An investing lesson courtesy of Danny DeVito, a wine stock that's sweet, and making sense of the great meltdown

In 1991, a character played by Danny DeVito imitated Gordon Gekko in an otherwise forgettable movie called Other People's Money. Mr. DeVito's character, Lawrence Garfield, made a speech to shareholders  that I've probably re-read 35 times, far more often than Gekko's 'greed is good' sermon to the proletariat in Wall Street.  The important part of Garfield's speech for investors went like this:

"You know the surest way to go broke? Keep getting an increasing share of a shrinking market. Down the tubes. Slow but sure. You know, at one time there must've been dozens of companies making buggy whips. And I'll bet the last company around was the one that made the best [expletive] buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company?"

In weaker moments, the poignant metaphor here is enough to have us in the print media industry hiding under the covers in the fetal position, but that's our problem. For Canadian investors, the speech's sentiment gives rise to the vastly more important question as to when, or if, oil companies start to look like buggy whip manufacturers, each producing nation and company vying for a larger share of a slowly but steadily shrinking pie.

The global economy will always need oil, and a lot of it, for the rest of most of our lifetimes. The question is exactly how much.

The potential obsolescence of oil is not an investment issue for the next few years. Global demand for crude is still climbing. Because of the halt in investment in new supply during the years after the commodity price collapse in 2014, oil scarcity is more likely than a glut in the short term.

It is also true, however, that renewable power accounted for more than 55 per cent of global electricity growth in 2016. The Chinese and some European governments have placed firm limits on future sales of vehicles solely powered by gasoline and diesel fuel.  Last week, domestic powerhouse Brookfield Asset Management acquired a large stake in Atlantic Yield PLC, a company that produces 1.4 gigawatts of solar and wind power. The global trend towards renewable power is, if not entrenched, nearing that point.

Again, it's not time for investors to dump their oil producing companies, the mid-term outlook appears bullish. At some point in the next decade, however, an investor with a legitimate five-year time horizon for their portfolio might be faced with a shrinking pie of revenue, and would do well to avoid buggy whip companies, high quality or not.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Andrew Peller Ltd. Investors looking for a "boring, simple company" with strong brands in a growing, recession-proof sector may want to look into Andrew Peller Ltd., writes Brenda Bouw. Shares of the Grimsby, Ont.-based company behind its namesake wines and brands such as Thirty Bench, Sandhill and Wayne Gretzky Estates, are up about 5 per cent over the past year, now trading around $11.70. The stock has been getting more attention in recent weeks following a trio of acquisitions and new analyst coverage. It's considered a slow, steadily growing company that's poised to do well regardless of how the economy is performing.

Finning International Inc.  This stock appeared on the positive breakouts list last week with the share price closing at its highest level since 2014. So far this year, the company has reported better-than-expected financial results for its past two reported quarters resulting in positive earnings revisions from analysts. In August, the share price rallied nearly 9 per cent after reporting strong quarterly results along with a 4 per cent dividend increase. The dividend yield is currently 2.6 per cent. Jennifer Dowty explains.

A decade after the meltdown

Have investors learned from the past decade?

What have investors learned as the 10th anniversary of the start of the 2007-08 meltdown passes? Current markets show some similarities – and differences. Tim Shufelt examines what happened a decade ago and what we know now.

10 years later: The truly worrisome part about the world's next major financial crisis

Let's acknowledge all the good news: For the first time since the financial crisis, the global economy is firing on all cylinders. In Canada and the U.S., unemployment has dropped to pre-recession levels while, on Bay Street and Wall Street, stocks seem determined to soar past all previous heights. Things seem so bright in fact that Deutsche Bank recently decided to look for clouds on the horizon. In a report entitled The Next Financial Crisis, it crunched numbers to demonstrate that economic shocks have grown more common in recent decades. So maybe, just maybe, we shouldn't go down for a nap just yet. If history is any guide, we can expect another crisis sooner rather than later. Ian McGugan reports.

How dividends came to the rescue of Canada's 'youngest retiree'

Investing author Derek Foster, Canada's self-described "youngest retiree," always preached the virtues of buying and holding stocks for the long run. In his self-published 2005 book, Stop Working: Here's How You Can!, he served up plenty of sound guidance, such as: "only invest in companies that pay a dividend"; "invest in companies that are 'recession-proof'"; and "once you've bought the perfect company, never sell it!" But in February, 2009, with stocks in a ferocious bear market triggered by the financial crisis, he ignored his own advice: At 38, fearing more losses ahead, he sold everything. John Heinzl looks at this investor's actions.

This stock blew past all others as the best investment of the past decade

Nearly 10 years ago, the S&P 500 hit a new record high. A year later, the index had plummeted 42 per cent as a financial crisis shook the foundations of the global economy. But for index investors, the past decade has been nothing short of lucrative – even if your cash was piled into funds right before the collapse. Since the 2007 market peak, the S&P 500 total return index (which includes reinvested dividends) has roughly doubled. Matt Lundy explores the issue.

The Rundown

A value strategy seeking the most succulent returns

Thanksgiving dinner should come with a warning label. Something like, the turkey and gravy may induce belt loosening and mild catatonia. Complications may occur when taken with an extra slice of pumpkin pie. Complications can also bedevil stock pickers when it comes to back-testing their favourite strategies. It's easy to find a hyperspecific method that has worked well in the past only to see it fail in practice. To avoid this fate, it is important to loosen up a strategy's parameters to see how it reacts to change. Norman Rothery explains.

It's time to stop bashing index funds

With all the malfeasance in the world of finance, you wouldn't expect the humble index fund to be near the top of the Most Wanted list. This is, after all, an industry where people make millions through insider trading, and where sleazy advisers buy penny stocks for senior citizens. Yet, who is the target of the fiercest outrage in the financial industry these days? Those unspeakably malignant index funds and ETFs. These are the same funds that allow even the smallest investors to build diversified, tax-efficient portfolios at rock-bottom cost. Dan Bortolotti explains.

Three stocks to watch for investors awaiting value's return

John Reese outlines three stocks that are heavily discounted and have a low price-to-earnings ratio.

Is fintech a threat to Canadian banks?

Talk about a good quality business. Canadian banks are conservatively operated and funded; they operate in an oligopolistic environment; they understand what the franchise is in banking, namely retail banking; and they offer superior service. Which brings me to the weak penetration of fintech in Canada. A recent study by Ernst & Young Global Ltd. (EY), reported in Investment Executive, indicates that Canadians are slow in adopting fintech, lagging the rest of the world in the use of financial technology. Only 18 per cent of those surveyed in Canada said they had used two or more fintech services in the previous six months compared with 33 per cent globally. George Athanassakos examines why fintech is having a harder time in Canada.

These dividend stocks offer the best of two worlds

Delayed gratification is a fact of life in dividend growth investing, but there are exceptions. The typical dividend growth stock has a low yield, but a record of providing reliable dividend growth through the years. As those dividend increase accumulate over the years, you end up with a rising yield on the capital you originally invested. But it's possible to get both a high yield and dividend growth in today's market. Rob Carrick looks at dividend stocks that offer a bit more.

The case for a contrarian approach to retail stocks

Mention traditional bricks-and-mortar retailing and most investors will point to depressed share prices, shuttered locations and – hello? – the Internet. Offer a bullish case for these stocks, and they'll call you crazy. But this sort of reaction implies that traditional retailing may now be the ideal feeding ground for contrarian investors who believe that the infatuation with Amazon.com Inc. has left competitors' shares too cheap to ignore. David Berman explores this issue.

Still thinking of home ownership as an investment? Here's proof you're wrong

Take some advice from rookie home owner Desirae Odjick about houses as an investment. As a personal finance blogger, she ran the numbers on the cost of owning a home and concluded that breaking even would be a good outcome when it comes time, many years down the road, to sell. "A house is not a long-term investment," she said in an interview. "It's not a miracle financial product. It's where you live." The idea that owning a house is an investment is so ingrained that a recent survey found one-third of homeowners expect rising prices to provide for them in retirement. But rising prices do not necessarily mean houses are a great investment. Rob Carrick looks at the issue.

Others

Two Canadian billionaires are trading these stocks

Answers to your questions about the new Yield Hog dividend portfolio

The Globe's stars and dogs for last week

Gordon Pape: My Balanced Portfolio has gained 8% annually, but I'm disappointed

Number Crunchers

Twelve TSX stocks that could help defend against a possible correction

Ask Globe Investor

Question: On BNN recently Eric Nuttall of Sprott mentioned a REIT, American Hotel Income Properties (TSX: HOT.UN). Could you have a look at it? The high yield is very appealing, perhaps too much so.

Answer: The yield certainly is attractive – 8.5 per cent after the close on Oct. 6, based on a price of $9.55 (Canadian) and a monthly payout of 5.4 cents (U.S.) per unit. The cash flow is attractive but the unit price is down significantly from its 52-week high of $11.14, reached briefly last winter.

Although it is based in Vancouver, the REIT invests in U.S. hotel properties in secondary markets. As of the end of the second quarter, it had 113 hotels in its portfolio, boosted by the recent acquisition of 18 Marriott and Hilton branded hotels in markets along the Eastern Seaboard.

The REIT's recent financial performance looks impressive. Second-quarter revenue was up 56 per cent year-over-year, to $69.5-million (the REIT reports in U.S. currency). EBITDA (earnings before interest, taxes, depreciation and amortization) rose by 47.7 per cent to $22.3-million, funds from operations (FFO) increased by 38.4 per cent to $14.5-million, while adjusted funds from operations (AFFO) rose 34 per cent to $12.5-million. However, it should be noted that this apparently rapid growth was not organic but rather fuelled by the addition of new hotel properties.

A possible area of concern is the fall-off in AFFO, which is a key measure of a REIT's financial health and the basis for its payouts. In the second quarter, diluted AFFO per unit was 20 cents, down from 27 cents in the same period of 2016. The payout ratio was up to 84.8 per cent from 61 per cent last year, in large part due to the dilution of existing units as a result a new issue of 19.4 million shares in June. For the first half, the payout ratio was 90 per cent, up from 73.9 per cent last year.

Loss for the first half of the year was $3.1-million but that is not generally a concern with REITs because of the large depreciation write-offs they can claim.

REIT president Ian McAuley said the goal is to provide investors "with consistent annual yields of approximately 8 per cent, while significantly improving the quality of our hotel portfolio through accretive acquisitions and value-added capital expenditures."

Overall, this young REIT (it started trading in March, 2013) looks attractive to aggressive investors at the current level. However, it has a history of volatility and the high yield suggests that investors are somewhat leery about its prospects.

--Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.

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What's up in the days ahead

Shopify shares keep sinking. David Berman will have some thoughts whether this could be a value trap. Meanwhile, look for five juicy stock picks in Wednesday's edition of John Heinzl's Yield Hog.

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Compiled by Gillian Livingston