Soaring Highs for Wal-Mart Stores, Inc.

Something exciting happened this past week.

Incase you missed it, Walmart’s stock jumped approximately 10% to $ 99.6 US per share on November 16, 2017. According to online sources, this jump was most accurately connected to Walmart’s third-quarter press release which showed how the company has performed from August to November.

Wal-Mart Stores, Inc. employs approximately 2.3 million people across the globe through Walmart US, Walmart International and Sam’s Club. The company has certainly grown from its humble beginnings in Arkansas under the entrepreneurial direction of Sam Walton. Today, Wal-Mart Stores, Inc. earns well-over $400 billion USD in revenue annually through their stores and online platforms.

According to the company’s third-quarter annual report, the company earned over $100 billion USD over the course of three months. Compared to last year, this is a performance improvement of approximately 4.2%.

Should investors buy stocks in Wal-Mart Stores, Inc? Well, the traditional advice is to buy low and sell high. Is Wal-Mart at a ‘high price’? Probably, given that the recent 10% climb has brought Walmart to its highest stock price ever. However, the dollar-cost-averaging approach would encourage investors to buy the stock anyways, even though it is likely to correct. The company is probably a sound investment because it earns hundreds of billions of dollars each year and has increased its dividend payout each year since 2012.

Thanks for reading & happy investing,

Your team at CanadianDough.

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The Drive Behind Nike’s 11% Gain Overnight

It came as a pleasant surprise when I saw on my iPhone that Nike’s shares have jumped up 11% today. All of the companies that I track don’t move up or down more than 1% on a typical day.

Of course I was curious about what lead to the 11% climb. A quick Google search shows that Nike recently published its 2017 full year result earnings. It must have been a good report.

According to Nike’s investor relations, Nike earned revenues totalling $34.35 billion USD, which is 6% higher than what it earned throughout 2016. To save the confusion, Nike’s financial year ran from June 1 2016 to May 31 2017. After deducting all of the company’s expenses and taxes, Nike was able to retain $4.2 billion USD, which is 13% higher than last year’s performance.

Is it a good time to buy Nike stocks? Who knows, maybe the stock will continue to climb, or maybe it won’t. Hopefully the first quarter of the 2018 financial year will start off on the right foot.

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Choosing an ETF

I’ve been fortunate enough to have some extra spending money left over from a trip to New York City. I suppose I could cash the American dollars at the bank and receive Canadian dollars, or I could use the American dollars to buy American stocks. I like that option a lot because the greenback has been appreciating in value and American stocks continue to go strong.

I’m deciding on buying an ETF this time around. I think an ETF is great, especially one that tracks the S&P 500, because they would let me ride the wave that is the American stock market. Over at least the past 30 years, the S&P 500 has managed to grow at an average rate of 12% per year. Plus investing in an ETF that tracks this index is like investing in the whole stock market. I have faith in what major investors have said in the past, that the American stock market will continue to grow over time. I would expect some years to be better or worse than others, but if I can find a way to make extra money without having to touch my stock portfolio, it should pan out well.

I’ve narrowed my search of ETFs to three: OEF, SPY and IVV. I like OEF because it is the most affordable ETF out of the three, but it also has the highest expense ratio, which I think, means it actually costs the most to own. However, IVV and SPY are close in their price, but they’re expense ratios are slightly different even though they seem to have the same holdings. Also, they both pay dividends every three months (roughly $1 USD per share). The expense ratio of SPY is about 0.09% and the expense ratio of IVV is 0.04%. According to online sources, this means that 0.09% or 0.04% of the funds total assets will be used to cover expenses. So when you buy $100 worth of shares, a percentage of that will be used to cover expenses. If that’s accurate, I suppose that means an investor only pays the expense ratio when they buy their shares. Correct me if I am wrong.

Since the IVV and SPY seem very close but only differ in their expense ratios, I will likely move forward with IVV. Wish me luck!

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Investing in the American Markets

Canadians are able to invest in American companies. Before taking the plunge into the American stock market, one should consider the current Canadian/American exchange rate. One American dollar can buy approximately $1.31 Canadian dollars- this means the Canadian dollar is relatively affordable for Americans. Where does this leave Canadians? From an investment perspective, it would seem as though Canadians are at a disadvantage. However, this may not be the case. If a Canadian investor habitually saves American dollars, say $50 per month, and invests it in an American company, such as Visa, they may be earning money as the currency continues to appreciate.

Investing in an American, dividend paying stock could yield multiple benefits for the Canadian investor. First, an investor could be collecting dividends. Dividends are additional cash-flows created when a stock is owned. Dividends are often monthly, quarterly or annually paid out to investors. Second, investors can be rewarded through capital appreciation which occurs when the stock’s price increases. Finally, a Canadian investor can be rewarded when the American dollar continues to appreciate in value. Once a Canadian has bought American dollars and then invested those dollars into an American stock, those dollars are gaining value when the exchange rate continues to appreciate.

Although no one can really say for certain whether the American currency will continue to appreciate or depreciate, Canadian Dough has learned of an economic theory that explains that an exchange rate is connected to a country’s exports. As a country exports goods, the importing country naturally demands the exporting country’s currency. This increased demand in a country’s currency leads to an increased value in the exporting country’s currency. Its essentially a theory of supply and demand. Therefore, as a country exports more, its currency is demanded more and its currency increases in value. Although this is only one of many economic theories, it certainly demystifies theories of the American dollar’s projection.

 Shrinking Our Canadian Dough!

Inflation is basically the rise of general prices across the country. In Canada, the inflation rate for 2016 was approximately 1.5%. Since our Canadian prices have risen by 1.5%, the purchasing power of each Canadian dollar has decreased; each dollar can buy a fewer amount of goods. Specifically, every product we would want to buy would require an additional $0.015 for every dollar spent. Not much, right? If something costs $100 last year, because of inflation, it would now cost an additional $1.50. For consumer products, inflation probably doesn’t seem to make a difference. For example,  you would only notice the price increase in a Tim Hortons coffee if you buy coffee often! Even big ticket items costing $1,000 would only increase by $15. Relatively speaking, inflation doesn’t make a big difference for consumer goods. Over time though, which is highlighted when we look at carton of eggs costing $0.31 in 1935 and now $2.94, the cost of our consumer goods are likely to increase drastically over the decades to come.

A lot of investors talk about trying to ‘beat the market’. I would encourage people to, at a minimum, beat inflation. If you can find a way to ‘beat’ the inflation rate than you have actually grown your money over time and maintained a purchasing power for the goods that you may end up needing to buy one day, for yourself or a loved one. For example, if you want to be able to buy a car in 15 years from now, inflation will likely cause the price of that car to increase each year. So a $10,000 car today could cost an additional $2,502.29 (assuming inflation stays at 1.5% each year) 15 years from now. One purpose for investing money is to ensure that your nest egg is able to buy the same bundle of goods in the future. How do we beat inflation?

You are sure to fail to beat inflation by keeping your money in a savings or checking account. For example, a High Interest eSavings Account at RBC yields approximately 0.5% per year. So, if you have a nest egg of $10,000 in a High Interest eSavings Account, your $10,000 would grow by approximately $50 at the end of the year! However, the price of everything else has risen by 1.5%. If you take the nominal interest rate, which is the 0.5% promised by the bank, and subtract the inflation rate (1.5%), which gives you a real rate of return, the value of your nest egg actually decreased by 1%! You’re $10,050 that you earned this year really be like having approximately $9,899.25 at the end of the next year. By ‘investing’ in a low yield account you are actually losing value each year. Imagine how much value you’re losing by keeping your money in a bank account that earns less than the High Interest eSavings account! What if you never start investing, there may be trouble.

Although the impact of inflation on consumer goods may not be major, it has a significant impact on investments! One way to look at inflation is as a decrease in our purchasing power. Since goods are costing 1.5% more each year, our Canadian dollar is buying 1.5% less of goods each year. This basically means the power of our money is falling by 1.5% per year. So, if you have $4,000 CDN in a basic savings account, the ‘value’ of that $4,000 is falling by ($4,000 x 0.015) $60 per year. If you buy Tim Hortons coffee everyday at $1.70, that’s like losing out on 35 medium double doubles every year! What’s worse is that inflation can fluctuate from year to year, but the Bank of Canada tries to keep inflation manageable at a rate of 1% to 3%. What should investors do?

One way to possibly beat inflation is to invest in index funds. An index fund is like a mutual fund at a fraction of the cost. It may seem penny pinching to compare high cost and low cost investments, but when it comes to percentages every penny counts! Another good place to start is a mutual fund, but there are better investments out there in Canada and abroad!

Remember, to protect the value of your Canadian Dough, you just need to beat inflation!