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Investing in businesses your mom can understand

Aftab Sheikh, 31

Occupation

Instructional designer at a financial institution.

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The portfolio

Includes shares in Apple Inc., CSX Corp., Rogers Communications Inc., Killam Properties Inc., Rogers Sugar Inc., TransCanada Corp. and Royal Bank of Canada.

The investor

Aftab Sheikh`s interest in investing was sparked more than 10 years ago by his (late) older brother, who gave him valuable insights such as "staying invested regardless of market conditions." He has since added to his knowledge by reading investment books; one of his favourites is Value Investing Today, by Charles Brandes.

How he invests

In 1999, he bought shares in Nortel Networks Inc. It ended badly: "I sold Nortel at a heavy loss. It was a business I really didn't understand. Making it even worse, I had all my eggs in one basket."

From that experience he learned the value of having a diversified portfolio of high-quality companies, spread across sectors and geographic regions. In addition, the companies must be easy to understand, able to generate lots of cash (with little or no debt), and trade at a reasonable price relative to earnings. Dividends are welcome, too.

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He recently acquired Apple shares. "I took into consideration the improving economy and consumer sentiment. As confidence increases I expect Americans will be buying more discretionary goods, such as iPads." Moreover, he said, if Apple`s price-earnings ratio is adjusted for its huge cash holdings, its shares are trading at a bargain valuation of 15 times forward earnings.

Another recent acquisition was CSX stock. "As demand increases for goods over all, I think that rail transport should increase."

Best move

In 2009, he purchased Killam Properties, a Halifax-based owner and operator of rental properties. Augmenting the sizable capital gains is a 6-per-cent annual dividend (paid monthly), which can be reinvested at a 3-per-cent discount through the company's dividend reinvestment plan.

Mr. Sheikh plans to keep holding: "In coming years, Killam will benefit from the Irving Shipbuilding contract in Halifax, where an influx of migrant workers will need a place to stay."

Worst move

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Nortel Networks.

Advice

Keep a diversified portfolio of reasonably valued companies: "If you can't explain what a company does in one sentence to your mother, then it's probably wise to invest elsewhere."

Don't buy into hype, or "companies all over the news." A case in point is social-media stocks, he said. "Do the earnings justify the stock price?"



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