Thanks to those who posted questions for this “Ask me anything” blog. I’ve chosen a few of them that I thought would be of interest to the widest number of readers. Let’s get started.
How to buy stocks
One reader asked me to write a blog on how we at ValueTrend buy stocks – having written the blog last week on the subject of selling. Click here to read that blog.
Rather than write a complete blog on the art of buying stocks, I thought I would refer you to a number of my writings on that very subject. To start with, I would recommend my book Sideways. I wrote it for the retail investor to enable them to understand, in plain language, how one can set up a trading system using technical analysis. I’d strongly recommend that you read the book if you are interested in putting together a trading plan.
We’ve also posted quite a bit of info on our webpage that describes our way of looking at things. Here is the link.
Cross listed stocks
A reader wanted to know if they should buy a stock that is listed on both TSX and a US exchange (e.g. NYSE or NASDAQ). He wanted to know if we should stick with the “home” exchange or does it matter? I love this question, and would like to give an example here where we can look at the differences.
As the reader noted, currency is really the deciding factor in this situation. Below is a chart comparing BCE listed on the NYSE exchange RED LINE vs. BCE listed on home turf TSX BLACK LINE. You will note that BCE can underperform or overperform on either side, depending on the currency moves.
The matter gets even more complicated if you are buying a foreign stock listed as an ADR on the US exchanges, and we Canadians want to buy the stock. For example, what if you are buying an ADR (American Depository Receipt) representing Nikkei listed stock, or a stock listed in Europe? In this case, you need to be tracking the Yen or Euro vs. the USD. Then you must track the USD vs. the CDN$. Its a lot of work! For more on this subject, I wrote a blog that covered a live example of this process.
Generally speaking, avoid buying Canadian stocks on other exchanges, and buy non Canadian stocks on their respective exchanges if you can. If you buy a non-Canadian exchange ETF, it may be worthy of buying a currency hedged version if you are worried about the currency problems.
One reader asked for a take on the commodities index. Happy to do that, but realize that there are actually several interpretations or indices that can be called the commodity index. I’ve chosen to look at the Bloomberg index because its (IMO) well diversified. To the readers point, the commodities indices (ex CRB) are often heavily skewed towards oil. The Bloomberg is a bit better, in that it is 30% energy, 27% agriculture, 21% industrial metals, 16% precious metals and the balance in livestock.
Below is the chart for the Bloomberg index. As the reader noted, it is stuck in a base. My thoughts are that I’d want to see a breakout before trading the index. Having said that—I tend NOT to trade a commodity index as one instrument (e.g. via an ETF). My reasoning is that commodities differ from each other so much that you are really not buying a complimenting index.
Compare the down trending chart of Natural gas to oil’s lovely looking breakout. Polar opposites!
Compare gold to copper. Gold is flat, copper is up.
To me, this kind of shotgun approach – that is, buying a broad commodity index ETF – is not a good strategy. Sure, diversifying through a few good commodities with good charts might make sense, but why would you buy ALL of the commodity groups when some of them are clearly dogs? As Peter Lynch once said, such a strategy is not diversification…its DIWORSIFICATION!
Attention snowbirds- keep February 10th open
Some of you know that I speak at the Toronto MoneyShow every year. This winter, the MoneyShow has invited me to speak at their Orlando show on February 10th at 6:15pm. Honestly—who would say no to that offer, given our wretched winter weather in Ontario? If you happen to travel to central Florida during the winter, or if you have family/friends who do the snowbird routine—come on over to the show. It’s taking place in the Omni Orlando Resort – here is the link.