TSX and DOW trading near 52 week highs. What's next?

With the TSX and DOW trading at near or above their 52 week highs, I've received a lot of emails asking me where I think the market is going and what should people do with a lot of the profits they've made up so far in the calendar year.

Here's my answer: I don't know. My guess is as good as yours.

For anyone that was brave enough to invest money back in the early part of the year, you will notice that your portfolio is up quite a bit.

My best move was TCK.B when I bought it around $10. There were times when I second guessed my purchase but I'm glad that I held on to it. As it's been up 300% I got out and sold around $30.

My worst performer so far has been MFC. It looked like it was starting to recover nicely until they decided to slash the dividend by half. Whether that is a beneficial thing for the company remains to be seen.

The market seems a bit expensive at the moment so I've been extremely selective (more so than before) about which equities to purchase. Aside from a few growth plays like Apple (AAPL), I'm focusing more on value plays at the moment. There are still a lot of hidden gems out there - specifically a lot of net-nets that have the potential to be home runs.

In the last couple of months, I've been adding Mastech (MHH) and Insmed (INSMD) to my portfolio. I love the idea of buying a company that is trading below net value for two reasons:

1. Margin of safety is higher
2. The chance for a double bagger or triple bagger is higher.

That said, when they reach their target levels, I intend to get out and look for other value plays.

As for now, most of my portfolio is focused on solid dividend plays (big Canadian banks, telecoms) that I intend to keep forever. With bank savings interest rates at about 1% and barely keeping up with inflation, I'll be deploying more money into value and dividend plays. The latter being mainly for long term investing.



Disclaimer: These are strictly my opinions and I encourage you to make your own decisions.

The Case for Research In Motion (RIMM)

It's not very often that we get a 15% pullback when a stock meets expectations, but that happened to RIMM. The market had gotten ahead of itself and was expecting a blowout quarter. Instead what they got was what was expected.

Some say that the co-CEO should focus more on running the business rather than chase the Phoenix Coyotes.

Others say that RIMM is losing a lot of market share to AAPL.

Heck some others are saying that RIMM is going to go bankrupt like Nortel.

While there may be some truth to the first statement, I believe that multiple smartphones can be successful in the marketplace.

While AAPL has a wide moat with computers, ipods, iphones and software, not everyone wants an iPhone to do their emailing. Have you ever tried emailing with an iPhone? There's no contest when comparing it with a Blackberry.

Secondly, I don't know where these 'facts' that RIMM will go bankrupt are coming from. They are enjoying healthy margins and have robust sales. Next time you're sitting in the subway take a look around you. The business penetration of Blackberries is huge. The iPhone is cool too but it serves a different purpose.

RIMM is now trading at 18x forward earnings. With additional selling pressure in the short term it is likely that there will be some extreme volatility.

I for one see this as a golden opportunity to purchase RIMM at these levels and have initiated a position today. While I see AAPL and RIMM as competitors I believe there is adequate room for both of these companies to grow.

And no I don't believe RIMM will go bankrupt. All the talk about is just plain absurd.

Disclosure: I'm LONG Apple (AAPL) and LONG Research In Motion (RIMM)

Dividend cuts from Dividend Aristocrats

What happens when one of your beloved stocks suddenly decides to cut it's dividend? Do you sell it or do you hang on to it in the hopes that one day it'll raise it's dividend again.

What if you, like a lot of Canadians own Manulife Financial. What do you do at this point?

Well the first thing you should do is evaluate your portfolio and risk allocation. The MFC dividend cut is a solid and stark reminder that anytime you invest in the stock market there are two things that are never guaranteed: 1) the rise in value of the stock and 2) a steady dividend. Those that though it was safe suddenly got spooked. The TSX as a whole sold off - especially the insurance and financial sectors. The next day the buying was back because people started to believe that the MFC dividend cuts only applied to them. Or do they? I guess only time will tell.

The important thing to learn from all this is that dividend cuts can and will happen so the dividend that one gets from their portfolio should never be thought of as a guarantee. If one needs more guaranteed investments in one's porftolio, one should turn to fixed income instruments.

The other thing that investors have learned from the past year is that stocks don't always go up and when they fall things can get really nasty fast.

As for what I'm doing with MFC? I'm intending to hold it as I have a 25-30 year investment horizon.