Dean Paley, 40
Occupation: Accountant and financial planning specialist, living in Burlington, Ont.
Portfolio: Stocks include BCE Inc., Procter & Gamble Co., Bank of Nova Scotia, RioCan REIT, Eli Lily & Co., Telus Corp. and Spectra Energy Corp.; mutual funds include Ivy Canadian Fund, Trimark Canadian Fund and Trimark U.S. Companies Fund
How he does it
Mr. Paley prefers to buy shares in well-known, quality companies. "I look for a steady record of earnings and a cash-flow statement that is supported by operations," he adds.
An example is Procter & Gamble. "People will always need toothpaste, laundry detergent and shampoo; P&G produces all of those items. They have also been in business for more than 170 years."
Read the financial statements
When Mr. Paley looks at a company, he puts his accounting skills to work. "I look at their annual reports and, in particular, financial statements. Reading financial statements can be challenging if you don't know what to look for. The balance sheet and income statement contain a number of estimates that can be used to smooth earnings."
But the cash-flow statement is not so easily fudged. It tells you where the cash is coming from and going to. "If the company is generating cash from operations, then it is supporting itself. On the other hand, if the company has negative cash flow, it has to finance its operations. Over time the company's cash flow from operations should mostly be positive."
Why he likes Bank of Nova Scotia
He recently purchased shares in Bank of Nova Scotia, another quality company. "Although they are one of the smaller of the Big Five banks, they have operations outside of Canada and that provides international exposure … Also, their share price has steadily risen over the last several years - except for October, 2008 - and its price has returned nearly to where is was pre-October, 2008."
"I've never been one to buy bonds, but I purchased a Manulife bond earlier this year and sold it after it gained 15 per cent. I use the proceeds to buy Bank of Nova Scotia and have seen another 20-per-cent increase."
"Back in 1997 or 1998 I got on the wrong side of Lorus Therapeutics. I bought 1,000 shares for 25 cents per share and held the stock for a couple of months before dumping it. A week after I sold it the price ran up to $1.40. I learned that buy and hold - and choosing stable companies - will serve me better in the long run."
"Educate yourself on the benefits of diversification and the basics of investing. Investored.ca is a great start. Do this even if you plan on working with a full-service broker. Don't be afraid to ask for help if you need it."
Special to The Globe and Mail
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