Category: Blog

What would you do if you had a printing press that spat out as much money as you wanted at any time you asked for it? It’s a question most people can only dream of being able to answer, but for a handful of individuals in governments around the world, these machines already exist and are used in just that fashion to create currency.

For some, the idea that paper money (fiat currency) should be a store of value (i.e. that a dollar today should buy you the same amount of the same stuff 10 years from now as it does today) is only as good as the paper it is printed on.  In reality, wages have moved at one rate and prices for things at another. While it is generally accepted that prices for things can and do change, what most people hope for is that their savings will be able to work as hard for them in the future as they do today.   But what would a future look like if money didn’t end up storing the value it was supposed to? How would people and economies figure out what something is worth and how would they go about paying one another for goods and services? What if the monetary regulators became overzealous, corrupt and tyrannical? While it might not seem like the plot of your typical action-thriller, it is certainly the backdrop of the soon to be released animated feature-length film “Silver Circle” by Lineplot Productions.

Grey Skies Ahead

The film itself is set in 2019 America, a country where the economy is in turmoil, inflation is out of control and where the monetary regulator, the US Federal Reserve, has replaced the paper money system with silver coins. In the process of trying to gain control over the economy and society, the US Federal Reserve has outlawed buying and selling of non-government issued silver coins and has also set up the Federal Reserve Department of Housing Stability to control the supply, and therefore price, of housing.  A group of rebels, however, is determined to put a stop to the tyranny by putting out their own silver coins and therefore shift the balance of power away from the Federal Reserve and into the hands of the people.

Inspired by the financial meltdown and collapse of Lehman Brothers in 2008, the film’s creator, Pasha Roberts, conceived of the idea of a story about the dangers of financiers gone wild.  We had a chance to speak to Megan Duffield of Silver Circle about the film.  According to Megan, even though the film has an “educational spine” to it and will inform audiences about fiat currencies, precious metals and the US Federal Reserve, this film is an action-thriller first and foremost.   Several of the film’s key plot lines are inspired by historical events, such as Executive Order 6102 which forced everyone in the US who had more than a small amount of gold to turn it over to the US Federal Reserve (you can read more about that here:  http://en.wikipedia.org/wiki/Executive_Order_6102).

Also, silver was chosen for the currency of the future because historically silver actually did serve as currency for many cultures and civilizations and because the prices of silver make it a little easier to relate to for most people than gold’s price.

The Silver Lining

What the film’s creators hope to do is to get audiences thinking or rethinking the idea that your money as cash is as safe as you think it is.  At the very least there is some merit to the idea that paper money (fiat currency) is vulnerable to manipulation and misuse, and that the path such misuse puts society in is not that far-fetched given what is happening to central banks around the world today.  Even though financial advisors and pundits often say past-performance doesn’t guarantee future performance, there’s also no guarantee that what’s happening now won’t play out exactly the same way.

To find out more about the movie including when it will be released, and conferences where you can speak to the creators, you can visit the website at www.silvercirclemovie.com .  You can also find out more about the project and about their opinions on monetary situation in the US at www.silverunderground.com.  If you’d like to see another interesting series of videos on understanding social security by The Silver Circle’s creator, Pasha Roberts, you can watch his “Saving Sonny” series here: http://www.imdb.com/video/wab/vi3117089305/ .

Many discount brokerages offer different account types, but among the most recognizable are registered retirement savings plans accounts (RRSPs), registered educations savings plans (RESPs) and recently, the tax-free savings accounts (TFSAs).  Discount brokerages also offer what are often known as “non-registered” accounts (as opposed to the registered accounts listed above) which usually consist of either “cash” or “margin” accounts.

Will you be paying by cash or credit?

A “cash” account is one in which a client can only purchase or sell securities if they have that dollar amount available in their account.  Most if not all registered accounts are considered “cash accounts” meaning you can only purchase as much of a security as you have money to purchase with.  Registered accounts also have more restrictions on what kinds of products you can have inside of them as well as on what types of trades you are allowed to place.  For example, most discount brokerages will not let you short sell a stock (or write options) inside of a registered account.

“Margin” accounts, on the other hand, allow clients to borrow money from their discount broker in order to trade securities.  One convenient way to think of the difference between cash and margin accounts is that “cash” accounts are like your regular bank account – you can only spend what you have available in that account, whereas “margin” accounts are like having a line of credit or overdraft, where you can buy securities with borrowed money but in exchange for borrowing  the money you have to pay interest to your broker until the amount borrowed is paid back.

Using margin is a form of “leverage” – a term that many people are more familiar with because of the recent financial crisis.  The term itself implies that you can, just like a physical lever, amplify the force of your trading dollar. So, for example, for every $1 dollar you actually have, you can borrow anywhere from $3 to $50 depending on what the brokerage is willing to lend. With a margin account, it is possible to get into a situation where you owe the broker more than the cash you have on hand (just like overspending on your credit card), so for that reason margin accounts are to be treated with caution and are usually for more experienced investors.

Do you know what you’re looking for?

When trying to choose a discount broker, one of the first things you’ll want to do is determine what account type you are interested in opening – a registered account or a non-registered account or both.  Not all discount brokerages in Canada offer registered accounts, so you can narrow down your search by excluding certain brokerages from consideration.  We have actually helped identify which discount brokers do and don’t have registered accounts on our discount brokerage comparison page here.

If you are looking for an account to invest with outside of your TFSAs or RRSPs, you can look into either a cash account or margin account. If you are looking to do the most basic of investing/trading – just plain old buying and selling, a cash account is adequate.  On the other hand, if you are looking to short sell stocks or use options trading, you will likely need to have a margin account (if you don’t know what short selling is, you can learn a bit about it here).  Some discount brokerages only offer margin accounts outside of their registered plans so be aware that if you are being offered a margin account, you should keep track of how much you are purchasing. Similar to the overdraft, just because you are offered the margin, does not mean you are obliged to use it, but you should definitely use it wisely.

Read the previous article in this series.

Read the next article in this series.

Where’s the Beef?

One of the easiest ways to think about shopping for an “account” is by thinking of going to the grocery store.  If you were to walk into the grocery store and ask a clerk for “groceries” they would say something like: “well you’re in the right store, but can you be more specific?”

When trying to open an investment account with a financial institution, you may be met with the same response if you tell them “I would like to open an account”.  They’ll promptly ask you to please be more specific.  Just like the grocery store, discount brokerages have different types of accounts, and knowing the difference between “registered” and “non-registered”, “cash” or “margin” is as important as knowing the difference between produce and poultry.

So, let’s get to know this “store” called the discount brokerage by first explaining what it is and why you would even go there.

Oh, That’s What it Does…

A discount brokerage firm is a financial institution that enables individuals to purchase and sell (trade) various securities such as stocks, bonds, mutual funds, exchange traded funds (ETFs), options, currencies and/or precious metals like gold and silver.

If you wanted to directly purchase and sell (trade) securities without going through a stock broker or via another intermediary, you will likely have to pick a discount brokerage firm in order to do that.  In contrast, “full service brokerages” have advisors and brokers that do all the “trading” for you.  Sometimes “discount” brokerages are called “direct” brokerages because the person doing the buying and selling is the client and not a broker, whereas a full service brokerage firm has individuals employed to make trades on behalf of clients. Discount brokerages attract everyone from the highly active day trader to the very passive long term investor as clients.

The one common thread amongst all their clients is that the clients place the orders to buy and sell themselves.  Even though the system is equipped to handle direct order placement (i.e. clients can place their own trades usually from their own computers) most discount brokerages offer “broker assisted” trades where you can call a broker at their firm to help execute the trade – for those times when you want to feel all “wall street” and yell buy or sell into your phone from the golf course or yacht.  Save for one firm in Canada, all the others will charge substantially more for broker assisted trades so beware you budding tycoons.

Look Before You Leap

In our next article we will take a look inside the “store” of a direct brokerage firm to see what products they offer.  For now it is important to highlight that even though it is fairly easy for most people to place their own trades, not everyone is cut out for doing so.  Despite the substantial savings in price, sometimes the fear of going it alone outweighs the “savings” of a few dollars.  There are all different personality types when it comes to managing money and investments. Some people dive right in a little too enthusiastically and others would rather watch safely from the shores instead of handling any “investment”.  Before deciding to jump into the financial pool, it’s a good idea to decide how committed you are to learning to swim, especially knowing there are sharks in the water.

Read the previous article in this series.

Read the next article in this series.

If or when you decide that you would like to manage a portion of your investments directly, knowing where to begin or even what your options are can feel like a daunting task.  Like belly button fuzz, choosing an online discount broker is not something many people generally think about unless they have to deal with it.  When it comes to actually choosing from a field of over 15 different discount brokerages, many people would rather choose navel gazing than surfing through the dozens of financial information websites as a far less painful exercise.

In this week’s series we’ll take a look at where you can go online to find out about discount brokerages, what points to consider about when choosing the right discount brokerage firm for you, and one of the most important features that most potential customers look at when choosing a discount brokerage  – price.

In the meantime,  if you haven’t signed up to be a member of Sparx Trading, now would be a great time to do so, as you will have full free access to our brokerage reviews and comparisons (available here ) which we reference in this series. To register for Sparx you can click here .

 Read the next article in this series.

It happens to every trader or investor at some point. You spot what you think is an opportunity, you press buy, your heart and thoughts race a little at the prospect of this purchase bringing you the next big trade; very briefly your brain thinks about all of the things you’re going to do with that cash. And then the unthinkable happens. What seemed so promising is starting to lose both its luster and even worse, value.  What do you do when price moves in the wrong direction to your trade? It is a question experts and novices all wrestle with.

At the 2012 MoneyTalks World Outlook Conference, we spoke to veteran investor Victor Adair, Senior Vice President and Derivatives Portfolio Manager at Union Securities Limited, about the biggest mistakes investors make.

According to Adair, a lot of investors just don’t understand the importance of taking quick losses.  Even those who understand the importance don’t do it as often as they should.  Hanging on to losing trades too long not only robs you of monetary capital but, as Victor says, it also “decimates your psychological capital”.  By not getting out of a losing trade early, you’re more likely to go down with the ship – a strategy that is absolutely detrimental to surviving in the markets.

Getting the timing wrong is a reality of speculating. Learning to admit when the market has proven you’re wrong is the mark of experience. As in the real jungle, the faster you learn from your mistakes, the more likely you will be to survive in the financial jungle.

To find some pretty handy commentaries and resources for people interested in trading, check out Victor’s website at www.victoradair.com .

When we asked Josef Schachter of Schachter Asset Management at the 2012 MoneyTalks World Outlook Conference what the biggest mistake investors make was, he told us that not taking a sense of ownership for their investing decisions was high on that list  The idea of handing one’s money over to an advisor should be one that is taken quite seriously.  Even though some advisors or brokers have a “halo effect” – it is much more important to understand what they are doing with your money.

If you do want to direct your own investing, the idea of “buying what you know about” is sound advice when deciding to invest in companies or sectors because you are much more likely to understand what is or is not a realistic opportunity.  When starting out solo in the markets, it’s best to start slowly.  Setting aside a small amount to begin trading with is a good way to understand how trading and investing works, but be prepared to pay “tuition” to the market while you learn.  The good part about the “tuition” is that you can decide up front how much you want to pay, and unlike many Ivy League schools, how much you pay in tuition doesn’t really translate into the quality of your education.

When looking at the universe of stocks, beginner or long-time investors sometimes make some interesting “decisions”. We talked to Ryan Irvine, President & CEO of Keystone Financial Publishing Corp, at the MoneyTalks 2012 World Outlook Conference for his take on the biggest mistake investors make.

According to Irvine, focusing on the stock symbol instead of the underlying business is a mistake many investors make.  Stock symbols are just that: symbols. Even though investors are buying a stock via the symbol what they’re paying for is a business. In his opinion, it pays to get to know what it is about a business that makes it a strong business.

What does he look for? Three of the many things he looks at when doing his research are:  a strong balance sheet (i.e. more assets than liabilities), positive cash flow (are they bringing in cash?) and sustainable growth.  One other very important factor that weighs in is paying a “reasonable” price – and that is where the science gives way to the art – because what seems reasonable today may change tomorrow and is the trickiest part of the fundamental approach.  For that reason, asking the simple question “do I really understand the business I’m buying?” is a good way to figure out if you’re paying the right price now and for the future.

If there is one thing that the stock market has no shortage of, it’s opinions.   At this year’s 2012 World Outlook Conference hosted by Money Talks’ Michael Campbell, the only thing in greater supply than those opinions was the demand of the people who wanted to hear them.

Attendees at this annual investor conference got to hear approaches varying from market astrology and seasonal equinox tracking to cold hard statistics on sovereign debt.  Even though the speakers may have painted a picture of doom and gloom, their experience on being able to profit from the situation is what drew people in.  Some speakers, such as Keystone Financial Publishing’s Ryan Irvine kept it simple by stating “to beat the market you can’t be the market.”  To sift through opposing opinions, however, is not easy especially when you hear “opinions” such as “the market could go up or down from here.”

Which way is up?

Much of the time you have to be the ultimate judge, and make decisions based on “the facts”.  Josef Schachter’s presentation was full of useful, publicly accessible “facts” about the mess the US economy is in; Don Vialoux presented his “facts” about seasonal trends in the market and how they consistently show up and influence stock prices and Martin Armstrong gave his forecasts on the way the current “facts” about the economy will play out over time.

So how can one separate news from noise? It’s not easy.  The first thing to understand is that opposing opinions are exactly what make a market the place to decide on what something’s worth. There really is no substitute for doing your own homework, either on the companies or asset classes being talked about, or doing your homework on the people giving you their opinion on where to park your capital. Investment conferences such as these offer a great opportunity to hear some informed opinions and hear speakers give their take on the world.

The Bottom Line: Follow the Law of the Investment Jungle

To have a long shelf life in the markets is not an easy thing – some think you have to be a great timer, some believe you need to see beyond the hype and some believe you need to trade the hype. Whatever the case, long time trader Mark Leibovit, in spite of the accolades he’s earned, says he’s just fortunate to be a “survivor” of the markets showing that unless you see the market as a place to eat or be eaten, chances are you’re on the menu.