OUR PARTY'S OVER

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   Here we are in October, the month that makes investors shudder with its memories of crashes past, going back to the 1929 market plunge that propelled the world into the Great Depression.

But so far this year is different. Instead of collapsing, the Dow Jones Industrial Average hit a new all-time record high on Tuesday, surpassing the level it reached before the bear market that began this century.

Unfortunately, the Dow doesn’t tell the whole market story. In fact, while it has been rising, the TSX has moved in the opposite direction and is now off more than 9% from its all-time high, reached on April 19.

The causes for this divergence tell the tale of two markets. The TSX is heavily weighted towards resources: oil, gas, gold, and metals. When commodity prices were soaring, so did the share prices of those companies and Canadian investors profited.

Now, with concerns growing that the world is heading for a slowdown, commodity prices have weakened. Oil has fallen below US$60 a barrel, gold has taken a big hit, and natural gas is in the doldrums. Unless a major international crisis develops, this pattern will likely continue for some time. This means the TSX bull market is probably over.

The U.S. is a different story. Their market is much more diversified, with commodities a relatively minor part of the total mix. Over the years, investors have tended to pull in their horns and retreat to the safety of blue-chip stocks when uncertainty takes hold and that’s exactly what we have been seeing with the strength of the Dow.

I believe that’s likely to continue and in the Aug. 1 issue of the Mutual Funds Update newsletter I wrote an article advising readers to take some profits in their Canadian equity funds and switch the money into U.S. funds. One of the funds I recommended was Dynamic American Value, which I described as “a perfect fit for the current economic climate”. It has gained over 5% in the two months since. Not many Canadian equity funds can match that.

If you are overweight in Canadian stocks or equity funds, you need to take time to review your portfolio and make appropriate changes. Our party appears to be over, at least for now.

For information on subscribing to Mutual Funds Update go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=80

SLEEP-EASY INVESTING

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  What is your number one investment priority? Beating the market averages? Finding the next “hot” stock? Making huge profits you can brag about at cocktail parties? Or, more modestly, making 10% a year on your money?

If you found yourself nodding in agreement at any of those suggestions, you need to find a quiet corner and rethink your whole approach to money management. You’re on the wrong track. After years of personal experience, talking to investors, and reading hundreds of tales of woe in letters and e-mails, I’ve come to the conclusion that most people don’t understand what good investing really means. So I devised an approach that is simple to comprehend and easy to implement. You can read all about it at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2634

BOOK PICK: THE LITTLE BOOK THAT BEATS THE MARKET

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  I picked up Joel Greenblatt’s best-seller, The Little Book that Beats the Market, with a great deal of scepticism. Anyone who claims to have a “magic formula” for choosing winning stocks usually ranks somewhere down there with penny stock promoters in my financial hierarchy.

But Greenblatt comes with impressive credentials. He runs a successful private investment firm, he teaches at the Columbia Business School, and he’s the former chairman of a Fortune 500 company. So I tried to keep an open mind when reading this breezily-written 155-page book.

At the end of it all, I can report that Greenblatt may indeed have a “magic formula” for finding winning stocks. Unfortunately, it is much more complicated than it appears at first glance and is not simple to execute. In fact, he suggests using his website to apply the appropriate screens, which is free for the moment but who knows for how long. Other problems include the fact that only U.S. stocks are covered. Plus, there are big commission charges inherent in implementing his plan and you may have to wait more than three years for positive results.

Despite these flaws, the book is a quick, generally fun read (especially the first half) and is especially useful for someone who wants to learn more about investing basics or is just starting out. But don’t buy it on the assumption you’ll be on the road to riches once you’ve finished the last page. It doesn’t work that way.

You can save 24% on this book by buying it through our new Best Books page at http://astore.amazon.ca/buildicaquizm-20/702-1424087-5163209 where you’ll also find several more of my personal selections with my comments.

FAMILY QUIZMAS PUBLISHED

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  The second book in my Quizmas series has now been published by Penguin Canada and is also available at our Best Books page. It’s called Family Quizmas and it’s a perfect gift for families with young children or grandchildren.

In the book, my daughter Deborah Kerbel and I retell six classic Christmas stories for reading to youngsters. They include The Nativity Story, A Christmas Carol, The Nutcracker, The Three Kings, The Christmas Animals, and the Story of St. Nicholas. We have also written an original story titled A Visit to Santa’s Castle, which would be a delightful Christmas Eve read. Each story is accompanied by several related trivia questions that can be played as a game.

Both Family Quizmas and the original Quizmas book are available through the Best Books page at 24% off the suggested retail price.

INVESTING FOR DIVIDENDS

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  The new and improved dividend tax credit can mean extra money in your pocket. But how can you take advantage of it without having to invest thousands of dollars in the stock market? I’ve found two mutual funds that will do the job very nicely and you can read all the details at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2635

IWB PICKS ALCAN

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  The Internet Wealth Builder newsletter recently recommended that members buy shares of Alcan, which was trading at the time at $43.32. In his analysis, contributing editor Tom Slee wrote as follows:

“Aluminum prices averaged US85c a pound last year and touched US$1.35 a pound this summer, the first time we have seen these levels since 1988. With demand growing at 5.1% per annum while supply is increasing 4.1%, we may see US$1.50 a pound by year-end. Only a significant global economic slump would take the starch out of aluminum and nobody is forecasting that. In fact, The Economist, a respected business publication, expects a serious aluminum shortage out to mid-2007 and probably beyond…

“Alcan is the world’s second-largest integrated aluminum company primarily focused on its alumina, metal ingot, engineered products, and packaging operations…The company is active in 60 countries, has sales of about $25 billion (all amounts are in U.S. dollars since Alcan reports financials in that currency), assets in the $27 billion range, and a market capitalization close to $17 billion.

“Recently, because of its Canadian base, Alcan has been hurt by the soaring loonie and increased energy costs have squeezed margins. Even so, second-quarter results were impressive. The company reported a profit from continuing operations of $554 million, or $1.48 a share, up significantly from 71c a year ago. At the same time, Alcan increased its quarterly dividend to 20c a share…

“Looking ahead, Alcan is poised to benefit from a 40% interest in the new Alouette smelter and the expansion of its Gove alumina refinery in Australia. Earnings of $6.25 a share are expected this year with an increase to the $9 range in 2007.”

Tom set a target price of $60 on the stock. It closed on Tuesday at $46.05, up 6.3% from his recommended price on Sept. 25.

FREE BOOK OFFER STILL AVAILABLE

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  As long as supplies last, we will continue our special offer of a three-month trial subscription to the Internet Wealth Builder (IWB) plus a free bonus copy of my best-selling book Get Control of Your Money for the bargain price of $32.95 plus tax (the book alone has a suggested retail price of $28).

The IWB is a weekly e-mail newsletter (published 44 times a year) that is full of practical investment advice on stocks, bonds, mutual funds, income trusts, and more. Don’t miss this opportunity to test it out and get a free book for doing so. And we offer a no-risk guarantee – if you aren’t impressed after the first issue, cancel your trial order and we’ll give you a full refund. The book is yours to keep as our special gift.

To order call our toll-free Customer Service number at 1-888-287-8229 or go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=589

INCOME INVESTOR LAUNCHES NEW SERVICE

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  We have just launched a new service for subscribers to our Income Investor newsletter. Starting this month, we will be publishing a special Update Edition between regular issues to provide readers with timely information on any developments affecting our recommendations.

The Income Investor was launched as a monthly newsletter devoted to income-generating securities. It has become very popular with investors in both Canada and the U.S., to the point where we felt an increase in frequency was required.

The new edition will consist entirely of updates to open recommendations. New picks, tax guidance, and general commentaries will be featured in the regular monthly issue, with the next one due on Oct. 18.

For information on a three-month trial offer for The Income Investor, go to http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=572

That’s all for this issue. We’ll see you again in November.