Investments: After 1998 volatility storm

You will have gathered by now that I am biased toward equities. Mark you, not recklessly. I’ve repeatedly stressed the need for balance, diversification and the prudent positioning of portfolios according to individual resources, goals, time horizons, tax brackets and sleep-at-night points. However, if you were to prudently tilt the weightings in your investment portfolios toward well-chosen equities and equity products, then in my view so much the better. Why? Because ultimately there is no better way to build the wealth that all of us are going to need in an era of lengthening life expectancies and diminishing government support. Given this fact, well-chosen equities and equity products are synonymous with longer-term growth rather than shorter-term risk and must command a place in our planning to provide adequately for our financial futures.

Last October, some CARPNews readers took me to task for recommending equities because of the unwarranted risks. At the time many of my recommendations were under water in the teeth of the fiercest "volatility storm" I have ever experienced. However, the losses were paper losses, only realizable if one sold at that time. st have since bounced back, demonstrating that not only can properly-positioned investors ride out pullbacks in the markets, but they can then also take advantage of accompanying bargain opportunities. I repeat that superior investing is all about continuously digging for values and taking advantage of en passant opportunities, always within portfolios prudently structured and positioned for the longer term — something we long-living, young-at-heart CARP members should be thinking about.

Right now, I have an exceptional equity I’d like to tell you about. Its revenues are growing nicely; its operating costs are under admirable control; it has been massively restructured, with major accompanying investment in new plant and systems boding well for future productivity and profits; its balance sheet is improving all the time and is already in the best shape in years (maybe ever); it is a model of fiscal rectitude; and it is priced at true bargain levels in world currency terms. I’ve mentioned Canada Inc. before. Right now I can’t think of anything better for value, growth and total return.

Furthermore, my modern-day Canada Inc. includes the widest range of top-quality, well-managed, world-ranking companies from which to make owner-partner choices. The accompanying table lists eight Canadian stocks that will remain recommendations of mine "until hell freezes over" (to borrow from a politician of old). They didn’t all do well in the fierce storms of 1998, but by the end of the year each had appreciated meaningfully since I first recommended them because class and quality always win through in the end.

I’ll be looking to buy more world-ranking Canadian equities like these, and I’m confident they’ll outperform in the strong comeback that I see for the Canadian equity markets in total.

Stock recommendations
How class and quality will win through

Bombardier

Jan. 97

12.65

22.00

74

Canadian Pacific

Dec. 95

24.68

28.75

17

Edper/Brascan

Nov. 88

16.63

21.30

28

Nortel

Jan. 92

28.28

76.60

171

Power Corp.

Jan. 95

11.00

33.20

202

Royal Bank

Jan. 95

28.13

76.55

172

Suncor Energy

Dec. 92

23.16

46.00

99

Thompson

Nov. 88

14.58

35.90

146