Monday, November 2, 2009

Setting Up a Portfolio

First, get a Utility stock. There are a number of good ones like Fortis (TSX-FTS), TransCanada Corp (TSX-TRP), TransAlta Corp (TSX-TA), Enbridge (TSX-ENB) or Emera Inc (TSX-EMA). The next thing to buy is a Bank or Financial Company. Examples of good conservative stocks would be Bank of Nova Scotia (TSX-BNS), Royal Bank (TSX-RY), TD Bank (TSX-TD), Power Financial (TSX-PWF), Power Corp (TSX-POW), or IGM Financial (TSX-IGM). The third stock to get, if you were very conservation would be another Utility stock as named above.

If you are less conservative, you might want to make the third stock a Consumer or Industrial Stock. Consumer stock you might consider would be Alimentation Couche Tard (TSX-ATD.B), Canadian Tire Corp (TSX-CTC.A), Saputo (TSX-SAP), Shoppers Drug Mart (TSX-SC), Richelieu Hardware Ltd (TSX-RCH) or Reitmans Ltd (TSX-RET.A). Industrial Stocks you might consider would be Canadian National Railway (TSX-CNR), Canadian Pacific Railway (TSX-CP) or SNC-Lavalin (TSX-SNC).

For the third stock you purchase, you might want to consider a riskier Utility stock in the communications area. Examples of such stock would be BCE (TSX-BCE), Telus Corp (TSX-T) or Rogers Communications (TSX-RCI.B). I do not follow Rogers Communications, but a lot of people have been suggesting this as a good dividend stock lately. Anther good utility stock to buy might be Pembina Pipelines (TSX-PIF.UN).

I do not think that you should move beyond 3 stocks until you have around $10,000 in each or a portfolio of $30,000 to $40,000. Once you have some investment in 3 stocks, you basically repeat the above purchase order. That is getting another Utility stock, another Financial stock and then, if you have gone into Consumer or Industrial stocks, getting one of them.

Once you have a decent size portfolio, you might want to consider getting a Real Estate Stock such as RioCan REIT (TSX-REI.UN). The last sort of stock you might want is a resources stock. The thing with most of the other I have talked about is that you can put them away in a portfolio and not worry too much about them. For resource stock, you have to keep an eye on them. They are much more risky and much more volatile than other stock.

When buying stocks, you want to get a quote first and compare this to values on my spreadsheets. If you do not have this with your trading account, or because they have good information you can use Globe Investor. To pick the stock, look at the quoted P/E ratio and compare it to the 5 year average for the Closing Price and 5 year average low price on my spreadsheet. You want a P/E is at least equal to the 5 year average on the closing price.

Next look at the stock’s dividend yield and compare this to the 5 year average on the average High/Low price. Here you want a yield that is higher than the 5 year average. The last thing to look at is the Graham Price. You want to stock whose price is close to the Graham Price. The Graham Price can be a trickier thing to compare. Look at the stock’s price compared to the Graham Price for the last 5 and 10 years. Some stocks never get at the Graham price level. If this is the case, you do not want a difference that is worse than the 10 year average.

At different points in time, some stock have a better purchase price that other stock. This can depend on what sort of market we are in and where we are in the Business Cycle. Also, the fall is the best time to do your stock purchases. What you want to do is to pick the stock with the best relative price at the time you are doing your purchase.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets. Also, look at other investing notes on my website at www.spbrunner.com/investing.html.

No comments:

Post a Comment