Why are pelicans always short of cash? - Because they have big bills.
Where do birds invest? - The stork market.

Diversification - Choosing the right mutual fund

Diversification includes investment across geographic regions, industries eg. communication and entertainment, or sectors of the economy. For example, you may have heard the term small cap funds. Small cap companies are companies with capitalization of under $1 billion.

What are some possible future economic trends? Here are two worth watching

Health Care: The baby boomers are a large segment of the North American population. Within the next twenty years they will be entering that phase of their life where they will need more medical attention. Health care is a phrase that encompasses the following: pharmaceutical development, research of diseases and possible cures, medical equipment and facilities.

Alternative Energy Sources: At present oil and gas production contribute significantly to the volatility and unpredictability of the world's economies. Control of oil reserves also dictates a large part of world politics.

Hydrogen is an abundant and renewable resource. Its production on a cost efficient and viable basis can radically alter how energy is distributed. Hydrogen as a fuel source could end reliance on non renewable energy. Remember the transistor radio? What about computers and cell phones? In the beginning these technological advances were stratospherically expensive. Yet as they became more available and affordable they have had a significant impact on society. The companies and regions of the world that recognize the potential for hydrogen to have the same impact will be the most successful.

Investment techniques are also a way to diversify. The two most important are value and growth. Value managers buy stocks that are cheap. Those stocks may be cheap for one of two reasons: most of the market does not want to buy them or has overlooked them. Value managers are very patient. If they do not see a return on their investment in 6 months or even one to two years they will still hold the stock.

Growth managers are willing to pay more for a stock and want to see a return on their investment in a shorter period of time. They believe the stock has further upward potential.

Different market cycles tend to favor the two techniques, therefore it is important to have both types of managers in a portfolio.


This issue will conclude with an excerpt from a day on the life of fund manager Stephanie Griffiths. She manages Mackenzie's Ivy Enterprise Fund. It is important for investors to get a glimpse into how their money is invested in a mutual fund.

The Skyscraper's Directory List

Just to illustrate how the management team selects companies I'm going to give you an example of a typical investment conference and criteria I used. There are usually a number (260 companies at the one I recently attended) scheduled over three days and opportunities to meet one on one with the management. There were lots of companies to choose from, a few were too big so those were really easy to cross off, and then you 'X' the ones with bad balance sheets and cross off ones in deeply cyclical industries, include the ones that haven't made money consistently and others seemed to have stopped growing, etc., etc. After going through this huge list there were only about 12 that looked superficially interesting.

Next step? Well start to read their annual reports and sometimes there are obvious red flags and you know they are probably too risky for our fund. For example, situations like the accounting is so aggressive that you don't believe any of the numbers, or one customer is 90% of sales, etc. What we are really looking for is why has this company been successful, and will it continue to be successful? If we think it does then we try to identify and evaluate the risks; every business is different. So I read all the annual reports and eliminated half of the companies for one reason or another. Then I booked meetings with the 6 survivors, listened to their management, what they had to say and asked a lot of questions. After all this I ended up with 2 possible investment ideas out of the 260.

To conclude: Most importantly our commitment is to always remember that for investment rewards to be reaped and for risks to be minimized, a sensible time horizon is required. Patience is an invaluable asset.

Acknowledgments and sources, Wild Magazine, Jeremy Rifkin at Mackenzie University 2003, Spring and Summer 2003 Mackenzie Due Diligence Conference Spring 2003

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