurity issues, they have a huge internal market to develop and that may well be where to invest in China. And, in that regard, the first Investor Place choice fits right in.

Investing in Alibaba

Alibaba is generally thought of as the Chinese Amazon.com. They serve as a marketplace for selling products online but do not hold any inventory. As such, they may be more similar to eBay. Either way, Alibaba is a huge and growing company in the huge and expanding Chinese market. And, like Google, Alibaba is not resting on its laurels but reinvesting its profits in a variety of other businesses such as social media, cloud computing, mobile devices, and peer-to-peer lending.

 

Are there safe investments in China? Yes, and Alibaba is one of them.

Alibaba Logo

 

In our article, Is There a Safe Fifty-year Investment, we noted that companies like AT&T, General Motors, Coca Cola, Kodak, and others were uniquely positioned to provide products and services to the growing US economy over much of the twentieth century. Their level of success and even dominance did not last forever, but it lasted for a long, long time. This is a good way to look at Alibaba. They are positioned very well in a very large and growing market. Their wide range of virtually recession-resistant products and services protects them again be totally devastated by a prolonged or permanent trade war.

Are there safe investments in China today? Yes, and Alibaba seems to be one.

Investing in Baidu

Baidu is often referred to as the Chinese Google. They control 80% of internet searches in China. Like Google, they make billions of dollars a year on selling ads. And, like Alphabet, Google’s parent company, Baidu has diversified into other tech areas such as autonomous vehicles, artificial intelligence, and video with its iQiyi subsidiary. Baidu’s growth is based on still-expanding use of the internet in China and not on exports to saturated and increasingly trade-protected North American and European markets.

Are there safe investments in China? Baidu is one and will likely be for a long time.

Investing in Ctrip.com

This is not a big company but rather a normal company that is well-positioned in a growing niche market. They run accommodation and travel booking sites. Airlines, hotels, cruises, and others use Ctrip.com to list their unsold services. This is an extremely low-overhead business in a growing market. As China shifts to a consumer-driven economy and focuses more on internal growth, this company has the potential to keep expanding the Chinese travel more and more. The risk of investing long term in these folks, like the rest, is that this is a business that competitors can mimic and take market share.

Safe Investments for Beginners in Chinese Stocks

Beginners at investing should typically stick with investments that they know and investment vehicles that protect them against undue risk. In regard to risks of investing in China, ADR’s of companies doing business solely in China, like Alibaba, Baidu, and Ctrip.com are a good idea. At this point, we prefer the few stocks mentioned because of their Chinese consumer focus. Our concern about Chinese tech companies and exporters is that the trade war with the US is not going to end soon and may spread to involve other nations. China has grown fast and is getting to a point where it wants to display regional and global dominance. This will meet resistance across the globe and make much of China’s export-driven growth slow even more.

Chinese Debt and Investment Safety in China

Much has been made of China’s increasing debt at a time when their economy is cooling off. Comparisons to Japan thirty years ago are appropriate and China seems to be concerned about following the same path into economic stagnation. There has been money flowing out of China for years is wealth investors there have been hedging their bets. Chinese banks and exporters in heavy industry are at substantial risk of a hard landing due to a debt collapse and loss of external markets. However, China has $3.25 trillion dollars in cash reserves which will provide a cushion if needed. It should be noted, however, that they had nearly $4 trillion in reserves just four years ago.

 

Are there safe investments in China. Yes, there are. And there are closed factories as well.

Closed Factory in China

 

To sum up, there are safe investments in China, safe investments for seniors and safe investments for beginners. The first trick will be to invest in companies you can track. This means investing via ADRs. And, the second is to pick companies with a strong consumer focus in the still-expanding Chinese economy.

Is There a Safe Fifty-year Investment?

This question came to mind when we read an article by The Motley Fool, 3 Growth Stocks to Buy and Hold for the Next 50 Years. First of all, we give you their thoughts on the subject and then ours.

In today’s world of high-speed trading and short attention spans, it might seem unfathomable to hold any given stock for years, let alone decades. But the world’s best investors know all too well the best way to consistently beat the market is to buy high-quality stocks and hold them for extended periods.

To that end, we asked three Motley Fool contributors to each discuss a growth stock they think investors could do well to buy and hold for the next 50 years. Read on to learn why they chose Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), iQiyi (NASDAQ:IQ), and Shopify (NYSE:SHOP).

The rationale for each of these stocks is that they have the potential for significant long term growth. People who invested in American companies like AT&T, General Motors, Coca Cola, or Eastman Kodak early in the 20th century had at least 50 years of growth. These stocks grew with the US economy as phone service was extended to every corner of the land, more and more people had a car or two or three, everyone took photos, and everyone loved to have a Coke. It is useful to note that only Coca Cola has passed into the century relatively unscathed while digital photography essentially killed Kodak, General Motors lost out to foreign competition and passed through bankruptcy, and AT&T was broken up in anti-trust proceedings.

Reasons to Invest in Alphabet Stock

The rationale for investing in Alphabet is that they are using the dominance of the world of internet searches to fund their expansion into multiple, potentially very profitable arenas. Today eight of their products have more than a billion users each. These are Google Play Store, Gmail, YouTube, Android, Chrome, Google Drive, Google Search, and Google Maps. With their restructuring, they are now active in self-driving cars with Waymo, lifespan extension with Loon, drone delivery with Wing, life science products with Verily, and high-speed internet with Fiber. This “multiple bets” approach takes advantage of the huge number of smart people working for Alphabet and positions them for further growth in markets that are not dependent on the original internet search focus. This strategy will, hopefully, help them avoid the fate of Kodak whose business model became extinct, AT&T which was taken apart by anti-trust action, or General Motors whose product line came under unceasing attack from foreign competition.

When asking is there a safe fifty-year investment look at Alphabet with its many branches like Waymo Self-Driving Cars

Waymo Self-driving Car (Alphabet)

Reasons to Invest in iQiyi

iQiyi is a Chinese company that was spun off from Baidu a year ago but which maintains a close relationship. The company is referred to as the Netflix of China. They aim to make premium subscription videos their core business. Right now they serve 20% of Chinese households compared to the 70% of American households that use Netflix. Considering that China has 1.3 billion people compared to 311million in the USA, the company has a lot more room to grow. Additionally, they are in video games and working on virtual reality. Right now the stock price is attractive because of the trade war between the USA and China. But, this is a Chinese company doing business in China and, would seem to be a Chinese company safe from tariffs. This company can be compared to Netflix, Microsoft, Apple, and other tech stories or to the early to mid-twentieth century stories of General Motors, AT&T, Coca Cola, and Eastman Kodak.

Reasons to Invest in Shopify

The rationale for investing in this company is that they appear to be well-positioned to take advantage of an expanding market in e-commerce. They are the “pick and shovel” approach when everyone wants to dig for gold. That is to say, Shopify assists businesses both large and small in selling their services and products online. This business niche is expected to grow to $25 Trillion by 2025. This company has a nice growth story but not the same sort of story as Alphabet or iQiyi when it comes to a fifty-year investment.

Is There a Safe Fifty-year Investment?

As we noted at the beginning, the Motley Fool article with its three suggested investments brought us to ask the question, is there a safe fifty-year investment? We write about the concept of intrinsic stock value so much that our readers can be forgiven if they get bored with the idea. Nevertheless, the best stocks to invest in are almost always ones that do well in intrinsic value analysis. However, this sort of fundamental analysis needs to be repeated on a routine basis. That is simply because the fundamentals change over time. New technologies replace old and Kodak goes from being the king of film, process, and printing photos to a footnote. Antitrust actions catch up with AT&T and break it up. The development of container shipping to support the Vietnam War effort brings cheap foreign products to America and undercuts American businesses including General Motors. The point is that in order to pick a safe fifty-year investment you need to be able to see into the future. What sort of investments will still be paying off half a century from now?

Your Home Is a Safe Fifty-year Investment

This is another point that we bring up every time that we write about how to start investing. You need a place to live and it is cheaper to own than to rent. The federal tax break for mortgage interest is unlikely to go away in the next fifty years. It is popular on both sides of the political divide and serves a good purpose of societal and financial stability. So, is there a safe fifty-year investment in home ownership? You bet there is and you should be taking advantage of that as early in your investing life as possible.

Are Investments That Don’t Lose Money Really Safe Investments?

We have written about how to invest without losing any money. Over the duration of a US Treasury, Bank CD, or AAA Bond, these are safe investments. You give up the potential for larger gains in return for protection against financial loss. But, over a fifty-year time span is there a safe investment in this arena? The problem with long term bank deposits, Treasuries, and AAA Bonds is that they may barely keep up with inflation or may even fall behind. As such, you will preserve your dollars at the same time that your dollars inflate and become less valuable. The closer you are to needing your investments in retirement the more you will want to be invested in this manner but over a fifty-year timespan, you need an investment that grows faster.

Is there a safe Fifty-year investment in AAA bonds or will inflation erase your earnings?

AAA Bond Rating

Dividend Stocks for Long Term Investing

In our article about dividend stocks, we provided a list of companies that have been paying dividends for more than 120 years. To keep paying dividends for this long the company has to be making money. Over the years, dividend stocks tend to outpace the market. As such, a safe fifty-year investment might come from a list of dividend stocks.

Technology Stocks for Long Term Investing

Is there a safe fifty-year investment in the tech arena? The telephone, automobile, and the film camera were “high tech” at the beginning of the 1900s. Companies that got in early and performed well dominated American business for nearly a century. And then they didn’t. The risk with tech is that you need a company that can “think on its feet” and not “rest on its laurels.” IBM comes to mind as a company that dominated the computer world until they missed the boat with small computers. Their mistakes allowed companies like Apple and Microsoft to become giants in the ever-evolving computer world. In this regard, we like Alphabet as much because it is diversifying and hedging its bets as for its dominance of internet search.

Safe Fifty-year Investments Are Ones That You Keep an Eye On

The bottom line for picking long term investments is that you need to choose wisely and, more importantly, you need to stay in touch with your investments. Whether your choice is an ETF that tracks the S&P 500 or an individual stock like Alphabet, you need to know why you choose that investment and you need to keep track to make sure that the investment still meets your criteria.

Are Your Investments Safe from Tariffs?

The stock market is falling in response to a step up of the trade war. Negotiations seem to have stalled as both the USA and China refuse to budge over issues that they consider essential to their national interests. We alluded to this sort of situation in our article about what happens if the trade war becomes permanent. The American dominance of the global economy is not an assured thing and neither is the dominance that China wants to achieve. But both nations are squaring off to fight for what they want. The downside for the USA is reduced global economic and political power. The downside for the folks who run China could be social unrest and loss of power currently held by the Chinese Communist Party. That having been said, are your investments safe from tariffs which are likely to continue or even become worse?

 

Are Your Investments Safe from tariffs? Take a look at this graph.

Stock Markets Response to Trade War

 

Investing in a Prolonged Trade War

Fortune just published an article about how to invest during a trade war. They start by looking at Amazon versus Apple.

Goldman Sachs gave its take early last week, forecasting that services-oriented companies (think Amazon, Google, and Microsoft) that are “less exposed to trade policy” will likely have an easier time than goods-producing companies (such as Apple, ExxonMobil, and Johnson & Johnson) that are more vulnerable to trade headwinds.

While that’s a largely accepted view, equity and investment strategists who spoke to Fortune noted that it’s a little more complicated than that.

“The key questions to ask are: what’s priced into the market right now, what’s the direct earnings and [price-to-earnings] multiples impact, and what’s the long-term impact?” according to Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch.

Has a Trade War Been Priced into the Stock Market Already?

The first issue to consider with any investment is how much has a prolonged trade war already been priced into that investment? The fact that the market fell in response to the recent tit for tat increases tells us that not all of the risk of a trade war had been priced into the market! But, to the degree that companies have adjusted their supply chains and where they are trying to sell their products (not in China), those investments will better weather the coming storm.

Which Stocks Will Be Hurt the Most by Higher Tariffs?

In general, service companies like Google, Amazon.com, or Microsoft will tend to have fewer problems than companies that sell tangible things. These would include ExxonMobil, Johnson & Johnson, and Apple. Obviously, companies like 3M that are highly diversified to all corners of the globe will do better than companies that are trying to focus entirely on China.

Safe Haven Investing in a Trade War

Are your investments safe from tariffs if the companies only do business in the USA? Here we are talking about utility stocks, real estate investments like REITs or home builders who work exclusively in the USA. Health Care is another promising sector despite the Medicare for all possibility being talked about by Democratic candidates for president. Defense stocks are another possibility for safe haven consideration, especially if trade tensions spill over into heightened military threats.

Investing without Losing any Money, Trade War or Not

Are you investments safe from tariffs when both the USA and China seem to be digging in for a prolonged fight? How do you handle your risk when a single tweet by a Twitter-obsessed president can send stocks dramatically up or down? In the context of investing in general we have written about how to invest without losing any money. The first answer is to put money in an FDIC insured account at your bank, preferably a ladder of CDs. Next, you can buy US Treasuries, again laddered. AAA corporate bonds come next. There are only two US companies that have this rating, Microsoft and Johnson & Johnson. And, the fourth choice in our article was to apply the concept of intrinsic stock value as well as you can to this situation and your particular investments with the idea of investing for the very long term. And, in the cases of bank CDs, Treasuries, or AAA bonds, they should be held to maturity. Of course, in the case of Treasuries or AAA bonds, interest rates could plummet and suddenly make them profitable to sell.

 

Are your investments safe from a trade war? Microsoft might be.

Microsoft Logo

 

How Long Could the Trade War Last / How Badly Could It Hurt Your Investments

Trump, and many others in the USA, are tired of funding the rise to power of China. China is viewed as not only an economic threat to the USA but an existential threat to the democracies of Europe, the Americas, and elsewhere (India especially). The trade war, according to Trump has been going on for decades and the USA has been steadily losing. However, there two previous major power issues that bear on the current trade war. One is the cold war between the USA and the Soviet Union. The other is the rise Japan as an economic power and its near collapse. The common thread in how these situations worked out has to do with money and debt.

Winning the Cold War by Driving the USSR Farther and Farther into Debt

During the 1980s the USA ramped up its “Star Wars” missile defense program forcing the USSR to spend money that it could ill afford to spend. When social unrest in Eastern Europe became overwhelming, the USSR essentially told the leaders of its puppet Communist states that there was no money to support them, keep the borders policed, or send in the tanks, such as was done in Hungary and Czechoslovakia years before. Today the USA has put sanctions on Russia to ramp up the pressure and is also playing the money and finance card with China.

Japan’s Economy Collapsed Due to a Huge Debt Load

This is the other example that comes closer to why the USA is pursuing a trade war with China. Japan was rising towards dominance as an economic power. Although they were and are US military allies, they were an economic threat. What happened to Japan was not orchestrated by the USA but it was instructive. Japan had a mountain of debt, much of it “off the books” as deals between private parties or hidden debts within the banking system. When this debt situation collapsed, almost 30 years ago, Japan went into a period of economic stagnation from which it has still not recovered.

Applying Japan’s Collapse and Cold War Strategy to China’s Threat to US Dominance

China has a stronger economic system that the USSR had but they have a mountain of debt and it is increasing. Their economic miracle has been funded by borrowing, manufacturing, selling to the world, and then borrowing more. In recent years, their debt has accelerated. The risk to China is that their entire financial system will collapse, taking their social contract with the people along with it. The fact of the matter is that people in China are not in love with the Communist Party leaders unless the economy is growing. If the financial system in China collapses there is a risk that the social system will collapse as well. Thus, the Chinese are digging in to protect the dominance of the Communist Party at the same time that their largest customer is putting tariffs on their products.

All of this having been said are your investments safe from tariffs? Our point in this discussion is threefold. This could be a long trade war for it has to do with basic national interests. It could become even nastier. And, you need to consider how to arrange and protect your investments as it plays out.

Dollar Cost Averaging

What is the most cost-efficient and profitable approach to long term investing? Market timing works for some folks. But recently, broad-based ETFs have outperformed many managed funds. Investing in stocks works best when the investor starts early and invests regularly. It helps to buy stocks directly in order to cut out fees and commissions so dividend reinvestment plans are a good idea as well. While there are always opportunities in the stock market, most people in their working years do not have the time, expertise, or interest required to take advantage of them. Thus, the best approach for most investors is to invest in a selection of conservative stocks with long track records of dividend payments and always reinvest dividends. Alternatively, an investor can simply invest routinely in an ETF that follows the S&P 500. With either choice, the best approach is to use dollar cost averaging.

 

How to invest in stocks most efficiently over the years is with dollar cost averaging.

Dollar Cost Averaging

 

Dollar Cost Averaging

Dollar cost averaging is an investment approach in which a person invests the same dollar amount every pay period, month, quarter, or year. The first practical advantage of this approach is that a person can budget how much they will invest from every paycheck, bonus check, or whatever. The second practical advantage is that dollar cost averaging keeps you from investing too much when stocks are expensive and allows you to buy more when stocks are cheap.

Ideal Ways to Apply Dollar Cost Averaging

Smart investors take advantage of the tax benefits of an IRA or 401(k) plan from work. And, if your employer adds a little to your 401(k), so much the better. Simply select an amount to invest in either, or both, of these investment vehicles and stick with it year after year. When the stock market is overpriced you will not be tempted to pay too much and when the market is soft, you will get more stocks for your money.

Dollar cost averaging also works if you are using a mutual fund as an investment vehicle and especially if you are investing in an ETF that tracks the S&P 500 or another broad-based market index.
(Investopedia, Dollar Cost Averaging)

Benefits of Dollar Cost Averaging

As we noted at the beginning of this article, timing the market works for some folks. But, these folks have tons of available cash, the time and expertise to analyze intrinsic stock value on many potential investments, and the experience needed to “pull the trigger” at the right time to buy or sell most profitably. These folks are not the average investor who wants to put a little money aside with each paycheck and needs to know the best way to do this. For most folks, dollar cost averaging with a reliable set of investments is the way to go.

Motif discusses the real world of mom and pop investors and the benefits of dollar cost averaging.

A lot of people have a tendency to spend any leftover money in their bank accounts after all their bills are paid each month instead of investing for their retirement. In cases like these, using the disciplined trading approach of dollar cost averaging not only prevents them from procrastinating on their investing goals, it also helps them save for retirement and avoid wasteful spending.

Dollar cost averaging can also help investors who tend to be hesitant with investing and hoard cash out of fear or uncertainty. Having some cash on hand can provide peace of mind during volatile markets, but holding too much cash for too long can weigh down your portfolio’s return over time due to inflation. Plus, dollar cost averaging can help investors put their money into the market as quickly as possible on a consistent basis.

In writing about investing, we commonly deal with issues like fundamental analysis, best stocks to invest in, and where the market is likely going next. But, the folks at Motif hit the nail on the head in their discussion of the benefits of dollar cost averaging as it applies to the average investor who needs to develop a disciplined and reliable approach to putting money away and letting it grow for their retirement. Dollar cost averaging helps investors make their investments in a routine fashion and alleviates the risk of making bad decisions when trying to time the market or pick individual investments.

Dollar cost averaging in a bull market keeps an investor from buying too much when prices are too high and dollar cost averaging in a bear market lets an investor purchase at bargain prices when the market is bottoming out. When considering dollar cost averaging versus timing the market, most folks do just fine with an ETF tracking the S&P 500 and dollar cost averaging.

 

Use Dollar Cost Averaging with Vehicles That Track the S&P 500

ETF That Tracks the S&P 500

 

Mistakes to Avoid in Dollar Cost Averaging

US News and World Report has some good advice about following the rules mistakes to avoid in dollar cost averaging. Here are the high points of their slideshow.

Not Starting Dollar Cost Averaging Investing Early Enough

This is a practical and profitable approach to investing and to get the most out of it you need to get in early and take advantage of the compounding effect of steadily growing investments.

Not Being Consistent with Dollar Cost Averaging

This approach works when you apply it routinely. When you start second-guessing the system you are trying to time the market. Consistency pays off with dollar cost averaging.

Keep Your Investment Portfolio Balanced

If you have your money in an ETF that tracks a broad market index or in a mutual fund with the same properties, this is not an issue. But, if you have a nice selection of dividend stocks and AAA bonds, one may outpace the other. At some point, you may want to rebalance your portfolio or simply start using the ETF approach.

Letting Fear or Greed Control Your Investing

U.S. News notes that investors tend to abandon the dollar cost averaging approach at the worst possible times, such as when a bull market is about to collapse and they lose money. Or they sell everything just as a bear market is about to rebound. The point of dollar cost averaging is to pick a broad-based set of investments and stick with the investment program through thick and thin. Let the dollar cost averaging approach work its magic in both up and down markets over the years.

Not Keeping Track of the Costs of Investing

Dollar cost averaging works for a wide range of investment choices. But, if you are paying an old fashioned stock broker huge commissions for small investments every two weeks, you need to rethink your approach. Likewise, if your mutual fund’s fees are eating up your gains, perhaps an ETF that does not charge management fees will be a better choice. But, no matter which you use, dollar cost averaging, correctly applied is a good long term investment approach.

What Makes Dollar Cost Averaging Work for the Average Investor?

The first thing for an investor to do is to get started early in life. The beauty of dollar cost averaging with an ETF that tracks the S&P 500 or one of its sectors is that the investor does not need to have done a lot of research in picking good investments. The next benefit is that the investor develops a discipline early in life that becomes an investing habit. Then, the compounding effect of good investments takes over to create wealth over the years.

 

Dollar Cost Averaging is an investment approach that lets you sleep soundly at night.

Dollar Cost Averaging Lets You Sleep at Night

Best Ways to Invest Your Money

Everyone should be saving money for retirement, a “rainy day” emergency, or for things like putting the kids through college or starting their own business. The best ways to invest your money will have to do with what you are investing for, how long you have before you need the money, and how much risk you are willing to accept. And, the best ways to invest your money have to do with how much time and energy you can personally devote to your investments. You need to know where to invest money to get good returns over the years and the best place to invest money right now. Good investments for beginners should be easy to understand and low risk. How to invest money to make money fast should be a subject for investors with a lot of experience, as well as the ability to accept a lot of risk. Here are a few thoughts about the best ways to invest your money.

Where to Invest Money to Get Good Returns

Over the long term, the U.S. stock market has outperformed all other investment vehicles. When investing in stocks, the best approach is to start early, invest regularly, and choose a mix of safe stocks and growth stocks.

To get financial security is why people invest in stocks. Sometimes, people get lucky and pick just the right stock at the right time and get rich in a hurry. Much more commonly, people succeed by determining intrinsic stock value when purchasing and using dividend reinvestment plans to reduce the cost of buying new shares and to accelerate the growth of their investments.

To the extent that you need your money earlier, rather than later, you may choose stocks that have greater growth potential but these are commonly not good investments for beginners because it is all too easy to pick a stock that looks promising but fizzles out and takes your hard-earned money with it.

Safe Places to Invest Your Money

The first place that people should consider for an investment is their own home. Over the years, you will pay less on mortgage payments than for rent. And, the mortgage interest deduction on your taxes is a sweetheart deal that no investor should pass on. Then, the question is how to invest without losing any money. As we note in our article, there are four ways to invest and protect your investment capital.

  • Bank deposits that have Federal Deposit Insurance
  • US Treasury Bills, Notes, and Bonds held to maturity
  • Investment Grade AAA and AA Bonds held to maturity
  • Long term investing with a focus on intrinsic value

The first three best ways to invest your money, if you simply want to reduce risk to a minimum, are ones with lower rates of return than the stock market but the security of essentially holding cash. To make this work you need to hold your bank CDs, Treasuries, and corporate bonds to maturity or only sell when interest rates fall and you can make a profit on selling a bond or treasury. This is one of the best ways to invest your money if you want minimum risk and especially if you will need the money soon and don’t want to take the chance that the stock market will correct at the worst time for you.

 

If you do not want to lose any money, AAA bonds are one of the best ways to invest your money.

AAA Bond Rating

 

The fourth of our best ways to invest your money is low-risk over the long term. You will invest in stocks that have been paying dividends for over a century and other very stable companies that provide a steady appreciation in value combined with maximum security. These are investments that let you sleep soundly at night

 

One of the best ways to invest your money is in stocks that let you sleep soundly at night.

Investments That Let You Sleep at Night

 

ETFs and Low Maintenance Investing

There are folks who have made millions and millions of dollars in the stock market by carefully researching their investments, precisely timing their purchases, and paying attention to the market every hour and every day. And, then there are the rest of us who have a regular job to go to and do not have all day to research stocks with fundamental analysis tools to find the best picks.

One of the best ways to invest your money in the stock market is to invest in an ETF (exchange traded fund) that tracks a broad range of the U.S. stock market such as a fund that tracks the S&P 500. Many of these funds have outperformed more closely managed investment funds in recent years. These are very good investments for beginners because they tend to do well and are diversified across the wide range of stocks. There is always a risk that the entire market will crash (and then return as it always does) but there is no risk that a single stock will tank and take down your investment with it such as happened recently with Kraft Heinz.

 

What was wrong with Kraft Heinz was that management did not pay attention to their product line

Kraft Heinz Products

 

How to Invest Money to Make Money Fast

The best ways to invest your money are those that reliably offer the best return with the lowest risk. That having been said, there are times when a little research, a little foresight, and a bit of patience follow by prompt and well-timed action can pay off handsomely.

Beware of “investing tips.” All too often the person giving the tip wants you to invest in a penny stock to drive the price up so that they can sell at a profit before the stock falls again. If you think that a tip might be valid you need to analyze the fundamentals of the company and have a good sense of the technicals that drive day by day stock movement. This can be done, but requires attention to detail. Here is a personal example from years ago. It shows how an investor can pay attention to a stock, understand why it is going up or down, and profit by investing at just the right time.

Xerox Rise and Fall

Xerox developed the first plain paper copier in 1959. The Xerox 914 was the most successful single product ever sold at that time. Xerox dominated the photocopier market in the 1960s until the mid-1970s. They had essentially 100% of the photocopier market and were the subject of an anti-trust suit which they lost in 1975. They were forced to license all of their patents to competitors, mostly Japanese. By 1979 Xerox had 14% of the photocopier market and their Japanese competitors were selling copiers in the USA for less than it cost Xerox to produce them. At the same time, Xerox management decided to diversify into insurance. They took huge losses when a hurricane hit the Gulf Coast.

Xerox Recovery and the Take-over Bid

In the 1980s Xerox cut costs, reduced its insurance business profile, wrote off losses, and improved its product line. It started making money again and its stock price started to rise. At this time a group of “take-over” artists started buying up Xerox stock and buying options contracts on the stock. They drove the price up a bit and were close to being able to take over the company, which they would have broken up and walked away with a tidy profit.

But, the “take-over” guys were too highly leveraged. They ran out of money and had to start selling their shares. Xerox, had climbed to $60 a share with better management and paying off its hurricane losses. When the “take-over” guys ran out of money and started selling, the price of Xerox fell to $30 a share within just one trading session.

Best Ways to Invest Your Money when You Have Done Your Homework

Those who had been following the Xerox story and had invested in their recovery understood what had happened and that the stock would go back to its $60 range once the “take-over” guys were done selling and went away. So, some of us bought Xerox at $30 a share the first thing the next morning. By the next day, the price was back to $60 a share.

The point of this narrative is that you can make money in a hurry in the stock market but you typically need to do your homework first and then you need to stay in touch with the market in order to time your investment correctly in order to turn your research and insights into a profit. This really is one of the best ways to invest your money, providing that you have the time, energy, patience, and a knack for timing the market.

Should You Really Sell Your Investments in May?

“Sell in May and go away” is an old investment adage that seems to be true more often than not. Should you really sell your investments in May or simply stop trading stocks? CNBC notes that the recent rally might be a concern because after the previous early year rally stocks plummeted over the summer.

Stocks have surged through April in their best start to a year in 32 years.
But, markets don’t have a good track record of following up on a rally of that size.
“There are four other years since World War II that the S&P was up at least 15% to kick off the year like we’re going to be this year. Three of those years are virtually flat during these worst six months of the year, the other was 1987 when we lost about 13%, ” said Ryan Detrick, senior market strategist at LPL Financial, on CNBC’s “Trading Nation ” on Tuesday.

Since the Second World War the stock market has had four similar rallies starting the year. The 1987 19% rally in the first four months was followed by a 13% loss culminating in Black Monday. In 1967, 1975, and 1983 the market started the year very strong but then went flat for the summer months and into the fall.

Here at Profitable Investing Tips we routinely suggest that investors pick strong stocks using fundamental analysis techniques such as finding intrinsic stock value for buying and selling stocks. But, if what you need to choose and hold onto an investment is based on such solid analysis, how is it that the old adage, “sell in May and go away” has any value?

 

Does sell in May and go away help you avoid the downs in an up and down market?

Is Sell in May and Go Away a Good Idea?

 

Why Sell in May and Go Away?

Investopedia looks at the adage sell in May and go away.

If a trader or investor follows the sell-in-May-and-go-away strategy, he would divest his equity holdings in May (or at least, the late spring) and invest again in November (or the mid-autumn).
Some investors find this strategy more rewarding than staying in the equity markets throughout the year. They subscribe to the belief that, as warm weather sets in, low volumes and the lack of market participants (presumably on vacations) can make for a somewhat riskier, or at a minimum lackluster, market period.

They cite the fact that between 1950 and 2013 the market has had an average gain of 0.3% during the May to October time frame and 7.5% during the November to April time frame. No one is absolutely sure why this happens but it seems to be tied to trading volume and presence of more investors.

Sell in May and Long Term Stock Investing

Some of the most successful investors are those whose preferred time period to hold a stock is forever. How does the “sell in May and go away” rule apply to them? It should be noted that while the stock market on the average does not do as well in the summer months as during the winter, over the years the market is still up on the average, by a little, in the summer. If you are thinking of selling your well-chosen stocks in May, consider the costs of fees and commissions as well as the work involved in repeated analysis of investments that have otherwise served you well. One of the basic reasons that long term buy and hold investors are successful is that they avoid the excessive overhead of investing found in paying repeated fees and commissions. Rather they use dividend reinvestment plans to keep purchasing stock without paying commissions and they typically use a dollar cost averaging approach that evens out the peaks and valleys.

Stock Market Timing and the Sell in May and Go Away Adage

The place where “sell in May and go away” would seem to work is in market timing. Trying to find bargains in May is a difficult task when so many investors and traders take the summer off. Rather, a better choice may be to use the summer months to evaluate investment opportunities and start buying, as a rule, in October. Of course, you will want to avoid the next Black Monday!

Buying Stocks That Let You Sleep at Night

A solid approach to investing is to buy stocks that have a long history of paying dividends, steady growth, and minimal volatility. These are investments that let you sleep at night. To the extent that these stocks experience their growth during the winter months may be a good reason to time your buying to take advantage of the winter months. It is not a good reason to sell the stocks that will provide you with a secure retirement.

 

Should you really sell your investments in May? Not if you have stocks that let you sleep at night!

Investments That Let You Sleep at Night

Investing in Canadian Banks

Bank stocks in the USA have been suspect ever since they led us into the financial crisis with their predatory lending practices. However, right next door in Canada, the banks have followed more conservative practices and several are ideal long term investment opportunities. A common practice, among Canadians, is investing in Canadian banks when their stock price falls, dividend percentage rises, and P/E ratio drops. The three Canadian banks we have in mind are these.

Toronto Dominion (TD)
Royal Bank of Canada (RY)
Scotiabank (BNS)

These are the three largest Canadian banks.

New banks are rare in Canada because the regulatory hurdles are so difficult to go over. This also makes Canadian banks, as a group, safer than U.S. banks. In the last century, while tens of thousands of U.S. banks have failed, only three Canadian banks have gone under! Of all the Canadian banks, Toronto Dominion is considered the safest.

Canadian Bank Stocks

The three Canadian bank stocks we have in mind are all dividend stocks. While you may think that these stocks are not great growth opportunities, that is not correct. This graph from Seeking Alpha shows investment portfolio returns for these three banks going back twenty-three years.

 

For investing in Canadian banks, these are the top three choices.

Top Three Canadian Bank Stocks

 

Not only are these bank stocks safe investments due to strict Canadian banking regulations but investing in Canadian banks can be very profitable as well.

Investing in Toronto Dominion Bank (TD)

Toronto Dominion was formed by the merger of Dominion Bank and Toronto Bank in 1955. Those banks dated back to 1869 land 1855 respectively. Today TD is the largest Canadian bank by total assets, one of the top ten North American banks, and the 26th largest bank in the world. Over the last two decades, the bank stock has gone from the $2.50 range to the $75 range and its current dividend yield is 3.89%.

 

An excellent choice for investing in Canadian Banks is Toronto Dominion

Toronto Dominion Bank Stock

 

(Google Finance)

Investing in Royal Bank of Canada (RY)

Royal Bank of Canada is the largest in the country by market capitalization and is always around the fiftieth largest bank in the world in yearly ratings. RBC was founded in 1864. Two decades ago this bank stock traded in the $6.60 range and today trades at $105. Its stock has a dividend yield of 3.84%.

 

Royal Bank of Canada is an excellent choice when investing in Canadian banks

Royal Bank of Canada

 

(Google Finance)

Investing in Scotia Bank

The Bank of Nova Scotia was founded in 1832 and operates under the name of Scotia Bank. It is the third largest bank by deposits and market capitalization. Two decades ago this stock traded at about $10 a share and today it trades at around $55. Its dividend yield is 4.77%.

 

Scotia Bank is a great vehicle for investing in Canadian banks

Scotia Bank Stock

 

(Google Finance)

How Canadians Invest in Canadian Bank Stocks

Many savvy Canadian investors have the same preferred length of ownership as Warren Buffett, which is forever. They simply wait until the bank stock price slips a little and then buy a little more. The approach has served many Canadian investors very well for many years.

Seeking Alpha touches on this subject in an article about Canadian dividend stocks.

It’s a strategy that many Canadians employ with the big Canadian banks – buy the worst performer. Wash and repeat.
I took that approach at times with my Canadian banks and my other holdings.
We might see an immediate and more generous income boost and the potential for a greater long term total return boost.
When we have a group of quality holdings we might use that value hunting approach as a consistent strategy.

The author goes on to explain his approach of using P/E ratio, stock price, and dividend yield as guides for when to buy more of these bank stocks.

Timing Canadian Bank Stock Purchases

We have written about the perils of buying cheap stocks recently in our article about choosing undervalued investments. The risk of buying a stock when it is down is when the stock price is down for a good reason and will likely fall even more. Investing in Canadian banks helps reduce this risk as the banks are highly regulated and in the last century only 3 have failed, compared to tens of thousands in the USA. Thus, these stocks can be seen as slow and steady growth stocks with a cyclical component. The trick for maximizing profits with these stocks is to buy when their stock prices are down and when their intrinsic stock value is still strong.

Dollar Cost Averaging Canadian Bank Stock Purchases

If you are not interested in constantly checking stock prices on even a few Canadian bank stocks, consider using dollar cost averaging for these investments. Investopedia defines dollar cost averaging as follows:

Dollar-Cost Averaging is a strategy that allows an investor to buy the same dollar amount of an investment on regular intervals. The purchases occur regardless of the asset’s price.

Because you will purchase fewer shares of these stocks when the price is high and more shares when the price is low, dollar cost averaging gives some of the same benefit as timing your Canadian bank stock purchases based on price, dividend yield, and P/E ratio.

Intrinsic Stock Value Calculation of Canadian Bank Stocks

Our belief is that every time before you buy a stock you should calculate its intrinsic stock value. That holds true for the three large Canadian banks we reference in this article. However, these are really stable investments that really do let you sleep soundly at night. As such, a yearly review of your portfolio of these investments is a good idea. Every five years is probably too long to wait. And, if you keep evaluating Toronto Dominion, Royal Bank of Canada, and Scotia Bank every month, you are wasting your time.

Investing in Canadian Banks with Dividend Reinvestment Plans

All three of the Canadian banks we looked at have dividend reinvestment plans. Using these plans during your working years is a great way to simulate the dollar cost averaging approach. Taking the dividend checks during retirement is a great way to reward yourself for investing in these safe, solid, and secure Canadian banks over the years.


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