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  1. #1
    Join Date
    Apr 2004
    Location
    Monroe, WI
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    6,091

    Default New-born Baby's Cans: Making Money in a Down Market

    What is a "Can?"
    A "Can" is a Canadian Royalty Trust. A royalty trust is a company that has been granted tax-free status because the trust has agreed to pay a majority of its income (NOT PROFITS) to its "unit holders." The government then taxes the dividends that the individual unit holders earn.

    Why buy a Can, anyway?
    1. They pay awesome distributions; the best pay 15-18%.

    2. Not all of the distributions (note that I did not call them "dividends") are taxable. A portion of the money that the Can pays the unitholder is "Return of Capital" or ROC. Return of Capital is what the government calls the allowance for the depletion of the resource. For example, let's say you invest in a coal mine. The mine has only so much coal in the ground before the vein of coal runs out. The distribution that the coal co. pays to the unitholder is perhaps 25% dividend (and thus taxable) and 75% ROC, and thus non-taxable! So, if you invest in some of the best cans, you'll earn 18% on your money, but only 4.5% is taxable! Nice, huh?

    3. Another reason to invest in a Can is they pay monthly distributions. Let's say you invest in one paying 18%. That is a 1.5% distribution check each and every month. What's wrong with that?

    4. Cans generally provide very stable income during all market conditions. Thus, in a down market (like March 2004-Nov 2004), while the sharks are devouring the small investor in a choppy market, the Cans were sending their unitholders a check every month.

    5. Over the last 5 years, the average return to the investor in the energy royalty trusts have averaged 27% per year, each and every year. 27% represents distribution plus appreciation of the unit price.

    6. Unit prices tend to be very stable. On a good day, the unit price will move up .10. Often the move may be just .03 up or down. A very, very bad day would see the unit price drop .20. (All these figures are in Canadian dollars). You can go to sleep at night and relax. You can walk away from your computer screen and not worry that the market collapsed on you. On the negative side, these are not growth plays. Don't expect your unit price to double in one month, one year, or even five years. It could happen, has happened, but it is not likely to happen.

    Therefore, the Cans are a good place to lick your wounds and recoup your NYSE losses. A great place to park money for years, and earn a great return. The Cans are the place to be in a bear market. While others are on the sidelines, your money is earning a good return.

    Until next time, good investing to you!

  2. #2
    Join Date
    Apr 2004
    Location
    Monroe, WI
    Posts
    6,091

    Default How do I buy Cans?

    Perhaps you are interested, and desire to purchase a Can. How can you do that?

    The answer depends upon who your broker is. For example, if it is Scottrade, you cannot buy them through your computer. You must call your broker, pay $17-22, and buy/sell them over the phone. Yes, that's right. It does stink.

    But if your broker is Ameritrade, you cannot buy them over the phone. You buy them on your computer screen, but you don't get a live quote. They are bought and sold via "pink sheets," and so you put a limit order in your computer and do not really know if you get the units until later in the day. Guess work. Yes, that's right. It does stink.

    On the other hand, Interactive Brokers is the place to be, provided you have $25,000 to start with, and have been an active internet trader for two years. Yes, that's right. It does stink if you are a new investor. But Interactive Broker gives you live Toronto Stock Exchange quotes, and the fees are low. You buy them just like you do on the NYSE or NAZ. Right over the computer screen. In fact, they offer other pluses that I won't go into right now. So the place to be, if you can be, is at Interactive Brokers.

    For Scottrade, call your broker and say "I want to place an order on the Toronto Stock Exchange." They probably won't know anything about Toronto Stock Exchange, so you'll have to walk them through the process.

    WARNING:
    They symbol for Cans on the pink sheets purchase program (like Ameritrade) and the symbol on the Toronto Exchange are not the same. If you deal with Ameritrade, look up the symbol on Yahoo finance. If you deal with Scottrade, you'll have to go to a Canadian Website (like Stockhouse) and look up the symbol. In another post, I'll give you what I consider to be the Cream of the Cream, and I'll list the symbols.

    The Canadian symbol for Acclaim Energy Trust is AE.UN on the Toronto Stock exchange. But the Scottrade representative needs this sybol: AEUN.TO. Then you'll have the choice of buying at market or limit price. Since you are buying on the Toronto, Canada exchange, you will have to exchange your money. That is done automatically if you buy at market; if you limit the price, you limit the price via US dollars. So you'll need to know the instant exhange rate, the fee for exchanging the money (.01 USD per share under $10 CD, .015 per share over $10 CD). Just buy at market and be done with it. Now you see why Interactive Broker is the way to go, part two!

    Once you place your order, your Scottrade screen will show you your purchase. It does take five minutes. Now you see why Interactive Brokers is the way to go, part three.

    But the hassle is well worth it. Cans are a nice investment. If you ever buy a Can and the trade turns against you, just make it pay you until you are even or better. They have to keep paying distributions to sustain the tax-free status. They don't want to lose their capitalization. And the CEO of the Cream of the Cream owns 30% of the units, so he stands to lose a lot of money if he goofs up. So he will be very careful to make decisions to preserve the strength of the trust.

    Until next time--good investing to you.

  3. #3
    Join Date
    Apr 2004
    Location
    Monroe, WI
    Posts
    6,091

    Default What Can should I buy?

    There are about 200 royal trusts to choose from. They are in different businesses. Spike, they have an A&W Root Beer Trust, a Boston Pizza trust, a Laundry Trust, Real Estate Trusts, Utility, Energy, Coal Mining, Business, Income, Body Shop trusts, Casinos, Beer Making trusts, Cold Storage trusts, etc. etc. etc.

    You can see all the various trusts and start your DD at:
    INVESTCOM.COM

    Google search it. On the homepage, left column, it has a thumbnail entitled "Income Trusts." Click it. Then on the next page it will list four kinds of trust, and at the bottom, a thumbnail reading "Full Listing of Income Trusts." Click that and read about all 200+ of them.

    For my money, I buy oil/gas trusts. Why? The US imports 66% of its oil. 10% comes from the Middle East. But Canada provides about 50% of that 66%. People need oil/gas. It is a commodity that people must buy (unlike Boston Pizzas and laundry/linen). Furthermore, they pay the most money!

    Here's what I consider to be the very best of the very best trusts:
    AE.UN Acclaim Energy 14% distribution Very conservatively run. Very safe.

    PMT.UN Paramount Energy 15% Excellent management. Safe.

    AY.UN APF Energy Trust. Drilled 120 wells 3q2004, hit oil 120 times. Need I say more? Okay, it pays 16.4% This is a well run company.

    VKR.UN Viking Energy. Pays 15% Up and coming trust. Currently costs about $4.60 USD. May see a rise in unit price to $10 US in a few years.

    NVG.UN Navigo Energy Pays 17.875% More risky than AE.UN, but if the dividend drops from .15 per month to .14 per month, it still pays. Newer trust, but I think it is worth the investment. Just don't put all of your money in this trust.

    NAE.UN NAL Energy Trust 15% Excellent trust. Safe.

    There are many others. These I like best.

    Until next time, good investing to you all.
    Last edited by New-born baby; 01-08-2005 at 09:52 PM.

  4. #4
    Join Date
    Apr 2004
    Posts
    7,173

    Default

    Outstanding posts New-born! Thank you very much for the time you put into it, and for your generosity in sharing the knowledge!

  5. #5
    casinoboy3 Guest

    Default

    Hey,
    some nice info here, thanks for posting.
    A question:
    If I were buying on Ameritrade, ACNJF.PK would be the symbol to use, right? they would be no other fees other then the $10.99 cost to trade? It appears to be in US dollars.... so how does this actually work.... does the value of the dollar affect the stock price at all since you aren't actually buying on toronto stock exchange?
    http://finance.yahoo.com/q/bc?s=ACNJ...q=l&c=ae-un.to
    there's a comparison of the two... it looks like for some reason ACNJF.PK is up considerably more over the years.... and lastly, what's up with that big drop in late 2000/early 2001...... did it actually drop like 70-someodd percent?

    thanks!!!! and sorry for so many questions...
    Last edited by casinoboy3; 01-09-2005 at 02:51 AM.

  6. #6
    Join Date
    Sep 2003
    Location
    TONAWANDA N.Y.
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    1,215

    Default

    New Born these are fantastic posts. Are there min or max buys
    Ray Long

  7. #7
    Join Date
    Mar 2004
    Location
    Baltimore
    Posts
    258

    Thumbs up Awesome information New-born

    Quote Originally Posted by casinoboy3
    Hey,
    some nice info here, thanks for posting.
    A question:
    If I were buying on Ameritrade, ACNJF.PK would be the symbol to use, right? they would be no other fees other then the $10.99 cost to trade? It appears to be in US dollars.... so how does this actually work.... does the value of the dollar affect the stock price at all since you aren't actually buying on toronto stock exchange?
    http://finance.yahoo.com/q/bc?s=ACNJ...q=l&c=ae-un.to
    there's a comparison of the two... it looks like for some reason ACNJF.PK is up considerably more over the years.... and lastly, what's up with that big drop in late 2000/early 2001...... did it actually drop like 70-someodd percent?

    thanks!!!! and sorry for so many questions...
    New-born,

    Thanks for this excellent information. I quoted casinoboy3's post, because I have the same questions.

    I'm not clear on why it's to my advantage to buy these on the Toronto exchange vs the NYSE. Can you give an example of the effect of buying 100 units on the NYSE vs the TSX? As you know, I bought 100 units of BPT recently, but it was bought on the NYSE.

    Again ... this info is really interesting, and I very much appreciate the effort you've put into making these investments understandable.

    Regards,
    Dave
    Happy investing,
    Dave

    My opinion is worth no more than the price you paid for me to give it.

  8. #8
    Join Date
    Mar 2004
    Location
    Baltimore
    Posts
    258

    Default

    Also ... it appears that one can open an account with Interactive Brokers with $2,000, assuming you're not day trading. Day traders must fund with $25,000.
    Happy investing,
    Dave

    My opinion is worth no more than the price you paid for me to give it.

  9. #9
    Join Date
    Apr 2004
    Location
    Monroe, WI
    Posts
    6,091

    Talking Interactive Brokers

    Quote Originally Posted by df21084
    Also ... it appears that one can open an account with Interactive Brokers with $2,000, assuming you're not day trading. Day traders must fund with $25,000.
    If you are on this forum, you are a daytrader (IMHO)!

    Sorry, I assumed that everyone was . . . . when I signed up with Scottrade, that had me classed as a daytrader on the third day . . . .

  10. #10
    Join Date
    Apr 2004
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    Monroe, WI
    Posts
    6,091

    Default Thanks, Spike

    Quote Originally Posted by spikefader
    Outstanding posts New-born! Thank you very much for the time you put into it, and for your generosity in sharing the knowledge!
    Thank you, Spike. I have gained so much from you that it makes me feel good to think I might have done a little something good for you. My wife worries that you (or Webs, or IIC, or anyone else) might not take my dry humor as humor, but as an insult or as making fun of another. Thank you for "taking all the guff I dish out."

    God bless the Spike.

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