A long row of garbage bins lines the sidewalk outside homes in downtown Toronto.Fred Lum/The Globe and Mail
Benjamin Graham's Security Analysis is still the bible of value investing and arguably the most important investment book ever written. Developed during the great depression, Mr. Graham described a stock valuation methodology based on 'sum of the parts'. He was looking to identify companies where the stock price understated the value of a company's tangible assets that could be sold off – power generators, tools, real estate – in the event they went bankrupt.
Before his death, Mr. Graham admitted that his strict method was outdated.
The Financial Times' Martin Wolf, arguably the most influential market and economic pundit currently working, explained how far away the business of valuing companies has come from Mr. Graham's early days by noting that ,"Apple, the world's most valuable company, owns virtually no physical assets. It is its intangible assets — integration of design and software into a brand — that create value."
A large percentage of companies leading global markets are also sans-tangible assets. Amazon.com is a software based marketplace with a large side business is cloud computing. Facebook and Google are similarly software-focused and with revenues generated almost entirely in the virtual world. Biotechnology is another sector with a similar, high profit margin, intellectual property-centered operation.
Mr. Wolf writes that an economy and market driven by intangible assets "is a world in which many of the old rules do badly." In addition to the difficulty valuing stocks, he notes that intangibles are mobile and this makes them difficult to tax. An economic focus on intangible assets means that corporate benefits remain contained within the companies – they require little in the way of labour, so aggregate consumption levels benefit less from their success.
With physical assets playing little or no part in stock valuation, no wonder value investors have outperformed in this changing new world. Politicians, while desperate to attract new technology businesses, are even more stressed. Current tax policies are better suited to Mr. Graham's era and well-funded interests are determined to keep it that way.
The expected growth in Artificial intelligence and the Internet of Things, just to name two areas, suggest that there's no going backwards. Over time, investors and legislators will have to adjust to avoid squandering the benefits of progress.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Waste Connections Inc. This security may resurface on the positive breakouts list in the near-term with acquisition announcements acting as potential catalysts. Operationally, the company is reporting solid numbers, steadily growing both its earnings and dividend. Waste Connections' core business offers solid waste collection, solid waste disposal and transfer, and solid waste recycling services with operations across North America. After the market closed on Oct. 25, the company reported better-than-expected third-quarter financial results that send the share price rising nearly 4 per cent. Jennifer Dowty reports.
Boyd Group Income Fund This security is on the positive breakouts list. It has delivered solid returns to unitholders over the years given its strong growth profile, and analysts believe the unit price will continue to climb higher. It is a highly recommended security by analysts with 11 buy calls. Winnipeg-based Boyd Group operates a network of non-franchised collision repair centers across North America, mostly in the U.S., under banners such as Boyd Autobody & Glass, and Gerber Collision & Glass. Jennifer Dowty reports.
Northview Apartment Real Estate Investment Trust Investors looking to benefit from a growing rental market are eyeing Northview Apartment Real Estate Investment Trust – a REIT analysts say is cheap relative to its peers and well poised to benefit from a recovery in the energy market. Units of Calgary-based Northview, one of Canada's largest and most diversified publicly traded multifamily REITs, have risen by about 33 per cent over the past year. Brenda Bouw reports.
The Rundown
Beyond bitcoin and tech stocks: Here's why you can expect more volatility ahead
Investors are twitchy and for excellent reasons. As bitcoin's abrupt slide and tech stocks' surprise weakness this week demonstrated, it is awfully hard to put a rational price on some of today's most popular investments. For instance, how do you even begin to value a commodity such as bitcoin? With no government support, no firm backing by physical assets and debatable practical utility, a cryptocurrency can flit up and down in perceived worth, driven by nothing more than gusts of investor sentiment. There is no logical reason for bitcoin to be worth $11,377 (U.S.) one day and $9,290 the next. But then anyone searching for logic in the cryptocurrency's gyrations over the past few months is looking in the wrong place. Ian McGugan reports.
A new retirement era: How many years past 65 will you work?
Let's have a moment of silence for the late, great dream of early retirement. We're now transitioning to an era of delayed retirement, where it's common for people to work at least part time after age 65. New census data on working seniors prove it. In 2015, 53.5 per cent of men and almost 39 per cent of women who were 65 worked at some point in the year. Too much nostalgia for the old days of early retirement affects our thinking about our post-employment lives. For a series of columns on how the personal finance milestones of life are changing, we asked readers of all generations for the age at which they expected to move out, find a first career-building job, buy a home, have a first child and retire. The 3,296 people who responded to our online survey told us their average expected retirement age was 62, with virtually no differences between the generations. Boomers said 62, Gen Xers said 61 and millennials said 62. Rob Carrick reports.
These diminutive dividend stocks have produced dynamite results
And now for something completely different, dividend-wise. As pleased as John Heinzl is with the returns of the stocks he typically features in Yield Hog – utilities, pipelines, banks and other companies with relatively high and growing dividends – there is another subset of dividend payers that have done even better. Let's call them the diminutive dividend darlings. These companies have yields that many investors would consider laughably small. Yet, their share prices (and, to a lesser extent, their dividends) have been climbing at a rapid pace, producing total returns that have crushed traditional dividend stocks. John Heinzl explains.
Contra Guys: A decade of patience pays off nicely for these three stocks
While cannabis and cryptocurrencies rule the investing and speculating roost, stock markets are lifting the good, the bad and the ugly. In our case, they are also lifting the patient as three portfolio stalwarts held for more than a decade have been receiving some loving. The Contra Guys take a look at three stock picks that have paid off for patient investors.
Canadians can collect fine wines, but good luck selling anything
Every decent portfolio should have a certain amount of liquidity, experts say. But what about truly liquid assets, such as Domaine de la Romanée-Conti or Château Lafite Rothschild? Fine wine is having a good run as far as "investments of passion" go. Does that mean Canadians should start throwing money after Château blends? Not exactly, says Arron Barberian, a collector of fine wines and owner of Barberian's Steak House in Toronto. Mark Rendell explains.
Is it time to buy the dip in commodities?
The numbers for several resources, from oil to crops to base metals, have been grim for the past two years. If you believe in "buy low," this could be the time to take a look at the commodities sector. Demand for Canadian resources in markets such as China, India and South America should rise over time, say analysts. Kathy Kerr reports.
What's the best way to show a little local bias in your portfolio?
Why not buy local apples from the farmers' market instead of imported bananas from a multinational grocery chain? If the shoes you desire are manufactured in your hometown, so much the better. It's all about supporting the local economy and employer. But what about the realm of financial strategy for the average investor? Does the "buy local" trend extend to "invest local"? Kathy Kerr reports.
Top Links
'Bigger bubble: cryptocurrencies or cannabis?'
BMO: '47% of Canadian mortgages are due to reset within 1 year'
Others
Friday's Insider Report: Companies insiders are buying and selling
Thursday's Insider Report: Companies insiders are buying and selling
Wednesday's Insider Report: Companies insiders are buying and selling
Even with stocks at record highs, experts see Santa Claus rally
The week's most oversold and overbought stocks on the TSX
Number Crunchers
Seven profitable U.S. media companies – with sustainable dividends
Eighteen Canadian financial stocks promising safety and value
Seven energy companies taking steps to become more climate-friendly
Ask Globe Investor
Question: What's the point of having ETFs in your model portfolio?
Answer: There are a couple of reasons. One is diversification: My model Yield Hog Dividend Growth Portfolio doesn't hold any individual energy producers or materials stocks, for example, but I get exposure to both sectors through the iShares S&P/TSX 60 Index ETF (XIU). XIU also holds several growth stocks such as Dollarama and Alimentation Couche-Tard that I don't own directly. Similarly, my U.S. ETF – the iShares Core Dividend Growth fund (DGRO) – provides exposure to a broad basket of U.S. stocks such as Microsoft, Apple, Johnson & Johnson and Procter & Gamble. Both ETFs have very low management expense ratios – 0.18 per cent for XIU and 0.08 per cent for DGRO – which is a small price to pay for the extra diversification they provide.
Another reason to hold ETFs is convenience. Reinvesting dividends is one of the keys to successful investing, and buying a few more shares of an ETF is a simple, low-stress way to put my dividend cash to work if I can't decide which stock to buy.
--John Heinzl
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What's up in the days ahead
Ian McGugan examines where you can find value in this heated market. John Heinzl looks at why buying funds in December can be a bad move. Scott Barlow investigates whether we are at the start of a new "golden age" of the economy, and Tim Shufelt digs down into Canadian tech stocks.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston