Stock picking has some of the qualities of a treasure hunt. The goal is to find stocks that others have not seen - or at least not appreciated. Here are some stock picks that are off the beaten track, from fund managers who specialize in doing exactly this. From a printer of euros to a worm-farm company, these are not mega-caps such as the Royal Bank of Canada that are followed by hundreds of analysts, but are companies with potential that has yet to be appreciated by the market.
DEEP VALUE MANAGER
Irwin Michael buys stocks that seem to be unassailable bargains. At 57, he's running hard to keep up with his own record. That includes a 121.8-per-cent gain in his Toronto-based ABC Fundamental Value Fund in 1993. He plays down the success as a "once-in-a-career year."
Mr. Michael's ABC Dirt-Cheap Stock Fund is up 31.5 per cent for the 12-months ended Sept. 30, almost twice the 18.7-per-cent return of the Canadian-focused small- to mid-capitalization equity fund average.
His knack: Buying companies with large discounts to book value and other metrics, hidden assets, negative market sentiment and a reasonable chance of getting some respect.
Among his top picks is Whitemud Resources Inc. (WMK-TSX), a Calgary-based company that digs up kaolin, a paper and concrete additive. Mr. Michael bought it at a net asset value of $8; the shares closed yesterday at $10.45. He also owns Dublin-based Babcock & Brown Air Ltd. (FLY-NYSE), which pays an 8.7-per-cent dividend that he expects to grow by 15 per cent next year.
And a remarkable find: Fortress Paper Ltd. (FTP-TSX), a Vancouver-based company that owns a Swiss printer that makes passport paper and prints euros. Fortress has a replacement value of $425-million and a market capitalization of nearly $79-million. "That's an 80-per-cent discount to net asset value," he says. RELATIVE VALUE MANAGER
Roger Dent, 46, started his career in corporate finance at Wood Gundy and eventually became a small-cap hunter for Mavrix Fund Management Inc. in Toronto. His Mavrix Strategic Small Cap Fund produced a 35.9-per-cent return for the 12 months ended Sept. 30, and beat every other Canadian-focused, small- to mid-cap fund from 2003 to 2006. His method: value stock picking.
"I have spent 15 years building a network of contacts," he says, noting the usual value measures of price-to-earnings and price-to-sales do not work well when companies are in early stages.
Among his winners - VendTek Systems Inc. (VSI- TSX-VEN), a Vancouver company that operates electronic systems for merchants to load time on prepaid cellphone cards. Purchased at 25 cents, the shares closed yesterday at $1.07.
He picked Centenario Copper Corp. (CCT-TSX), a Toronto-based miner with a soon-to-be launched operation in Chile. Shares purchased at $1.50 closed yesterday at $6.60 and could go to $12.50 in a year, which would be five-to-six times estimated cash flow, he says.
His most unusual pick is reWORKS Environmental Corp. (REW- TSX-VEN), a Toronto-based worm farm that turns food processors' scraps into castings, that is, worm-poop fertilizer. The stuff is eco-friendly and can be walked on soon after application, which is not true for alternatives such as compost. Shares purchased at 22 cents are trading at 11 cents. One reason for the drop: The company's production growth is on hold until the workers, that is, the worms, get amorous, Mr. Dent notes. Shares could go to 40 cents in a year, he suggests.
GROWTH MANAGER
Gerry Brockelsby, partner and chief investment officer at Marquest Investment Counsel Inc. in Toronto, has a recent record any stock picker could envy. His Marquest Bridge Fund, started in mid-2005, has not weathered a full market cycle, but is up 45.8 per cent for the year ended Sept. 30, more than twice the 19.9-per-cent return of the S&P/TSX composite index in the period. He wants growth companies that, he says, have pariah characteristics that others won't touch. "When market psychology is negative, that is the time to buy," he says.
Among his top current picks - Timminco Ltd. (TIM-TSX), a Toronto-based company that mines the raw material for silicon wafers for making solar panels. He paid $2.30 a share last April; the shares closed yesterday at $14.66.
He bought Ipico Inc. (RFD-TSX-VEN), a Burlington, Ont.-based maker of radio frequency identification tags that work in moist environments where other RFID technologies do not work. Shares purchased at 65 cents closed yesterday at $1.xx and could hit $1.75 within 12 months, he says.
Another pick, SilverBirch Inc. (SVB-TSX-VEN), develops games for PDAs and cellphones. Shares purchased at 9 cents last November are trading at 34 cents. The games are sponsored and come with ads. "It's new media for the under-35 set," he says. "If they play, they get pitched, and if they like it, the company's fortunes will rise. Call it micro-marketing, it is a new way to get eyeballs, he says.TECH INVESTOR
Howard Sutton, trained as an engineer, has run the Tera Capital Global Innovation Fund since its inception in October, 1998. For the three years ended Sept. 30, the fund was in the No. 2 spot in the science and tech sector with a compound annual return of 47.5 per cent. The winner was the U.S.-dollar version of the fund with an average annual compound return of 59.6 per cent. The median average annual compound return for science and tech funds was 6.2 per cent for the period.
Among his current picks: Active Control (ACT-TSX-VEN), a Burlington, Ont.-based wireless communication company specializing in tough environments. He paid 6 cents a share in March, 2006. It is now trading at 66 cents.
He bought Detroit-based data manager Perceptron Inc. (PRCP-Nasdaq) at $10.36 in August; it closed yesterday at $14.43.
Mr. Sutton invested in Newport Beach, Calif.-based Acacia Research (ACTG-Nasdaq), for which he paid $14.50 in mid-summer; shares closed yesterday at $16.05 (U.S.). These are not common picks, but, as he says, "if you just want Cisco, you can buy an ETF."
*****
Looking for value in unexpected places
IRWIN MICHAEL
ABC Fundamental
Value Fund
Style: Looks for small and medium-sized companies with hidden
assets.
Hot pick: Dublin-based Babcock & Brown Air pays an 8.7-per-cent dividend, and he expects that to improve by 15 per cent in the next year.
ROGER DENT
Mavrix Strategic Small Cap Fund
Style: Likes to use his network of contacts to root out value stocks.
Hot pick: Worm-farming ReWORKS Environment makes fertilizer. Its shares are down, but once the worms start reproducing there could be plenty of profit to spread around.
GERRY BROCKELSBY
Marquest Bridge Fund
Style: Seeks pariah companies that other investors are staying away from.
Hot pick: Timminco - no longer a pariah - mines the material used to make solar panels. It traded for less than $3 last April and now hovers around $15.
HOWARD SUTTON
Tera Capital Global
Innovation Fund
Style: Looks for technology stocks that aren't obvious choices.
Hot pick: Active Control is a wireless company specializing in tough environments. He paid 6 cents a share last March, and it now trades closer to 60 cents.
Wednesday, November 7, 2007
It's a bubble(y) economy: Champagne eyes more soil - ANGELA CHARLTON
Those few venerable vineyards that boast the right to produce real French champagne may be facing competition.
France's agency in charge of food and drink quality is looking into expanding the strictly defined area where champagne is made, amid growing global demand for its prestigious bubbles - in an industry with €4.1-billion ($5.5-billion) in sales last year.
"Production is reaching a limit," said Daniel Lorson of the Champagne Growers Committee. "We are almost entirely covered in vines."
Like everything involving France's treasured "terroir," or wine-growing areas, such a move will require extensive study and probably involve dragged-out debate. If the expansion plan gets the go-ahead, it will likely be 2015 before new champagne hits the supermarket shelves, Mr. Lorson said.
But a group of government-commissioned researchers has already taken the first step.
For 18 months, a group comprising a geographer, historian, geologist, agricultural engineer and plant biologist prodded soil in potential new champagne zones, questioned vintners and sampled their wares.
Last month, it submitted a report to the National Institute for Origin and Quality, or INAO, said Eric Champion, the institute's representative in the Champagne region. In February, the institute's national committee will decide whether - and by how much - to expand the authorized champagne territory.
Currently, that territory covers about 35,000 hectares - nearly six times the area of Manhattan - in the plains and rolling hills of eastern France. The area was determined by a 1927 law taking into account sun exposure, soil quality and groundwater levels. Only wine made from grapes grown within that territory can officially be called champagne.
Large champagne houses are enjoying booming demand from a growing class of nouveau riche in countries such as China and Russia, who are drawn by the prestige of real-thing French champagne. As other French wines have suffered competition from New World rivals, French champagne production has grown, reaching 357 million bottles last year.
Smaller houses, however, are more cautious. Marie-Paul Cheval-Gatinois, whose family has been in the business for 11 generations, has expressed concern that the "new" champagne retain the drink's exceptional quality.
In recent years producers have gradually expanded their planted area and currently grow pinot noir and chardonnay grapes for champagne on more than 32,000 hectares, according to the Champagne Growers Committee.
"We cannot expand much farther as it is," Mr. Lorson said.
The researchers' findings remain confidential. Mr. Champion said only that any newly approved territory would be adjacent to existing champagne land.
Global warming, which has already shaken up the wine industry worldwide, is also complicating the researchers' lives. As they investigate new territory, they have to project what the climate could be in another generation or more.
Champagne producers have long pushed for more space. Plots are squeezed together, with vines of Moët and Chandon pinot noir facing off less than a metre away from the competing grapes of Veuve Clicquot.
If the plan is approved, the INAO would start parcelling out new plots in 2009. The new champagne would need to meet strict quality controls before it could be marketed.
That may take a long time. A previous effort to revise champagne territory delineations, launched in 1951, took 25 years.
Emerging markets put a fizz into sales
$5.5-BILLION
Value of 2006 global champagne sales.
287 MILLION
Bottles of champagne sold
globally in 2002.
321 MILLION
Global sales in 2006
350 MILLION
Projected maximum number of bottles that could be produced from the current Champagne
region.
39%
Growth in 2006 sales
of champagne to Russia.
50%
Growth in 2006 champagne sales to China.
129%
Growth in 2006 champagne sales to India.
France's agency in charge of food and drink quality is looking into expanding the strictly defined area where champagne is made, amid growing global demand for its prestigious bubbles - in an industry with €4.1-billion ($5.5-billion) in sales last year.
"Production is reaching a limit," said Daniel Lorson of the Champagne Growers Committee. "We are almost entirely covered in vines."
Like everything involving France's treasured "terroir," or wine-growing areas, such a move will require extensive study and probably involve dragged-out debate. If the expansion plan gets the go-ahead, it will likely be 2015 before new champagne hits the supermarket shelves, Mr. Lorson said.
But a group of government-commissioned researchers has already taken the first step.
For 18 months, a group comprising a geographer, historian, geologist, agricultural engineer and plant biologist prodded soil in potential new champagne zones, questioned vintners and sampled their wares.
Last month, it submitted a report to the National Institute for Origin and Quality, or INAO, said Eric Champion, the institute's representative in the Champagne region. In February, the institute's national committee will decide whether - and by how much - to expand the authorized champagne territory.
Currently, that territory covers about 35,000 hectares - nearly six times the area of Manhattan - in the plains and rolling hills of eastern France. The area was determined by a 1927 law taking into account sun exposure, soil quality and groundwater levels. Only wine made from grapes grown within that territory can officially be called champagne.
Large champagne houses are enjoying booming demand from a growing class of nouveau riche in countries such as China and Russia, who are drawn by the prestige of real-thing French champagne. As other French wines have suffered competition from New World rivals, French champagne production has grown, reaching 357 million bottles last year.
Smaller houses, however, are more cautious. Marie-Paul Cheval-Gatinois, whose family has been in the business for 11 generations, has expressed concern that the "new" champagne retain the drink's exceptional quality.
In recent years producers have gradually expanded their planted area and currently grow pinot noir and chardonnay grapes for champagne on more than 32,000 hectares, according to the Champagne Growers Committee.
"We cannot expand much farther as it is," Mr. Lorson said.
The researchers' findings remain confidential. Mr. Champion said only that any newly approved territory would be adjacent to existing champagne land.
Global warming, which has already shaken up the wine industry worldwide, is also complicating the researchers' lives. As they investigate new territory, they have to project what the climate could be in another generation or more.
Champagne producers have long pushed for more space. Plots are squeezed together, with vines of Moët and Chandon pinot noir facing off less than a metre away from the competing grapes of Veuve Clicquot.
If the plan is approved, the INAO would start parcelling out new plots in 2009. The new champagne would need to meet strict quality controls before it could be marketed.
That may take a long time. A previous effort to revise champagne territory delineations, launched in 1951, took 25 years.
Emerging markets put a fizz into sales
$5.5-BILLION
Value of 2006 global champagne sales.
287 MILLION
Bottles of champagne sold
globally in 2002.
321 MILLION
Global sales in 2006
350 MILLION
Projected maximum number of bottles that could be produced from the current Champagne
region.
39%
Growth in 2006 sales
of champagne to Russia.
50%
Growth in 2006 champagne sales to China.
129%
Growth in 2006 champagne sales to India.
Saturday, November 3, 2007
How to make the high loonie work in your portfolio - LORI MCLEOD
The soaring loonie may be taking a big bite out of your portfolio of U.S. stocks, but instead of bringing it all home, investment advisers say you should consider bulking up on cheap American equities and greenbacks.
The Canadian currency is unlikely to stay at its current $1.07 (U.S.) in the long term, and patient investors could cash in when it declines.
“One of the things I'm looking at doing now… is simply moving Canadian money to the U.S.,” said Drew Abbott, vice-president and investment adviser at TD Waterhouse Private Investment Advice.
While it's a moving target, Mr. Abbott said he expects the loonie to settle in the 95 cent to $1 range within the next 18 months.
“Even if you put that into a U.S. money market fund earning 5 per cent, if the dollar comes back down from $1.07 to $1, that's a 12-per-cent return over a year. The major move's obviously been done. Whether we're timing it properly is impossible to tell, but that's one strategy.”
It's an encouraging piece of advice in what has been a tough market for investors who thought they were doing everything right by diversifying their investments. It's a trend that really started to take hold in Canada after the 30-per-cent foreign content limit on RRSPs was dropped in 2005 and a wealth of global investment products entered the market.
Now, as the dollar soars on the back of high oil prices, these careful investors have seen the value of their holdings drop in tandem with the U.S. dollar, and dramatically underperform the TSX.
What it all boils down to is a loonie that has defied expectations, climbing from 62 cents in the past five years, an increase of 70 per cent.
Rising oil prices, weakness in the U.S. and Canada's overall economic strength have combined to make the loonie the world's best-performing currency so far this year, up 7 per cent in the past month alone.
It's a mixed blessing for Canadians investing in other countries, who on the positive side can now purchase more stocks, real estate or U.S. dollars for their loonies. However, losing so much ground on currency losses while local stocks rise can be difficult to ignore.
“Some people get frustrated, especially those that chase the limelight and always want to be in the hottest sectors. They're the ones who look at their U.S. stocks and say ‘What have you done for me lately?'” said Murray Leith, director of research at Vancouver-based investment adviser Odlum Brown Ltd.
Forty per cent of Odlum Brown's equity holdings are outside of Canada, and their returns are taking a direct, currency-related hit as a result. Returns are in the 2- to 3-per-cent range so far this year, compared with 11 per cent for the Toronto Stock Exchange.
In some ways, those trying to chase the loonie aren't unlike technology investors late in the 1990s. In that boom Mr. Leith stuck it out with “boring, Old Economy” stocks he believed offered good value, to the dismay of some of his investors.
“For our clients, '99 was a tough year. We were up 20 per cent, but not the 33 per cent the TSX was up, and that frustrated some people.”
Then Odlum Brown slapped its first sell recommendation on Nortel in June of 2000, when it was trading at $75 a share. Telecom companies were spending freely despite their deteriorating businesses and horrible balance sheets, said Mr. Leith, who believed they would soon become unable to buy Nortel's equipment.
Yet before its infamous correction Nortel stock kept on climbing to $125 a share, taking some of Mr. Leith's hair along with it as he tugged it out in dismay.
However, sticking to his strategy has also protected his clients against downturns, buffering them when technology stocks eventually headed south.
Mr. Leith said he'll continue to look for U.S. stock deals while his loonies stay strong, and he is particularly interested in firms that cater to the aging population, such as health care companies.
One of the keys to investing well in this tumultuous market is to have patience and resist the urge to yank all of your funds back to Canada, said Irwin Michael, portfolio manager at ABC Funds.
“In the short run, you may be hurt by staying offshore or in the United States, but in the long run you'll do well with U.S. stocks. You can take your $1.06 or $1.07 and buy some pretty cheap stocks in the United States but you need staying power and patience, and a lot of people don't have that,” he said.
The Canadian dollar may not curb its run in the next few weeks or even years, and could even gain slightly in the short term, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc. In the very long term, however, the loonie will likely settle somewhere between the mid-80s to mid-90s depending on commodity prices, he said.
“Over the longer haul this is a golden opportunity to at the very least consider slightly increasing holdings in foreign securities. We've had an unbelievable run between the Canadian dollar and the TSX over the last five years, and I just cannot believe we're going to have another prolonged period like that of extreme outperformance,” Mr. Porter said.
For Michael Morrow, who runs a financial planning business in Thunder Bay, the value of diversification has only been hammered home by the loonie's rise. By choosing to invest in funds with strong managers, Mr. Morrow said he and his clients are buying years of “collective wisdom,” one benefit of which is that they were approximately 50 per cent hedged against the currency increase well before the loonie's recent flight.
“The safety net that I've built in is that we're very, very broadly diversified and putting our money with more than one portfolio manager,” he said.
The Canadian currency is unlikely to stay at its current $1.07 (U.S.) in the long term, and patient investors could cash in when it declines.
“One of the things I'm looking at doing now… is simply moving Canadian money to the U.S.,” said Drew Abbott, vice-president and investment adviser at TD Waterhouse Private Investment Advice.
While it's a moving target, Mr. Abbott said he expects the loonie to settle in the 95 cent to $1 range within the next 18 months.
“Even if you put that into a U.S. money market fund earning 5 per cent, if the dollar comes back down from $1.07 to $1, that's a 12-per-cent return over a year. The major move's obviously been done. Whether we're timing it properly is impossible to tell, but that's one strategy.”
It's an encouraging piece of advice in what has been a tough market for investors who thought they were doing everything right by diversifying their investments. It's a trend that really started to take hold in Canada after the 30-per-cent foreign content limit on RRSPs was dropped in 2005 and a wealth of global investment products entered the market.
Now, as the dollar soars on the back of high oil prices, these careful investors have seen the value of their holdings drop in tandem with the U.S. dollar, and dramatically underperform the TSX.
What it all boils down to is a loonie that has defied expectations, climbing from 62 cents in the past five years, an increase of 70 per cent.
Rising oil prices, weakness in the U.S. and Canada's overall economic strength have combined to make the loonie the world's best-performing currency so far this year, up 7 per cent in the past month alone.
It's a mixed blessing for Canadians investing in other countries, who on the positive side can now purchase more stocks, real estate or U.S. dollars for their loonies. However, losing so much ground on currency losses while local stocks rise can be difficult to ignore.
“Some people get frustrated, especially those that chase the limelight and always want to be in the hottest sectors. They're the ones who look at their U.S. stocks and say ‘What have you done for me lately?'” said Murray Leith, director of research at Vancouver-based investment adviser Odlum Brown Ltd.
Forty per cent of Odlum Brown's equity holdings are outside of Canada, and their returns are taking a direct, currency-related hit as a result. Returns are in the 2- to 3-per-cent range so far this year, compared with 11 per cent for the Toronto Stock Exchange.
In some ways, those trying to chase the loonie aren't unlike technology investors late in the 1990s. In that boom Mr. Leith stuck it out with “boring, Old Economy” stocks he believed offered good value, to the dismay of some of his investors.
“For our clients, '99 was a tough year. We were up 20 per cent, but not the 33 per cent the TSX was up, and that frustrated some people.”
Then Odlum Brown slapped its first sell recommendation on Nortel in June of 2000, when it was trading at $75 a share. Telecom companies were spending freely despite their deteriorating businesses and horrible balance sheets, said Mr. Leith, who believed they would soon become unable to buy Nortel's equipment.
Yet before its infamous correction Nortel stock kept on climbing to $125 a share, taking some of Mr. Leith's hair along with it as he tugged it out in dismay.
However, sticking to his strategy has also protected his clients against downturns, buffering them when technology stocks eventually headed south.
Mr. Leith said he'll continue to look for U.S. stock deals while his loonies stay strong, and he is particularly interested in firms that cater to the aging population, such as health care companies.
One of the keys to investing well in this tumultuous market is to have patience and resist the urge to yank all of your funds back to Canada, said Irwin Michael, portfolio manager at ABC Funds.
“In the short run, you may be hurt by staying offshore or in the United States, but in the long run you'll do well with U.S. stocks. You can take your $1.06 or $1.07 and buy some pretty cheap stocks in the United States but you need staying power and patience, and a lot of people don't have that,” he said.
The Canadian dollar may not curb its run in the next few weeks or even years, and could even gain slightly in the short term, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc. In the very long term, however, the loonie will likely settle somewhere between the mid-80s to mid-90s depending on commodity prices, he said.
“Over the longer haul this is a golden opportunity to at the very least consider slightly increasing holdings in foreign securities. We've had an unbelievable run between the Canadian dollar and the TSX over the last five years, and I just cannot believe we're going to have another prolonged period like that of extreme outperformance,” Mr. Porter said.
For Michael Morrow, who runs a financial planning business in Thunder Bay, the value of diversification has only been hammered home by the loonie's rise. By choosing to invest in funds with strong managers, Mr. Morrow said he and his clients are buying years of “collective wisdom,” one benefit of which is that they were approximately 50 per cent hedged against the currency increase well before the loonie's recent flight.
“The safety net that I've built in is that we're very, very broadly diversified and putting our money with more than one portfolio manager,” he said.
Stock websites offer benefits of collective wisdom - ROB CARRICK
The Internet-driven empowerment of investors has entered a new phase.
Let's call it co-operative investing and define it as investors offering up their own thoughts, ideas and stock picks and in return benefiting from the wisdom of others. This sort of online dialogue has existed for a while through Web-based discussion forums and blogs. Now, it's being broadened and refined in ways that help investors get good information and avoid the hot air and bluster that pollute cyberspace.
Three websites that exemplify that co-operative investing are part of the Portfolio Strategy column's latest roundup of useful online resources you should know about. A site with appeal to investors interested in global markets is included as well, as are sites that can help you track historical share prices. With the sale of BCE Inc. looming early next year, a lot of people will have to try to figure out how much they paid for their shares years ago.
A fixture on the Canadian online investing scene, the website Stockhouse.ca has set about relaunching itself in a way that exemplifies the co-operative investing theme. Stockhouse has long been a sort of investing vox populi through its BullBoards feature, which is an online discussion forum, and more recently through its directory of blogs maintained by site members. The newly rejigged Stockhouse builds on these features by helping users find the most useful content.
From its earliest days, the Internet has provided a means for investors to discuss their ideas and compare notes. But if you've used any of the major online investing discussion sites, you'll know that it's a bit like mining in that you have to churn up a lot of ground to locate a useful chunk of information.
One way to get an idea of what investors are saying about a particular stock is to use a directory called TheLion.com, which aggregates postings to all the major U.S. financial discussion forums. If you'd checked out the buzz on General Electric this week, you would have found a mix of intelligent debate about the impact of the low U.S. dollar on the company and an overheated digression about Iran, the United States and Israel.
Online discussions on any topic have a way of attracting people with nothing much to say but a burning need to be heard. Helping you avoid their musings and ranting is what Stockhouse is trying to do.
The new site is just coming out of its test stage, so it's not yet possible to say how effective it is at highlighting the smartest, most useful blogs and BullBoard postings. But you can see how Stockhouse is trying to maintain some quality control. BullBoard postings can be rated according to their clarity, credibility, usefulness and overall quality, while blogs can be evaluated according to the number of people who have listed them as favourites and offered up comments.
Stockhouse has also created a unique homepage with a graphic showing which stocks are the most actively discussed on the site. On any given day, most of the hot topics are stocks listed on the TSX Venture Exchange.
For another view on co-operative investing, check out a pair of U.S. sites called Covestor and Marketocracy. Both are based on the idea of having users disclose their own stock trades so they can be tracked by the community. They offer recognition to the gifted investing amateurs out there, while everyone else benefits from the ability to see what they're up to.
Both sites are not set up to allow users to anonymously soak up the best investing ideas without contributing anything back. The point is to get you to strut your stuff and then benefit from looking on as others do the same.
Covestor calls itself a "real-trade sharing service," which in practical terms means you'll set up a portfolio of stocks and allow the returns to be monitored in a way that measures them in a professional sort of way using recognized benchmarks. Covestor actually vets aspiring members by requiring a copy of their account statement (you send it through a secure link). Only if you're accepted into the community do you get to set up a username and password that lets you into the site.
Once you're in and have your own portfolio online, you can view the holdings of top-performing portfolios and look at their returns against a variety of stock indexes. You can also view the most widely held and best-performing stocks in Covestor portfolios.
Marketocracy is set up almost like a farm system for a family of mutual funds run under the same name. If the returns from the portfolio you maintain on the site are stellar, they get included in the site's m100 index, which is an aggregate of the top 100 portfolios on the site. The m100 index is in turn used to help run the Marketocracy Masters 100 mutual fund, which is available to U.S. investors and has outperformed the S&P 500 over the past five years.
Marketocracy claims to have recruited 55,000 people to manage virtual accounts, but you can't get detailed information on the stocks they're trading unless you pay for the premium service at $180 (U.S.) a year.
Covestor and Marketocracy are great generators of investing ideas in the U.S. market. For global markets, try Site-by-Site, which describes itself as an international investment portal and research centre. Site-By-Site has been around since the early days of the Internet, and looks its age. But with interest in global investing on the rise, it's a website whose time has come.
Pick a country and then use Site-By-Site to find links to its stock exchange, its central bank and sources of information on business and economic news, facts and figures. Whether you're interested in the Indian stock market or the latest on the Riga Stock Exchange in Latvia, this website will get you what you need a lot faster than playing around with the usual Internet search engines.
Site-By-Site is also useful if you're on prowl for foreign companies that you can by as American depositary receipts, which are basically a special class of shares issued on a U.S. exchange by a company located in another country. It also links you to good sources of data on closed-end funds, which are basically mutual funds that trade like stocks.
The takeover of BCE won't be completed until next year, but it's already highlighting the need investors periodically have to look up historical share prices for tax reasons. If you want to know how much of a capital gain or loss to report, you need to know your purchase price.
A new generation of online stock charts has greatly simplified the process of looking up historical stock prices. Just create a price chart for a stock you're interested in, ease your cursor along the line showing price movements and watch a pop-up box display the day-by-day open, high, low and closing prices.
Let's say you bought some BCE shares five years ago and need to obtain the purchase price. Just go to Globeinvestor.com, call up a quote for BCE and then click on the "chart" link. Click again where it says "interactive chart" in the upper left corner of the screen, and then adjust the time frame for your chart to five years. If you move your cursor to the far left of the chart, you'll find that BCE shares closed at $27.24 for the trading week ending Friday, Nov. 1.
Yahoo Finance offers interactive stock charts as well, as does Google Finance. If you need a historical price on a particular day, go to the historical charts section of BigCharts.com. For Canadian stocks, type CA: in front of the symbol, as in CA:T.
Let's call it co-operative investing and define it as investors offering up their own thoughts, ideas and stock picks and in return benefiting from the wisdom of others. This sort of online dialogue has existed for a while through Web-based discussion forums and blogs. Now, it's being broadened and refined in ways that help investors get good information and avoid the hot air and bluster that pollute cyberspace.
Three websites that exemplify that co-operative investing are part of the Portfolio Strategy column's latest roundup of useful online resources you should know about. A site with appeal to investors interested in global markets is included as well, as are sites that can help you track historical share prices. With the sale of BCE Inc. looming early next year, a lot of people will have to try to figure out how much they paid for their shares years ago.
A fixture on the Canadian online investing scene, the website Stockhouse.ca has set about relaunching itself in a way that exemplifies the co-operative investing theme. Stockhouse has long been a sort of investing vox populi through its BullBoards feature, which is an online discussion forum, and more recently through its directory of blogs maintained by site members. The newly rejigged Stockhouse builds on these features by helping users find the most useful content.
From its earliest days, the Internet has provided a means for investors to discuss their ideas and compare notes. But if you've used any of the major online investing discussion sites, you'll know that it's a bit like mining in that you have to churn up a lot of ground to locate a useful chunk of information.
One way to get an idea of what investors are saying about a particular stock is to use a directory called TheLion.com, which aggregates postings to all the major U.S. financial discussion forums. If you'd checked out the buzz on General Electric this week, you would have found a mix of intelligent debate about the impact of the low U.S. dollar on the company and an overheated digression about Iran, the United States and Israel.
Online discussions on any topic have a way of attracting people with nothing much to say but a burning need to be heard. Helping you avoid their musings and ranting is what Stockhouse is trying to do.
The new site is just coming out of its test stage, so it's not yet possible to say how effective it is at highlighting the smartest, most useful blogs and BullBoard postings. But you can see how Stockhouse is trying to maintain some quality control. BullBoard postings can be rated according to their clarity, credibility, usefulness and overall quality, while blogs can be evaluated according to the number of people who have listed them as favourites and offered up comments.
Stockhouse has also created a unique homepage with a graphic showing which stocks are the most actively discussed on the site. On any given day, most of the hot topics are stocks listed on the TSX Venture Exchange.
For another view on co-operative investing, check out a pair of U.S. sites called Covestor and Marketocracy. Both are based on the idea of having users disclose their own stock trades so they can be tracked by the community. They offer recognition to the gifted investing amateurs out there, while everyone else benefits from the ability to see what they're up to.
Both sites are not set up to allow users to anonymously soak up the best investing ideas without contributing anything back. The point is to get you to strut your stuff and then benefit from looking on as others do the same.
Covestor calls itself a "real-trade sharing service," which in practical terms means you'll set up a portfolio of stocks and allow the returns to be monitored in a way that measures them in a professional sort of way using recognized benchmarks. Covestor actually vets aspiring members by requiring a copy of their account statement (you send it through a secure link). Only if you're accepted into the community do you get to set up a username and password that lets you into the site.
Once you're in and have your own portfolio online, you can view the holdings of top-performing portfolios and look at their returns against a variety of stock indexes. You can also view the most widely held and best-performing stocks in Covestor portfolios.
Marketocracy is set up almost like a farm system for a family of mutual funds run under the same name. If the returns from the portfolio you maintain on the site are stellar, they get included in the site's m100 index, which is an aggregate of the top 100 portfolios on the site. The m100 index is in turn used to help run the Marketocracy Masters 100 mutual fund, which is available to U.S. investors and has outperformed the S&P 500 over the past five years.
Marketocracy claims to have recruited 55,000 people to manage virtual accounts, but you can't get detailed information on the stocks they're trading unless you pay for the premium service at $180 (U.S.) a year.
Covestor and Marketocracy are great generators of investing ideas in the U.S. market. For global markets, try Site-by-Site, which describes itself as an international investment portal and research centre. Site-By-Site has been around since the early days of the Internet, and looks its age. But with interest in global investing on the rise, it's a website whose time has come.
Pick a country and then use Site-By-Site to find links to its stock exchange, its central bank and sources of information on business and economic news, facts and figures. Whether you're interested in the Indian stock market or the latest on the Riga Stock Exchange in Latvia, this website will get you what you need a lot faster than playing around with the usual Internet search engines.
Site-By-Site is also useful if you're on prowl for foreign companies that you can by as American depositary receipts, which are basically a special class of shares issued on a U.S. exchange by a company located in another country. It also links you to good sources of data on closed-end funds, which are basically mutual funds that trade like stocks.
The takeover of BCE won't be completed until next year, but it's already highlighting the need investors periodically have to look up historical share prices for tax reasons. If you want to know how much of a capital gain or loss to report, you need to know your purchase price.
A new generation of online stock charts has greatly simplified the process of looking up historical stock prices. Just create a price chart for a stock you're interested in, ease your cursor along the line showing price movements and watch a pop-up box display the day-by-day open, high, low and closing prices.
Let's say you bought some BCE shares five years ago and need to obtain the purchase price. Just go to Globeinvestor.com, call up a quote for BCE and then click on the "chart" link. Click again where it says "interactive chart" in the upper left corner of the screen, and then adjust the time frame for your chart to five years. If you move your cursor to the far left of the chart, you'll find that BCE shares closed at $27.24 for the trading week ending Friday, Nov. 1.
Yahoo Finance offers interactive stock charts as well, as does Google Finance. If you need a historical price on a particular day, go to the historical charts section of BigCharts.com. For Canadian stocks, type CA: in front of the symbol, as in CA:T.
Thursday, November 1, 2007
The key to Web research: knowing what to ignore - GAVIN ADAMSON
Canadian investors building or fine-tuning their portfolios need to find ways to choose from between more than 1,000 stocks on this side of the border and about 9,000 in the United States.
There's a lot written about every one of those companies, and that's not even counting the mutual funds investors might choose, says Dan Hallett, president of the independent financial analyst Dan Hallett & Associates Inc.
"I think the key, really, for online research is knowing what not to pay attention to," adds Mr. Hallett, who is based in Windsor, Ont.
Generally, he describes a process that ends with picking a security and transferring cash to your online brokerage to make the trade.
The process includes identifying an investment needed in a portfolio that you have constructed to meet a specific goal and then finding the exact product (such as a single security or a fund) to meet your needs and tastes - and at the right price.
"If somebody wants to have a diversified portfolio they won't find overseas stocks that they can buy online," says Mr. Hallett, who is a chartered financial analyst.
"To get good foreign exposure, you pretty much have to go to a fund."
Some of the strongest research is available on Internet brokerages' websites - some for free, some at additional costs.
Beyond those domains, you can do your basic homework on free websites that focus on investor education, and then progress to analytics on specific stocks and mutual funds on websites, which usually incur a fee.
Getting the basics
A couple of basic sites will help you determine what type of investor you are, clarify your goals, and focus on what general investments you should be looking for.
If you're in your mid-40s and using your online brokerage account to supplement retirement savings, for example, your approach will be different from that of a 25-year-old who is aggressively trading stocks to make a quick cash killing.
Provincial regulators
On their websites, every provincial securities regulator offers quizzes, downloadable booklets and PDFs loaded with investment information, but some sites are better than others. The sites of both the Alberta (http://www.albertasecurities.com/Investors) and Ontario securities commissions (http://www.investored.ca) have updated their sites recently, while Quebec's Autorité des marchés financiers (http://www.lautorite.qc.ca) offers booklets on understanding investments.
SEDAR
Another free website is SEDAR.com (the acronym stands for the System for Electronic Document Analysis and Retrieval), which Mr. Hallett describes as the cornerstone of his Canadian stock and mutual fund research.
The site provides most public securities documents and information filed by public companies and investment funds with all of the provincial regulators for the past 10 years
"Pretty much any time I'm doing research on a fund or a stock, I'm on SEDAR," Mr. Hallett says.
One of SEDAR's purposes is to disclose publicly to investors all of the latest securities information, so the language in all the documents is standardized and relatively easy to read - something that can be hard to come by in the securities industry, Mr. Hallett notes.
Honing your skills
Your online brokerage
Every online brokerage offers a research suite with portfolio-building tools to help you narrow your search for investments. E*Trade, for example, offers a portfolio optimizer that takes investors through a quiz to determine their risk tolerance and invested time horizon. "It helps them decide how their portfolio should be weighted," says Duncan Hannay, president of E*Trade Canada in Toronto.
To help you in your research, every firm offers analytics, tools for comparing stocks and mutual funds, plus its own spin on matters. Royal Bank's Royal Direct offers daily comments from its own equities analysts, for example. E*Trade, which isn't owned by a bank with its own analysts, offers Canadian and U.S. research from such third-party providers as BNY JayWalk, Sabrient Systems and Rochdale Research.
StockChase
This graphically stripped down, basic website (http://www.stockchase.com) offers ratings from Canadian analysts and mutual fund managers based on what they say publicly about various large-cap and small-cap securities. You can search for equities by their names, or by analyst or mutual fund manager. The site makes no pretensions about its limited purpose as "one of the investing tools in your arsenal for wise investing in the stock market," as its disclaimer reads. StockChase reports only on what is discussed by individuals who appear on business television shows, mainly on Business News Network.
Morningstar
Most Canadian investors will know the site www.morningstar.ca in relation to the mutual fund industry, but its Chicago-based U.S. parent, www.morningstar.com, also offers U.S. stock research analysis for about $125 a year.
"That's pretty reasonable," notes Mr. Hallett. You'll find some Canadian company stocks listed on U.S. exchanges. "[The American site] offers the same analysis that they started with on the mutual fund side," he says. The U.S. site offers filters as well as analytical reports, "so you've got some qualitative coverage," he adds.
For-fee sites
Investors will find that many sites such as Yahoo Finance (finance.yahoo.com) and Thestreet.com, deliver a fair amount of original, free content and analysis, but you'll pay upward of $10 (U.S.) and as high as $300 for individual research reports on specific stocks. A complete subscriber service on Thestreet.com costs about $400, for example. Investors might find better value in some of the free insight pieces at Thestreet.com's "university section," which details the basics of value fund management, a lower risk stock-picking strategy.
Fine tuning
Jennings Capital Inc. provides a rare website (http://www.jenningscapital.com) that offers free equity research on about 200 Canadian stocks. Jennings Capital is a Calgary-based independent firm that invests in oil and gas and mining sectors, as you might guess, but also some consumer retail and technology and biotechnology companies. Ten analysts make buy-and-sell recommendations on the stocks for Jennings, and you can access all of their reports online. Limited in scope, but free.
There's a lot written about every one of those companies, and that's not even counting the mutual funds investors might choose, says Dan Hallett, president of the independent financial analyst Dan Hallett & Associates Inc.
"I think the key, really, for online research is knowing what not to pay attention to," adds Mr. Hallett, who is based in Windsor, Ont.
Generally, he describes a process that ends with picking a security and transferring cash to your online brokerage to make the trade.
The process includes identifying an investment needed in a portfolio that you have constructed to meet a specific goal and then finding the exact product (such as a single security or a fund) to meet your needs and tastes - and at the right price.
"If somebody wants to have a diversified portfolio they won't find overseas stocks that they can buy online," says Mr. Hallett, who is a chartered financial analyst.
"To get good foreign exposure, you pretty much have to go to a fund."
Some of the strongest research is available on Internet brokerages' websites - some for free, some at additional costs.
Beyond those domains, you can do your basic homework on free websites that focus on investor education, and then progress to analytics on specific stocks and mutual funds on websites, which usually incur a fee.
Getting the basics
A couple of basic sites will help you determine what type of investor you are, clarify your goals, and focus on what general investments you should be looking for.
If you're in your mid-40s and using your online brokerage account to supplement retirement savings, for example, your approach will be different from that of a 25-year-old who is aggressively trading stocks to make a quick cash killing.
Provincial regulators
On their websites, every provincial securities regulator offers quizzes, downloadable booklets and PDFs loaded with investment information, but some sites are better than others. The sites of both the Alberta (http://www.albertasecurities.com/Investors) and Ontario securities commissions (http://www.investored.ca) have updated their sites recently, while Quebec's Autorité des marchés financiers (http://www.lautorite.qc.ca) offers booklets on understanding investments.
SEDAR
Another free website is SEDAR.com (the acronym stands for the System for Electronic Document Analysis and Retrieval), which Mr. Hallett describes as the cornerstone of his Canadian stock and mutual fund research.
The site provides most public securities documents and information filed by public companies and investment funds with all of the provincial regulators for the past 10 years
"Pretty much any time I'm doing research on a fund or a stock, I'm on SEDAR," Mr. Hallett says.
One of SEDAR's purposes is to disclose publicly to investors all of the latest securities information, so the language in all the documents is standardized and relatively easy to read - something that can be hard to come by in the securities industry, Mr. Hallett notes.
Honing your skills
Your online brokerage
Every online brokerage offers a research suite with portfolio-building tools to help you narrow your search for investments. E*Trade, for example, offers a portfolio optimizer that takes investors through a quiz to determine their risk tolerance and invested time horizon. "It helps them decide how their portfolio should be weighted," says Duncan Hannay, president of E*Trade Canada in Toronto.
To help you in your research, every firm offers analytics, tools for comparing stocks and mutual funds, plus its own spin on matters. Royal Bank's Royal Direct offers daily comments from its own equities analysts, for example. E*Trade, which isn't owned by a bank with its own analysts, offers Canadian and U.S. research from such third-party providers as BNY JayWalk, Sabrient Systems and Rochdale Research.
StockChase
This graphically stripped down, basic website (http://www.stockchase.com) offers ratings from Canadian analysts and mutual fund managers based on what they say publicly about various large-cap and small-cap securities. You can search for equities by their names, or by analyst or mutual fund manager. The site makes no pretensions about its limited purpose as "one of the investing tools in your arsenal for wise investing in the stock market," as its disclaimer reads. StockChase reports only on what is discussed by individuals who appear on business television shows, mainly on Business News Network.
Morningstar
Most Canadian investors will know the site www.morningstar.ca in relation to the mutual fund industry, but its Chicago-based U.S. parent, www.morningstar.com, also offers U.S. stock research analysis for about $125 a year.
"That's pretty reasonable," notes Mr. Hallett. You'll find some Canadian company stocks listed on U.S. exchanges. "[The American site] offers the same analysis that they started with on the mutual fund side," he says. The U.S. site offers filters as well as analytical reports, "so you've got some qualitative coverage," he adds.
For-fee sites
Investors will find that many sites such as Yahoo Finance (finance.yahoo.com) and Thestreet.com, deliver a fair amount of original, free content and analysis, but you'll pay upward of $10 (U.S.) and as high as $300 for individual research reports on specific stocks. A complete subscriber service on Thestreet.com costs about $400, for example. Investors might find better value in some of the free insight pieces at Thestreet.com's "university section," which details the basics of value fund management, a lower risk stock-picking strategy.
Fine tuning
Jennings Capital Inc. provides a rare website (http://www.jenningscapital.com) that offers free equity research on about 200 Canadian stocks. Jennings Capital is a Calgary-based independent firm that invests in oil and gas and mining sectors, as you might guess, but also some consumer retail and technology and biotechnology companies. Ten analysts make buy-and-sell recommendations on the stocks for Jennings, and you can access all of their reports online. Limited in scope, but free.
Friday, October 26, 2007
Analyst Test-Takers Anciously Awaits Results - Lynn Cowan
For months, they alternately ache for it and dread it. They shake. They lose sleep.
Methamphetamine addicts? Hardly. It is the thousands of people who take the Chartered Financial Analyst exams, a multi-year series of financial industry tests that require nearly a whole summer of waiting after each exam for the results, creating a nerve-wracking period of limbo right now after a grueling year of studying.
"I didn't pick up a fiction book for three years," recalls Beth Hamilton-Keen, an investment counselor at CIBC Private Wealth Management in Calgary, Canada, of her time cramming for the three required CFA exams in the late 1990s. "When you work a twelve-hour day, then you have to fit it into your nights and weekends. Taking long plane rides helps a lot. You can't do anything else on a plane."
Ask any academic, analyst or portfolio manager awaiting the CFA results, and they will tell you: The wait for results is almost as bad as the test itself, which quizzes participants on everything from accounting to ethics.
The tests, administered by the non-profit CFA Institute in the U.S., are given worldwide in 89 countries on the same day in early June. Results come out in late July for people who took the first-year test level, and later in August for the following two test levels. CFA candidates are currently in the thick of the waiting period, mulling over the questions they think they flubbed.
There has even been a liquor commercial made about it: In a reality spot that was aired in South Africa last year, Bells Scotch Whiskey's cameras followed equity analyst Johan de Bruijn as he logged on to a computer to find out if he had passed the final level of the exam. The 28-year-old Cape Town resident, who hadn't slept the night before, jumped out of his chair and screamed when he found out he had passed.
"I've made it!" he bellowed as the logo for Bell's whiskey appeared. "Ah, I'm shivering!"
Bruijn recalls that day, nearly a year later. "I was shivering because I was so relieved. It was more like shaking," he said. Immediately after the commercial was filmed, he went to his office and told everyone there he had completed the third level.
"There is huge pressure on the candidate to pass, especially from colleagues, some of whom have already received their charter," he said.
Where Exams Outnumber Residents
While CFA exams takers may know how to evaluate the trickiest equity derivatives, few claim to understand the long wait required before they receive their results. The answer lies in Charlottesville, Va., population 40,000, home to the CFA Institute, which changed its name from the Association for Investment Management and Research in May.
From June 5, when the exam was given this year, until late August, when the final grades are reported, the institute does little else besides organize, grade and double-check grades on the 83,000 exam booklets that CFA candidates filled out. While the first-year level of the test is a multiple-choice exam that can be machine-graded - and thus delivered to those exam takers about a month earlier - the final two years' exams include essay questions that must be read and evaluated by hand.
The initial grading process takes place over a two-week period in which 750 people who already hold CFA designations descend upon Charlottesville, located at the foothills of the Blue Ridge Mountains about 70 miles northwest of Virginia's state capital of Richmond. The influx of people fills seven area hotels and generates an estimated $1 million in revenue for the local economy.
An entire high school is taken over for the grading process, its library shelves cleared out and turned into a massive storage area for exams in various stages of grading. Test graders are assigned to teams of 20, who focus on one exam question at a time, and their efforts are tracked and bar-coded by a group of temporary workers. The graders, who are flown in from 30 countries and fed two meals a day in the school cafeteria, emerge at the end of each day blinking in the sunlight, and board shuttle buses that take them back and forth between their hotels and the high school.
A mix of academics, retirees and active money managers and analysts, many CFA holders use their vacation time to grade the tests, receiving a stipend of $300 a day. Most, like CIBC's Hamilton-Keen, think the conference helps them network and stay abreast of new trends in the investment management industry.
The test-grading process also reminds them of the intensity of the exams. It takes an average of four years to complete all the exams, all of it self-study using textbooks. Of the 83,284 who enrolled for the exams in 2004, only a little more than half can expect to pass. About 25% never even show up for their tests after getting a gander at the study guides. Nearly 80% of the people who enroll in the program never get a CFA designation.
Jim Galloway, who taught finance and investment courses at the Rochester Institute of Technology in upstate New York, said decades ago when he was preparing for the exams, fellow faculty members would sit for the test at a location outside of Rochester, to avoid taking it at the same site as their graduate students. Their fear: A student would ask how they did later, and they would have to admit they flunked.
"I would have had no confidence at all if I hadn't passed," said Galloway, who has been grading tests for 21 years.
"I Didn't Study...But I Had To Show Up"
After Galloway and his fellow charter holders complete the two-week initial grading process, the test grades are re-checked, tallied and re-checked some more. When the process is over, the results are posted online.
In some circles, particularly outside the U.S., holding a CFA is considered more important than where a prospective job candidate attended college, and carries more cachet than advanced degrees like a master's in business administration. In the U.S., the only way a Wall Street analyst can bypass taking the practical knowledge portion of a new mandated exam by next April is if he or she has passed the first two levels of the CFA.
The CFA exams have been taken by Securities and Exchange Commission Chairman William Donaldson, Goldman Sachs Group Inc. (GS) investment strategist Abby Joseph Cohen, famed asset manager Mario Gabelli, Nobel prize-winning economist Robert C. Merton and Sir John Templeton.
It has also been taken by a few lesser-knowns, including one candidate who scrawled on his booklet, "I didn't study for this exam, but my boss is sitting behind me so I had to show up" before doodling pages of nonsense for hours in the exam room, waiting for the day to end. Yet another wrote in his book, "What I'd rather have been doing today was golfing," and proceeded to fill his booklet with a description of the various holes of his favorite course.
Those who have failed must try, try again, as was the case for CFA Institute President and Chief Executive Tom Bowman, who flubbed his first attempt at the first level in the 1970s because he was so confident he would pass without studying. Bowman isn't alone; it takes the average successful candidate four exam sittings to earn a CFA.
"I had been managing money for five or six years," and thought there couldn't possibly be any unknowns on the exam, said Bowman. "I opened the study guide about a week before they exam and said, "There's no way I'm going to be able to do this." Sure enough, I failed. At the time, I almost wished I never opened the study guide."
Methamphetamine addicts? Hardly. It is the thousands of people who take the Chartered Financial Analyst exams, a multi-year series of financial industry tests that require nearly a whole summer of waiting after each exam for the results, creating a nerve-wracking period of limbo right now after a grueling year of studying.
"I didn't pick up a fiction book for three years," recalls Beth Hamilton-Keen, an investment counselor at CIBC Private Wealth Management in Calgary, Canada, of her time cramming for the three required CFA exams in the late 1990s. "When you work a twelve-hour day, then you have to fit it into your nights and weekends. Taking long plane rides helps a lot. You can't do anything else on a plane."
Ask any academic, analyst or portfolio manager awaiting the CFA results, and they will tell you: The wait for results is almost as bad as the test itself, which quizzes participants on everything from accounting to ethics.
The tests, administered by the non-profit CFA Institute in the U.S., are given worldwide in 89 countries on the same day in early June. Results come out in late July for people who took the first-year test level, and later in August for the following two test levels. CFA candidates are currently in the thick of the waiting period, mulling over the questions they think they flubbed.
There has even been a liquor commercial made about it: In a reality spot that was aired in South Africa last year, Bells Scotch Whiskey's cameras followed equity analyst Johan de Bruijn as he logged on to a computer to find out if he had passed the final level of the exam. The 28-year-old Cape Town resident, who hadn't slept the night before, jumped out of his chair and screamed when he found out he had passed.
"I've made it!" he bellowed as the logo for Bell's whiskey appeared. "Ah, I'm shivering!"
Bruijn recalls that day, nearly a year later. "I was shivering because I was so relieved. It was more like shaking," he said. Immediately after the commercial was filmed, he went to his office and told everyone there he had completed the third level.
"There is huge pressure on the candidate to pass, especially from colleagues, some of whom have already received their charter," he said.
Where Exams Outnumber Residents
While CFA exams takers may know how to evaluate the trickiest equity derivatives, few claim to understand the long wait required before they receive their results. The answer lies in Charlottesville, Va., population 40,000, home to the CFA Institute, which changed its name from the Association for Investment Management and Research in May.
From June 5, when the exam was given this year, until late August, when the final grades are reported, the institute does little else besides organize, grade and double-check grades on the 83,000 exam booklets that CFA candidates filled out. While the first-year level of the test is a multiple-choice exam that can be machine-graded - and thus delivered to those exam takers about a month earlier - the final two years' exams include essay questions that must be read and evaluated by hand.
The initial grading process takes place over a two-week period in which 750 people who already hold CFA designations descend upon Charlottesville, located at the foothills of the Blue Ridge Mountains about 70 miles northwest of Virginia's state capital of Richmond. The influx of people fills seven area hotels and generates an estimated $1 million in revenue for the local economy.
An entire high school is taken over for the grading process, its library shelves cleared out and turned into a massive storage area for exams in various stages of grading. Test graders are assigned to teams of 20, who focus on one exam question at a time, and their efforts are tracked and bar-coded by a group of temporary workers. The graders, who are flown in from 30 countries and fed two meals a day in the school cafeteria, emerge at the end of each day blinking in the sunlight, and board shuttle buses that take them back and forth between their hotels and the high school.
A mix of academics, retirees and active money managers and analysts, many CFA holders use their vacation time to grade the tests, receiving a stipend of $300 a day. Most, like CIBC's Hamilton-Keen, think the conference helps them network and stay abreast of new trends in the investment management industry.
The test-grading process also reminds them of the intensity of the exams. It takes an average of four years to complete all the exams, all of it self-study using textbooks. Of the 83,284 who enrolled for the exams in 2004, only a little more than half can expect to pass. About 25% never even show up for their tests after getting a gander at the study guides. Nearly 80% of the people who enroll in the program never get a CFA designation.
Jim Galloway, who taught finance and investment courses at the Rochester Institute of Technology in upstate New York, said decades ago when he was preparing for the exams, fellow faculty members would sit for the test at a location outside of Rochester, to avoid taking it at the same site as their graduate students. Their fear: A student would ask how they did later, and they would have to admit they flunked.
"I would have had no confidence at all if I hadn't passed," said Galloway, who has been grading tests for 21 years.
"I Didn't Study...But I Had To Show Up"
After Galloway and his fellow charter holders complete the two-week initial grading process, the test grades are re-checked, tallied and re-checked some more. When the process is over, the results are posted online.
In some circles, particularly outside the U.S., holding a CFA is considered more important than where a prospective job candidate attended college, and carries more cachet than advanced degrees like a master's in business administration. In the U.S., the only way a Wall Street analyst can bypass taking the practical knowledge portion of a new mandated exam by next April is if he or she has passed the first two levels of the CFA.
The CFA exams have been taken by Securities and Exchange Commission Chairman William Donaldson, Goldman Sachs Group Inc. (GS) investment strategist Abby Joseph Cohen, famed asset manager Mario Gabelli, Nobel prize-winning economist Robert C. Merton and Sir John Templeton.
It has also been taken by a few lesser-knowns, including one candidate who scrawled on his booklet, "I didn't study for this exam, but my boss is sitting behind me so I had to show up" before doodling pages of nonsense for hours in the exam room, waiting for the day to end. Yet another wrote in his book, "What I'd rather have been doing today was golfing," and proceeded to fill his booklet with a description of the various holes of his favorite course.
Those who have failed must try, try again, as was the case for CFA Institute President and Chief Executive Tom Bowman, who flubbed his first attempt at the first level in the 1970s because he was so confident he would pass without studying. Bowman isn't alone; it takes the average successful candidate four exam sittings to earn a CFA.
"I had been managing money for five or six years," and thought there couldn't possibly be any unknowns on the exam, said Bowman. "I opened the study guide about a week before they exam and said, "There's no way I'm going to be able to do this." Sure enough, I failed. At the time, I almost wished I never opened the study guide."
The Toast of Roasts - Bryn Nelson
When the auction began on the afternoon of May 29, six cartels had set their sights on 500 pounds of an almost mythical Panamanian product. For eight hours, they bid and counterbid online, with one determined group lodging a total of 27 separate offers—all in vain. After a frenzied tit-for-tat between the final two contenders, the price for the juggernaut known as La Esmeralda Special steamrolled past the record set the year before, fetching an astonishing $130 per pound. The winning bid was more than 11 times the price of the auction’s next-highest-earning coffee bean.
Yes, coffee beans.
Anything described as “explosively floral on the palate” by the Specialty Coffee Association of America might be expected to attract a certain amount of attention, especially after being named the world’s best coffee by the association for three years running. A judge from Kansas City scored it a perfect 100 in this year’s Best of Panama competition. A Seattle coffee executive blogged that “its aroma practically sings to you from between endless rows of other exemplary coffees.” A New York barista dubbed it the “undisputed heavyweight champion of coffee.”
La Esmeralda Special is all the more remarkable given that, a decade ago, the spindly trees that produced the beans were little more than windbreaks owned by the family of a prominent American banker. But while the hefty price may be a curiosity, Esmeralda’s popularity signals a broader shift in an industry where quantity, not quality, has long reigned supreme. In a post-Starbucks world, specialty coffee has become a hot commodity, and La Esmeralda Special is far from alone in the upper echelons.
“I think we’re seeing a fundamental shift in the coffee industry in terms of making coffee much more of a personal and exciting beverage than it ever has been,” says Susie Spindler, executive director of the Alliance for Coffee Excellence, an organization in Missoula, Montana, that runs the Cup of Excellence competitions and online auctions in eight countries.
The most recent rush of excitement has been over a roasted bean variety called Geisha. Originally from Ethiopia, the relatively low-yielding but disease-resistant Geisha trees were transplanted to Central America in the 1950s. They were soon yanked from coffee farms, however, as the market shifted to mass production in response to exploding demand.
In 1964, Swedish-born Rudolph Peterson, then chief executive of Bank of America, bought Hacienda La Esmeralda, a dairy and beef farm in Panama’s Chiriqui highlands. The property was eventually passed on to his son Price, who in 1996 expanded the family’s holdings, buying a nearby farm with a “mish-mash” of coffee trees on its upper reaches, according to Price’s son Daniel. Almost immediately, the family could smell and taste something special in the cups of coffee produced from the farm’s beans.
When they isolated the taller Geishas and planted more at a slightly higher altitude for the 2003 to 2004 season, the coffee really blossomed, Daniel says. In 2004, La Esmeralda Special swept the intense Best of Panama and Rainforest Alliance cupping competitions—at which the few dozen entrants with the best aroma, sweetness, mouthfeel, flavor, aftertaste, and balance are identified—and set the first of its auction records with an online price of $21 a pound. “This is a flavor that had not been found in the Americas,” Daniel says. It can now be found at high-end online retailers and some of the best coffeehouses in the U.S. and Canada.
At a basic level, industry insiders are increasingly defining well-regarded specialty coffees by what they are not: blended or—Sacre bleu!—French roasted. Jeff Taylor, co-owner of PT’s Coffee Roasting Co., in Topeka, Kansas, says top buyers, wholesalers, and retailers are more interested in single-origin coffees and lighter roasts that highlight a bean’s best features.
Like a vineyard’s grand reserve wine, the finest coffee beans are often found in microlots, or small subsets of farms like Hacienda La Esmeralda, where, as Taylor puts it, “all of the stars align.” In the partial shade of the higher-elevation lot, Esmeralda’s Geisha trees may not be models of productivity, but the slower cycles let them pack more sugars and oils into their beans and turn heads in coffee competitions.
Coffee enthusiasts also make comparisons with the wine industry’s success in marketing nuanced vintages; some boast that chemists have identified about 850 natural compounds contributing to the flavor of roasted coffee—many more than in a classic Bordeaux. An Ethiopian coffee called Biloya Selection One is acclaimed by PT’s Coffee for its “syrupy pineapple sweetness that’s supported with deep blueberry overtones,” while an offering from Panama’s Bambito Estate is lauded by Groundwork Coffee Co., a Los Angeles firm, for its “juicy, apple-cider-like texture and sweetness that pairs decadently with tones of dark chocolate, pepper, and clove.”
On a leafy side street in New York’s Chelsea neighborhood, other discoveries are showcased at Café Grumpy, where cheerful baristas preside over steady sales of individually brewed, single-origin coffees and espressos. Coffeehouse co-owner Caroline Bell says she secured a bag of the prized Esmeralda beans before May’s recordbreaking auction, through a roaster who had a direct relationship with the farm. A 16-ounce cup of the famous java was the most expensive item on her August menu and, at $8, was far closer to what nearby restaurants were charging for a glass of pinot noir.
With its notes of Italian bergamot, orange rind, lavender, and jasmine, the coffee was worth every cent, according to Café Grumpy barista Jay Murdock. Customers apparently agreed, snapping up about 80 pounds of the café’s 100-pound allotment before Labor Day. (The café is saving the rest for the holidays.) Bell says that ultra-discriminating coffee drinkers are akin to those who shop at farmers markets: It’s the difference between buying waxy tomatoes in a supermarket and springing for a Brandywine heirloom cultivar. Or perhaps it’s the difference between the aroma of a boxed wine and the toast-and-cherry-tinged nose of a ’95 Shafer cabernet sauvignon.
Yes, coffee beans.
Anything described as “explosively floral on the palate” by the Specialty Coffee Association of America might be expected to attract a certain amount of attention, especially after being named the world’s best coffee by the association for three years running. A judge from Kansas City scored it a perfect 100 in this year’s Best of Panama competition. A Seattle coffee executive blogged that “its aroma practically sings to you from between endless rows of other exemplary coffees.” A New York barista dubbed it the “undisputed heavyweight champion of coffee.”
La Esmeralda Special is all the more remarkable given that, a decade ago, the spindly trees that produced the beans were little more than windbreaks owned by the family of a prominent American banker. But while the hefty price may be a curiosity, Esmeralda’s popularity signals a broader shift in an industry where quantity, not quality, has long reigned supreme. In a post-Starbucks world, specialty coffee has become a hot commodity, and La Esmeralda Special is far from alone in the upper echelons.
“I think we’re seeing a fundamental shift in the coffee industry in terms of making coffee much more of a personal and exciting beverage than it ever has been,” says Susie Spindler, executive director of the Alliance for Coffee Excellence, an organization in Missoula, Montana, that runs the Cup of Excellence competitions and online auctions in eight countries.
The most recent rush of excitement has been over a roasted bean variety called Geisha. Originally from Ethiopia, the relatively low-yielding but disease-resistant Geisha trees were transplanted to Central America in the 1950s. They were soon yanked from coffee farms, however, as the market shifted to mass production in response to exploding demand.
In 1964, Swedish-born Rudolph Peterson, then chief executive of Bank of America, bought Hacienda La Esmeralda, a dairy and beef farm in Panama’s Chiriqui highlands. The property was eventually passed on to his son Price, who in 1996 expanded the family’s holdings, buying a nearby farm with a “mish-mash” of coffee trees on its upper reaches, according to Price’s son Daniel. Almost immediately, the family could smell and taste something special in the cups of coffee produced from the farm’s beans.
When they isolated the taller Geishas and planted more at a slightly higher altitude for the 2003 to 2004 season, the coffee really blossomed, Daniel says. In 2004, La Esmeralda Special swept the intense Best of Panama and Rainforest Alliance cupping competitions—at which the few dozen entrants with the best aroma, sweetness, mouthfeel, flavor, aftertaste, and balance are identified—and set the first of its auction records with an online price of $21 a pound. “This is a flavor that had not been found in the Americas,” Daniel says. It can now be found at high-end online retailers and some of the best coffeehouses in the U.S. and Canada.
At a basic level, industry insiders are increasingly defining well-regarded specialty coffees by what they are not: blended or—Sacre bleu!—French roasted. Jeff Taylor, co-owner of PT’s Coffee Roasting Co., in Topeka, Kansas, says top buyers, wholesalers, and retailers are more interested in single-origin coffees and lighter roasts that highlight a bean’s best features.
Like a vineyard’s grand reserve wine, the finest coffee beans are often found in microlots, or small subsets of farms like Hacienda La Esmeralda, where, as Taylor puts it, “all of the stars align.” In the partial shade of the higher-elevation lot, Esmeralda’s Geisha trees may not be models of productivity, but the slower cycles let them pack more sugars and oils into their beans and turn heads in coffee competitions.
Coffee enthusiasts also make comparisons with the wine industry’s success in marketing nuanced vintages; some boast that chemists have identified about 850 natural compounds contributing to the flavor of roasted coffee—many more than in a classic Bordeaux. An Ethiopian coffee called Biloya Selection One is acclaimed by PT’s Coffee for its “syrupy pineapple sweetness that’s supported with deep blueberry overtones,” while an offering from Panama’s Bambito Estate is lauded by Groundwork Coffee Co., a Los Angeles firm, for its “juicy, apple-cider-like texture and sweetness that pairs decadently with tones of dark chocolate, pepper, and clove.”
On a leafy side street in New York’s Chelsea neighborhood, other discoveries are showcased at Café Grumpy, where cheerful baristas preside over steady sales of individually brewed, single-origin coffees and espressos. Coffeehouse co-owner Caroline Bell says she secured a bag of the prized Esmeralda beans before May’s recordbreaking auction, through a roaster who had a direct relationship with the farm. A 16-ounce cup of the famous java was the most expensive item on her August menu and, at $8, was far closer to what nearby restaurants were charging for a glass of pinot noir.
With its notes of Italian bergamot, orange rind, lavender, and jasmine, the coffee was worth every cent, according to Café Grumpy barista Jay Murdock. Customers apparently agreed, snapping up about 80 pounds of the café’s 100-pound allotment before Labor Day. (The café is saving the rest for the holidays.) Bell says that ultra-discriminating coffee drinkers are akin to those who shop at farmers markets: It’s the difference between buying waxy tomatoes in a supermarket and springing for a Brandywine heirloom cultivar. Or perhaps it’s the difference between the aroma of a boxed wine and the toast-and-cherry-tinged nose of a ’95 Shafer cabernet sauvignon.
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