Sunday, January 09, 2011

Avoiding obvious errors is an important part of investing

Random Roger has written often about avoiding overvalued sectors as an important "value add" that he brings to the investing table on behalf of his clients. He often stated that the banking sector valuation in the 2003-2008 period was out of whack to its traditional ratio of the value of the US stock market. Thus, he avoided that sector during the later part of its run-up and the subsequent decimation of values.

I was similarly reminded of the importance of avoiding obvious investing errors by a recent Globe and Mail article regarding Priszm Income Fund (QSR.UN - Toronto Stock Exchange). This fund owns many KFCs, Taco Bells and Pizza Huts in Canada. When the initial offering was made in 2003 (at $10/share), I remember thinking about the growing discussion of healthy food choices and wondering how in the world a fund like this (focused on fatty fast-foods) could possibly have a sustainable, long-term, future.

After peaking at $13, the fund has declined ever since. They have recently missed several franchise and debt payments, and their future looks bleak, to say the least.

When you buy a stock, ETF, or other investment product, give some thought to the future, and never ignore what you think might happen there. Eyes wide open, so to speak.

Priszm Income Fund (QSR.UN); closed Friday at $0.15. 

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