Stock Message & Chat Boards

As someone who enjoys monitoring stock message boards and online forums, I am going to give you my opinion on how to utilize and monitor these boards.

My first piece of advice is to assume any non-factual post on a forum is self-serving – i.e. if the post is not factual information from a press release, issued financial statements or a document on Sedar or Sedi, you must be skeptical of the poster’s intentions. That is not to say that most posts are disingenuous, but you must start with the presumption they are disingenuous.

You must always be aware of pumping and dumping. This typically occurs with thinly traded stocks where someone purchases the stock and then, usually under several aliases, posts great things about the stock on stock forums. There have been cases of this in the US, the most notorious involving fifteen year old Jonathan Lebed who bought thinly traded stocks and flooded market forums with messages touting the stocks. When he achieved his goal of pumping the stock he would sell. He supposedly made over $800,000 in this manner until the SEC caught up with him and he negotiated a $300,000 settlement without admitting any wrongdoing.

Once you have accepted that you must be skeptical of every post, you then need to weed out the, how shall we put this, “the less intelligent posters.” Most boards have a significant percentage of unsophisticated posters who really have no idea what they are doing or saying. Weeding those investors out is the easiest part and you can just simply put them on ignore. What is trickier is ensuring the intelligent posters have no vested interest other than a community discussion on the merits of a particular stock.

There is no shortcut in determining which posters you should follow. Most forums allow posts to be recommended, so you should start with the most recommended posters, but recommendations are sometimes based more on quantity of posting than quality, so that is not enough on its own.

You have to read posts to determine the knowledge of the poster and the quality of the posts and, after a while, you begin to grasp which posters are worth reading. This can take months or even years. For example on the Investor Village board, I have always read the posts of a certain poster with interest. He has great knowledge in the Oil and Gas industry and over time has picked several winners in the Oil and Gas patch with one big miss.

Within stock forums, a Darwinian effect can even take place where better posters are hand selected to become part of private forums. This eliminates having to weed out the posters who have no clue what they are talking about.

Where private boards are not started, the Darwinian selection works well, since other excellent posters become attracted to those they perceive as intelligent and certain boards then fill up with good posters. For example, the poster I discuss above is like a pied piper, wherever he goes other intelligent posters seem to follow. A good board will have a mix of posters, some who are great researchers and find every piece of public information on a company, those that have an expertise in a certain field (i.e. are in the Oil and Gas business or are medical professionals following bio-tech stocks) those that can interpret legal documents and those that can interpret financial information. When a board has all those attributes, you have increased your odds with the investment as ownership of that particular stock is constantly questioned or reinforced.

Reinforcement is a major issue if you read message boards. The board can become so enamored with a stock that people lose objectivity as the posters each reinforce the brilliance of their investment in a particular stock and anyone fairly questioning that opinion if often treated as a “shorter,” someone who wants the stock to drop. Human nature being what it is, this is the hardest issue to safeguard against, as greed becomes contagious and the herd mentality overruns objectivity.

If one has the time or inclination, stock forums can be a valuable asset in monitoring your investments and finding new investment ideas. However, remember its caveat emptor or in this case, let the message board reader beware. 


Door in the Face

As I was walking into my office building last week I was behind a young woman. She opened the door, did not look behind her, and just kept walking. If I was not paying attention, the door would have slammed in my face. As I was taught from a young age to always hold the door open if someone is behind you, I find it rude when someone does not follow suit. Anyway, I did a little mental experiment and tried to follow close behind several people over the next couple days to see if they held the door. I would say it was about 70/30 in favour of those holding the door open. But, for those that did not hold the door, there was no indication that they even considered there was the possibility of anyone being behind them. I also found it interesting that in my non-statistically significant sample, it was younger women in general who paid no heed. I am not sure if that has any meaning, maybe they are used to having the door held for them.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

The Blunt Bean Counter Mentioned in Globe Investor / The Reader

Thanks to Rob Carrick of the Globe and Mail for noting my blog on the taboo of money (Intergenerational Communication Gap) in his Personal Finance Reader Blog.

Rob is, of course, a well-known and respected business writer for the Globe and Mail contributing Personal Finance and Portfolio Strategy columns. He also has a unique Facebook page which encourages interaction with his readers and showcases a genuine care for his readers and their opinions.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Intergenerational Communication Gap

In an article for CNBC, author Jessica Rao quotes Dr. Nancy Molitor, Clinical Psychologist and Public Education Coordinator for the American Psychological Association, as saying “Money is the most taboo, fearful subject that we can encounter as people.” An inability to discuss this taboo subject can have tremendous implications when taken in context of families and their money.

We are all familiar with the term generation gap, but the lack of communication between generations can be very costly from a both a financial and social perspective. The substantial wealth transfer taking place in Canada from parents to children, or from children to parents, makes clear communication between generations more important now than ever, yet the communication is mitigated by this taboo topic of money.

So what am I talking about? Let’s consider Emily, a widower with two children. Emily’s husband Bob passed away a couple years ago, but during his lifetime he amassed a significant estate due to the sale of his composite hockey stick company ten years ago. Emily has two children, John, a Bay street lawyer making $800,000 a year and living in the upscale Toronto Rosedale neighborhood, and Susan, stuck in a bad marriage, who never finished University and married early.

Emily was brought up in an era where you don’t discuss your family assets with your children. John knows he will inherit millions of dollars when mom passes away, but gives it little thought as he is very comfortable and only acknowledges the inheritance in that he does not fully contribute to his RRSP. Susan on the other hand has had a somewhat strained relationship with her mom since her early marriage. Although they  are currently on better terms,  Susan is too proud to ask her mom for money and she does not think she would receive a warm reception even if she got over her pride and spoke to her mom about her finances. What Emily does not know is that Susan’s husband is a cocaine user and she would like to leave him, but she is concerned about how she could survive. She also would give anything to go back to University to become a social worker, but that is currently just a dream.

Now imagine if everyone felt comfortable discussing money? Those that know Emily, realize that she would give Susan some sort of early inheritance, but she does not want to insult Susan and she is not aware of her husband’s issues and Susan’s dreams. Further imagine you were brought in as a family friend and could open up the intergenerational communication gap. Emily would be thrilled to provide an early inheritance to allow Susan to leave her husband and pay for the legal bills and, with Susan free of her husband, she would have the financial ability to go back to school to pursue her dream of being a social worker.

How is this gap bridged? I can’t answer that question. But I know I have advised clients who have the financial means that they should try and have a heart to heart with their children in respect of their children’s financial needs.

How about the alternative scenario of children who have the means to support less financially secure parents? Sam is a widower. He was a factory worker who scrimped and saved to buy a house and put his two kids through school. Sam does not have enough money to retire and decides to obtain a reverse mortgage on his house such that when he dies, the mortgage owing is deducted from the sale proceeds of the house. This is often a costly form of financing.

Sam is too proud to approach his children about his financial situation. However, if you were able to bridge the intergenerational gap, you would be able to inform Sam that his children, who are both successful, feel that they owe everything to Sam and would be happy to either gift dad some money or provide him a loan at lower interest then the bank so he wouldn’t have to reverse mortgage the house.

The two scenarios above have many variations. However, pride, secrecy, and perceived “grabbing of the family money before the body is cold” prevent any kind of open communication.

I have no magical fix, however, if you are the parent, consider speaking to your children about their financial situations and dreams to see whether you can assist them in realizing those dreams. If you are tight for money in retirement, at minimum let your children know if you are undertaking a reverse mortgage or similar financial arrangement so they can potentially assist you or, at a minimum, understand that your estate has been compromised by a mortgage. 

If you are the child in need, have a frank conversation with your parents to let them know your issues so they don’t perceive you to be “money grabbing” and, if you are a successful child with a parent of limited financial resources, offer to help or to pay for your financial advisor to sit down with your parent.

Maple Leaf Rant

Little did I know that when my parents let me stay up late to watch the Toronto Maple Leafs win the Stanley Cup in 1967, that it would be the beginning of a Stanley Cup drought of 43 years and counting.

So when the Maple Leafs hired Brian Burke a couple years ago as general manager, I was pleased. Burke had success with the Anaheim Ducks, seemed to have the sense of humor needed to deal with the Toronto sports media and had an aura that said “Don’t worry, I know what I am doing and I will get it done.”

In my opinion, Burke also arrived at a time that Maple Leaf fans were so worn down by mediocrity and worse, that the Leaf Nation would allow him time to build properly using the draft and astute signings.

However, for some reason, Burke, who I am sure would succeed 8 times out of 10 as a GM, seems to have badly misfired in Toronto; as surprisingly, he, and not the Leaf fans, appears to have limited patience.

Burke’s first puzzling move was signing Martin Gerber late in the 2009 season to bolster a weak goaltending situation. As a fan, I was ecstatic that the goaltending was weak. The Leafs had a chance to get into the lottery for a top pick and poor goaltending may have helped them lose games and achieve a higher draft pick. However, Gerber won several meaningless games for the Leafs that year to move them down to the seventh draft pick. Considering Gerber was then released following the season, his signing was the first perplexing move made by Burke.

The second odd move occurred when Burke started signing veteran free agent defensemen the next fall. Once again, one would have thought he would have traded all the veterans for younger players to build from youth and to ensure a high draft position the following season.

The third and most puzzling move was the trade of two number one draft picks and a second round draft pick for Phil Kessel. One can understand Burke’s thinking in that Kessel was young and his acquisition was like getting a guaranteed number one choice. However, the Leafs gave up three draft picks and if Kessel (a player whose temperament has been questioned) performed well, he would seemingly only help the Leafs to maybe fight for one of the last playoff spots.

Well, we all know that last year, the Leafs did poorly and Boston got the Leafs’ second pick in the draft and it now looks like the Bruins may get another high pick this year. Burke may end up building the Bruins, not the Leafs. Meanwhile, the Leafs only have a few individual players who appear to be useful for the future and no draft pick again in 2011.

The whole direction Burke has taken has been very confusing and disappointing and I now have gone from having confidence to being sceptical that Burke can fix the Maple Leaf mess.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Comments and Best Wishes

The Blogger stats for this site reflect a significant increase in readership as of late. I appreciate that people other than my mom are now reading the blog. For those reading, it is not very clear, but there is a comments button at the bottom of each blog entry, beside the little panel with Twitter, Facebook, etc. Please feel free to leave your comments, I would be happy to answer a question or engage you in debate.

This is my last blog entry for this year. I have what I consider some interesting blog topics for January, but the readers will be the judge of that.

I wish you all a Merry Christmas/ Happy Holiday Season and all the best in the new year.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

One Big Happy Family - Until We Discuss the Will

What I want to discuss in today’s blog is the issue of whether parents should discuss their will with their children.

When there is a “black sheep” child in the family, or a child who is not treated equally in the will, I expect that a family meeting would likely be a disaster. But what about a meeting in situations when the children are treated somewhat equally? There is no right or wrong answer, but I think a family meeting is wise. Any meeting of this type can turn ugly because of money issues, but more likely, any ugliness will be the result of historical family jealousies or resentment over some prior issue or treatment. Nevertheless, if you feel you can navigate the minefields noted above, the family meeting can be very effective and useful.

The family meeting could be used to deal or clarify several different types of issues. For example:

1. Possible perceived inequalities: The meeting could be used to explain why you have left your Picasso to your daughter instead of your son so that he doesn’t feel slighted when the will is read. This discussion could involve explaining that since your daughter studied Art History at university, you feel she would appreciate the Picasso; however, since it is worth $500,000, you have left your son $500,000 of stock to equalize (or you have not tried to equalize, you can explain why face to face). Also, where you have left more money to one child (perhaps they make less money than the other children), you can use the meeting to explain why and explain that it has nothing to do with loving that child more, you are just helping them since they have not been as fortunate as the other siblings.
2. Determine wants and needs of the beneficiaries: Many families have second properties such as cottages or ski chalets. Some children may have attachments to these properties while others might not, or maybe you are not sure whether any child would want to take over the property when you pass. A meeting provides the opportunity to raise the issue for your children to decide among themselves if they will want to sell the property, share the use, or have one child inherit the property. This issue may be best discussed prior to a will being finalized.
3. Deciding on an executor: Most children have no idea of the responsibilities and the burden of being named an executor of the will. You can broach this topic at the meeting to explain the duties of the executor and determine if the children or child you wish to be an executor(s) are/is willing to undertake the position. (Click here to view an article regarding the duties of the executor).
4. Full disclosure: Finally, depending how open you wish the meeting to be, you can provide a current list of assets to your children so they know what assets you own and where they are held. You should also provide such a list to your accountant or lawyer, or put such a list in your safety deposit box, but you must ensure such a document exists and someone knows where it is.

The decision to have a family meeting to explain your estate planning while alive and in good mental and physical health is a complex decision based on past family history and relationships. However, if you feel the meeting can be held without creating a “civil war,” it gives you a great chance to explain your estate planning and to get everyone onside.

The Dentist’s Wallpaper

There is not much to do while you are in the dentist’s chair, especially if you are not lucky enough to have nitrous oxide administered. Personally, I look for anything to take my mind off that damn drill.

One day while having a cavity filled I started reading my dentist’s wallpaper. Before you say “I think you really did have nitrous oxide administered and maybe too much,” you must understand my dentist’s wallpaper actually has “life quotes” all over it. One of the quotes was “Life is Hard by the Yard, But by the Inch Life’s a Cinch.”

I don’t want to get all philosophical here, but I just found the quote so interesting; it actually took my mind of the drill. Such a simple adage that says so much.

We all can get overwhelmed when we look at all the tasks and requirements of our daily lives, but if you break those tasks down into bite-sized pieces, the totality of all the tasks is less overwhelming. Although this is easier said than done, I do try and remember this quote when I feel overwhelmed.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

The Blunt Bean Counter Mentioned in Weekly Blog Roundup

Thanks to Larry MacDonald, author and contributing columnist to the Globe and Mail, for mentioning my blog in his Weekly Roundup of Blogs. Larry’s blog covers various investment topics.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Capital Loss Strategies

The newspapers are filled with the typical year-end tax planning and investment strategies. It seems the number one strategy in almost all of these articles is to trigger any unrealized capital losses in your portfolio to use them against any capital gains you realized in 2010.

Well, what if you don’t have capital gains or you have capital losses galore from some prior investment mishap? Or, how about the case where you have gains and your spouse has losses, or vice versa? I will examine a couple strategies for 2011 to take advantage of these lonely unutilized losses.

Flow-Through Shares

The first strategy you may wish to consider is the purchase of a Flow-Through Tax Shelter (“Flow-Through”). Please see my September blog entitled Are You a Flow-Through Junkie for a discussion of Flow-Through’s. As noted in the Flow-Through blog, flow-through’s generate a capital gain upon disposition.

So following the $10,000 example in the September blog, you purchase a Flow-Through tax shelter in 2011 for $10,000 which results in income tax savings of approximately $4,600 in filing your 2011 income tax return and leaves you out of pocket $5,400 ($10,000-4,600). It should be noted that the adjusted cost base of your flow-through is now nil.

Typically the Flow-Through funds roll into a mutual fund 24 months following their purchase. If you sell the mutual fund 24 months later for the same $10,000 you purchased the fund for, and apply $10,000 of your unused capital losses, you would end up ahead by $4,600 on the investment ($10,000 cost -$4,600 in tax savings - $10,000 proceeds of sale). You also have downside protection. In the example above, where you utilize your capital losses, the value of the investment could fall to $5,400 and you would still break even.

Of course you and your investment advisor must evaluate the investment risk and consider that commodity prices may drop, or the market for junior resource stocks may deteriorate.

Transferring Capital Losses to a Spouse

Many couples trade independently and even if they trade together, one spouse may have realized capital gains while the other spouse has unrealized capital losses. Because the Income Tax Act does not permit transferring losses directly to a spouse, the typical strategy of selling stocks with unrealized losses to net against realized capital gains is not applicable. However, you are not out of luck.

The Income Tax Act prevents taxpayers from triggering a loss by selling a property to an affiliated person such as a spouse thorough the superficial loss rules. However, using proper tax planning, spouses can utilize the superficial loss rules of the Income Tax Act to allow one spouse to offset their gains against the losses of the other spouse.

Say June bought Glowing Gold Mines for $20,000 and the shares are now worth only $5,000 while her husband Ward is a sharp trader and has numerous gains. In order to transfer June’s capital loss to Ward, she sells her stock on the open market. Ward then immediately buys Glowing Gold Mines on the open market for $5,000. June’s losses are denied under the superficial loss rules because Ward, an affiliated person, has purchased the same security within 30 days of June selling.

But in an ironic twist of income tax fate, June’s loss of $15,000 is denied, but it is added to the cost base of Ward’s shares. His Glowing Gold Mine shares now have a cost base of $20,000 and if he sells them for $5,000 at least 31 days after purchasing them, Ward will have a $15,000 loss to claim against his capital gains even though he only purchased the shares for $5,000.  

Radar Traps

I think we can all agree, police radar traps are a necessary evil in school areas and on neighbourhood streets and certain other areas where speed could result in a fatality. However, it is another story when radar is set up as an apparent money grab in what we perceive to be non-risk areas. Of course, you know where I am going with this.

On the weekend I was driving on the 401 Highway in Toronto which has a posted speed limit of 100, but of course everyone drives between 110 and 120 km per hour. I was driving to an appointment around

Black Creek Drive , an area that I am not very familiar with.

The cut-off to Black Creek appeared to be a continuation of Highway 401. I was not going much faster than the speed of traffic and, in the middle lane, was not aware or even considering that the limit could have dropped. However, to my consternation, as I was flagged down, I learned that the speed limit for this cut-off was 80 km per hour.

The police officer was very fair to me under the circumstances, and I have no issue with him, my issue is the placement of the radar in this area. I told the police officer that having radar in this area is “like shooting fish in a barrel” and he did not disagree. This is one of those “it is what it is” issues, however, that does not mean I cannot publicly vent – one of the benefits of this blog.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs. Please note the blog post is time sensitive and subject to changes in legislation or law.