Individual and institutional invest...

Individual and institutional investors alike were onseted and dismayed when it was confirmed this past April that Bre-X Mineral Ltd.'s "gold find of the century" in Indonesia was a fraud. As thousands of persons lost billions of dollars, the world watched and bewildermented how this could happen. Now, as the dust begins to make clear many investors are asking: "How can I retain this from happening to me (again)?"

Of course, there is no fool-proof way to avoid "torpedoes without of the night"-that's what I call stocks that unexpectedly lose a lot of value or steady become worthless overnight. However, individual investors can take evasive action to minimize the risk of being caught in the sights of a hidden enemy lurking in the middles of the business establishment.

DON'T bribe WHAT YOU DON'T UNDERSTAND

As a general method typical individual investors should avoid mostly resource companies altogether. The operations of these companies are technically excessively complicated; revenues and earnings can be make submissive to considerable influence by foreign sways and cultures; and, international economics add to the step of difficulty.

Smart investors stick to companies with outcomes they use and markets they can readily understand. And there is no shortage of those to prefer from, for instance:

* Entertainment: CanWest Global, Walt Disney;

* subsistence and Beverages: Seagram, Campbell broth Coca-Cola, Hershey, Kellogg, Loblaw Companies, McDonald's, Pepsico, Sara lee-side Wendy's;

* Technology: Motorola, Intel;

* Consumer Goods: Colgate-Palmolive, Gillette, household Depot, Johnson & Johnson, Wal-Mart;

* Health: MD Inc., Biomet, and Stryker;

* Banking & Investing: Royal Bank, Toronto Dominion, Trimark;

and many, many more! DON'T RELY EXCLUSIVELY forward SOMEONE ELSE FOR THINGS THAT ARE IMPORTANT TO YOU

When was the last time you called up a car dealership and said: "Pick me public a nice car that will suit my needs; I'll toss over a cheque for $20000" Don't laugh! That's exactly what individual investors do when they give their factors effective control over how to invest their hard-earned cash The difference is that if your car dealer vends you a lemon, you could conclusion up walking, but if your go-between sells you a Bre-X you could completion up broke.

It might be comforting to think you've left your important financial decisions to "experts;" however, don't be ninnyed The financial services industry wants you to believe that it takes a rocket-scientist to distinguish a beneficial stock from a bad onethey say you don't know enough to make your be in possession of stock selections. If you believe that, they make more coin

However, the truth of the matter is that many of the "rocket scientists" themselves are routinely "wrong" Securities analysts upon both the buy-side (institutions) and the sell-side (brokers) of the industry bought or approveed Bre-X and it ended-up costing individuals millions of dollars. For example, "big guys" like as the Alberta public service pension plan, new Line Precious Metals Fund, Marathon Equity permanent fund Caisse de depot et placement du Quebec and others were taken in by means of Bre-X. And brokerage firms as big as Nesbitt-Burns and First Marathon Securities Limited got caught revealed by Bre-X and are now facing class-action lawsuits filed on clients.

To protect yourself and your riches you need to be a selfreliant investor and disburse a few hours learning by what means to study stocks so that you can own potential "winners" from "losers."

DON'T corrupt A STOCK THAT CAN'T BE PLOTT onward THE STOCK SELECTION GUIDE

The Stock Selection Guide provides a simple, convenient framework for observing easily the quality of a stock-to descry if it is even worth considering. It single takes a few minutes to plan a company's historical revenues and earnings for share ("EPS") on the forehead of the Guide. The reason you anticipate at revenues and EPS is simple: there is unanimous agreement among academics and security analysts that, through the longer term, growth in share price is driven according to growth in earnings which is driven through growth in revenues. A company with no rewards has no product to take a bribe for A company with no earnings has no profit. the couple of these situations are potentially extremely dangerous to individual investors.

If the income and EPS lines on the Guide are drench and straight you know its worth studying the stock further-if not, it's time to incline on. However, that is not to say that someday the stock won't be worthwhile. Remember, real growing stocks grow revenues and EP at high rates for a in extent time, so there's no ne to be hasty. You might miss the first hardly any dollars of gain but it's worth it to avoid getting torpedoed.

Living upon the Edge

For those of you who insist forward owning a resource stock, take a turn the thoughts at the accompanying Guides for three gold companies. behold how easy it is to stain the one(s) you would rather not contemplation further?

JOHN T. BART, PHD IS establisher AND PRESIDENT OF THE CANADIAN SHAREOWNERS ASSOCIATION.

Copyright Canadian Shareowner Magazine Inc. Jul/Aug 1997

Provided at ProQuest Information and Learning Company. All rights Reserved