Power Maxx Blog

After reading a blog entry on John Chow’s blog, on the topic of borrowing to invest vs saving to invest, I decided to write my own take on the idea, as I am big on investing myself.

The long of the short of the article that I read compared what someone would earn if they look out a loan and invested it as opposed to saving that same amount of money to invest. The borrowed money would be paid off in monthly payments as one would normally expect.

Although I agree with the idea, as I myself often purchase my investments with borrowed money, before jumping into such a venture, you must be sure to do your research on the companies you’re going to throw money that you don’t have into.

The last thing you want is to put your money into a company that tanks, and you’re left with a big monthly payment, and nothing to show for it. I always consider investing to be essentially gambling money, or money I am willing to lose.

If any of the companies I was to be invested in went under, sure I would have the loss, but it’s not like I’d be down and out.
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Many of my long time readers will know, that about a month ago I posted a couple of articles on my top 5 stock picks, with large cap stocks here, and small cap stocks here. I am by no means an investment professional, but I have done well over the years, and I wanted to take the time to look at where those stocks have gone from that time that I spoke about them.

You should always consult an investment professional before making any financial decisions, and I cannot be held responsible for any trades made using the information provided to you.

For all of these picks, I’m going to use November 18th as a start date, which is when I first posted about them, giving about a month’s time frame for the update.

First, I’m going to take a look at the small caps, as they are the hardest hit in this type of environment. Here is my list:

• Birchcliff Energy - BIR
• BIO MS Medical - MS
• Bankers Petroleum - BNK
• Timminco LTD - TIM
• Absolute Software - ABT

So let’s go in order here:
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We are amidst a financial crisis, this is nothing new. Companies are struggling to stay afloat left right and backwards. Among the companies hardest hit in this environment are small cap stocks. These stocks are often small companies that are growth stories, and are trying to make it big. Unfortunately for them, this is quite possibly the toughest environment to try to start up a venture in.

In a normal market, a good small cap will yield gains that far surpass those of the big boys, which provide a small but often consistent yearly gain accompanied by a dividend payout to give you an incentive to park your money with them. The difficult point is that many of these small caps will not survive, and it is quite a task to try to pick those that do. Add this to the current market turmoil, and your job just got that much harder.

I’ll admit, that in the good times, my small caps were all solid, and were set to yield me some pretty sweet gains, but then the financial crisis hit and things took a turn for the worse. Although for the most part I was able to sell off and avoid even heavier losses than I had already sustained, the numbers still don’t look pretty. Despite these incredible drops in value, the same principles of picking a good large cap that has been unfairly devalued apply to picking a good small cap.
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Timminco (TSX: TIM) is among the handful of small cap growth stocks that I currently hold in my porfolio. This company was the darling of the TSX last year, making a gain of over 7000%. Since then, it has returned to the spotlight, being further and further devalued by the continued global economic crisis and panic selling.

The main reason for the jump in Timminco’s share price last year, was the fact that it developed a process to convert normal metallurgical silicon into solar grade silicon. This was very interesting to the solar world as the demand for solar energy is constantly on the rise, and a cheap way of producing the systems to harness this is an almost godsend.

This process has been criticized left right and backwards, but it finally looks like Timminco is able to produce, and for the past few quarters has been shipping its product to solar cell manufacturers world wide. With a 2009 output target of 14,400 metric tons, it is projected to have a significant income in the 2009 fiscal year.
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As most of the world is currently aware, we’re currently in what the popular media is calling a global recession. Huge corporations such as Bear Stearns have gone bankrupt, while others such as the big three US automakers, Ford, Chrysler and GM are struggling to stay afloat. Layoffs are reaching record highs, and RRSP and 401k values are plummeting.

Although many would argue that it is not yet a safe time to jump back into equity markets, others such as Warren Buffet, most recently quoted as saying “Be fearful when others are greedy, and greedy when others are fearful,” have been buying up big name companies that have been significantly devalued due to the ongoing global sell of of the stock markets.

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