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Media Co-op Investor: October

We get Shoppers Drug Mart stock and (Barrick) Gold Fever!

by Gwalgen Geordie Dent

Barrick Gold Stock
Barrick Gold Stock

Welcome to Media Co-op Investor!

The Media Co-op Investor Series aims to help the general public understand the stock market, how it works and the major companies which benefit from it.  

Every two weeks we examine an element or term in the stock market, how the Toronto Media Co-op has done fake-investing in companies on the Toronto Stock Exchange (TSX) as well as highlighting specific large Canadian Companies, why their price has gone up and down and what they are all about.

To learn more go here.

This Weeks Term:  Stock Market 'Points'

We've often heard about various stock markets being "up by 30 points" or "gaining 200 points today." On Friday, the TSX was up 89 points. The DOW, the oldest and best-known U.S. stock exchange of 30 massive U.S. companies, was up 58 points. The NASDAQ, the largest stock exchange in the world based on the amount of trading done on it, was up 18 points. The SP 500 was up seven points, etc.

What is a "point"?  After much research on the internet and pouring over "Stock Investing for Dummies," I was surprised to find that almost no one had a clear answer to that question. Many stated that a stock market 'point' represented 'one dollar,' but my small mind found it hard to believe that when the TSX goes up by 89 points that hundreds of thousands of investors have to split $89 between themselves.

A stock exchange's total value is derived from the sum of one share of each stock listed on the exchange filtered through two things: how the stocks are "weighted" and "divisors." For the TSX, the value today of its 1,487 companies is 12,535. The value for the Dow's 30 companies is 11,006.

The values are pretty close, even though the number of companies differs widely.

Consider this example: lets pretend there's a Media Co-op Exchange and it has two companies; one's stock is worth $100 for each share, the other's is worth $50 for each share. Without filtering, this index would be valued at 150. If the next day, the share price of one company goes up $5 and the other goes down $2, The Media Co-op Exchange would end the day valued at 153. Hooray!

Because we're only looking at stock prices, this would be called a "price-weighted index" and is actually pretty close to how the DOW works.

However, this doesn't take into account number of shares.  Remember: a company issues shares to raise money. Company A might issue 100,000 shares worth $10 each. Company B might issue only 10,000 shares worth $10 each. These companies would have a totally different "market capitalization" (the value of all the shares out there); Company A's shares would be worth $1,000,000; Company B's - $100,000.

If Company A's share price goes down, $1, the company has lost $10,000.  If Company B's share price goes down, $1, the company has lost $1,000. Index's which factor for this, like the TSX, are called 'market capitalization-weighted indexes'.  Changes in the price of Company A would affect the value of the TSX more than the change in price of Company B.  

If you've made it this far without having your head explode, congrats. One more thing.

When an index calculates its value, it will then divide it by a "divisor," a number that makes the value more manageable for everyone to follow. Sometimes a divisor makes the value of the index bigger (like the DOW), while other times it makes it smaller (like the SP 500).

For example, according to eHow.com, "On March 9, 2010, the 30 stocks in the Dow had a total closing price of $1,397.87. The number you divide by--known as the Dow divisor--is continually undergoing adjustment to account for stock splits, changes in the lineup of stocks, etc. On March 9, 2010, the divisor was 0.132319125. So, dividing $1,397.87 by 0.132319125, gives you 10,564.38, which was that day's close" of the DOW.  

The total value of all the shares that have been issued by the Dow's 30 companies (total market capitalization) is between $3-4 trillion. The total value of all the shares of the TSX's 1,487 companies as of August was reported to be $1.84 trillion.

So to sum up, when a stock index is up X number of points, the average value of the stocks has gone up on. Whether the "average" is calculated based on stock price or the value of all the shares out there depends on the index.

What we invested in this week

This week we tracked 12 of the largest Canadian mining and extractive stocks as well as 10 major consumer goods stocks. We theoretically bought about $1,000 worth of each company's stock almost a month ago.

How we did this week

Gold Fever! Our mining stocks have shot up this week thanks to global fear about another massive depression. When that happens, money usually flows into commodities like gold and oil as well as companies which work in them. Our mining companies are up a whopping $950 or 8 per cent. Our energy stocks are up as well, though not by as much.  

Financial and consumer goods stocks are down, though. Not by much (one per cent), but when commodity stocks are soaring while manufacturing, sales and financial stocks are not, it's usually a bad sign.

While we made money overall, if you compared our investing skills to the S&P 500, we did even better, beating them out handily in our mining stocks.  Our consumer stocks did worse, but we overall made a lot of theoretical money.

U.S. and Canadian jobs and housing data look bad after one of the best September stock market rallies in 70 years. However, the major stock indexes are going up. This is either because investors are correct that the economy is getting better, or because they are wrong and another bubbling is about to go "pop!"

In stock news, BHP Bilton, the largest mining company in the world is still trying to take-over Potash Corp. Reports have continued to say that such a takeover would cost the Saskatchewan government billions of dollars, while a report in the Globe and Mail pointed out that several promises made by foreign companies during takeovers have routinely been broken.

The Bank of Canada governor's outlook-of-the-week (that's a joke) has changed again, now saying that the economic recovery might not actually be legitimate.

Today's Companies: Shoppers Drug Mart and Barrick Gold

Shoppers Drug Mart is a well-known chain of pharmacies in Canada with over 1,000 stores. Shoppers was founded by Murray Koffler, a pharmacist who is also one of Canada's most prolific investors in Israel. Shoppers brand names like Life and Lifestyles and its logo are also used for the Super-Pharm pharmacy chain, which is prominent in Israel, Poland and China and still owned by the Koffler family.

Shoppers in Canada, on the other hand, was sold to Canada's largest tobacco company in the 1980s and became a publicly traded company in the last ten years. In addition to medications and Life-brand cosmetic and food products, it has also branched out into photo processing, postal services, organic food, stationary and electronics. Although it used to be located in mostly strip-mall areas, larger "big-box" stores became the norm after 2000, leading to major dispute with Toronto residents in 2007.

Recently, Shoppers announced they will be getting into financial services in their stores, probably by partnering up with a bank.  =The Shoppers Optimum card allows them to track customers spending habits closely, which they can easily tie into an expansion of loan, deposit and mortgage services.

Like many companies, Shoppers is well tied to political appointments. Martha Piper (former President of the University of BC), David Williams (former President of the Ontario Workplace Safety and Insurance Board) and David Peterson (former Premier of Ontario) all have connections to the company.

We fake-bought Shoppers stock about a month ago for $36.54.  It's now up to #38.82, making us an additional $57 or 6.2 per cent.

Barrick Gold is the largest pure gold mining company in the world, with gold mines all over the world. Sadly it is also considered to be a nasty company with a lot of skeletons in the closet.

Media Co-op readers will know Barrick well from numerous articles written in both the Dominion and the Media Co-op network. In addition to numerous accusations of poisonous spills in Australia and Papua New Guinea, Barrick has been accused of human rights violations in Peru and Tanzania. Barrick is facing protests of their mines in the U.S., Canada, Chile, Argentina and the Dominican Republic due to environmental concerns and concerns over indigenous ownership of the land being mined.  

But it gets even worse. Norway's government investment arm sold all of Barrick's stock in response to the incidents in Papua New Guinea. Barrick has also been accused of profiting from mines in the Democratic Republic of the Congo while the country was in a major war in which millions died; worse even than World Wars I or II.  

Le Monde Diplomatique reported that Barrick had been "funding military operations [in the DRC] in exchange for lucrative contracts." A report in Z Magazine in 2006 said Barrick still operated "in the town of Watsa, northwest of the town of Bunia, located in the most violent corner of the Congo. The Ugandan People’s Defense Force (UPDF) controlled the mines intermittently during the war. Officials in Bunia claim that Barrick executives flew into the region, with UPDF and RPF [Rwanda Patriotic Front] escorts, to survey and inspect their mining interests.”

Sadly, many investors don't get this kind of analysis. Gold is their business and business is good.

Barrick Gold is well connected. Over the years, advisers and directors for Barrick have included George H. W. Bush and Brian Mulroney. Its founder, former CEO and current chairman Peter Munk is a well-known Stephen Harper supporter. He's received the Order of Canada and has sections of the University of Toronto and Toronto General Hospital named after him thanks to multi-million dollar donations.     

We fake-bought Barrick shares for $45.73 a month ago. The stock has risen to $49.08, making us an extra $67 or 7.3 per cent.

Archive

September: Potash Corp

September #2: Suncor and ARC Energy Trust


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1657 words

Comments

good info

Thanks for the cool new feature and info about company connections!

The only thing i would suggest is to run the article through a grammar checker (or past a copy editor) to catch distracting errors in the use of the apostrophe, possessive form, and plurals: e.g. "its" vs "it's", "indexes" vs "indices" vs "index's". 

For future articles i wonder if you might address whether anything good can come of the stock market's basic operations - speculating in the value of assets vs venture capital investing in new business. . I read somewhere that most of the trading is between the brokerage houses themselves.

great analysis

I have always wondered what these points mean. Excellent article and much needed. Well done!

Good topic

I'm glad you've taken on this topic. Keep it up!

Hey, I can’t view your

Hey, I can’t view your site properly within Opera, I actually hope you look into fixing this.stock market today

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