Track Record (March 1,2004-February 29,2024)

 

Past trades generated 39 wins and 4 losses.   31% of gains were received in dividends.

Past Recommendations Compound Annual Growth Rate:

 

Sacola Financial Ltd: 18.07% (Average holding period 3.25 years)

TSX: 4.6% CAGR (March 2004 to February 2024)  

DJIA: 6.8% CAGR (March 2004 to February 2024)   

Current recommendations have a dividend yield on invested capital ranging from 5% to 27%.

 

 

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Thursday
Jan142021

2020 is behind us and just about every analyst is calling for a tremendous year in the stock markets.  It appears that no one seems to mind that earnings have been falling since pre-Covid. This is evident by stock markets breaking numerous highs in 2020.   Based on their price earnings ratios investors believe the profits from the companies comprising the TSX to double in 2.7 years. The Dow Jones Industrial Average is priced as if profits will double in 2.8 years, the S&P 500 in 2.6 years and the NASDAQ in only 53 weeks.  Never has this taken place in the history of stock markets.

People got tired of making .2 of 1% on savings accounts and have decided to make a killing on shares like Tesla.  Tesla is a well-run company and from everything I have read, a good car. But no matter how you adjust the numbers the share price is not justified.  No company is worth 1,000 times earnings, let alone 30. Tesla makes few cars, relies on grants and subsides, and continues to issue new shares. The company has some interesting business plans, but most are out of touch with reality within the next 50 years, if we are lucky. One broker predicts the share price will go to $2,400 in 2021.   IF this happens the price earnings ratio will be trading at around 1200 times earnings. Would you pay $1200 in return for $1 in profits?

This past year the brokers had their best year on record for new account openings.  These are amateurs betting their life savings on garbage trying to catch the next Microsoft and Apple. There were so many IPO’s based on nothing but ideas (this continues today) that got snapped up by amateur investors while the firms underwriting them made a killing selling their own shares.   There are no ifs, ands, or buts about it - this is the Tech-Bubble Volume II.    When the stock markets return to reality most of these new issues will crash, or even worse, go broke.  The FANG stocks will follow the markets down to metrics that make sense. 

Obviously, all these amateur investors, whether it be in real-estate or the stock market, know they will sell the day before the market collapses.  My 56 years in this business tells me a different story.  When their hot investment drops below their purchase price, they tell themselves the price will bounce back and then they will sell once they are breaking even.  I would estimate that 98% of these people will sell after a couple of years at a tremendous loss.  There is a reason why 10% of the population controls 90% of the wealth.

The next gamble is real estate.  Home prices across Canada in almost every city are greater than 5-times family income.     In the Okanagan people are paying roughly 6 times income with a minimal downpayment.  A mortgage should never exceed 3 times income, yet lenders are handing upwards of 6-times income. So many people are going to experience a mortgage squeeze when interest rates move higher.  This will force an increase in inventory and a decline in price. Unless Justin gets his wish and brings in 1.4m immigrants this year (400,000 through regular channels plus grant 1m people who are on work and/or school visas free Canadian citizenship) there is going to be a surplus of empty homes throughout the country.

Since house and share prices are in the stratosphere a major correction is coming.   No one knows when it will begin, but thanks to the huge debt load, inevitable higher interest rates and taxes, it is probably sooner rather than later. This contraction will last any where between 1 to 3 years.  It will take this length of time to wipe out the damage the debt has caused.  It is government action that will dictate how long it will be. No doubt Justin and his absent members of Parliament will make things worse.

Remember that Canada has the best potential of any country.  It is Ottawa that is holding us back.  Sadly, there is no one in Ottawa that knows what to do.   Hopefully, this destructive group will be gone soon because most consumers are so far out of touch with reality and need guidance.  The rush to buy overvalued homes and cars, plus overpay for shares that bare no relation to the present and future economy means the correction could be deep and take place over a short period of time - maybe 3 to 4 months.  This will be followed by the economy contracting for several years.

The bottom line today is do everything to protect your savings.  Pay off debts and build up a cash reserve.  If you got cash buy some insured GICs and blue-chip shares that yield between 4 and 6%.  

References (4)

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