Recap 2017

As we approach the end of 2017, it is a good time to recap what we have learned so far.  Based on the content on the blog so far, and in no particular order, here are some key, salient points to take away:

·      Individuals invest in stocks as the research shows they have been the best investments over time.  The stock market has returned about 10.5% per year over roughly the past 75 years.  This is especially easy to understand when one compares the returns to GIC’s (government issued investments with low risk and low return).  Given current interest rates, these investments provide next to nothing in the way of return on your money.

·      Stocks trade on a stock exchange which is the way in which the members of the public can purchase a stock.

·      In order to buy a stock on a stock exchange, you need to open an account on your own, perhaps through discount brokerage such as Questrade, or through a financial advisor who can assist you with various facets of the trading, including what stocks to buy. We opened a 90 day free trading trial account with Questrade on the site to see how it all works.

·      With respect to taxes, broadly, if the stock is purchased in a registered account, the gains are tax free. Outside of these tax-free accounts, the capital gains are taxed as are the dividends.

·      You make money by stock market investing through capital gains (sometimes called appreciation), this is the profit you make after you buy a stock and sell it at a higher price and dividends. Dividends are at the discretion of the company and are like an interest rate on your investment. They are a share in the company’s profit that may be paid to you. Many investors look for dividend paying companies as a key component of their investment strategy.

·      Investors are generally categorized into growth and value investors. Growth investors are willing to pay more for a stock now on the basis it will grow well into the future. Think Tesla. Value investors are looking for cheap stocks that are underpriced given the value of the underlying company. Warren Buffett is tagged as the classic value investor. People can be both growth and value, they are not mutually exclusive.

·      People evaluate stocks in many different ways. We looked at some standard ratios that many people use to consider whether buying a stock. A combination of technical and non-technical analysis is probably best. By that, I mean looking at the overall company itself including its growth potential, management, whether you consume the product or service, but also doing a technical numbers analysis. No matter what, thorough research into the stock you propose to buy is a must and there is no reason it can’t be enjoyable if you like learning and pick companies you are interested in.

·      A company buying back its stock or a “stock repurchase” should be considered with a keen eye.  In most cases, the company is buying back its stock because they think the stock is undervalued and will go back up, at which point they may sell and raise money without having to issue more shares or take on debt.

·      A portfolio is a fancy word for the collective basket of your investments across sectors or accounts. Generally speaking, you can create a portfolio by opening the necessary accounts to purchase investments be it stocks, bonds, real estate or government certificates and then decide what you would like to purchase in these accounts.  After which you review and rebalance yearly or as often as you deem fit. This is the overall, general idea with a portfolio.

·      Currently, ETF’s are an extremely popular investment product. They are like a mutual fund in that they consist of a basket of investments but trade like a stock and have lower fees than mutual funds. An ETF can be purchased online through a discount brokerage. You can buy many different kinds of ETF’s including ones that track an index. 

·      Evaluation of companies and their stocks is fun!  It is enjoyable to learn about different industries and trends and to dig beyond the surface to really see what is going on with any given company. From there, you can further your research, conduct some analysis and determine whether you want to buy shares. Use the time we all spend on the internet and our requisite searching  skills in a productive fashion! 

We have learned a lot so far in 2017. There is of course lots more to learn as we head into 2018 including putting some more formality and organization into our research through the use of a spreadsheet or worksheet which we can use to more formally track our investments. We will be working on that in 2018.

Photo by NordWood Themes on Unsplash

Photo by NordWood Themes on Unsplash

** Top photo by Simone Hutsch on Unsplash