Traditionally, the stock market is a game where brokers slug it out over who can compress the most clichés into one sentence.
For example, if you asked your broker why you should buy stock in IBM, you would be bombarded by them.
“It’s a no-brainer, money-in-the-bank, buy-and-hold, safe-haven, sleep-at-night blue-chip stock!” your broker would gush.
If you listen to your broker, you’re broker.
Well, it’s back to the drawing board for the used-car salesmen of the investment world, who will have to think up new phrases.
The tired, old clichés of Wall Street and Bay Street just don’t cut it anymore, not even where IBM is concerned.
It seems we’re entering a new era of investing – the post-Enron era – where the only sleep-at-night investment is the bankroll in the mattress.
As Enronitis sweeps Wall Street like the black plague, Ol’ Big Blue has been taken to the woodshed after being exposed by the New York Times for kinky accounting that hid a major transaction involving JDS Uniphase.
Who’s next?
Who knows.
Under the new rules, the clichés ring hollower than the cries of innocence from Enron executives.
Anybody’s fair game.
The only sacred cow left is the milk cow. Bossy boasts a wholesome dividend yield of one-half pail, rain or shine, bear or bull market.
If your broker tells you about a “sleep at night” stock, he’s either fibbing or sleeping with the CEO.
The Enron wake-up call over sleazy accounting and corporate cozenage has investors crankier than a Book4golf.com (BFG-CDNX) shareholder.
You need not look further than IBM (IBM-NYSE). With the recent selloff over the company’s creative accounting, the stock broke through the $100 plateau and is off about 30 per cent from its 12-month high.
But what’s even more disconcerting is that you can scan a who’s-who of the investment world and find numerous blue chips getting whacked, including brand-name stalwarts on the NYSE such as General Electric (GE), Coca-Cola (KO) and American Express (AXP), all down about 30 per cent from 12-month highs.
So far, Canadian blue chips have mostly dodged the Enron fallout, but many one-time so-called sleep-at-night stock darlings have had Canadian investors tossing and turning in the past year.
A year ago, chest-thumping Bombardier (BBD.A) investors were bragging about their bullet-proof investment, while techs like Nortel (NT-TSE) were crashing into the abyss.
But Bombardier, the airplane manufacturer, began a rapid descent with the airline stocks after the Sept. 11 terrorist attacks, and at last count, was a stunning 45 per cent off its 12-month high.
Nortel is 25 per cent off its 12-month high and another favourite, BCE Inc., has stumbled to trade about 20 per cent off its 12-month peak.
The stock market is often likened to a poker game, and as more and more blue-chip companies are exposed for stacking the decks against investors, that analogy seems more apt than ever.
From the early part of the 20th century, when playing the market was akin to placing a wager through a bookie in a smoke-filled billiards hall, the stock market always was a form of gambling.
There is some consolation to the Enron scandal that has eroded investor confidence.
It should persuade companies to lay their accounting cards on the table for analysts and the investing public.
In addition, accounting regulations are under scrutiny.
In Canada, the independent Accounting Standards Oversight Council is planning to address issues facing accounting standard-setting in Canada as a result of the Enron fiasco.
And, if companies continue to play the accounting game with a card hidden up their sleeve, the public will be sure to exact some harsh penalties from them.
Meanwhile, there’s a snappy new cliché making the rounds on the street: Shoot first and ask questions later!
Which is hardly music to the ears of your broker.
* STREET TALK: In a recent research report, Patrick Slater, vice-president of Calgary-based QVGD Investors, makes a compelling case for investing in small-cap stocks in an environment of economic recovery.
Slater, portfolio manager for the Clarington Canadian Small Cap Fund, unearths some intriguing historical data showing robust double-digit growth during economic recovery periods.
“In each of the first years immediately after economic slowdowns (i.e. 2001) that started in 1970, 1974, 1982 and 1990, the average Canadian small-cap performance returned 29.91 per cent,” writes Slater.
“The deeper the correction, the sharper the bounce back. After the severe bear market of 1974-75, Canadian small caps out-performed for six straight years with an average annual return of 39.5 per cent from 1975-80.”
* SAGE ADVICE: “Although it’s easy to forget sometimes, a share of stock is not a lottery ticket, it’s part ownership of a business.”
- investing legend Peter Lynch.
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HOT ALBERTA STOCK: Brocker Technologies Group
BKI-TSE $1.50
Up 60 cents (+66.7%) on 83,800 shares (for week ending Feb. 22).
A few weeks ago, Brocker was a putrid 20-cent stock, but the company seems to have found a new lease on life as it restructures. The stock surged as high as $2.05, a 10-bagger in a matter of weeks if you were buying at the bottom, before settling back to $1.50. The Edmonton-based information technology and telecommunications company, one of the high fliers during the tech boom two years ago, is in the midst of acquiring Generic Technology Group and its subsidiary, Datec Group.
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COLD ALBERTA STOCK: Kinloch Resources
KTE-CDNX 95 Cents
Down 30 cents (-24.0%) on 2,300 shares (for week ending Feb. 22).
Don't be too alarmed. This was not exactly a massive selloff with only 2,300 shares trading hands, but the stock still dipped under $1 for the first time this year in a difficult environment for oil and gas juniors. Kinloch is a rookie player in the Calgary oilpatch and a reorganization of the company formerly known as China Clipper Gold Mines.
