Investorline is the Bank of Montreal's on-line trading platform.  Having your accounts on this platform gives you access to BMO's research - the same research that it's advisors use in order to make portfolio decisions and advise clients - of course mixed with their own experience of the markets (which is really what you buy when you hire an advisor).

Recently, (which means I don't know exactly when) BMO launched an additional service on it's Investorline platform: Advice Direct, which is a fee based service enabling on-line investors to talk to a human being presumably qualified to offer advice.  An excellent marketing strategy, and very forward thinking of the Bank, but will it do the job?

The landscape of the financial industry is quite a patch work, and there are different compensation schemes used.  But the basic thing to understand is 

The financial industry is like so many other industries that are changing because of a change in technology.  The internet has given the general public access to the stock exchanges without having to go through a broker or a financial advisor – just set-up your on-line trading account and off you go!

All types of investment accounts including RRSPs, RRIFs, LIRAs, LIFs, and TFSAs can be set-up as online self-directed trading accounts.

The benefits: lower costs, more control

I bet you’ve noticed the prices at the pump! It’s pretty crazy.  Two days ago I heard an analyst on 680 News saying that there was no reason for gas prices to have escalated at the pump.  He’s got me all fired up – I don’t believe the guy knows what’s going on in the world.

Crude oil prices have been moving up silently for the past few weeks, the sudden jump is because of a few reasons that won’t be going away in a hurry.  Here they are:

Canada welcomes immigrants.

For most new arrivals the credit rating systems is confusing.  Just because we use individual credit ratings in Canada doesn’t mean that the whole world conforms!  Many new immigrants have never come across this tool before.

What is a credit rating? It is a point system that measures your risk to the lender, or the likelihood that the lender will be able to get both their principal loaned plus interest from you on agreed terms.

Without a credit rating you will not be able to get a credit card, vehicle financing or home financing.  It takes time to establish a credit rating, usually a period of three years is a good estimate.

Building a credit rating should be one of the foremost objectives of every new arrival in Canada.

Here are a few useful tips on how to do so.

The TFSA is probably the most under-utilized investment tool that I have ever come across.  The trouble with these accounts is that they are called "savings accounts".  Really they should be called "investment accounts".  Ninety nine percent of the people I sit down with think that they should put their saving in a TFSA and earn whatever the bank decides to pay as interest, when really the most aggressive investment positions should be going into these accounts.

The TFSA operated pretty much in the same manner as an RRSP except that it doesn’t have the tax break attached to it.  So you contribute to a TFSA with after tax dollars.  You contribute to an RRSP with before tax dollars and these dollars become exempt from taxation.

RBC, Canada's largest bank, agreed to buy the Shoppers Optimum credit-card portfolio from Bank of America Corp. - this will considerably increase the size of it's existing MasterCard Inc. portfolio.  The deal will involve a co-branding pact with Shoppers Drug Mart Corp., Canada’s biggest pharmacy chain. The portfolio’s size and price have not been released to the public.  Three years ago Royal Bank agreed to introduce a co-branded MasterCard with WestJet Airlines Ltd. as the bank's first MasterCard credit-card offering in Canada. The latest card, named RBC Shoppers Optimum MasterCard, has no annual fees and allows users to earn reward points on purchases. 

What is the significance of this deal?  For RBC, increased profitability in the future.  Where do banks make money? on their credit operations of course.  And they charge the highest rates of interest on credit cards especially the co-branded ones.  So if you were going to pick which bank shares to buy, RBC would be a good one. The second one to watch out for is BMO.  BMO has an aggressive growth objective, and the positions that the bank has taken in overseas markets are good short to medium term - not so sure about the long term.  TD as always is the most aggressive in terms of it's growth objectives and it's openess and speed to act on strategies - this is a strength that the other banks cannot match.  Now you know which bank stocks I favor!

As for Shopper's Drug Mart, it is smart to offer a credit card.  Credit cards build loyal customers, and of course help the company's bottom line.  It will be interesting to see what happens to drug retailing with more American companies expanding their retail operations in Canada, such as Walmart, Target, and Costco.

Recently I was entertaining a visiting professor from China and her son.  Would you believe how hard it was for me to think of authentic Canadian things that I could gift them - of course, they've had the maple syrup bottles given to them ten times over, so I didn't really want to go there, and everything else seems to be made in China!

The real value of meeting these people was the discussion that was sparked in my sitting room every night with other well informed friends about the direction of the great nation of China in terms of being an economic and political power.

The conclusion I have reached is that THE DAYS OF CHINA ARE NUMBERED.  I would even go as far as to say that in ten years we may very well see some form of deomocracy raise it's head.

Those who agree that Facebook IPO was overvalued, please raise your hands.  That’s everyone in the room!

Facebook is an example of a share that sold more based on its emotional value than its actual value as an investment.  Many who bought the stock bought it because they used Facebook and had an emotional attachment to owning a piece of it.

Get attached that way to an investment is the best way to lose money in the stock market – lesson learned – but now what?

Facebook took steps Tuesday to reassure investors and employees worried about its plummeting stock price. Facebook says that Chief Executive Mark Zuckerberg won't sell any stock in the company for a year, and that two of its directors, Marc Andreessen and Donald Graham -- have no plans to sell their personal holdings either.  In a regulatory filing Facebook detailed how it will essentially buy back 101 million shares when it issues previously restricted stock units to its staff in October.

At recent prices, it would spend roughly US$1.9 billion in cash to keep those shares off the market. Together, the steps are meant to effectively reduce the amount of Facebook stock in the hands of the general public.  As lock-up periods on the stock expire the stock price is dropping, and the love affair is coming to an end.

I believe that the share price will drop well below the company’s real value and will then rise again to a level that is truly reflective of it’s value.  If you’re really looking to invest in Facebook rather than own it for emotional reasons, you might want to buy at share prices below $15.

If you already own Facebook stock and are taking a hit on it, you can do two things: short the stock from now into November is a good time, or buy more of the stock at prices below $15, and average down your purchase price.  If you have a three to five year time horizon on the stock and you can average down, the stock will go back up to $38 and beyond.  Lastly, if you don’t want to take a risk on either of these strategies, hand tight you will get your money back with profits in less than three years, and make a killing if you’re willing to risk a five year time horizon.

A lot of times things happen in the market because the majority sentiment makes them happen.  Imagine this scenario:

A young artist is happy that his art is beginning to sell.  He has just been commissioned to do a portrait for the Mayor on the 3rd anniversary of his office.  He and his girlfriend go out for dinner to celebrate; they start talking about how soon they will be able to qualify for a mortgage and buy a house.  As they're walking toward the restaurant they look at the news stands with large headlines about how things are bad in Europe, China isn't picking up and the US unemployment numbers are still too high to signal a recovery.  They start feeling worried.  Maybe they should wait a bit about getting the house, if the recession hits his income will surely be affected as people cut down on artwork first.  

They get to the restaurant and are still talking, and they decide to be more careful with the money they have. The restaurant owner comes by smiling: "Congratulations! I hear you are doing a painting for the Mayor" he says, "are you celebrating with some champagne this evening?" The couple look at each other and pass a knowing glance.  The young artist turns to the restaurant owner and says "we hear that things are pretty bad in the economy, and there might be another recession coming soon, so we've decided to cut down on spending; we will just have a glass of wine each to celebrate".  

The restaurant owner hears this and starts feeling uncomfortable.  He goes to his office and calls his broker, "cancel that order I placed to buy those shares I wanted.  I hear that things are pretty bad and we are heading to another recession, I want to keep as much cash in hand as possible, and don't want to risk losing money again", then he calls his wife and says "honey, I think we should cancel that trip we were going to take this year, I hear things are pretty bad in the economy we should conserve our resources and ride this out".  His wife is disappointed and she calls the travel agency to cancel - you got it the message spreads like a virus.  

In the final transmission, the Mayor calls the young artist and cancels the commissioning of the portrait.  He says "sorry young man, I hear things are likely to get rough, we will talk about this portrait when things are better". The young artist hangs up the phone in despair and turns to his girlfriend "remember what we were talking about? It's starting to happen already; that was the Mayor, he just canceled the portrait".

See how we contribute to the downward spiral?  In the same way we also contribute to the upward spiral.  Feeling better about how things are is the first step towards recovery and then the manifestation of it follows.

    Disclaimer: MoneyCoach and the managers of the site Investment Opinion.net take no responsibility for the actions of any visitors to this site.  All information on this site is representative of the perspective of the contributing authors and may not reflect facts. All visitors are cautioned to obtain qualified financial advice from licensed individuals.


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