What Does the HST Tell Us?

I got a very well organized and informative guide in the mail today called “What changes –and what doesn’t change– under the HST”, which may be one of the very few things I like about this new Ontario tax scheme.

Governments often use taxation to try and influence of buying behaviour of their citizens, so I thought I would take a look and see what behaviours the government is trying to change with the HST:

• Smelly Ontario – Apparently they want us to dry-clean less, with taxes going from 5 to 13%
• Drunk Ontario – Alcohol will be taxed at 13% instead of the old 17% (although they footnote that they will stop people from drinking so much with ‘other fees’)
• Lazy Ontario – Gym, athletic memberships, fitness trainers, hockey rink rentals, hall rentals, hunting licenses, fishing licenses and golf green fees will increase from 5 to 13%
• Ugly Ontario – Hair stylists, barbers and aesthetician services up to 13% from 5%
• Lawless Ontario – Legal fees will be taxed at 13% instead of 5%
• Cold (winter) and Hot (summer) Ontario – Electricity & heating bills to go from 5 to 13% tax
• Flooded and Electrocuted Ontario – Home visits by plumbers, electricians, etc. will go from 5-13% as will home renovations
• Digitally-divided Ontario – Internet access will now be taxed at 13% instead of 5%
• Wild Ontario – Landscaping and snow removal up to 13% from 5%
• Homebound Ontario – Hotel rooms (from 10%), taxis, campsites, domestic air, rail, boat and bus travel all up to 13% from 5%, as does fuel for your car, unfortunately you will have fewer magazines to read at home since subscription magazines also go from 5 to 13%
• Double-dipped Ontario – Remember that new car that you paid 13% tax on, well now the government makes 13% again –up from 5%– when you sell it used!
• Suburban & Condo Ontario – New homes over $400,000 will be taxed at 13% instead of 5%, and AFAIK can only be found in the suburbs or in condo dwellings. Real estate commissions will also be taxed more, at  13% instead of 5%.
• Scurvied Ontario – Vitamins up to 13% from 5%
• Stiff & sore Ontario – No reduction on Viagra tax, they are increasing taxes on massage therapy from 5 to 13%
• Entertained Ontario – Tickets for professional sporting events and movies will DROP from 15% to 13%.
• Alive Ontario – Death will cost you more, with funeral services taxed at 13%, up from 5%… sure as death and taxes.

Why I’m Done with the Stock Market for Good

Oh so close! I was holding a stock, waiting for a positive earnings release, with the full intent of exiting stock ownership for good once I saw a nice bump to reward me for my time and risk. Instead, I watched a combination of a bear market, overly optimistic analysts and a heavy short position drop my stock 50% in 2 days.

This was so typical of my experiences on the market: years of careful effort and minor gains, more than erased in seconds on the stock market.

Now before you start to think this is purely emotion, remember that I was already planning on exiting before my recent calamity, and here are some reasons why:

1) Given Enough Time, the Market Used to be a ‘Sure Thing’… NOT Anymore!

When I entered investing ca. 1998, this is what the trend on the Dow Jones Industrial average looked back to approximately the time of my birth:

Sure thing right? Little burp back in ’87, but if you look at any 10 year period you are still in the money.

Now look at plot of the market over my ~12 year trading career:

Hmmm… not such a sure thing. Lets assume I made all my purchases back at 8000, and not at 11,000 and 14,000 like I actually did, and I actually had an index fund (and not a bunch of crappy tech stocks). My potential gain was about 10,000-8,000 = 2,000 or about 20%.

Guaranteed funds provide a compounded annual growth rate (CAGR), but relatively low rates (low single digit), so it is worthwhile understanding what kind of CAGR this gain translates into. To get a 20% gain over ~12 years, you would only need a CAGR of 1.88%. You can EASILY have found a GUARANTEED fund that would have returned more than this! Keep in mind I am already using a best-case scenario, not including this notable stock that I did invest in:

2) So if you were a lot smarter than me, and stuck with index funds, you at least saw some gains right?

Again, not so fast!

The Dow Jones is based on the US dollar value of stocks. What has happened to the value of the US dollar since 1998? At the start of 1998 $1 US would purchase about $1.44 Canadian.  Today, they are trading close to parity, meaning that the USD has actually depreciated about 40%.

Lets see what happened to the $8000 USD we invested in the DJIA index fund: we used about $11,500 Canadian to purchase that $8000 USD, rode it up to $10,000 USD which is now worth $10,000 CDN! We have actually lost $1,500! That isn’t even counting the opportunity cost of that money.

3) Give it your full attention, or not at all.

I only worked one or two stocks where I could play close attention to the nuances of the particular business, and the market that they were in (think Apple). I found that even with this detailed focus, I still couldn’t keep track of all the important metrics that could have a significant impact on the stock (like exchange rate trends, short position, the macro market trend).  I could never put in a sufficient amount of money in to create the gains that would justify my time. For example, even though I kept buying AAPL from $120, all the way down to $80, and all the way back up to sale at $185, I still didn’t make any money due to interest charges, trading charges, and exchange rate fluctuation! I was so surprised come tax time that I had to perform the calculations 5 times to convince myself the net was $0!

4) Analysts are a flaming pile of crap.

I think only meteorologists are paid for being so consistently wrong, and compared to stock analysts, they are oracles.

That is why I was planning on getting out of the market for good, and focussing on low risk money market funds, guaranteed funds, or bricks of cash under the mattress. Now I have to wait and see if the stock can dig itself back out of its hole.

*^#&^#)

Who Killed Nortel?

James Bagnall of the Ottawa Citizen has been covering Nortel for a long time, much longer than my time with the company.  It was with great interest that I heard from a co-worker that James was doing an 8-part series called “Who Killed Nortel?”.

Would it tell me things I didn’t know?  Would it point the finger at people I respected?  Would it conclude the collapse was due to bad luck, incompetence, or something more sinister?

Even knowing the series was on the Ottawa Citizen, I found it horribly hard to find the articles and then to navigate them (its improved a bit now that the series is complete).  To save you the same frustration, I collected them here:

• Investigating the death of a global titan
• Part 1 – Last things first: Bankruptcy protection
• Part 2 – A group of retired executives sign up for one last battle to save their former firm
• Part 3 – The beginning of the end
• Part 4 – Looking for a turnaround
• Part 5 – On the road to ruin
• Part 6 – The silence in the boardroom
• Part 7 – ‘The world turned upside down’
• Part 8 – The Man Who Wasn’t There
• After Nortel: Tech’s last chance

I found the series very enlightening.  It points to leadership apathy, a board that lacked knowledge of the telecom industry, bad luck, incompetence, and -of course- the well known financial scandals as contributing causes.

Now that you have seen the ‘balanced view’, you may want to check out the ‘unbalanced’ view for a laugh: Nortel’s Downfall – The Mini-Series