Investment Q&A

Q: Why is so much emphasis put on comparing a company's recent earnings to analyst estimates?
It might be because the market is generally a forwarding looking mechanism, but, call me cynical, could it be of benefit to both the analyst and the co. to have the co. beat expectations as they seem to 99% of the time?
A comparison of recent earnings to last year's comparable period would to be a better metric.
Your thoughts would be appreciated.

Derek

Q: Hi 5i,

Now that many companies have reported can you please give us an overview of what the earnings look like so far?

Are they meeting expectations or below?

Do you have a sense of forward guidance from reported companies?

Thanks,

Q: I found this lengthy article on naked shorting that was written in June this year that describes what could be happening today to the Canadian bio_techs. Publish at your discretion.

http://smithonstocks.com/illegal-naked-short-selling-appears-to-lie-at-the-heart-of-an-extensive-stock-manipulation-scheme/

Q: A lot of short selling chatter around here. There is the case of Globo Plc a UK listed small-cap that immediately denied any wrong-doing last week before suspending their shares to formulate a response. Well the response was that the CEO and CFO resigned after dropping the bombshell that up to 60% of revenue was fictitious. Unfortunately I am still a holder of these suspended shares but fortunately a very small fractional position which was always thought of and treated as a "spicy ingredient" in my overall portolio. Sometimes there's really a fire behind all the smoke blown around by short-sellers.

My question is once the shares start trading again what would you imagine to be the response - with a potential 40% of revenue being "real" would you think this will survive ? An impossible question really but whatever opinion you have to offer is fine.

Q: Well, BNN just reported that BYD.UN, EFN, CXR, STN, and to some extent CSU, are being talked about for shorting. Apparently the "theme" is to attack "growth by acquisition" companies. This is getting really frustrating!

Q: I have been invested in the markets for over 40 years, so i have had a few ups and downs to deal with, but so much has changed in the last few years, with now most of the trades being made by computers and the internet giving anybody that wants to say anything about a stock, right or wrong, it's getting more difficult to be a long term holder of a stock. Sure if you have been a long time rising stock, you can handle a setback, but lot's of investors get into a stock just before maybe some short seller hits the stock and you are down a lot. Yeah, people say if you like the stock it's a buying opportunity, but that's a tough one if you are now fully invested in the stock. It just seems now, that just about anybody can drive a stock down, with a jittery market. So which one do they pick next, you can hope that it is not one of yours, so maybe just hold cash and buy the stocks the shorts drive down.

Q: Good morning,

Could you explain the following concepts and how they are used to interpret what is happening with a stock:

1) Overbought (example DOL)
2) Oversold (example VRX)
3) Short interest (BNS @ 2.5%)

Many thanks

Q: I watched Jason Donville's BNN interview and he certainly raised some valid points.The media needs to take more responsibility in perpetuating reports that,to their knowledge,may or may not have any validity.Without some sort of regulation many retail investors can be wiped out and without retail investors the stock market becomes ,to some extent, ineffective.The time should be long gone when any one individual can say anything he or she desires to control the market.Comment please! Don.

Q: Just a comment on Tim comments re VRX on 0/24.Agreed.However,in my humble opinion,it is very difficult for investors to comprehend everything especially on a complicated co.So that's why we depend on Peter,Ryan & 5I Renewal due in 2/16.If I renew 2yrs prior to Dec 1,I get discount as per blog.Does that mean my new expiry is 2/18? Appreciate your great services & view

Q: This is not a question, just wanting to share part of my investment risk mitigation, which might be relevant in a case like VRX/CXR.

Although 5i is not a big fan of stop loss orders I have always used them. iTrade has a wonderful alert system created by Recognia.

An example of how stop losses saved me a small fortune is that using the Recognia stop strategy, I sold my CXR at 98.50 and my VRS at $278 Cdn.

I repurchased CXR Friday at $39.

There are many instances I do get stopped out and I determine why. Eg news, volatility, market conditions etc.

If it is not a existential reason I will buy back again once the MACD, volume and support/resistance levels indicate to do so.

Stop losses do help with these kind of situations, as well as major market calamaties like 2008/9.

FWIW.

Q: I thought this post at CornerOfBerkshireAndFairfax does a great job stating what we've been unfortunately seeing in the last few days and is worth highlighting:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/valeant-pharmaceutilcals-international-inc-(vrx)/3200/

"How to crush a stock in a few days 101:

- Pick a vulnerable company that has uncertainty surrounding it for whatever reason. Make sure the company is complex enough that it will take time to clear the air.
- Start shorting the stock
- Put out a hit piece, spread internet rumours, make a comparison to Enron for good measure (point out a couple of similarities and not the million differences), make a mountain out of a molehill
- Because there is already uncertainty out there, your message will get traction from traders/the media and make weak hands sell
- Do this in a coalition with your hedge fund buddies, who also short the hell out of the stock
- Selling begets selling, momentum day traders pile in, margin calls result in more selling
- Market panic is successfully created and stock gets crushed
- Enjoy the profits

On one hand, this creates opportunities but it really undermines the credibility of the capital markets. You could do everything right in your fundamental analysis and get crushed by unethical people who would shout fire in a crowded theatre."

Post at your discretion.

Q: Could you please comment on my sector weightings?
Non-Registered CAD account. Income Bias.
70% Equity
30% Fixed Income

Resource(non-energy)8%
Consumer 8%
Banks 16%
Other Financial (Insur, MFunds, Fintech)16%
Utilities 11%
Telecom 8%
Precious Metals 2%
Energy 8%
REIT 12%
Technology/Industrial 11%

Thank you

Q: Hello,
Can you please remind me what the five `i` `s stand for, in your company name? I recall only the most important one - independent!
Thx, Rob.

Q: Greetings: Here is summary of TSX stocks, showing current dividend yield and the next ex-dividend date. I spot checked a few stocks and guess that the yield data may be a few days behind, but it's a good summary. One can download the list Excel and then sort it on the yield column. A staring point for further analysis. http://dividendhistory.org/tsx/

Q: I am a retiree with substantial cash set aside for things like a new car, appliances on their last legs, some renovations, and a trip. My questions is: do I include this cash as part of my portfolio when determining asset allocation %, both in equity vs fixed income and, more importantly, when calculating what % of my portfolio is in individual stocks and what % is in any given sector? Obviously, %s change dramatically if I only count the $ actually invested! Thanks again for your steady hand.

Q: Good morning,

There seems to be a lot of opinions about excess shorting by U.S hedge funds that is causing considerable disruption to stocks in the Canadian markets. I have never been an advocate of shorting as it is destructive by nature, but it is what it is.
My main concern is that there may be a return of excessive naked shorting and there is little defense against this activity.

What are your views on this? and how can we protect ourselves against this.

Is the uptick rule still in place or has that gone the way of the Dodo ?

Thanks Peter

Q: What is the rational behind a cease trading after market close and resume trading before market open? BIN for example. Thanks.

Q: My question is not about Wajax specifically, but using Wajax as an illustration in the context of my question.
In previous answers, you have repeatedly expressed a leaning towards shedding losing stocks and replacing them with others currently showing promise, on the premise that there's an opportunity cost involved in holding the "loser".
Assuming the company (Wajax in this case, on which I'm down almost 50%) is a well-managed company, and in the absence of known problems, and the company is merely being battered by economic conditions WHICH WILL (EVENTUALLY) TURN AROUND, wouldn't any replacement stock have to double in value (including reinvested dividends) before reaching breakeven? And isn't it likely that the loser stock, Wajax in this case, will likely double in value sooner than (almost) any replacement stock (provided the replacement isn't of substantially higher risk profile)?
Or, to put it a different way, isn't the opportunity cost of continuing to hold the losing stock effectively nil?
Thanks for your and your team's continuing effeorts to educate us! Lotar.

Q: For investing books, what would you guys recommend for the middle of the road, fairly experienced, investor, thanks?

Q: I often see you and others mentioning that a stock price went up or down "on high volume". How should we interpret this? Obviously the high volume means there were many buyers. And of course there were equally many sellers. Is this a good sign for the future (lots of buyers) or a bad sign (many sellers)? I am quite puzzled about how high volume should be interpreted.