Saturday, 29 March 2008

Tips on searching for a vacation package

As I recently spent several long hours trying to find a good deal for a family vacation at an all-inclusive beach resort somewhere in the Caribbean, I thought I’d share some tips related to this process. These tips primarily apply to Canadians, but generally should work for Americans too. In the discussion below, I will limit my focus on search for vacation packages to resort areas.

  1. The first step in the process is to decide where you would like to go. It is your personal and budget-based choice in picking a region, country, resort area, and a resort. You should ask around your friends, relatives, and co-workers to share their recent experiences and general impressions about places they recently visited. Another good starting point for your research would be to read a couple of travel sections in weekend issues of local newspapers and a few of travel magazines. Of course, the best and most complete source of diversified information remains World Wide Web.


  2. Once you identified a country where you want to go, you should move to the second step of your search process: hotel/resort selection. I would strongly recommend using the Trip Advisor website at http://www.tripadvisor.com/, which is an excellent source of thousands of up-to-date user reviews. For most popular resorts, they have 1-3 daily reviews posted by people from all over the world, but mainly from Canada, US, and Europe. A lot of Canadians post their reviews on this site, so you should probably pay closer attention to these reviews if are traveling from Canada, as they typically share many useful travel tips for Canadians. On the TripAdvisor website, you should type your selected country, say “Dominican republic”, in the search window and click on the “all hotels in (a country of your choice)” in the search results section.


  3. The list of hotels will start from top rated hotels in each of the several vacation destinations within the selected country. Picking up the resort area is your next task if you have not made the relevant decision at the first step. Each location typically has a combination of pros and cons that you can take into account. For example, most resorts in Puerto Plata in the Dominican Republic are relatively old, the beaches are not the top quality and often have big waves, but the prices are not very high and the service level is fairly high. Punta Cana resorts, on the other hand, are typically newer and larger, offer more facilities, the beaches are nicer than at Puerto Plata, but the prices are higher. La Romana hotels are cheaper, beaches are good, but the hotels are on the lower-quality end and most of the staff there do not speak English. Of course, this is my subjective "averaged" opinion based on what I heard and read. Once you weigh all of your pros and cons and select 1-3 preferred locations, you should move to the next step: deciding what parameters you want from your resort target.


  4. The parameters that you can consider when selecting your preferred resort include the resort’ star rating, price range, clientele orientation (e.g., families with small children, adults only, honeymooners, etc.), resort size, type of accommodations, size and quality of resort beach, resort facilities, sharing of facilities with the other resorts, number of buffets and a la carte restaurants, free activities, etc. Have this list of look-for features in mind and return to the TripAdvisor website.


  5. Note that there are certain times and locations when travel is not recommended to particular locations. The examples are: the October-November hurricane season in some Caribbean countries; the March Spring Break week when wild, drunken and swearing herds of US and Canadian teenagers take over many resorts in the Caribbean; the Easter week in the Dominican Republic when most resort activities and services are inactive; a few weeks when jellyfish take over waters in some beach resort areas; and so on.


  6. On the TripAdvisor website, pick up a resort location and search for a rated list of hotels/resorts operating in the selected area. Go through the list of the top 20-50 hotels and check their most recent reviews. I usually look at the first page summary with the latest reviews. If all or most of them are very good or excellent, then I look at the next 2-4 pages of reviews. If 90+ percent of them are good or excellent as well, then I read through these reviews in a bit more detail and look for the factors that I like or do not like. I also look at readers’ pictures of a resort located in the picture galleries.


  7. Based on this screening, I either select a resort to my preliminary target list or drop it from further consideration. Some resorts on the TripAdvisor site have top overall ratings and are high on the rated list, but their recent reviews are mostly bad. In this case, I exclude such resorts from further consideration, as it indicates the presence of possible recent issues. On the other hand, there are some resorts, which are ranked in the 30th-40th range but have excellent recent reviews; so I place such resorts on my preliminary list. At the end, I have a prelim list of 3-20 resorts, which I use in the next stage of my vacation package selection.


  8. At this stage, I go to the websites of several local travel companies (operators and/or brokers). In Canada, I would recommend looking at websites of

    http://www.escapes.ca/,
    http://www.belairtravel.com/,
    http://www.selloffvacations.com/,
    http://www.nolitours.com/, and
    http://www.sunwing.ca/.

    The last two are tour operators while the former four are travel agents/brokers.


  9. Select the travel dates you are looking for and check prices on all-inclusive packages at the resorts you have on your prelim list. Check prices with each travel company because sometimes some of them offer little extra deals or discounts. There may be also some variations in pricing of deals and packages available through different companies, but my general impression was that prices are the same on similar packages, so it is only your subjective personal choice from whom to buy a package at the end.


  10. At this stage, you get familiar with prices on specific resort packages, available dates, more detailed resort and package descriptions, etc. Based on this information, your preliminary list should now be reduced to 2-5 resorts that you really like. Here comes the final stage: tracking down the deal price.


  11. Before you buy your package on a spot, wait for a week or two and check prices periodically. If you start looking early, it does not hurt to sign up for weekly email letters from one or two operators, which provide you with descriptions of latest deals and discounts. Sometimes prices on vacation packages go down several hundred dollars per person. Sometimes there are deals on family and children travel. Sometimes, two-week vacation packages become only $200-300 more expensive than comparable week-long packages. Often there are really good last-minute deals on some packages, but remember that for good resorts during a busy travel season (usually, around Christmas and in February-April) you may end up without any package for your target travel dates if you decide to wait for the best last-minute deals, as the available spots can get sold out quickly. Also, keep in mind that deal prices can change fast and unexpectedly, so if you found a deal price at say 10 pm, it may not be available at 8 am the next morning.


  12. I noticed that deals tend to move in a wave-like motion, with a price on a package being higher before and after a deal and a deal price periodically moving further along time into the future. Most likely than not, no good deals will be available during the last two weeks before your planned departure date if the resort is very popular and if you decide to travel during a busy season.


  13. Once you found a deal at one of the top resorts on your final list, you can choose one of the operators or brokers to buy a package. At this stage, a price is typically same everywhere, so unless there are extra agent-specific incentives, it is only a matter of convenience of the online checkout at each agent’s website that should govern your final choice of whom to buy a package from.


  14. After you buy a package online, the agent will typically send you electronic tickets, travel/package itinerary, and supporting travel information via email. Call the package operator 3-4 days before your travel date to confirm your intention to go and your flight times. Make a similar call within 24 hours before you travel. Sometimes, the operators overbook resorts and flights, so it does not hurt to confirm you will be there, so that there are no unpleasant surprises later on.


  15. Finally, make sure that you have all travel documentation, IDs, tickets, cash, and personal belongings before you go to the airport. Check for possible flight delays before you leave. Arrive at the airport 3 hours before the flight departure time for an easy check-in and to reserve a window spot on a plane (sometimes you can reserve a plane seat for an extra fee at the time of your package purchase).

Once you are in your room/suite at the resort, RELAX from now on for the duration of your vacation and enjoy every minute of your time there.

Friday, 28 March 2008

Nasdaq's stock analysis tool

Just wanted to briefly share some info about a fairly new and free stock analytical source that I lately like: Nasdaq's Stock Quotes and Research info tool. Of course, there are many other nice info hubs, like Reuters, WSJ's Markets Data Centre, and MSN Money, but Nasdaq's tool scores well in a couple of dimensions.

It has several very attractively presented functions, like information on short interest (see this example), analyst stock research overview (example), information on key competitors (example), ownership summary (example) and detailed institutional holdings (example), and especially Guru Analysis (example). I like this latter feature that (possibly somewhat subjectively) evaluates a stock according to eight different investment/trading models. By looking at a stock using Guru Analysis' pie charts, you can approximately see whether it fits one or two evaluation methods that most closely characterize your trading or investment philosophy.

Sunday, 23 March 2008

Troubles with derivatives in the financial sector

I am still convinced that the credit derivatives bomb is slowly ticking in the financial services market, ready to explode and hit all other sectors of the US and global economies. For some extra recent info on the CDS topic, read Swaps Backers Rush to Prevent 'Credit Event' from the Financial Week publication about the recent developments in credit default swap ("CDS") markets, or read The Credit Default Swap ("CDS") Market – Will It Unravel? which gives a nice overview of what is going on in the CDS markets.

In this regard, a very interesting statistical publication is the Quarterly Report on Bank Derivatives Activities published by the Office of the Comptroller of the Currency ("OCC"), the U.S. regulator and administrator of U.S. national banks and their activities. It is a very useful piece of information which allows one to assess risks of certain U.S. banks. The latest available report as of March 23, 2008 is the Third Quarter 2007 report, which spells the word "trouble" across its pages. I can imagine what had happened with the already worrysome statistics during the last six months since the report's coverage. I thought it would be interesting to share several pieces of data from this report with the blog readers.

First, a couple of summary lines from the first page of the report:


This summary is basically saying that a degree of derivative and credit derivative exposure by U.S. banks was increasing at the double-digit quarter-to-quarter growth rates back in the second half of 2007 and that only a handful of banks dominated the scene in the banking sector's derivative market.

The following diagram from the report shows the trend in a value of total derivatives traded by U.S. commercial banks since 1990:



Whenever we see exponential growth (which is obviously the case on the graph above), we should note for ourselves that a correction is in order because no market growth can be sustained in the long run at the ever accelerating positive rates.

Now, here is a report diagram and a report table on a degree of credit exposure by the five largest derivative players among U.S. banks:



From the data above, you can get the idea who are the prime candidates for serious potential issues.

Finally, below are several summary report tables which show us mind-boggling figures about the extent of derivative, and CDS in particular, exposure of most major U.S. banks.


Note a discrepancy between the value of banks' total assets and the notional values of their derivative contracts. Because most derivatives are off-balance-sheet items and because the true exposures from such derivative contracts are not necessarily valued objectively and correctly at actual market prices, the banks get away just fine in their finanical reporting, leaving many investors oblivious of the ugly truth that lies beneath the surface and waits for the right market moment to get exposed (as it happened to Bear Stearns last week).

Speaking of Bear Stearns (we can legitimately call it a BS company now, I guess), keep in mind that the report's list includes only banks and not security dealers such as Bear Stearns, which all may be in even deeper mire than banks. Look at the guy on the top of the report's list of largest derivative players among banks. If the acqusition of the BS Co goes through as announced, JPMorgan will have an even bigger exposure in the credit derivatives market.


Look at JPM's credit-exposure-to-capital ratio. It is ridiculously high. Look at these ratios of the other top banks on the list above. I think that whoever has a credit-exposure-to-capital ratio above 50% is a good candidate for shorting, with those few banks which managed to get it above 100% being almost sure bets for trouble if the situation in the credit insurance markets gets really bad.

Look at the graph below to see how much exposure in the sub-grade credit derivatives the "top" banks (shall I say the "bottom" banks) have. Also, note that most of these contracts are 1-5 years in maturity which means that they are due to expire in 2008-2011.


If you do not see an issue here, then I do not know what can be called an issue. I will just name those banks that I think may be potentially facing very serious problems, on top of what they have had already due to the subprime crisis:

  • JP Morgan Chase (JPM)

  • Citibank (C)

  • HSBC Bank (HBC)

  • Bank of America (BAC)

  • Bank of New York Mellion Corp (BK)

  • State Street Corp (STT)

  • Wachovia Bank (WB)

  • Lehman Brothers (LEH)

  • Merril Lynch (MER)


  • If the CDS markets collapse for some reason (well, realistically there are very slim chances that it will happen because the government will bail out again), then the companies above will take the biggest hit. Please use your best judgement when investing in these banks.

    Graph and table credits: U.S. Office of the Comptroller of the Curency, Quarterly Report on Bank Derivative Activities, 3rd Quarter 2007.

    Saturday, 22 March 2008

    Dividend Achievers with the longest history of consecutive dividend growth

    One of several qualities that a dividend-growth investor is looking for in his/her investment-portfolio candidates is a history of dividend growth. If a company has a long history of uninterrupted annual dividend payments, which are increased every single year, then you can conclude with a high degree of certainty that: (1) one of the managment's top priorities is the company's shareholders and their well-being; (2) the company will be very reluctant to cut or eliminate its dividends in good or bad times; and (3) the company is likely to continue the practice of increasing its dividends in the future. Picking a stock of one of such companies at the right price gives you pretty good chances of ending up with a cash-generating equity in your long-term investment portfolio by the time you decide to retire.

    Mergent's Dividend Achievers ("MDA") list includes publicly listed companies which have increased their annual dividend payments for ten or more consecutive years. Currently there are 312 companies on this list, but this number varies over time, for example, hitting the all-time high of 437 companies in 1987. It is one of the most popular reference lists analyzed by those investors who are looking for high-quality dividend-growth stocks. Since a long history of consecutuve annual dividend increases is one of the key parameters in picking the right dividend stock, researching the MDA companies with the longest history of dividend growth may not be such a bad idea when selecting potential buy targets for your portfolio.

    I used the latest Winter 2008 issue of Mergent's Dividend Achievers publication to look at the top 20 companies on the list of oldest dividend growers. Here is a snapshot list of these companies:


    The spreadsheet link of this table can be found here.

    The list actually includes 21 companies, each with a whopping history of unterrupted annual dividend growth of more 41 years or more. These are the companies that managed to go through several complete market cycles without dividend freezes or cuts. Note that most of them are established manufacturing companies whose brands are well recognized globally by their customers and consumers. They are not necessarily the highest-yielding stocks or top performers in terms of recent total return rates, as the corresponding columns of the spreadsheet suggest. However, most of them are firms with solid long-term fundamentals and excellent long-term prospects.

    Some of them are also very good defensive stocks, as indicated by relative positions of their most recent prices within a 52-week low-high spread. Their fairly high current P/E ratios also confirm these stocks' defensive value for investors. It is interesting to note how the simple-average total-return ranking of this group within the total Dividend Achievers list increases in value from the 5-year to 1-year horizon, which reflects the fact that many shorter-term dividend growers started taking price and dividend-growth hits as the markets began their correction. The "old school" dividend-growth stocks are probably more resilient to adverse market shocks.

    In any case, there are several very good candidates on this short list, and I hope that some of you will do your homework and will find a stock or two that you may consider adding to your portfolio after performing some additional analysis of company fundamentals and wating for the more appropriate entry point to buy a stock at better prices.

    I am thinking about adding several extra posts based on Mergent's Dividend Achiever list. Stay tuned.


    It is gratefully acknowledged that this post was published in the Carnival of Personal Finance # 145 hosted by FrugalTrader at Million Dollar Journey.

    Wednesday, 19 March 2008

    Quick review: Update on the Questrade account

    It's been almost five months since I opened my RRSP account at Questrade Inc. I guess it is time to provide a brief first update on my usage experience. During the five months since the account was opened, I did approximately two dozens of trades with US and Canadian stocks. What are my impressions of Questrade so far?

    Positives/neutrals:
    - The market orders are executed instantly;
    - The limit and stop orders worked well too;
    - It is easy and fast to enter and cancel orders through a trading platform;
    - Trading commission fees are indeed low, as advertized;
    - I did not notice any periods the trading system was not working during regular exchange hours (although I have to admit that I sign in only occasionally);
    - QuestraderWeb Beta has a nicer interface and more features than a very basic Webtrader;
    - After each trade, you are emailed a pdf file with confirmation of your trade;
    - Customer service reps with whom I was comminicating were polite and attentive;
    - Online chat is probably the fastest way to contact a customer service rep during business hours.

    However, there are also a few negatives:

    Negatives:
    - Free monthly account statements are emailed, not mailed, starting March 2008, and you have to pay a fee for mailed hardcopy statements (I personally have no issues with that, but some people may find it inconvenient);
    - Access passwords in all three online systems, to which you have to sign in, are not case-sensitive, which greatly reduces strength of your passwords and a level of protection for your accounts against possible identity theft;
    - I was reluctant to use Questrade Web Beta because there was no indication that some of pages were encripted (the idication goes on and off as you are using the platform);
    - The interface of free trading platforms, Webtrader and Questrader WEB, is very basic, so if you are looking to trade stocks regularly, then you should get their more advanced platform for advanced and frequent traders (for which you have to pay extra unless you are trading extensively every single day);
    - It takes them at least three or four business days to process funds sent through an electronic transfer, which (at least) in theory should work instantaneously (regular mail is delivered faster nowadays);
    - I do not think their option of notifying about upcoming account deposits (which was claimed to result in a prompt deposit of funds) actually sped up electronic transfers;
    - I did not withdraw any funds yet so I do not know how much time it takes Questrade to process such transactions (based on the timing for incoming transfers, I think that you should not expect a 1-3 day service in outbound transfers of your funds).
    - The foreign-exchange premium that they charge on FX conversion in USD trades is big and I honestly do not quite know how the proper applicable exchange rate is determined;
    - I did not use their new feature which allows keeping US dollars on an RRSP account for US stock trades. From what I understand, this option would work well for traders who perform large and frequent USD trades, but may not work well for small customers who do only occasional and small trades;
    - Although technically you can send your messages to Questrade's customer service by filling out an online form, my impression was that they never respond to such messages (I did not get a single response from them this way);
    - Finally, the thing that I did not particularly like is that they do not hold their marketing promise to pay the referral credit for newly signed-up customers.

    A little bit about the last thing: Questrade claims that you can get a $50 referral credit if you are "referred" by an existing Questrade customer or "a Questrade affiliate." The credit is actually a reimbursement that you can get after three months since the date on which your new account is first funded by you. It is applied against any trading commission fees that you incur during these first three months. On the other hand, if you refer a new customer who opens an account with Questrade, then you can also earn a credit or a fee from Questrade. Well, I was referred and I still have not received my little $50 credit although almost five months passed since I had funded my account. I contacted the company's customer service several times without any luck. No responses to messages and only empty chat-based promisses to contact the back office department, which apparently does not respond to requests.

    So, unless I get the promised $50 credit any time soon, I will firmly believe that Questrade's referral program is a scam scheme which does not work in practice. I think it is not a matter of money, it is just an issue of fairness and good reputation for the company. I believe that if a company offers something to a customer, then the promise should be fulfilled without any reminders and requests from this customer and any unjustified delays from this company. Looks like Questrade conveniently forgets about its promotion obligations. The funny thing is that the company does not forget to collect fees from customers. Such little things here and there may result in customers eventually graduating to other brokers.

    Update: The $50 referral credit was deposited to the account several weeks after this post; so I admit that this component of the referral program works, although with a substantial delay. I am not sure if my several inquiries about the credit were the factor here.

    Tuesday, 18 March 2008

    Markets this week: A feast in time of plague

    It was quite an action today in the markets, which all started yesterday and continued in the morning in anticipation of the upcoming rate cut by the U.S. Fed. The Fed did not dissappoint most of the more rational market players, cutting its Fed Funds rate by a healthy 75 bps, which brought down the rate to a meager 2.25%. Another contributor to the crazy rally was news on better than expected earnings reports released by Lehman Bros. and Goldman Sachs, plus anticipation of the big-big-big IPO of Visa scheduled for this Wednesday. The rate cut comes on top of the earlier innovation introduced and already actively utilized by the Fed, the term auction facility program.

    It was very surprising for me to observe the bold 1% cut expectations by the markets before the Fed meeting. What were those folks thinking? That the rate cuts are some fun game and you can throw them in like cheap bones to dogs? The market actions and expectations lately are becoming more and more irrational and desperate, which spells the word "trouble" all over the place. My gut feeling tells me that this borrow-and-spend nation will see the price of these crowd pleasing gestures pretty soon. Producer and consumer inflation will not go away when the new empty money enters the economy at the steadily accelerating double-digit pace.

    The action will probably be huge tomorrow on Wednesday, when the humongous Visa IPO is released to the broad market. Watch out for the big V coming! We already have the big C (i.e., Citicorp), which screwd up big time lately. Now, it is the turn for Visa which, I have to admit, has fairly good prospects in the long run; however, I am not so sure about Visa's success during the next several years given all recent developments in personal credit issues, growing personal and business bankruptcies, and upcoming consumer and producer spending cuts.

    The participating U.S. and Canadian banks will surely try to use this IPO release as the excellent opportunity to patch their rotten books and to apply the related proceeds against any further writedowns that most of them will release during the upcoming first and second quarters. So, it is very possible that some of the big financial-services players will pleasantly surprise the markets later during the year with "unexpected" profits, which in effect will come from Visa IPO fees.

    I am currently in a small short-term trading action in the financial services sector and will tell about the outcome by the next week when the short-lived frenzy, if it happens to take place, should be more or less over and the usual Bear market sentiment comes back with another wave of poop news.

    Sunday, 16 March 2008

    Looks like the Canadian economy is heading towards a recession

    I went to do some shopping here in the Greater Toronto Area a couple of times during the last month and noticed several new things that I did not quite like. I view them as alarming signs that many things in the Canadian economy are not as robust and steady as Canadian politicians are painting them for the general public. What are these signs?

    First, a number of people in shopping malls went down considerably. I remember weekends in GTA stores and malls during 2005-early 2007. Back then, malls were packed with shoppers and by shoppers I mean the Shoppers - people were buying different stuff like crazy, loading up their cars with multiple bags and boxes of new things. This shopping enthusiasm is not there anymore. There are still some people in stores and malls, but they are not active buyers. Most of them are just looking and probably killing their time in the malls simply out of their long-term shopping habit. This radical change tells me that Canadians in general: (a) are becoming concerned about the economy and the sustainability of their future sources of income; (b) are taking new debt more cautiously and are hesitant to make big purchases; and (c) do not think that the good old deals are not there anymore.

    Out of the last point, comes my second observation: prices have been going up on almost everything in stores. A simple example: I was replacing my fragrance spray a couple of weeks ago and immediately noticed a jump in its price from $55 to $63. A 15% increase? On a bottle of fragrance, which is an example of a product in a highly competitive consumer goods market? Are you kidding me? The same observation applies to numerous other items you can find in stores, including food and basic necessities. There are several reasons for these noticeable increases in consumer prices: (1) overinflated costs of fuel which push up producer prices and eventually all other prices down retail chains; (2) the big-time inflation in the States, from where a lot of consumer products are reimported/supplied to Canada; and (3) higher producer costs in Asia and other developing countries which traditionally manufacture a huge share of intermediate and final goods for the North American consumer markets.

    The price of oil is behaving ridiculously lately, which is, in my opinion, is an organized and well-planned effort being executed (very well) by several cooperating forces. The consumer inflation in the United States has been in double digits for months now, despite the patheticly lying inflation stats from the US government. The inflation in China and other Asian countries has been accelerating lately as well. Here in Canada and the US, most of people do not even question how most of manufactured consumer products sold in Canadian and US stores end up being so cheap. Well, I do not think that $1-5 daily wages of Chinese workers, who have been busting their backs working long 10-18 hour days, are sustainable in the long run. It will surely change, and with this change will come the painful realization that a lot of slavery-like labour is put into almost every single widget that we love buying so much on those 50%-75% off sales.

    We do not live on the island, we are just a small open economy according to classical textbook definitions and are therefore pretty vulnerable to coughs and sickness of the world economy and, of course, of our big southern neighbor. With all those efforts to stimulate the slowing-down Canadian economy through rate cuts and liquidity injections, the Bank of Canada is also putting the upward pressure on already rising prices. It will be a tough call for the B of C deciding on what is more important - maintaining and defending the 2+/-0.5% inflation target or the efforts to fight off the recessionary pressures. It looks like the US Federal Reserve has clearly made its choice, and it also appears that the Bank of Canada is a part of this game too.

    Finally, the third alarming thing that I noticed was a deteriorating variety and volume of consumer merchandise in Canadian department stores. I see a lot of empty floor space lately, and what is left on the shelves does not impress me in terms of the variety, design, and quality. To give you an example, I think that HBC's stores are an exhibit of this troubling trend.

    What are my conclusions based on these three observations? Well, first of all, the Canadian retail and wholesale sectors are being increasingly hit by the deteriorating market conditions, and we will learn about their troubles as soon as their first- and second-quarter financing reports will be published. The relevant advice here is to avoid or short retailing stocks at least over the next several quarters because their prices are still far away from reaching the bottom. Second, a growing strain on many sectors of the Canadian economy, balloned energy costs, and a strong loonie are very likely to translate into a negative impact on the labor market in most Canadian provinces. It means some people will lose their jobs and the majority of Canadians will become more cautios and frugal in their spending decisions (the last thing is good, by the way). Third, we should prepare ourselves to seeing growing consumer prices. It is true that our loonie is strong and we can buy much more of cheaper foreign goods than we could a year ago, but it is also true that we are too much dependant on high fuel prices and intermediate- and final-good imports, which are getting more and more expensive too fast.

    Let's keep our fingers crossed that the Canadian economy will only cough a bit rather than will take a sick leave for several years.