Are you feeling unsure of how to buy shares in Canada for maximum portfolio gains? Follow our three-part Successful Investor approach, and at the same time avoid these risky strategies
If you are interested in learning how to buy shares in Canada for maximum portfolio gains, follow our proven three-part Successful Investor philosophy—while at the same time avoiding certain strategies, like frequent trading, which can quickly lead to losses.
How to buy shares in Canada: Start by using our three-part Successful Investor approach
If you want to make money in the stock market, follow the three key guidelines in our Successful Investor approach to sound investing:
First, invest mainly in well-established, dividend-paying companies, since they are the companies most likely to keep making, if not increasing, those dividend payments each year.
Second, spread your portfolio out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities. That way, you increase your chances of stumbling on a super stock that goes up five to 10 or more times faster than average. A few of these can make an enormous improvement in your long-term investment results.
Third, limit your exposure to stocks that are in the broker/media limelight. That limelight bloats investor expectations. When stocks fail to live up to those expectations, big downturns often follow, regardless of a company’s dividend history.
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How to buy shares in Canada: It’s important to understand dual-class shares
In the case of dual-class shares, if a company’s two classes trade for roughly the same price, you’re better off buying the voting shares. That’s because the voting shares may move substantially higher than the non-voting shares if a shareholder who is trying to take control of the company accumulates a large number of shares. In addition, for companies with dual class shares, their voting shares sometimes trade above their non-voting shares because certain institutions refuse to buy non-voters, or only buy them in limited quantities.
Canadian stocks sometimes combine their voting and non-voting dual-class shares into a single share class to make themselves more attractive to investors (particularly institutional investors) who dislike non-voters. When that happens, the voting shares may get a 10% to 20% premium over the non-voting shares in return for sharing control of the company. So, if you can buy the voting shares of a dual-share company for less than, say, a 5% to 10% premium over the non-voting shares, it can be a worthwhile investment.
Note that most Canadian stocks with dual-class shares have far fewer voting shares outstanding, and they trade far less actively than the non-voters. However, for long-term investing, having a vote is more valuable than a high level of liquidity, since the voting shares will tend to trade at or above the non-voters.
That’s why we recommend that you buy the voting shares when, as mentioned, they trade for less than, say, a 5% to 10% premium over the non-voting shares.
Avoid frequent online trading when you’re thinking about how to buy shares in Canada
Some investors may look at online trading as a fairly quick and convenient way to build wealth, but there are many hidden dangers that may not be easy to spot at first.
The main risks of online trading come from the fact that it all may seem deceptively easy. The lower costs and higher speeds of online trading can lead otherwise conservative investors to trade too frequently. As a result, you could wind up selling your best picks when they are just getting started.
The apparent ease of online trading may even encourage conservative investors to take up short-term trading or day trading. That’s just another danger of trading stocks online—there’s a large random element in short-term stock-price fluctuations that you just can’t avoid.
Fewer trades, high-quality companies are the keys to successful Canadian stock market investing
The best way to approach investing is to build your investment portfolio gradually, but systematically, with a firm goal in mind. Be patient, be informed about the investments you are considering and keep everything in perspective. Take a conservative approach to risk and an optimistic approach to high quality stocks. That way you won’t be pushed off course by turbulent markets. Keep in mind that stock prices generally reach successively higher levels over time.
In the long run, the best way to find success in the stock market is by sticking to high-quality investments and making fewer transactions. This cuts commissions, and it improves your tax deferral.
For instance, suppose you buy an investment at $10 and it goes to $20. As long as you hold on, you defer taxes — the entire $20 keeps on producing dividends and capital gains for you. If you sell, you’ll have only $18 or so to reinvest, after capital-gains taxes and commissions. The lost 10% of your capital can take an enormous bite out of your returns, if you let it compound for a decade or two.
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The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
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