This is my last post for this month; I am in the process of moving my office, upgrading the blog and then going on vacation. I hope you have an outstanding rest of the month and rest up for return of the school (which, from all the parents I have spoken to, cannot come soon enough). I wanted to end the month with some tips on increasing your earning potential without asking for a raise or starting your own business (which, as once said to me, entrepreneur is French for poverty).

1. Hold a garage sale:  You’ll be surprised what you consider junk is worth something to someone else.  Earlier this month, I handed off some really old electronics to a friend of mine having a garage sale and told him he could take a cut of whatever he sold for me. We didn’t do that badly. If you have a lot of friends who live in condos or apartment buildings, you could ask if they want you to unload anything for them and perhaps charge a small fee. Even if you do not, a lot of “stuff” on your lawn tends to attract a lot of people potentially increasing your sales.
2. Work a “one off”/festival event: I better explain this one. A friend of becomes a waiter for one-weekend a year. She use to wait at this bar for several every year before taking an “office” job. There are two extremely large events in Toronto every summer that attracts a lot of out of town visitors and one of these events happens to occur in the neighborhood of the bar. So, every summer, she helps this bar on the weekend this event occurs and works on tips only. She does quite well and has a lot of fun (tourists tend to be good tippers and everyone is quite “happy” from the alcohol in-take). If you have an opportunity to work on the weekend of a festival, it is a good opportunity to earn some extra cash at a very exciting venue/event.
3. Become a handy with tools: When I was a teenager, a family friend of ours went to night-school and got his locksmith qualifications. He had a perfectly decent job; I am not exactly sure why he did this although it had something to do with the fact his job was very boring. But he use to change locks for us every once in a while. He never did enough locks to be considered a part-time job but he made some spare cash every once in a while. Given the trades shortage, if you are a handy-person, you may be able to help people every so often for some cash.
4. Get paid to take surveys: There is a limit on how many surveys you can take in any particular time but, having done one myself, its fun (you could be asked on something that could become huge), you meet new people and you make a little bit of money on the side. I am posting next month on making money on taking on-line surveys/contests. So more to come on this larger topic.
5. Work for the events industry: This is related to tip #2. I define the “events industry” as any business which makes its money on events- companies which hold singles events, caterers, moving companies, photographers etc. etc. These types of business tend to need warm bodies on the day of their events to do a variety of things- some require some specialized skill and others do not. However, because they are event/transition driven, they do not tend to have a lot of full-time staff; they ramp up people for the event especially during the busy season. When I was in University, I use to be a security guard at a library on nights groups booked their conference room- I use to work about once a month; it never felt like a job given it happened so infrequently and not on a regular schedule (I could turn down things if I had something to do that night because they had a 3 person rotation).  Accordingly, this industry tends to need a lot of occasional staff where availability is more important than longevity. You can end up working a couple of times a month and not be tied down like a traditional job. Most of these businesses understand that you will come and go. A good upcoming event would be university orientation week- most businesses tend to need bodies to be on campus promoting their goods or services or the campus book store may need some additional staff.

If you have any other tips, please feel free to share. Enjoy the rest of August.

As I mentioned in yesterday’s post, my spending got slightly over my normal pattern and the loose budgeting system I have needs to be readjusted. In these times, there are a few budgetary and cash flow measures I tend to do in order to control my personal finances. To give you some indication of what is happening (and why these measures are a little more important than usual), my quarterly personal tax installment is due on or before September 15 and I tend to pay this on or about September 1 so the tax-man is getting its share of cash in the bank.

Accordingly, these are the steps I immediate take when my spending gets a little out of control:

1. Pay for everything by debit card/pre-pay the credit card: Some personal finance books suggest that you throw away your credit card in order to control spending. I tend to disagree unless you have some serious shopping issues and cannot control yourself. Destroying a credit card is a short term solution but canceling the account may actually damage your credit score if the credit history on that card has been relatively good (see my previous post on this topic). If the payment history on that card is terrible than the long term effect may not be that important. What I do instead is move to paying for everything by debit card- which is the same as paying for things in cash. Because I do not believe in walking around with a lot of cash, if I have to buy anything more than $200, I will charge this on my credit card and pre-pay this item as soon it is posted on my credit card (weekend transactions are usually posted on the next business day so I call two business days after the transaction to see if it has gone through). I end up with points on the credit card but know that the item has been paid off within a week.
2. Make an immediate contribution to my emergency funds: I handicap my cash in the bank by moving money to my emergency fund (a part of which also doubles as an acquisition fund if stocks get really cheap). Given the steps in #1, I immediately have less cash to spend, reducing spending, and I also have the comfort in knowing I have some more funds set aside; adding to emergency funds tends to put me in a psychological comfort zone as well.
3. Increase my grocery spending: This seems counter-intuitive but the easiest way to save money is to eat at home or brown-bag it more often. Thus, my grocery bill goes up as I buy more food to force myself to eat at home, reducing the money I spend at restaurants.
4. Empty my change jar: It was once observed that women carry change more often than men. Women have purses to carry change; men already have enough trouble keeping their pants up without putting change in their pocket. I fall into this observation and I have literally jars of change in my house. Last time I counted out my change, I “made” $100 which allowed me to replace my old towels. You have enough jars and you could pay for a grocery bill some time (just please do not count it out in front of me at the cashier’s).
5. Spend more time with family: Instant free entertainment, the wisdom of elders, an occasional free meal and leftovers to take home. Not a bad time all around.

One of the loyal readers of this blog operates an environmentally friend landscape service; one of the owner-managers comes to your house on his bicycle rather than a car. He has often asked me if I could write a post on “making green by being green”- a post on investing in environmentally friendly goods and services. I have been struggling to write this post- not for a lack of material and/or research on the topic but because it is difficult to me to write on the topic of saving when we live in a socio-economic system based on consumption. Let me explain.

Last week, I received my credit card bill from last month and it was a shocker. It was about $500 more than I expected; to put this in context, my normal credit card bill is approximately $500. It is my normal pattern to spend more money in the summer than the winter because I eat and/or drink out more with friends and I am currently re-doing my place so the bill did have several home depot entries on it. But it was still shocking to see such a larger bill especially in a week where my stocks lost several percentage points on their value. Net worth going down and expenses going up is not a good combination. Tomorrow’s post deals with some measures I have taken to combat the spending side but I wanted to address the consumption bug today.

I am not going to blame the advertising industry for this- an ad guy didn’t come to my door, drive me to a store and forced me to spend at gun-point.  However, I do find it increasingly hard NOT to spend (I am not known as someone with a lot of “stuff” in their life so I do not post on this lightly); our entire society seems wired to spending. It seems increasingly hard to avoid anything where the implied message is to spend. Go to the movies and you see product placement. Ride the subway and the floors, ceilings and the inside/outside of the subway are plastered in advertising. Go to the bathroom and there are ads over the urinals. Ride the elevator and there are television screens flashing advertising. How can we not avoid messages to spend money?

We almost seem to be a race to see what will happen first- we, collectively, run out of cash or global warming wipes us out. If its the latter, at least we will be wearing this season’s latest rain gear in our newly renovated house. Last week was a perfect example of our priorities being wired to consumption- the central banks response to credit fears was to lower interest rates so that banks can lend us more money to buy more things forgetting for a moment what partially got us here- people with bad credit getting cheap money to spend to keep the “system” going. What are people buying? luxury goods. Yep, all that money going towards $1200 purses and $1500 brief-cases: a lot of consumption on, in the larger scheme of things, frivolous things.

In this context, it makes me difficult to write about a topic which is counter-intuitive to our society. Imagine running an environmentally friendly company and trying to fight the uphill battle of telling people that they can make money by teaching people how to save and conserve more; it is a 180 degree turn from how businesses usually attract investors- invest with us and we’ll get people to buy more computers, clothes, cars etc.

Perhaps I am a little over-spent or perhaps I would like to go somewhere without being sold something. Does anyone else think we are nothing more than a walking dollar sign to big business?

I wanted to end the week with a compilation of books that readers have emailed me that they enjoy. The list has a little bit for everyone so feel free to explore them all. As a side-note, I attempted to determined how much money I have saved borrowing personal finance books this year rather than buying them and I estimate approximately $250-$350 savings so far. Borrow these books, save some money and learn something new! Have a great weekend:

Four Pillars named his blog after the book “Four Pillars of Investing: Lessons for Building a Winning Portfolio.” Four Pillars writes: “I think this book is one of the more logical financial books that I’ve read in that it makes exhaustive use of historical data and statistics to show that you can’t beat the market so the best strategy is to index with the lowest costs possible.  It has a great section on the psychology of investing which covers a number of historical boom and busts which he uses to show how the markets always come back in the long run and how the important thing about investing in equities is to stay invested in good times and bad.  He also talks about asset allocation and makes a very convincing argument that all investors regardless of their age should have a significant equity allocation in order to beat inflation. To sum up:  A great book!”

The Financial Blogger recently reviewed the book “Why You Want to Be Rich” by Donald Trump and Robert Kyosaki. Reader Michael recommends the same book but only the Kyosaki part (!).

Reader Judi recommends “Balancing Act- a Canadian Woman’s Financial Guide” by Joanne Thomas Yaccato” which she describes as a “simple book full of really practical stuff. Its geared towards woman but applies to everyone.”

Reader Nancy writes that you can’t beat the classic and recommends the Wealthy Barber by David Chilton. David Bach’s series of books on (Finish Rich for Couples, Finish Rich for Woman etc.) are along the similar lines as Chilton’s book and his entire series is a good starting point for anyone who is a beginner in learning about personal finance.

Last, but not least, reader Alan writes that “you have to start with the original- Think and Grow Rich” by Napoleon Hill. If you have not heard of the book, the book summarizes lessons learned by the author from Andrew Carnegie. The book was published in 1960 and many of the lessons brought to light by Hill resonate in the works of the likes of T. Harv Ecker and other authors who explore the psychology of achieving financial independence.

As of noon today, the TSX lost all of its gains in 2007 and panic seems to have set in with traders who are taking risk in one part of the economy (institutions who lent cheap money to risky borrowers and, to their utter amazement, have found some of the loans will not be repaid on the book of loans is not worth what they were supposed to be worth) and blanketing the entire stock market with this risk. I am always reminded what a trader friend once told me- the traders are most young and have never seen a correction before; they may not have the wisdom and experience to see the forest from the trees when things go down. This appears to be happening.

There are a few things to remember:

1. If you see a stock as a commodity that you flip, then you are having an extremely rough summer. If you see a stock as a cash flow generator (via dividend payments) or a long-term asset, please enjoy your summer holiday and collect your dividend cheques as per usual.
2. This, believe it or not, is a good thing. It removes some of the naked speculators and those who bought on large margins from the market. The fact that this has happened so rapidly in such a short period of time is tantamount to choosing to remove a band-aid slowly or quickly. I would rather be in pain for a short but intense time than a prolonged time (assuming we hit bottom in the next month).  No one should shed a tear if a few hedge funds and financial institutions with questionable lending or investing practices go under. Remember who the subprime mortgage market lent to: NINJA (no income, no job, no asset). Do you really want these players in the market too long?
3. Change equals opportunity and the cream always rises to the top. It is time to start sharpening those pencils and looking for deals. Some blue chip companies have been overly penalized. Remember that for most big banks, their subprime or bad credit exposure is in the millions but they have assets under management of several billion. Look at the context and you’ll start seeing some bargins.
4. Look at the unemployment rate. Its low. Interest rates are relatively low.  The economic fundamentals continue to remain intact.

Tomorrow, we’ll wrap up Personal Finance Book week. A no-prize for whomever guesses which artist and song I quoted from in the title of this post.

This is a timely review given how violate the stock market has been recently. Research has shown that in recessions and economic downturns, the best sector to invest in is the “sin” industry (more on what this constitutes later); people drink and smoke no matter what the economic cycle and probably do more of it in bad times. To this end, Caroline Waxler, a financial journalist, wrote about the advantages of investing in sin in 2004 (which, assuming it took her a year to write the book, would be in the middle of the tech melt-down). A quick look at the Vice Fund shows that this pattern appears to be holding up. As of yesterday, the Vice Fund was up 6.68% this year- not a bad return. If you add back in the MER of the fund, the Vice Fund would be returning several % points more than the S&P 500 and TSX this year (as a side-note, check out the banks- many of them have been unfairly punished during this correction).

The book can really be divided into three sections. The first section argues that the sin industry is one of the best defensive industries to invest in and is recession proof (consumer staples are supposed to be recession proof as well but margins tend to be smaller on a loaf of bread than a bottle of gin). To cite one of her examples, the S&P 500 was down 33.01% for the 3 year period prior to June 30, 2003 but the Vice Fund was up 66.36% during the same time.

Waxler then tackles the issue that we all face when we invest in sin. Do we sleep easy at night investing in booze, smokes, sex and drugs? It would be unfair to characterize Waxler’s attitude toward the ethical dilemma of investing in sin as indifferent but she certainly shrugs off any concerns about adding to the coffers of big tobacco, the sex industry and the weapons industry with relative ease. Of course, if she wrote that investing in sin is morally reprehensible, she wouldn’t have much of a book would she? Her arguments are manifold. From an investor perspective, investing in ethical funds makes one sleep better at night but you would be hard-pressed to put food on the table with its returns and high-fees to manage these funds. Waxler also raises the definitional issue of what constitutes sin. Is taking viagara a sin? Then, you shouldn’t buy Pfizer. It is a bit of a slippery slop argument because some religions argue that making money from interest is a sin and, ergo, all banks are sin stocks. Nonetheless, Wexler has to sell her thesis somehow.

Using the Peter Lynch principal of investing in what you see, Waxler then argues that the sin stocks you may want to invest in are right in front of us. Are people drinking more? Buy alcohol companies. Have taxes on cigarettes fallen? Buy a tobacco company. Has a war started? Time to load up on defense industry stocks. Subsequently, in the last large section, she analyzes each sub-sector in the sin industry, citing pros, cons, risk factors and best picks. Her sin sub-industries are:

1. Tobacco
2. Gambling
3. Weapons/Defense/war
4. booze
5. sex
6. drugs

The book is a good how-to guide on investing in this industry. Her thesis is not exactly original but she presents it in a well-thought out manner. However, the book is a little mechanical in its reading. It reads very much as an instruction manual- the book could have used more boxes and charts to break up the copy which is dense at times. If you want a paint by numbers guide to investing in sin, this book hits the spot. If you borrowed it in the library because it was the last personal finance book not published before 2000, it makes an above average read but certainly not a page turner.

My take: tastes great but not that filling.

(Welcome to personal finance book week- every post this week will be on personal finance books. Your comments are always appreciated. Enjoy)

I fly a lot and I tend to have strange thoughts as I sit at the gate. One of my more morbid thoughts is what happens if the plane goes down; Will a doctor survive the crash too and take care of us? Will we crash somewhere warm? And, what the heck do I do if I survive a crash on a desert island? I highly doubt my experience would be anything like the t.v. show Lost- I don’t think I would be chased by a rival tribe or forced to press a button every couple of days lest the island explode. More likely, my days would be extremely boring- looking for food, working on my tan and, hopefully, having something to read to pass the time.

Everyone seems to have done a desert island list at least once in their life such as music I would listen to over and over again on a desert island, famous people I would want to spend time with on a desert island, three things I couldn’t live without on a desert island. Why not three personal finance books I would bring with me on a desert island?

My criteria for this list are: (a) they have be enjoyable reads and well-written; (b) they have to stand the test of time: a book on the best stocks to invest in for 2005 isn’t going to entertain me after a few reads; (c) I have to learn something new every time I read the book; (d) it has to teach me more than just about personal finance- money is an outward manifestation of who we are so it has to impart some life lessons as well; and (e) it doesn’t feel like I am being sold on a product/service as I read it. Big list isn’t it? I told you I sit at airports a lot.

To this end, if I crashed on a desert island, these are the three personal finance books I would want to have with me:

1. Secrets of The Millionaire Mind by T. Harv Ecker. A great book on why we think about money in the way that we do and the psychology behind money. Also a great guide on how financially independent people think differently than those who struggle with money. However, the book is really a book about life lessons and not necessarily money lessons. Ecker teaches us to recognize that we are bigger than our problems in life and we should act in spite of our fear. When I read this book, I look at both my life and money. If nothing else, a great think-piece on the interaction between money, our past and our psyche. Having said that, it could tone down the sell-pitch on its seminars and books. This book pushes the boundaries of rule (e) but if I am stuck on a desert island I am not really his target audience am I?
2. The Millionaire Next Dollar by Thomas J. Stanley and William D. Danko. A book outlining a study conducted on wealthy Americans, how they got there and what are the most common characteristics on people who become or are millionaires. The book reiterates that living below your means is more important than household income as a determining factor in financial independence. The book also confirms that achieving financial independence is like anything else worth achieving in life- it takes a lot of hard work. There’s a nice surprise towards the end of the book addressing money and family. It humanizes the study.
3. Stop Working: Here’s How You Can by Derek Foster: Derek Foster retired before he was 35 on a middle-class income by investing in dividend yielding stocks and high-paying REITS and he shares his story with us. The book is published by an alternative publisher so here’s the link to order. The concept works in both Canada and the United States with some small tax adjustments. I have not mentioned this before but I am on the Derek Foster plan as my financial goal (alas, I started it too late in life to retire at 34). Definitely a good read on how to put together a plan towards financial independence including a discussion on how much you really need to retire.

I have listed three books dealing with slightly different aspects of personal finance: the psychology of investing, a study on the key factors on achieving wealth and a wealth-building strategy I am emulating. A little bit of everything for life on a desert island.

What would you take with you if you crashed on a desert island?

Welcome to personal finance book week! Every post this week deals with books on the personal finance topic so let’s get started… about a year ago, I left my copy of Rich Dad, Poor Dad at my parent’s house. About 3 weeks ago, my Dad picked it up and started reading it as his bed-time reading; during one of my frequent dinners with my parents, my Dad turned to me and said that Rich Dad, Poor Dad certainly knows how to confuse financial terms (by way of background, my Dad is a business man and knows his way around a financial statement). Given that the Rich Dad, Poor Dad franchise tends to provoke either very positive or very negative reactions, I wanted to compare Rich Dad, Poor Dad vs. the Wealthy Barber, which was the personal finance book of the early 1990’s and, is considered by some, as one of the first personal finance books aimed at the mass market. It is also the first personal finance book I read.

Rich Dad, Poor Dad’s thesis (to me anyways) is that people should buy assets and not liabilities. However, he defines your home as a liability and not an assets because it does not contribute positive cash flow. Kiyosaki is engaging in basic revenue recognition- does an asset, from a balance sheet perspective, generate positive cash flow on your cash flow statement?  But he tends to muddle the message to such an extent that some people do not list their home as an asset on their net worth statement because it is not generating positive cash flow.

The Wealthy Barber thesis is that the key to financial independence is to pay yourself first and save 10% of your monthly take-home before paying any bill (as I mentioned above, this concept is hardly ground breaking or original but Chilton was one of the first to relay this message at the general public). Chilton’s greatest failing is he recommends people put this 10% into mutual funds- which, as many other bloggers point out, may not be such a good thing if you are investing in the wrong funds.

If someone justed started investing or wanted to begin educating themselves on personal finance, I would recommend The Wealthy Barber over Rich Dad, Poor Dad.  The main reason is the Wealthy Barber takes more of a beginner’s approach and gradually explores the topic.  Rich Dad, Poor Dad starts from a higher level-he pushes real estate investing as a path to financial freedom which may be an imprudence strategy for someone without investing history to suddenly leverage themselves. Rich Dad, Poor Dad also has a chest-thumping, rah-rah, feel to it which is great to get someone motivated to start investing but he makes it sound too easy; some of the strategies cited also really pushes the envelope of tax and legal boundaries (to his credit, he advises that you should seek independent professional advice at all times); the much cited example is that some have interpreted certain passages of the book as supporting insider trading. The Wealthy Barber has more of a practical and gradual approach to financial freedom which more people can relate to. The book is also more realistic- donuts to dollars, its hard to start at ground zero and be financially independent over-night or in a short-period of time. Rich Dad, Poor Dad tends to gloss over this fact.

Lastly, Rich Dad, Poor Dad is not very well written- the logic is spotty at times and there is a lot of glossing over of details. The Wealthy Barber has a more logical approach to the subject matter.

Let me know who you would pick if you only had a choice between these two books.

(Just a remainder that next week is book review week; if you have a favorite personal finance book you want to share, please post a comment or email me at thickenmywallet@gmail.com)

If you sit in a cubicle all day bored stiff filling out form 4-D in triplicate, you may have wondered to yourself whether you should pursue your own destiny and be your own boss. Run your own business. Take Friday’s off. Pursue the path to financial freedom. Stick it to the man! Certainly, statistically speaking, running your own business greatly increases your odds of financial freedom according to The Millionaire Next Door. The tax advantages afforded to the entrepreneur/self-employed are much more numerous than being employed and there are specific government endorsed tax shelters for self-employed not offered to salaried individuals (for example, you can set up an individual pension plan or, depending on where you live, your life insurance can be structured to be tax-deductible). Having advised businesses in a previous life, most business-owners start out passionate about something they do; the financial aspect, both personally and from a business perspective, tends to be secondary to pursuing the passion. However, and sadly, passion doesn’t put food on the table.

Since all our minds tend to wander on Friday’s (especially in the summer) and if you are contemplating what it would be like to run your own business, I wanted to share some of the financial aspects of starting your own business based upon my own experiences and from my former clients.

1. It will cost you a lot more than you think.

Running your own business is equivalent to undertaking a never ending home renovation. Its always going to cost you a lot more than you think and you are in a perpetual exercise of handing over money to someone other than yourself. Printers break, wages go up, taxes are due. As a client of mine once remarked: “I feel like I am in the business of employing other people.” Its always something or another. The biggest shock I discovered was my stationary bill. It was in the hundreds of dollars every single month; who knew how much paper cost? That missing pen was more than a source of frustration- it is money out of pocket.

I, and almost everyone I know, under-budgets what it takes to start a business. If I had to do it again, I would have saved up 6 month’s worth of personal fixed over-head AND 3 months worth of business over-head before I began (I had two months and 1 month and it was tight in the 1st year). This is a lot of money but businesses need a constant infusion of cash to grow. Or, having not had this luxury, make sure your spouse supports you financially in the first year and there is at least one steady income coming into the household during the first year (in other words, don’t start a business and have a kid at the same time).

2. Get some financial protection before you start a business

Financial institutions do not view entrepreneurs in positive lights: we are risk-takers and bankers are risk-adverse. It is an oil and water relationship. Asking for lines of credit, over-draft protection and mortgages after you are self-employed is an uphill battle; bankers think you are going bankrupt at any time (then promptly lose over $500 million on dodgy trades- go figure). If I had to do it all over again, I would have secured my line of credit while I was a salary man and bought a place before I was self-employed. Getting a mortgage when you are self-employed (and you have no spouse to co-sign) is analogous to a trip to the dentist; there’s a lot of poking and prodding involved and even though you get the results you want, you just don’t feel great afterwards. Plan ahead- start picking up financial protection such as lines of credit, life insurance and low-interest mortgages before you head out on your own.

As a related note, never ever use a credit card to finance a business. It is a train wreck in the making.

3. What’s a Salary? The importance of cash over sales

For the first couple of years, I paid myself when I felt like- not because I had lots of money but I paid myself when I felt like I needed to make the rent. This was by far the biggest mind-set change I had to make. No one was going to take care of me but myself so sales were great but collecting on the sales in a timely manner was even better.  I never spend a large amount of time on the income statement (which compares sales vs. expenses). I spend most of the time on the cash flow statement- as long as more cash is coming in than going out, you should be ok regardless of the volume of sales. More importantly, you are taxed on sales but have to pay in cash. Having the sales but not the cash to pay the tax-man is a very serious problem.

If there is one lesson that I learned from starting and running a business it is this- it is TOUGH to do. You can’t have thin skin or you won’t be in the game very long. Most of the clients who I admire are extremely nice people but with a real sense of toughness about them honed by years of battling it out (and running a business is a battle at times; if you don’t feel like working, you won’t get paid so there are days where you have to grind it out even if you have no motivation). I suspect the reason why entrepreneurs are more likely to be financially independent is because of their toughness and a recognition that good luck is manufactured by hard work as much as circumstance. Finally, good entrepreneurs are also good savers because they understand how a cash flow statements should work and that controlling costs is easier than increasing revenue. I suspect many of my fellow bloggers would be fantastic entrepreneurs (if they are not already) because they watch their cash flow carefully.

I would recommend this site as great resource if you are day-dreaming about being self-employed and need some information. This is a blog I read on entrepreneurship that has universal application despite the nationalistic name. Have a great weekend and next week is all about personal finance books!

(Just a remainder that next week is book review week; if you have a favorite personal finance book you want to share, please post a comment or email me at thickenmywallet@gmail.com)

Warren Buffet has been often quoted as invest in companies with economic moats that could with-stand bad times. These companies sometimes tend to be leaders or the largest competitors in their respective industries. Lately, I have read the term “bell weather stock” or “proxy for the industry” used often to described a particular company to invest in. Accordingly, I have attempted to summarize and perhaps add what the bell weather or proxy stocks are for certain industries. Bell-weather stocks may not necessarily be the best stocks to own but their performance, short of company specific problems, tell you how an industry is doing (hence its name); thus, they are proxies on where the market is heading. If you are interested in active investing, I would start at the top with the industry leaders to get a general over-view of the players. As I mentioned in a previous blog, GE tends to be the over-arching stock for the entire western economic so I will not add it to my list.

Mutual fund companies: IGM Financial has been frequently mentioned as the bell-weather mutual fund company of Canada since it owns Investors Group, MacKenize Financial Group and Investment Planning Counsel- each with multiple products and distribution networks (IGM has the largest captive sales force in the country outside the banks). It has been cited by several commentators lately as a great defensive play; if IGM’s sales are down, the entire industries will most likely be as well. I am not familiar enough with the United States to comment on their mutual fund giants (anyone?).

Financial Services: Citigroup, which does everything that a financial services firm should (banking, credit cards, M&A) is supposed to do but many times bigger than most of its rivals, and despite its recent problems (it is considered too big), is considered to be a good bell weather for the financial services industry as a whole given it has its hands in every cookie jar. HSBC would be a good stock to track for international banking given its significant presence in Asia and Europe (to give you an idea of HSBC’s clout in Asia, the Hong Kong currency is printed by them and has the words HSBC printed on the bills). Wells Fargo, which Buffet owns a stake in, tends to be a better bell-weather stock for regional banks and banks with large retail operations. Closer to home, Royal Bank of Canada is the undisputed leader of Canadian banking and as RBC goes, so goes the industry.

Technology: Intel tends to tells us how the hardware market is going, Microsoft tends to tells us how the software market is going and Google tells us how the internet is going. Apple is the uber-tech company since it sells hardware, software and has internet concern through iTunes (although having dropped the word “Computers” from its name, it may be more accurate to describe them under the consumer discretionary category).

Consumer/retail: What else but Walmart? Walmart is rated as the largest company by revenue by Fortune Magazine. As a side-note, has Walmart peaked? It is being strongly contested domestically by Costco and Target and had some much publicized retreats from Germany and South Korea. Now, it is reported it is having trouble in Japan. Is Walmart General Motors circa early 1980’s? Does its business model have to change to keep growing?

Oil and Gas: Exxon Mobil is the world’s largest publicly traded gas company and its earnings tend to influence and/or mirror the other big players in the field such as ConocoPhillips and British Petroleum. As an interesting note, Exxon’s recent profits are obviously driven by high oil prices but look at the money it is making from refining activities vs. production. It is becoming too expensive to find new sources of oil when you can make money refining it. This tells me that $100 for a barrel of oil is not too far off.

Pharma: Pfizer is the world’s largest drug-maker (although you wouldn’t know it from its stock price) and its recent struggles are systemic of the issues plaguing the industry in general (patents are expiring and there isn’t enough “big name” drugs in the pipe-line). Johnson & Johnson which is more diverse than Pfizer in that it does more than drugs (such as household goods) is also a great stock to track since it straddles pharma and consumer goods.

Let me know what other stocks you would consider bell-weather for their industries. Thanks.