Investing in Your Backyard
Thursday, May 15th, 2008
By Michael Lombardi, MBA for Profit Confidential
I’ve often written about a stock market close to the United States that I am very fond of: The Toronto Stock Exchange (TSX). Located in the Financial Capital of Canada, this exchange is the Canadian equivalent of the NYSE.
About five years ago, I started writing about how American investors should be buying stocks on the TSX for two reasons. First, the TSX is rich in resource and precious metal stocks, which I have been bullish on. Second, as the Canadian dollar gained strength against the U.S. dollar, American investors had the opportunity to also post currency gains from the rising value of the Canadian dollar.
The TSX hit a new record high yesterday. Over the past five years, the S&P/TSX Composite, the exchange’s main index, has risen by 108%. Comparatively, in the same period, the Dow Jones Industrial Average has risen by less than half of that amount, 53%.
But when we add the 40% currency gain the Canadian dollar has made over the U.S. dollar over the past years, Americans who heeded my advice five years and bought the basket of conservative stocks that make up the S&P/TSX Composite have seen a gain of 151%. That’s 30% a year from an index in your own backyard… not bad at all. (I refer to it as your own backyard because Canada is the country just north of the United States. While most Americans are more familiar with Mexico than Canada, the American and Canadian economies share many similar characteristics, especially entrepreneurism.)
I’m in the camp that believes that the worst is still not over for the U.S. dollar. While we may be witnessing a rebound in the value of the greenback right now against other world currencies, I believe that this current rally will be short-lived, and that the U.S. dollar will resume its long-term downward trend against other currencies.
I also believe that gold bullion will move much higher in price over the next five years than it has in the past five years. Because the S&P/TSX is so richly teeming with gold-producing stocks, gold at $3,000 an ounce will mean much higher prices for S&P/TSX stocks.
Finally, while I do believe that oil prices have moved too high, too fast, America is becoming more and more dependent on friendly Canadian oil. As tensions rise against other oil-producing countries, the United States can always depend on its neighbor for continued oil supply. Again, the S&P/TSX is rife with major oil- producing companies.
Investing in your own backyard continues to be a prudent investment strategy, in my opinion.
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Tags: gold, gold bullion, stock market, U.S. dollar
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
