One school of stock investing has always been invest in trends you see around you. Recently, I started noticing how many of my friends were having kids (I am told that women have physical urges to have kids once they reach a certain age which is around my age- umm… “urges” eh? My face loses all color as I write…). If you read various other financial blogs, there also seem to be a disproportionate amount of bloggers having kids, discussing child care credits, cloth diapers vs. regular diapers etc. etc. The contrarian in me thinks that maybe stock investing on demographics should not focus on the obvious investment in stocks based on an aging population but, perhaps, a mini baby boom.

This seems to be supported by the demographics. In 2006, the United States had the highest birth rate since 1971. Even more importantly, the U.S. fertility rate hit 2.1 children in 2006 which means, if this birth rate can be sustained over a period of time, there will be enough births to replace deaths. For policy purposes, this means there will be enough members of the next generation to support the retirement of the thirty-somethings like me. Keep in mind, however, that the 2006 birth rates have to continue over a long period of time for this to occur (come on urges! I don’t intend to work forever).

I dug a little deeper though to determine why someone may want to invest in the “baby industry” (for lack of a better term) based on the statistics. The 2000 U.S. Census revealed a spike in birth rates from 1991-1993; persons who are now entering College and/or University. If you are active in your University alumni club or live in a University town you know that this mini-surge in birth rates has lead to the construction of new dorms, student recreation centers etc.

But here’s what really interests me about the census. Take a look at the age of Mothers. The number of Mothers between the ages of 30-34 and 35-39 increases over the 1990’s with a corresponding drop in younger Mothers (20-29). The increase of Mothers between 35-39 is quite dramatic. Assuming that older Mothers are financially better off than their younger counterparts, it stands to reason that older Mothers may spend more on baby products. Even if the sheer number of kids does not increase, the amount of money spent could still be substantial as there are more older Mothers with the economic means to buy those $1200 strollers, $120 GAP kids snow-suits, $100 booties etc.

How does an investor benefit from these trends? I have often mused openly about starting a business aimed at the baby industry- the margins are impressive and no expense is spared (nor should it be) by the potential clients. From a stock investing perspective, take a look at Middle Class Millionaire’s list of stocks which will benefit from the aging population. Remove the financial companies and the same companies which sell to seniors also sell to the baby industry. What comes around goes around one supposes. The Johnson and Johnson and PG’s of the world capitalize from both ends of the demographic spectrum (it is also interesting to note the recovery of McDonalds after a rough late 1990’s coincides with the aging of the 1991-1993 baby boomlet).

At the very least, interesting food for fodder next time you change the diapers. As usual, please do your own due diligence before you decide to invest in the baby industry.

This is my last post of 2007. I am taking an early holiday to rest up (I have had a cold all week), enjoy the family, retain water and watch a lot of meaningless college football bowl games. Before I write on 2008 predications, I wanted to thank everyone for reading and commenting this year and wish everyone a safe and relaxing holiday.

Last week, I received a 100 page report from the research department of a investment firm on 2008 predications. Because it clearly has a “do not distribute” sign on it,  I am going to have to keep the issuer of the report on a no-names basis lest the lawyers come a calling but I found some very interesting insights in the report which I will highlight. Please note that the outlook from investment firms are always short to medium term and, as usual, do your due diligence.

1. Stay in cash for 2008

The report indicated that an ideal portfolio for 2008 was 55% equities, 25% bonds and 20% cash. 20% is an unusual high proportion but reflects the fact that no one knows what is happening in the market these these days. Yesterday, I had the following conversation with my investment advisor:

Thicken: “any reason why Power Financial dropped $1.00 today? I don’t see any new press releases?”

Advisor: “No one knows what is happening now. Random stocks are rising and falling.”

Yikes.

2. A tough year for CIBC

This report came out before CIBC announced yesterday that it may take another large charge on subprime loans but it had dropped CIBC from its best picks list. I don’t know if CIBC has a sugar daddy to bail it out like UBS or Citigroup did. There is one rumor making the rounds that if CIBC gets into real trouble, another Canadian bank may buy it with the government’s consent (only a rumor at this point; a lot of things would have to happen for this to occur and to splash cold water on this rumor, CIBC’s financial ratios appear to be healthy even if it had to take some substantial losses). On a similar note, I had lunch with the family on Saturday and a friend of my Dad’s came by and he started complaining about how poor the service was CIBC; so much so, he changed banks to Scotiabank. When you hear things like this happening on the street-level, it should make the suits in CIBC sweat a little. It is one thing to lose a lot of money on bad institutional bets on subprime mortgages or bad commercial paper but when people on main street are leaving, it has to be very worrisome. Banks have a lot of different ways to make money but still rely on taking deposits as bread and butter business.

3. Load up Sin Stocks and Insurance

People drink and smoke in good times and bad- more so in bad times. So there is beginning to be a shift towards sin stocks. I asked my advisor about Rothman’s and he said that a lot of his clients are moving into tobacco. People also invest in financials- usually for high-dividend yield and stability. With the banks near future in uncertainity, the shift in this industry has been to insurance.  This report notes that investor may want to load up on sin stocks and insurance stocks.

That’s it for 2007! Don’t forget to make a donation to a charity this season; it will do your soul good and its tax deductible!

Here’s my statistic of the week: Bloomberg reports that that Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bear Stearns will earn a combined $28 billion this year down 8.3 percent from last year. Merrill Lynch and Bear Stearns reported some substantial write-downs from subprime mortgage/asset backed commercial paper. So, despite all of that, financial institutions continue to make money. But 2008 may be an equally rough year right? Bloomberg estimates these same firms will reach $32 billion in profit in 2008.

Financial institutions generally don’t lose money. Did they do some utterly crazy things such as lending out subprime mortgages? Of course. But, large, diversified financial institutions also have other sources of revenue- M&A, wholesale lending, wealth-management, foreign exchange, credit cards, wealth management, traditional banking, trading activities etc. etc. They just shift their resources elsewhere and they are doing it with our deposits. A financial institution is other people’s money to the extreme.

Stocks in this industry are taking a beating but it is compared to expectations. We have had an approximately 5 year run on banks and expectations got too high. RBC reports a 14% earnings increase two quarters ago and the market punishes their stock. Things are little out of whack when that happens but remember that the expectation is “how much money are you making” and not “are you going to make money?”

In an industry like tech, when the industry is in a slump, companies are going bankrupt. In an industry like financial institutions, when the industry is in a slump, companies are making good, but not obscene, money. Every once in a while, a player goes down but the industry keeps going onward and upward.

I am not going to guess if we have hit rock bottom but, if I was 25 again, I would sign up for a share subscription plan with a large bank with a lot of different revenue streams and just keep buying. In 10 years, I suspect one would be very happy. Instead, I spent my 20’s buying bad mutual funds.

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Of all the scary things that personal finance can throw at you, I am finding talking to my parents about their impending retirement to be a 16 on a scary scale of 1 to 10. For your entire life, your parents teach you about money- either through conversations or observation- and then suddenly one day, your parents turn to you at dinner and ask you about how to plan for their retirement. Should they buy an annuity or Manulife Income Plus?  How much do they need to retire? Should they apply for CPP a year early?

The shoe goes on the other shoe quite quickly- suddenly, you are expected to have an intelligent conversation with your parents about money but considering (a) they have 30 years more of dealing with money on me and (b) I have never retired before, its really uncharted territory for all and such a change of roles. You also end up trying to have non-morbid conversations with your parents that may contain the phrase “…and when you die…” and trying to sound normal about it.

I readily admit my chest tightens up when we start talking retirement- there’s more baggage than an airport on this topic- and I really need a guide but here are the three things we are trying to do:

1. Ignore the media. This one is hard to do since my entire family are news junkies and read everything. There’s so much mis-information about retirement; the most infamous one being you need 80% of your pre-retirement income to retire comfortably (I don’t believe this one at all- my parents grew up in a time when society wasn’t obsessed with consumption. They won’t blow their life savings). Its hard not to get sucked into the fear-driven advertising of the financial industry. We try not to have conversations that begin with “I read a study…”
2. Get the accountant involved. This one is hard since you are asking an outsider to talk about a very personal matter. But retirement is a numbers driven exercise and the accountant needs to help.
3. Focus on the numbers and not the emotion.  We are trying on this one too.  Its weird for everyone to talk about this issue so we are trying to remove the awkwardness factor by breaking out the spread-sheets and working on budgets.

Anyone else have any tips?

The funny thing about starting and running your own small business is that you have to become a magician. There’s a lot of smoke and mirrors involved in making sure you look bigger than you do and you are not merely a one man shop. In a previous life, I started a small business approximately 4 years ago with basically a lot of guts (or insanity- take your pick), lots of smoke and mirrors and not that much starting capital. My office was a sublet in the sub-basement of an office, I actually did a lot of my own deliveries at lunch to save money on courier fees and my computer was the one I used in grad school with a bunch of new parts put on by my brother. In other words, the business was being run on financial smoke and mirrors- allocate money where you need it and no where else and prey nothing bad happens (I never did tell my landlord I had no tenant’s insurance even though I was supposed to)! I once had a heart attack when my $800 printer broke after 3 weeks of use before I realized that it was still on warranty- the first thought that came to mind was I could either replace the printer or cut my own pay that month.

This experience probably influences me on why I am so pro emergency fund. Financial Blogger wrote on the flip side of this argument on why there is no need for an emergency fund. I don’t believe the argument is fundamentally wrong. It really comes down to what life experiences you have that influence your thinking on emergency funds or personal finance in general. When I was a kid I couldn’t understand why my Dad, who also ran his own business, kept a lot of money around in his business- why not pay yourself more or spend it? When you end up being self-employed, the word “emergency” means a lot more than disability, emergency car repairs etc.- it means the printer breaking, an ex-employee stealing your entire hard-drive and having to pay to recreate your records (happened to a friend of a friend), spending hundreds of dollars for printing costs for a last minute pitch you have to make, your client not paying you for 45 days- stuff just comes up (do you want to know why employers freak out about stolen stationary? Stationary bills are staggering once you have to pay for it yourself!).

When the stuff comes up you are either drawn down on your line of credit and you don’t want to draw down anymore (or can’t) or you need to have cash around; I now understand my Dad’s strategy about keeping cash in the business. These are the types of experience I have which influence my thinking. I have friends who have secure pensioned jobs who also psychologically need to know they have an emergency fund around. Debt just makes them (and me) uncomfortable given our experience, upbringing and environment.

Moving away from the psychological side of things, if you do not have extended disability or critical illness coverage, not having an emergency fund also means you are relying on the fact you have a line of credit which you have not drawn down on substantially, interest rates stay low and you can return to income producing activities in a short period of time to pay off the line. A lot of things have to go right in order for that to occur. In many ways, we have so little control over our investments (stocks go down due to events far away, pipes burst in your investment property, bonds cannot be cashed because of no institution will accept them for now) being in cash is one of the few things I can control. Yes, its very old-fashioned  but many old-fashioned people have become millionaires by buying IBM 30 years ago and never selling.

An opportunity cost argument is also made about not keeping emergency funds- why keep one around if you could invest those funds?  I started building up an emergency fund about 2 years ago once the business’ cash flow smoothed out a little and the one thing I noticed is that it also disciplined me to save more money for non-emergency reasons- I knew a part of it was tied up for the emergency fund so I needed to save more money so I could invest it.  I may now contradict myself a little here but the thing about an emergency fund is that if you are over-funded there is nothing stopping you from using a part of that to acquire assets when they are cheap (come on market correction!). But over-funding an emergency fund keeping in mind this fact helps you put money aside rather than spend it. The opportunity cost argument only works if you have the discipline to actually utilize funds in income producing activities. If you do then more power to you.

I don’t believe there is a right or wrong to whether you should have an emergency fund or not. It comes down to risk tolerance, life-experience and comfort level.

Are people building emergency funds or are people using their LOC as a buffer? Let me know your thoughts.

I was looking at my financial account statements on Friday to see what my asset allocation is and I started tracking back to much older statements. I went back to the 90’s and things looked quite ugly. Hindsight being 20/20, I must have made almost every investing mistake you could make. Thankfully, I made them while I was still young and with modest amounts of money and to paraphrase a business quote- make your mistakes young, fast and cheap (the actual quote is “fail often, fast and cheap” by Jim Estill but I want to avoid failing often). This applies as well to personal finance (which is really the business of “Me Inc.”). If you are a younger reader or simply like to read some carnage, I would rank these as my top 5 investing mistakes (in no particular order):

1. Not buying in volume or enroll in a share subscription plan: I use to buy stock in small allotments which is extremely inefficient from a cost-perspective given you have to pay a sales commission each time you buy (this was in the mid-90’s when on-line trading was more expensive than now). This raised the break-even point on my stock; this was especially painful since I had a penny stock phase and your cost could be as much as 5-10% of your purchase price  in penny stocks. To paraphrase Buffet, buy in volume to minimize your cost of purchase or, if you cannot, enroll in a share subscription plan. A share subscription plan is not available for all stock but, where available, it allows you to purchase stock on a monthly payment plan for a small fee; most banks and insurance companies will offer share subscription plans. Most companies who offer a share subscription plan will state this on their website.
2. Not watching the cost of an investment. This is related to the first point. Like most people, I first started investing in mutual funds. Mutual funds can be good investments depending on the person but I never thought much about the fees on mutual funds back then. Remember fees are paid regardless of whether the fund makes money or not and there are more than enough funds available that a fund you are interested in probably has a competitor with cheaper fees.
3. Too much activity. I got caught up in the day-trading trend. I use to think I needed to do something, anything every so often. What I learned the hard way is to buy, hold and stop looking at the stock market ticker 6 times a day. I noticed something curious when I was on vacation; I was so busy moving and taking time off that I didn’t really watch the subprime meltdown that closely and I didn’t press the panic button and sell or buy anything.
4. Not buying on quantitative analysis. I use to buy the “cool” companies and avoid the old stodgy institutions. There’s a reason why they are old and stodgy- they make a lot of money and they don’t need to rely on the coolness facgtor. I learned to read financial statements and now I don’t buy anything without reading two years of annual statements- no matter how cool the ad campaign is (I do not own Apple, Research in Motion or Lululemon- too over-priced, not enough pricing power going forward and not recession proof respectively).
5. No plan/no focus= no profit. The point of investing is to make money but how? I just did thing willy-nilly without looking at the larger picture. The larger picture may change from time to time but I never asked myself how this investment fit into my larger plan (I am on the Derek Foster plan btw).

But here’s my saving grace- my parents taught me a lot of useful things in life and one of them was don’t get into debt (as a general observation, ever notice how anyone who lived in a country that was invaded during a war has a real good grasp of money management?). Pay cash or don’t buy it. As a result, despite my many investment failings, I am fortunate to report I never dug myself into a hole I couldn’t get out of. What I have noticed is that some blogs have readers who have just graduated from school or started making decent money and they ask the blogger what they should do now- my answer would be manage debt before you starting investing. Its a boring answer but boring does pay the bills and helps me sleep at night.

As a programming note, I have two guest bloggers this week writing on the pros and cons of being a real estate investor. The pro camp will be posted tomorrow. Thanks.

Investing in bank and/or financial institution stocks is like owing a casino. No matter how bad times get or how many times the gambler wins, the odds are stacked so the house always wins 51% in a worse case scenario (blackjack has the worse odds for the house- statistically speaking, the house only wins 51% of the time).  The subprime mortgage and credit bubble is a perfect example of this and why, despite the inequality and moral outrage of it all, the banks always wins and if you can’t beat them, invest in them.

I haven’t taken politics since undergrad and, seen in a certain political light, the subprime mortgage can be seen as the rich (the financial industry) lending to the poor. The rich then take all the money that the poor give to them, package it as commercial paper of questionable quality and sell it to the middle class (all the companies who bought bad commercial paper). Of course, many of the rich do not buy what they are selling the middle class (there is one interesting story of a bank advising their clients to buy questionable commercial paper but not owning any of it themselves- there’s a hardy endorsement of your product!). Along the way, the rich make money on the mortgages, packaging the commercial paper, selling it and trading it. When, lo and behold, the poor default on their loans and the house of cards comes down, what happens?  The rich asks the government to bail them out with short-term interest rate relief and central banks around the world have had to pump billions of dollars into the system. And, now there is a lobby to lower key lending rates.
This is obviously a very simplistic summary but isn’t there something fundamentally wrong with this? This is a gross generalization but the financial industry keeps asking for less government but, in times of trouble, who do they want to bail them out of their own mess? The government of course! This is after the industry has made billions in fees. Pretty unfair isn’t it?

Here’s the upside (if I haven’t depressed you)- if the rules are this stacked in one industries favor, why not invest in it?

The moral of this post was something that my Dad said to me as a teenager: “Always invest in a bank. Governments don’t let banks go under and if they do, we are all in big trouble.”  Now that my tongue is firmly out of my cheek, this may be a good time to keep an eye on the financial industry- watch for a second drop in the market as a buying opportunity. As my friend said, stock market crashes are like bodies falling off a building- it drops, bounces up and the drops again (a morbid but accurate analogy- the tech crash experienced two drops before it bottomed out). I am still waiting for the second drop.

(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.

(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)

Approximately 18 months ago, a good friend of mine invited me to attend a seminar on how to sell more effectively. The seminar was primarily aimed towards financial advisors but, being the helpful friend that he is, I was invited to attend for educational and networking purposes even though I do not work in the financial services industry. The seminar was an informative snap-shot of how the financial industry used to sell products such as mutual funds and insurance to the retail market (i.e. us) and what it is doing now to pump up more sales. It must be working- 2007 mutual fund sales (before the correction) was on record pace. There was a certain Wizard of Oz effect in peeking behind the curtain of the machine that is the financial services industry and thinking of sales strategies from an advisor’s perspective.

From what I gathered and remember from the seminar, the financial services industry traditionally relied upon the promise of a brighter future to sell. For example, if you buy a mutual fund now, you will be able to retire early and sit at your cottage enjoying the company of your grand-kids. The best example of selling on the promise of a brighter future is the “Freedom 55″ campaign made famous years ago- as the name implies, by investing prudently with the company, you can enjoy your freedom at 55.

However, this strategy does not work anymore- it is 2007, subtlety is dead. This is pure conjuncture on my part but the internet has made our attention spans approximately 4 seconds long (a recent study indicated that if a webpage doesn’t load in 4 seconds or less, we surf to another page). We find it hard to relate to a scenario that may be 10-20 years in the future. Thus, this seminar taught the art of selling on the avoidance of immediate pain. Our pain, in turn, is usually created by our fears (my opinion and not the seminar’s); we fear our money will disappear over-night, we fear we have too much debt, we fear that our home prices will collapse and we will buy a product and/or service to alleviate these fears.

A good example on selling on the avoidance of immediate pain may be buy this product now and don’t worry about the chaotic stock market that could wipe out your savings today- this product may protect you. I have often heard this line when it comes to selling principal protected notes.

As with every good strategy though, this sales strategy seems to have been taken to the excess and selling on the avoidance of immediate pain/selling on fear has over-taken the industry. There was a fair bit of criticism this year when a mutual fund company began to run ads featuring senior citizens working at fast food restaurants after retirement because they had not contributed enough to their retirement; the ads featured elderly people dressed with hats and uniforms traditionally associated with the fast food industry; some contented that the campaign was too over the top and preying on the fears of seniors. It is interesting that the campaign sought to pump up mutual fund sales- a product which is supposed to be built for long term investing; an interesting inter-play between the sales strategy (short term) and the product itself (long term) having two different time-lines and yet someone glossing over both in a short-time line; buy mutual funds now and we’ll alleviate your immediate pain ignoring the fact that time is on your side in investing.

I am never sure what to make of these campaigns regardless of what strategy it is using. I would assume that if you had a good control of your personal finance, you would be mostly immune to them. If not, I would engage in the most successful of sales avoidance strategies- ask to think about it over-night and you will call them when you are ready. Make it clear that if they call you against your wishes, they have lost the sale.

Earlier this week, I received a research report that CIBC has become a “buy idea” which seems like lazy analysis to me. There is a lot of speculation that CIBC bite off more than it could chew- again. A quick recap- there are a lot of numbers being tossed around on CIBC’s sub-prime mortgage exposure. Some say $2.6 billion; others say $1.0 billion. To put this in context, CIBC’s shareholder equity is approximately $13 billion and BMO, the only other Cdn. bank to report on its sub-prime mortgage exposure, listed its exposure at $76 million as of Oct. 31, 2006-significantly less than the numbers floating around for CIBC. As everyone knows, subprime mortgages are as stable as quick-sand right now and CIBC has had to refute twice this week that it has a large exposure- but refused to say how much its exposure was, pouring fuel to the fire (note to CIBC: hire a new public relations firm). CIBC shares lost 4% in June, leading some to believe that it is a reasonably priced stock and a buy idea.

But this is what I found curious- why does a company with a history of being error prone (Enron, Global Crossing, multiple SEC investigations all in this decade alone) become a buy idea because its price falls partially on speculation that it may be approaching its next crisis? It makes no sense to me. If the speculation is true (and no one has proved anything), why would someone buy shares in a company which, given past history, goes from crisis from crisis- is the next one (if there is a next one) going to make them Barings Bank of this decade? Granted, CIBC is a blue-chip dividend paying stock but so was Barings Bank and First Boston (done in by over-exposure to junk bonds of the late 80’s). The point being any large financial institutions can collapse too. There’s a very fine line between success and failure in business; why invest in a company that straddles that line?

I am not picking on CIBC per se. I use it as an example to raise a larger point which is this- companies (regardless of industry) do poorly sometimes because of factors beyond their control (SARS or 9/11 type of events) while other companies are structurally prone to mismanagement; its in their DNA. Just because the price of the latter companies goes down, does that make it a good buy idea? High or low price, are you still not buying an unstable company? Does a house with structural damage become a good house when the price gets low enough?

Let me hear your thoughts on this- does a mismanaged company become a buy when the share price is low enough? Or is a dud a dud at any price?