Invest Skeptically

The Government of Canada has a good summary page of various statistics at http://www.canadianeconomy.gc.ca/. From the site: “This one-stop guide to the national economy lets you check out statistics, access a wealth of federal government information and learn more about economic concepts and events.”

The EDGAR company search tool on the US SEC website allows you to search SEC filings by company name or ticker symbol. This tool gives you access to all the basic information you need to start researching a company for investment. Here are some common filings and examples of what I like to use them for:

• 10-K: Annual report
• 10-Q: Quarterly report
• 8-K: Current report filing. Read these to keep up to date with any material changes in the business.
• DEF 14A: Definitive proxy statement. These are annual reports to shareholders with information that must be distributed prior to the annual general meeting. Interesting sections of this report include names of officers and directors, their shareholdings, and shareholders that control more than 5% of the company’s stock.
• 4: Form 4 Statement of changes in beneficial ownership of securities. Read these to see if insiders are buying/selling stock. These must be filed within 2 business days of the transaction. Some of this information is summarized at http://www.secform4.com/.
• SC 13 D: Schedule 13 D Statement of acquisition of beneficial ownership. Use these forms to see what the >5% shareholders are doing. These must be filed within 10 days of the transaction.

Diane Francis at the National Post wrote (Dec 9) that “not a single objective announced by Flaherty and Harper was achieved” from the income trust debacle–also pointing out that Mark Carney was instrumental in the government’s policy decision. Whatever you believe about the quantum of the ‘tax leakage’ issue, the intense acquisitions in the trust sector since October 31, 2005 have resulted in a situation where the government will likely receive significantly less tax revenue from these businesses. Francis also provides a great summary of trust buyouts before and after the tax change announcement.

Continued investment uncertainty

A look through Deloitte’s webpage on income trusts highlights that, even more than a year later, trustees still face many uncertainties that make the best strategic next steps not so clear.

Comments from an insider

John Risley, Chairman of Clearwater Seafoods, was on BNN’s SqueezePlay (Dec 5) speaking about–among other things–income trusts. He concedes that the government had a “really difficult problem” given the market’s extraordinary fascination with the asset class. He also raised some strong points for why the income trust industry was so important: trust mania helped small-medium sized companies access public equity markets, and, the structure encouraged good management accountability of excess cash in that management’s responsibility was to “payout all the cash” and say, “look if we want to do something we’ve actually gotta ask you [...] cuz you’ve got to put the cash back in the company”.

RRSP “season” will be arriving soon in Canada and savvy financial advisers will use this opportunity to sell their clients on pre-authorized regular contributions towards their retirement savings plans. Dollar cost averaging, they’ll say, is the strategy to go with.

While it makes sense from a psychological point of view to buy over time and–hopefully–take advantage of market volatility (i.e. buy more shares lower prices and less shares at higher prices), my personal take is that dollar cost averaging is a good tool for saving & investing over time rather than a prudent investment strategy. To me, it doesn’t make any sense to allocate money to risky investments and then let it sit idle because you want to dollar cost average your way in.

Some links:

• Two instances of academic arguments against the strategy, versus lump sum investments, are Knight and Mandell (1993), and, Greenhut (2006).

• The folks over at MoneyChimp have created this calculator to back-test the two strategies (dollar cost averaging versus lump sum) and concluded that the dollar cost averaging “advantage looks like a myth”.

The FINRA (Financial Industry Regulatory Authority) Market Data site has great summary data on U.S. stock and bond markets. The site includes equity index levels, investment grade and high yield bond index levels, market diaries, U.S. yield curve, news, and economic indicator calendar. It also has links to the TRACE (Trade Reporting and Compliance Engine) bond market data which affords retail investors a new level of price transparency that was not available pre-TRACE.