|
HOW TO INVEST IN CANADIAN STOCKS
The amazing story of the Internet era was the participation by investors around the globe into the US stock market. The ease of on-line trading, its cost efficiency and access to research on-line permitted participation on a level not seen before in history.
It is easy to buy and sell equities in North America, regardless of where you
are. Anyone with a bit of knowledge and capital can begin investing quickly and
easily.
Before we get into how to go about investing, this chart is very instructive. There is a great deal of agitation in the West about oil prices reaching record levels. But let’s look at the real prices of oil and gold, adjusted for inflation.
Source: www.zealllc.com/2004/goldoil3.htm
The black line represents the price of a barrel of oil (prices on the left Y axis), in constant 2004 dollars, and the yellow line is the inflation-adjusted price of an ounce of gold (prices on the right Y axis) from 1965.
Two things jump out at you:
-
The peak price of oil is $92 a barrel in real terms, so we are a long way off
from an extreme price level. Note also: gold is trading at less than a quarter
of its peak in real terms.
-
The high degree of correlation between gold and oil prices.
The prior four issues
of the Acamar Journal have focused on why people should consider investing in
resource companies in Canada. If you missed any of the issues, I’ve provided
the links here:
These are easy to read perspectives on the US economy, the resource sector in
Canada and its potential opportunity for the GCC investor.
The Canadian Equity Market
In Canada the three main stock exchanges are the Toronto Stock Exchange (TSE)
and the Toronto Stock Exchange Venture (TSE-X) and the Montreal Exchange (ME).
Companies that are relatively more established can meet the higher listing
requirements of the TSE, in terms of assets or operational revenues, while
early stage companies dominate the Venture Exchange. The Montreal Exchange
focuses on exchange-traded derivate products.
Canada is a well-regulated market, with Federal and Provincial laws and oversight through Securities Commissions that protect the interests of investors, domestic or foreign.
Foreign investors investing in publicly listed Canadian companies are generally exempt for capital gains tax under the Canadian Income Tax Act. Interest and Dividend income is subject to a 25% withholding, which may be reduced by treaty benefits.
Trading hours are 9:30 am to 4 pm, Eastern Standard Time (8 hours behind Dubai
during daylight savings time, which runs from April-September, otherwise 9
hours behind).
Information about companies listed on the exchanges can be obtained from several sources, which I refer to further in the newsletter. You may not need to use these sources at this time, so save this newsletter as a handy reference tool for when you might need them.
Opening an account in Canada
If you already have a trading account anywhere, ask your broker if he can buy Canadian equities in your account. If he can, you may not need to open an account in Canada in order to trade.
While there are many
full-service
(an account with a broker who trades on your instructions) and
discount
(you trade on-line by yourself, though there is extensive support available on
the telephone and by e-mail) in Canada, many of the on-line brokers are not
licensed to handle foreign accounts.
Full-Service:
To set up an account with a full service broker in Canada, you need to invest a
significant amount (perhaps in the range of US$ 100,000+) for it to be
worthwhile for the broker to handle your trades. If you wish to do so, send me
an e-mail and I will refer you to a choice of brokers.
On-line:
You have three options that I have identified at this point. The best-known and
easiest account opening option is provided below (the other two are TD
Waterhouse and Questrade):
Hong Kong Shanghai Bank (HSBC) Direct Invest
(http://investdirect.hsbc.ca): You
need to fill out the Investment Access Portfolio application form and the
W-8BEN form (must be filled out - used only for withholding tax on any interest
and dividends on US stocks that you buy)
Once this is done, you need to take the forms with 2 pieces of identification
(one of which must be a government issue photo ID, such as a driver’s license)
to a local HSBC branch and get them to verify your identity and put a stamp of
‘certified true copy’ on the ID documents.
Forward the documents with bank draft for Canadian $ 10 to the address provided
in the form. You can fund the account by sending funds by bank draft with the
documentation or else wire transfer funds once the account is activated.
A natural question arises at this point:
-
For those who have never invested in the stock market,
why should you?
Because you make investment decisions wherever it is that you decide to park your money.
And the stock market has produced the highest returns of all asset classes in
the long term (apart from usury, perhaps)
So you owe it to yourself and your family to consider all your options, not just the most comfortable and familiar ones.
Remember, you should be diversified, and taking a percentage of your liquid
assets and investing them in a safe environment like Canada only makes sense.
And if there is a possibility of things going sour globally, then your
investment holdings here, in the resource sector, may be your insurance policy.
-
For those who are familiar with the stock market,
Canada should represent a natural extension of your diversified portfolio. I
personally don’t invest in Australian companies or Brazilian ones. Not because
there may not be excellent investment opportunities, but because I lack the
information to make competent investment decisions.
Well, I am providing this service to help your overcome that potential hurdle with respect to Canada!!
The only reason not to take this step is that you disagree with my analysis and have a different view on the future direction of commodity prices. The stakes are too high in this period of global uncertainty and change for you not to do whatever it takes to protect (and enhance) your wealth.
There may well be other bona fide reasons but an economist would say, let’s
assume for simplicity of analysis that these are the only reasons.
But, you may be wondering, the US economy is in full swing and precious metal prices dropped precipitously in the last few weeks. Are you too late to the party?
First of all, remember that you should only consider allocating part of your
capital into this sector. Second, all the news is not good...
Dr. Ron Paul is a Republican Congressman from South Carolina, a member of
President Bush’s party. Quoted at a conference on April 2, he said,
"One day we’re going to wake up, and have less warfare and less welfare … because we’re going broke!"
A lot of the numbers floating around are suspect and hyped. Look at Naomi
Klein’s analysis of the April job numbers in the US when 300k jobs were created
(Jobs Down, Thumbs Up, Globe and Mail, May 13 2004):
“More than 82 per cent of the jobs created in April were in service industries, including restaurants and retail, while the biggest new employers were temp agencies.
Over the past year, 272,000 manufacturing jobs have been lost. No wonder the President's economic report in February floated the idea of reclassifying fast-food restaurants as factories. "When a fast-food restaurant sells a hamburger, for example, is it providing a 'service' or is it combining inputs to 'manufacture' a product?" the report asks.
Not all of the job growth in the United States has come from burger flipping and temping. With more than two million Americans behind bars (one of the ways unemployment stats stay artificially low), the number of prison guards has grown from 270,317 in 2000 to 476,000 in 2002, according to the U.S. Department of Justice.”
The record rate of personal bankruptcies in the US, with interest rates at their
lowest levels in 45 years is an omen of things to come when rates rise.
Inflation is rearing is ugly head, as the Federal Reserve has refused to raise
interest rates (fundamental to controlling inflation) in order to not crush the
recovery.
Gold, which benefits from inflation, deflation, US $ devaluation and economic
uncertainty, is positioned to rise as these conditions persist and aggravate.
In addition, other commodities are driven by Chinese demand and improvements in
the global economy. Oil and Gas, a sector in which Canada is a key player for
young exploration companies, looks to be on a long-term up trend.
Being able to invest in the shares of publicly listed Canadian small and mid-sized companies in this sector may be very important, both as investments on their own merit and particularly if there are problems with the US economy down the line.
Information Sources for Equities in Canada
A key source is
SEDAR
, an information service provided by the Canadian Securities Administrators,
where companies provide readers annual and quarterly filings, news releases and
other pertinent information. www.sedar.com.
The Securities Commissions of Ontario and British Columbia, where the TSE and
TSE-X are regulated respectively, also maintain detailed information about
securities regulation, rules, insider trading, and other useful investor
related information. The websites are www.osc.gov.on.ca
and www.bcsc.bc.ca respectively.
In addition, there are numerous websites providing charts, analysis, and other
useful information for investors. Two recommended sites, which focus on
Canadian markets, include:
In addition, excellent charting sites that I use include:
Both use Bigcharts for charting, though CBS Marketwatch has more economic
information alongwith the charts. Their advanced charting functions are
excellent and I will provide guidance on their use in future issues.
Market Wisdom
“I buy high and sell low. I lose money on every trade, but I make up for it in the volume.”
For those new to this, that was a joke!!! Do not attempt to mimic this behaviour
for real when you trade!
Over time there are a number of sayings that regarding the stock markets that
traders and investors take as self-evident truths. Needless to say, these are
ignored in the heat of the moment and, when people are licking their wounds,
these are produced as the pearls of wisdom that they
should
have relied upon:
-
The market is driven by fear and greed.
This is the modern capitalist version of the ‘fight or flight’ instincts our
hunter/gatherer ancestors possessed. Most people follow the herd instinct:
buying when the easy money has been made and selling in a panic.
-
The trend is your friend.
Regarding of economic laws and rationality, the markets will always do what it
wants to in the short run. You fight the market at our own peril.
-
Take your profits,
or in the words of JP Morgan, “I made a fortune getting out too soon”
|
I’m sure you have your own stories of successes and failures and missed investment opportunities. These are inevitable and make for excellent social dialogue.
I intend to provide you, through this newsletter, with my insights into fundamental and technical analysis of companies. These tools may help to make you a better investor, a cherished goal for us all!!
|
|
