Should you manage your own portfolio?

During these times of significant economic uncertainty, many investors are searching for investment strength and stability. These individuals are presently looking for alternatives to the low interest rate term deposits and GICs offered by banks and other financial institutions. They have also become disillusioned with the performance of mutual funds in recent years.

The sour attitude of investors today is not surprising. Many investors continue to hold shares in money-losing companies such as Nortel Networks Corporation (NT:TSX) and Research in Motion Limited (RIM:TSX) which were purchased at substantially higher prices during the height of the bull market in tech stocks three years ago. These so-called "market darlings", as the brokerage firms and investment advisors described them, have reported massive annual operating losses in the billions of dollars during the last few years. There is no hope that the share prices of these companies will fully recover anytime soon.

During the past three years, stock market indexes in North America have declined significantly each year. This period of sliding stock prices is commonly referred to as a bear market. A review of the history of the stock market in North America indicates that bear markets are relatively short in duration, averaging less than two years. This bear market will end as previous ones have before and then a new growth cycle or bull market will commence.

Unfortunately, many investors have dismissed the stock market as being too risky and have come to believe that it is virtually impossible to make money on a consistent basis. Some individuals now view the stock market as an avenue for gambling, not investing. Yet, study after study continues to conclude that the stock market has outperformed all other investment types, including real estate, in the last century.

Although most North American stocks have declined significantly during this bear market, most companies that have generated substantial growth in profitability during this period have seen their stock prices go up. It is important to emphasize that the stock prices of companies that are experiencing substantial growth in revenues and earnings generally go up regardless of the general performance of the stock market. For example, Coolbrands International Inc., which trades on the Toronto Stock Exchange under the symbol COB.A, was featured in the August 2001 issue of Buy Low, Sell High ! (CanStock.com) when it was trading at $2.23 per share. Coolbrands has subsequently reported consecutive quarters of substantial growth in revenues and earnings. Not surprisingly, its stock price has since more than tripled reaching a high of $8.15 per share in July 2002. Coolbrands has been recently trading around the $6.00 per share mark.

What does an investor who seriously wants significant investment returns do in this environment? In the minds of an increasing number of Canadian investors, the answer is clear.

Managing your own money is the only logical alternative if you no longer have any confidence in mutual funds, brokerage firms or investment advisors. Many investors have recently embraced do-it-yourself investing and have opened up a discount brokerage account in order to conduct their own stock trades. Along with realizing substantial savings in trading commissions that they would have otherwise paid to a "full-service" broker, they have generally become more knowledgeable, sophisticated and comfortable in making their own investment decisions. They have also learned how to obtain and evaluate reliable information about potential investment candidates, and to regularly monitor their stocks.

Many Canadians are finding that the little time and effort spent on taking control of their financial future by managing their own stock portfolio is paying big dividends.

Al Budai, B.Comm., CGA is a Kamloops-based editor of several monthly stock research publications including Buy Low, Sell High ! He invites your questions and comments at CanStock.com.