Full Disclosure Finance

By Justin 

I am here in Labrador City, Newfoundland writing in the midst of a foot of snowfall and a chewy piece of pork chop that cost $30, beat that Andrew!

As I was getting my lunch yesterday, an interesting topic was covered on the local CBC radio station. They were discussing the increase in home heating oil and gasoline prices on the island of Newfoundland. Increases that were, according to the gentleman from the Petroleum Products Pricing Commission, going to have deep negative effects for the average person. He was calling for an elimination of all government HST (tax) that is levied on heating oil and gasoline to reduce costs for all citizens. Why is the primary motivation when costs of living go up to look to the government to bail citizens out? I understand the position low income households are in, but to wipe out taxes on oil across the board would clearly have other consequences on the funding and operation of the province. I am not going to get into this. I wanted to provide an example of the average knee jerk reaction when we are under financial strain or have impending consumer price increases.

Why is it that the average Joe or Joanne doesn’t ask other questions like “How can we take advantage of the direction of these prices?”. If gas prices are going up 10-15%, is it not possible that an investment in some oil and gas stocks (done after quality research) could keep up with this increase and leave people in a greater position financially? The sooner we all ask these types of questions the better. My recent reading of George Monbiot’s “Heat” and “The Clean Tech Revolution” by Ron Pernick and Clint Wilder offered great insight into what future energy solutions (and therefore investment opportunities) will look like in the coming years. Investment opportunities, how does that sound to you? What comes to mind when the words are mentioned to you? GIC, Canada Savings Bond, IPO? I have found that as I increase my financial knowledge, more comes to mind when the words are brought up.

One year ago my list would have been: Mutual Funds, GIC, Bonds, Stocks, but I didn’t have a clue how to actually buy a stock and I thought mutual funds were the greatest thing since the automobile and frozen pizza.

Now a list of investments attracting my interest is: PPM’s, IPO’s, Real Estate, Covered Calls, Stocks, and Short Selling. In the past year I have bought a stock and made a decent return (Sandvine, TSX: SVC bought periodically starting in November 2007), and lost money on mutual funds (RBC Select Growth Portfolio, bought in February 2007, sold in August 2007; BMO Japanese Equity Fund, bought March 2007, sold August 2007). Mutual funds are not a way to accelerate wealth, so I will not be getting back in anytime soon. However, I might put effort in to coming up with a great nickname for them, One-Sided Slush Funds anyone?

Before you can take advantage of investment opportunities what do you need to do financially?

For me, I am living with my mother and drive a piece of shit car (1989 Toyota Camry) which keeps my expenses somewhere between zero and nada. This formula has allowed me cash flow to devote to investment activity. I am comfortable with this setup, but I realize not everyone would be. Depending on your level of interest, putting $200-$500 a month into investments would be a good start. There are plenty of resources out there to help you save money. I haven’t really looked at any but the no-brainer is to start tracking your personal expenses in Excel, Quickbooks, or Simply Accounting. That way you will get an accurate picture of where your money is going. Most people are smart enough to figure out if their expenses can be reduced after examining a statement. If there’s no room to cut expenses to get some investing cash, now you’ll have to increase your income which is often more difficult than reducing expenses.

Great! You won the lottery and now you’ve got the cash flow, but that’s only a piece of the pie. If someone gave you $100,000 right now and said you had to invest it and get a 15% annual return, how would you do it?

This is the most critical component of the sophisticated investor’s skill set, financial education. I am only 1 year into understanding what my options would be for this question. Right now I think I would put it into real estate. Probably buy a $450K student rental property in Waterloo and use the $100K for a 20% down payment and closing costs. With positive cash flow in the neighborhood of $500 per month ($6000 /year) and with a little appreciation (3% = equity increase of $13500), your return on the $100K would be above 15%.

Financial education begins with devoting time to reading the business section of a newspaper, business magazines, books, and finding people that share your interest. Devote an hour a week to reading. If you are enjoying it you’ll end up spending a lot more time reading about cool companies and the latest ups and downs of the market.

You’ve got the cash, some financial education, curiosity, desire, and an online brokerage account. Now it’s time to press the BUY button and start your lifetime of investing. I can’t wait to tell you about mine.