Monday, October 25, 2010

Thomas Caldwell, Toronto Money Show 2010

Thomas Caldwell of Caldwell Securities Ltd is the first speaker I listen to. What he said is that individual behavior is responsible for gains and losses in the market. It is your interpretation (of what is going on) and your actions that cause these gains and losses. We cannot trade emotionally because emotional people want to buy high and sell low. You can blame others, or you can learn from your mistakes. What you need to do is think long term. Over the long term, markets go up. Over the short, no one knows what is going to happen. You need to rise above the negativity in the market. It is in periods of difficulties and confusion in the market when you can make money. It is at these times that you can find bargains in the market.

In bull markets, people ignore bad news and in bear markets, people ignore good news. You should not sacrifice quality for returns. You should not borrow to buy in the market. In investing, time is your friend. Also, you should not be making decisions on your own. You would be too much influenced by the media and your environment. It is better to work in a team.

What you want to do is control your emotions and look beyond the current negativity of the market. What he suggests is bonds and big cap stocks. Usually big caps come around fine after market problems. The problem with small caps is that their results depend too much on their managers and the managers’ personalities. He feels that in periods of adversity, you should only buy big caps.

He pointed out that over the past 45 years, anyone who bet on deflation lost. Democratic governments print money to avoid deflation. Deflation is not baked in the economy, but inflation is.

Caldwell pointed out that now is the time with lots of confusion. The US has done a lot of really stupid things. They repealed the Glass-Steagall Act. This act had kept US banks safe. This is one reason why US got this recession. The other thing that they got rid of is the uptick rule. This is the rule that there must be an uptick in a stock’s price before you can short sell. Getting rid of this rule destroyed some companies.

He feels that there is lots of cash on the sidelines now. He also feels that there is a lot of negative emotion in US. There has been a huge shift in the world’s economy. Caldwell feels that the US has too many rules. However, he advises not to short change the US. He feels that they will eventually get it right, and then he quoted Winston Churchill, who famously said, “You can always trust the Americans to do the right thing; after having exhausted all other possibilities”.

He sees no possibility that Canadian Banks will cut dividends. At the depths of the cyclical bear in March 2009, BMO had a dividend yield of 11%, which was the best ever. He feels that all our difficulties will be resolved. Dividend paying stocks, especially banks, are great investments. These stocks will be giving us money while we wait for better times. He feels that the key factor in this market is dividends.

He noted that the supply of bonds has increased massively, but the price of bonds has not gone down. This is because people have been eager to buy all these issues of bonds. He thinks that a lot of corporations have lots of cash. Individuals are busy paying down their debt. He thinks that soon people will get more confidence and stat of spend their money. He thinks the current market in Canada is very good and that inflation will come back.

He thinks we should own Canadian Banks and that they will soon start increasing their dividends. He thinks we should all own some gold and tech stocks (especially US Tech stocks). He feels that Suncor Energy (TSX-SU) is a good stock to won. He says a good Canadian Portfolio would be 45% financial stocks, 15-20% in energy, 15-20 in Materials and some US stocks. He thinks the best US stocks to buy are banks and those in the health care industry.

He thinks that we should be worried about Income Trust companies, or ex-Income Trust Companies as there will probably be some dividend cuts. Most income trusts are paying too much of their income and free cash flow in dividends. What he feels is too much is 75% or more of earnings or free cash flow. He thinks that these companies will have either to grow (to afford their dividends) or cut their dividends.

His final remark was that the best investments in developing countries would be in India.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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