Fadi El-Eter

The Canadian Stock Market had indeed caught the attention of the investors since 2008, being supported by an economy that was resilient to the economical downturn that started then. In fact, here are some facts about the Canadian economy:

• Most of the jobs that were lost during the brief recession were in the automotive industry. Most of these lost jobs returned.
• Home prices were affected in 2009, but only in the West – only to regain their previous strength back in 2010. Home prices in Atlantic Canada, Central Canada, and the Prairies kept rising throughout 2011. Now they have somehow stabilized.
• Bank of Canada rates were kept low for the sole reason to ensure that the Canadian loonie remains at par with the US$. In fact, if the Bank of Canada increases the rate to stem the economy a bit, then the economy would fall back into recession again because Canada will no longer be able to export its products and can no longer provide services at a reasonable rates to its US neighbor because of the high loonie (by the way, Canada is the US largest trading partner, and the trade balance between the US and Canada is acceptable and fair, unlike the one between the US and China, which highly favors the latter).
• The Canadian economy is subsidized either directly or indirectly by both the Canadian and the Provincial governments. Large Canadian companies are highly protected by the government and they are never allowed to default.
• Canada has a very diverse economy that is balanced between services and commodities/resources. (so if one is affected, the other is there to make up for the loss)
• Canada is one of those rare countries with a sustainable trade surplus. Canada’s expected trade surplus for 2012 is about $8 billion – $10 billion.

Now, since the Canadian stock market is directly associated with the Canadian economy, it is easy to deduce that the Canadian Stock Market is healthy, but the question is, is it the best?

Let’s see briefly discuss the most important stock markets today to answer the above question:

• The US Stock Market: Currently recovering, but it is still very, very volatile due to the constant influx of good/bad news every single day. (Consumer confidence is good, oh no, scratch that, new house sales drop, oh no, scratch that, exports increase by 1%). If you’re into VIX, then the US stock market is the best in this day and age.
• European markets: The worst at the moment. European markets are directly affected by what’s happening in Europe, especially the dilemma concerning the PIIGS countries, which, for the records, is still in its beginnings. Even the German market is not good to invest in because Germany will most likely end up paying the bill for all the PIIGS countries, as well as helping the rest of Europe (including its beloved France).
• Chinese market: Has lost its momentum end of last year. No longer exciting and the economy is definitely cooling in China. China, by the way, may bring the rest of the world into recession (with the exception of the US and Canada) if it does go into recession – and many analysts are predicting that this will happen. China has grown into a superpower because of its cheap prices/labor, but now that its GDP per capita is $8,400 – China can hardly be considered as cheap. If the trend continues, then China will not be able to sustain its foreign investments that were lured by cheap labor. Most likely there will be a shift towards countries that are cheaper such as the Philippines, other Asian countries, and West African countries (where China is becoming increasingly dominant).
• Hong Kong market: Strongly tied to China and its economy. If China does well, this market will do well. Judging from the state of things, this market will not do very well in the medium to long future.
• Japanese market: Many Japanese companies, including Sony, Sharp, and the likes are losing tons of money every year. I hardly think of such a market as inviting. Additionally, Japan has many, many financial and demographic issues (including an increasingly aging population). Japan’s economy can only get worse. I feel sorry for Japan because I always used to love Japanese products. In fact, the laptop I’m writing this article on is a Sony Vaio laptop that is made in Japan.
• Asian markets (with the exception of the Chinese, the Japanese, and Hong Kong markets, which are discussed above): Flourishing at the moment but lack some transparency. Might be a good place to put your money in. Asian companies, especially Malaysian and Indonesian are benefiting from a boom that was previously experienced by China and India.
• Australian market: Has remarkable ties to China, but is also interconnected with emerging economies in South-East Asia. Has some potential, but Australia’s economy is characterized by a lack of dynamism. Maybe it’s the nice weather all year around.
• Russian market: Very risky and certainly not the most transparent market on this planet. Additionally, by putting your money in Russian markets, you will be raising more than a few eyebrows, especially when it comes to the IRS and the FBI. I would avoid it.
• Indian market: Not that bad but not that good either. Completely unexciting and heavily attached to the US market. India is currently losing the “call center of the world” position (which means direct loss of a lot income) to the Philippines, a country qualified by a population that is fluent in English. (The Philippines was occupied by the US for about 50 years, from 1898 until 1946, and its population was very quick at learning the American English – in fact, if you happen to reach a call center in the Philippines you won’t even know it as the person on the other line, who is potentially 10,000 miles away, has almost no accent.)
• Middle Eastern markets: Small markets but can be lucrative. Hard to invest in as most streamline brokers do not provide their investors tools to invest in these markets. Volatility is high at the moment and there’s always a risk of losing nearly all your money in these markets because of the lack of transparency (this actually happened in the Saudi market back in 2006-2007). Immensely dependent on oil. If oil goes down sharply then all listed companies in these markets go down, and vice versa. Watch out!
• Latin American markets: Very risky markets and lack transparency. Most Latin American markets are overvalued due to the huge hype they have. One word: Argentina.
• Canadian market: Supported by one of the largest and the best economies in the world – as well as the soundest financial system on this planet. Has huge exposure to the US market and benefits from the increasing demand on its securities primarily from US investors, and then Russian and Chinese investors. Canada has acted as a role model to other countries (especially failed countries – for example Iceland is debating whether to adopt the loonie as its national currency) during the latest financial crisis by gracefully weathering its effects despite the strong US-Canadian ties. Some caveats: 1) An aging population, 2) Many benefits (including free healthcare, subsidized education, and a lot of other perks), and 3) many pet/useless projects.

So, is the Canadian stock market the best? Definitely! There are other markets that are also good (as you can see from the above), but none of these markets offer the balance of transparency, fluidity, and stability that the Canadian market offers. What are you waiting for? Buy some shares in Canadian companies, just avoid putting any money in RIM until it revamps itself (which may or may not happen).

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

It’s that time of the year again, where everyone is doing his or her taxes. Instinctively, we report every income we received in the previous year in our tax return – but how about that $2,000 tax refund we received back in last year? Does it count as income?

I will discuss the issue of taxation on tax refunds only for Canada, and not for the US – because while the tax code in these countries is very similar, it is slightly differs when it comes to how tax refunds are handled.

So, do I have to report tax refunds on my tax return in Canada?

No, you do not. The thing is, from CRA’s (Canada Revenue Agency) perspective, the money that you have received on your tax return was money that you was already taxed in the previous year – so it doesn’t make any sense to report it again and pay tax on it (again, that money has been already taxed).

Think about it this way: You made $50k last year, and you paid $20k in taxes. After submitting your tax return, the CRA and the Provincial tax agency both decide that you have overpaid for taxes, and you should have only paid $18k, which means that for the whole $50k, you should have only paid $18k, thus you overpaid $2,000 (which means you will be refunded that amount). The $2,000 was already taxed and accounted for in the $18k. I think I have explained it in a way that couldn’t be clearer.

Note that this applies across the board for any type of tax refund, and it is regardless of whether the tax refund is federal or provincial.

Again, in the US, tax refunds are treated differently and may be subject to taxation.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

The NASDAQ yesterday briefly hit the 3,000 milestone, which is a major milestone not seen since November of 2000.

Let’s look at the NASDAQ chart for the past 20 years:

I think we all should cede to the fact that this is a solid proof that despite all the rumors and all the sayings and all the analysts’ opinions, the economy is doing well. But is it the good economy that lifted the NASDAQ, or is it Apple? Let’s see…

Each AAPL share has increased by a $139.18 since the beginning of the year (or 34.37%). Considering there are 932.37 million AAPL shares in the market, this means that Apple (which is a the top NASDAQ ingredient) alone has added 932,370,000 x $139.18 = $129,767,256,600 – about $130 billion to NASDAQ. The total value of the stock market (less than a year ago) is about $23.34 trillion, and that number is for both the NYSE and the NASDAQ, which means that $130 billion cannot be considered as a mere “change” when it comes to the the NASDAQ. So, we can safely say that the NASDAQ reached the 3,000 level because of Apple, and not because of the good and improving economy. But now the question is, will the NASDAQ sustain the 3,000 level (once it stops the flirting process and actually closes for everyday on one week above that level) – or – in other words – will the 3,000 level be a solid support level?

The answer lies in Apple’s upcoming products – both the iPhone 5 and the iPad 3. If both of them flop, then expect the NASDAQ to withdraw back to its normal, two-thousand-something level, for a long, long time. If, on the other hand, these two products prove to be hot sellers like their predecessors, then it’s very possible for the NASDAQ to break the 4,000 level before the end of the year – regardless of the performance of other companies.

But, how much should AAPL be in order for the NASDAQ to break above the 4,000 level? Well, let’s see: since the beginning of the year, AAPL went up about 35%, while the NASDAQ went up about 15%. So, when AAPL goes up by 1%, the NASDAQ goes up by 0.42%. In order to reach the 4,000 level, the NASDAQ has to go up by about 33%, which means that AAPL has to go up by 78%. So, considering a static market at all other levels, AAPL has to go up 78% or reach $968 ($32 shy of $1,000) in order for the NASDAQ to reach the 4,000 level. Is this a very hard achievement? I guess it is. Is it impossible? Well, I have learned that there is nothing impossible for Apple (I still think though that Apple is now growing because of its formal glory, and once investors and consumers start hating this company, then it’ll be the beginning of the end).

Regardless of everything, I think it’s a positive sign that the NASDAQ reached this level – and I hope that this move will restore investors’ confidence in the market (whether that confidence is rightfully earned or not is another story – because I think investors’ confidence should be based on the whole economy, and not just on one company).

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

“No one gets out of here alive!” – I think we’re all familiar with the statement. At one point, all of us will die. But, one might think, “what will happen to my stocks when I die? Can they be part of my will? And who takes them if I have no inheritors?”

Well, first of all, stocks are possessions, so they can be part of your will. So when you die, your inheritor(s) (according to your will), will be able to smoothly acquire the stocks from your broker.

Now, if you don’t have a will, then your stocks will be distributed to your inheritors according to the law. Your inheritor(s) can send your death certificate to your broker along with all the legal documents (entitling them to inherit your stocks). Your broker will then forward it to all the companies that you have stocks with, and these companies will then reassign your shares to your inheritor(s).

If you don’t have any inheritors (which is very unlikely), then your stocks will be assigned to either your state or to the federal government (they won’t be given back to the issuing company). But this will be a very lengthy process and most likely you will end up having inheritors that you have probably never met in your whole life (inheritors tend to smell the money even when they’re thousands of miles away). Additionally, keep in mind that if you died while carrying any debt, then all your possessions might be sold in order to settle all your debts.

It’s amazing that you work all your life to accumulate a great wealth (you trade stocks, real estate, you name it!), and then you die, and you take not a single penny with you!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

I know, it’s the end of the month, you’re a bit strapped on cash, and you have to make that credit card payment – or else!

Now, you think, hey, I owe about $1,000 on my credit card, what if I buy an LED HDTV (55″) for about $1,500, and then return it in a couple of days. Wouldn’t the return count as payment towards my credit card bill? Well, I had the idea yesterday, and that’s why I decided to investigate about it!

I called TD Visa (Toronto Dominion’s Bank Visa Division) and I asked the following question to the assistant on the other line (here name was Lisa, by the way, and she was very, very helpful): “Let’s say I owe $1,000 on my Visa, and then I bought an HTDV for $1,500, and then returned the TV a couple of days later, wouldn’t the refund for the TV considered a payment?”.

To my surprise, she gave a very fast and firm answer: “No, the $1,500 would be used as a credit to your account, and not a payment towards your balance”. I then told her I’m writing an article on my website about it to inform the public about this scenario, and I just wanted to know more information about it since the only answer I could find on this topic on the Internet was on Yahoo answers, which makes the answer completely unreliable. The reason why I was surprised is that I thought that first level assistants will probably not know how to answer such a question.

In any case, I then asked her: “why isn’t the $1,500 considered a payment?” Her answer was that if this is the case, then people will abuse the system and nobody will have to pay his or her credit card bill ever (unless, of course, s/he’s near the maximum credit allowed). So, in case refunds are considered a payment, then people will buy products that are more than their balance every month, and then return them a few days later.

I then proceeded, “but why would the credit card companies care about this, don’t they take a cut that is worth anywhere between 2% or 3% of the whole transaction amount (not to mention, of course, transaction fees)? Isn’t it better for them if people buy more products and return them?” Her answer was: “No, credit card companies have to pay merchants their money from real sales at one point, and if all people are delaying their payments nearly indefinitely, then credit card companies won’t have any money to pay the merchants. Additionally “, she continued, ” merchants suffer from this situation as well, because they will have to sell the returned items at a discounted price”.

I thanked for her time and I started writing this post. And while I was writing it, I started thinking of the very negative side effects that we will have on the economy if credit card refunds are considered a payment.

There is one thing that you should keep in mind, if your credit card bill is $1,000 and one of the items in that credit card statement costs $400, and if you return that item in the next month, then the owing balance will be only $600 (the refund will count towards a payment on your initial bill). Please note that some banks allow this (I know that TD allows it, but maybe it’ll change it’s policy about it), and some banks don’t.

If you have read this post and you still didn’t understand what the answer to the main title is, then let me say it again: “No, credit card refunds are not considered a payment!” and “No, you are not smarter than your credit card company”. Remember that credit card companies have dealt with billions of cases and they have ironed their system to their best advantage, and not yours. So don’t think that there’ll be day where you can sucker them!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

Let’s say you’re one of those people who execute many bank transactions a day: you make and you receive a lot of payments from/to your bank account. Naturally, at one point, you might run into one of the following situations:

• You make a payment from your account, taking your balance to a below-zero figure, and then immediately receive a payment to your account, taking your overall balance above zero.
• You make several consecutive payments from your account, where the first payment lowers your balance to below 0, and then make a payment later in the day that will take your balance above 0.
• You make a big payment to your bank account, and then make several small debit transactions while still maintaining your account above 0.
• You make several small payments to your bank account, and then make one big debit transaction while still maintaining your account above 0.

The reason for you to be worried because in any of the above scenarios, you are at risk of being hit with an overdraft fee, often more than once, and that’s why you want to know how banks process your payments.

The first thing to know is that each bank has its own method of processing payments – most banks use methods that are optimized to maximize their profits. Let me list all the commonly used methods and how they work:

Method #1: Transactions Are Processed in a Chronological Order: In this situation your bank is fair. So, let’s assume you had $50 in your account. You bought a cup of coffee for $5, and then you went to an electronic store and bought an iPad for $500, and then you funded your account with $600. In this case, your bank will charge you an overdraft fee because at one point during the day, your balance went below 0.

Method #2: Debit Transactions Are Processed First: In this situation your bank is a thief. Let’s say you have $30 in your account, you make a payment of $100 to your account, and then you go and have dinner with your significant other for $40. The bank will first process all the debit transactions, and then all the credit transactions. Which means that in your case, the bank will process the $40 payment for the dinner first, which will lower your balance to -$10 (which means that you will be hit with an overdraft fee), and then it will process the credit payment of $100.

Method #3: Large Transactions Are Processed First: In this situation your bank is a transaction manipulator. Let’s say you have $30 in your account. You then fund your account with another $30. You then make a purchase of $50. The bank will take your largest transaction, and then process it first, and then process the second largest one, etc… Which means that the first transaction to be processed is the $50 purchase (lowering your balance to $20, and thus charging you with an overdraft fee), and then the $30 payment is processed. It has been reported that this method is used by most banks in the US and that this practice is currently under investigation by the current administration.

Method #4: Small Transactions Are Processed First: In this situation your bank is also a transaction manipulator. Let’s say you have $10 in your account, and that you fund your account with $100. Later in the day, you have lunch with a friend for $20, and then buy a small gift for $30 for your nephew. If the bank is processing small transactions first, then the first transaction to be processed is the $20 for your dinner with your friend (lowering your balance to -$10), and the second one is the gift purchase (lowering your balance to -$40), and the forth one is the $100 credit payment (upping your balance to $60). Now since debit payments are mostly small payments, and credit payments are mostly large payments, then this method can really ding you with multiple overdraft fees constantly if you’re not careful.

Method #5: Transactions Are Summed by the End of the Day: In this situation your bank is very, very fair. The bank will calculate your balance by the end of the day, and if it drops below 0 (regardless of the order of the transactions), then you will be charged an overdraft fee. If it doesn’t, then you’re safe. Note that this method is also the best because you will only get charged an overdraft fee once, regardless of the number of times you went below your balance during the day.

I have noticed that if you call the bank immediately about the overdraft fee, they can waive it for you if it’s the first time. Overdraft fees are really heavy, and for buying a small bar of chocolate that is worth no more than $1, you might be charged an overdraft fee of $45 (that’s one expensive chocolate which probably wasn’t bought at one of these duty free outlets at your local airport!).

Banks are really artistic when it comes to charging you overdraft fees, and you usually are charged overdraft fees as many times as you go below your balance according to their calculation. As a rule of thumb, try to have at the beginning of the day enough funds to cover for all of your purchases and other debit transactions throughout the day, regardless of the credit transactions that you will make – this will ensure that your account will not be dinged with exorbitant fees everytime you make a debit transaction.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

I remember reading a long time ago that Microsoft helped Apple survive, and in return Apple gave Microsoft a lot of shares at dirt cheap prices (they weren’t dirt cheap back then because Apple’s range of products was exciting only to its very few fanatics). Additionally, it seems that also Apple agreed not to sue Microsoft over anything anymore – this non-public agreement seems that it’s still enforced by Apple (which, by the way, surpassed Microsoft when it comes to market capitalization back in 2010) until this very moment.

According to several resources, Microsoft gave $150 million to Apple in return for 18.18 million AAPL shares priced each at $8.25 back in 1997. Now how much was AAPL back in 1997? Well, let’s look at the below chart:

We can easily see from the chart above that AAPL did not even break the $7 level back in 1997 – so, was Microsoft suckered into this deal? Well, apparently not, as stated earlier, the deal was publicly about helping Apple, but secretly about buying Apple’s silence about the patents’ claims. Microsoft was a clear winner back then, but in retrospect, I’m sure that neither Bill Gates nor Steve Ballmer (one of the world’s worst CEOs in 2011) were the real winners – it was Apple.

Microsoft held these shares for a while and then sold them for an undisclosed amount, probably back in 2000 (for a healthy profit of almost half a billion, most likely when Apple was trading at the $33 level – just before the NASDAQ collapse of 2000).

Now, what if Microsoft did not sell its AAPL shares?

Well, first of all, Microsoft would have owned about 2% of the world’s most valuable company, and, the 18.18 million shares would have added $9.26 billion to Microsoft’s value (at the current price of about $509.46 for AAPL).

Was it a wise move for Microsoft to sell its Apple shares? This is the stock market, and regretting a buy trade or a sell trade is the worst thing that an investor can do. But, again, was it wise? I think the answer to this question would be, if they knew then what they know now – and if they did, they probably wouldn’t have given the money to Apple in the first place and left it to die.

Microsoft now owns a few percent of Facebook. Will it sell these shares at one point? And more importantly, will it wish it didn’t sell in the future? Only time will tell!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

We use them everyday – we deposit checks in them, we withdraw money from them, we transfer our salaries to them, they charge us outrageous interests and fees and we seem to be always grateful, regardless of how much they’re using us. They are called banks, and their job, apparently, is to facilitate our transactions and our day-to-day monetary activities – but we all know that they solely exist to suck the living blood out of us. The only people that are able to make money from the banks are those that don’t need them as much as the banks need them…

Banks have been in existence for more than 4,000 years now, which probably makes banking the second oldest profession in the world (and we all know what the first one is, don’t we?). Of course, there is no bank that is 4,000 years old, because, as we all know, banks come and go.

So, enough history and philosophy, and let’s get to the crust of the subject. Are banks a Ponzi scheme yes or no? Well, before answering a question, let’s explain what a Ponzi scheme is.

A Ponzi scheme is when you take money from someone, pretending that you are going to invest this money, and give that someone interest on his money every year (until he withdraws all his money). Now, of course, as a Ponzi schemer, you’re not really making money yourself from that person’s money, so, in 20 year years you’ll be out of money if you’re giving him 5% on his money every year (let’s assume that you’re not paying interest on interest to simplify calculations). But just when you thought that you will be caught in a maximum of 20 years (the number of years will be much less, realistically, because you’ll most likely living a lavish life by spending that poor man’s money), another sucker walks to you, and willingly gives you double the amount that the first person invested, in exchange for yearly interest on his money. And then, before you know it, the third sucker comes in with a bag full of money, and then the fourth sucker, and so forth… At one point you’ll be having a steady flow of suckers putting money in and financing all the so called investments of the previous suckers, and, at the same time, guaranteeing you a life full of, you know, life!

Now, all of a sudden, an important media outlet (funded by a rival Ponzi schemer), releases information about your business, and correctly describes your business as a scam. All of a sudden, many of those suckers that invested their monies with you want their investments back. You start giving money back to your “investors”, and then you realize that you’re almost out of money. So you appear TV and reassure everyone that everything’s under control and that all the money is safe, and that everyone is welcome to withdraw his investment but there is no need to, as, again, everything is under control. To your surprise people keep flooding and continue withdrawing their investments. And then you’ll reach the point where you don’t have any money to give, and so you declare bankruptcy, blaming the bad economy, bad investments, and, of course, mismanagement. You fire all your employees, you hide behind chapter 11, and you start “restructuring” (or, in other words, launching another Ponzi scheme).

Now that we know what a Ponzi scheme is, let’s try to find out whether banks run a Ponzi scheme or not… Here’s what we know about banks:

• They take the money from you and give you an interest on your money (same thing with a Ponzi scheme, although their interest tends to increase with time).
• Your money is split into three parts: one part to fund your interest, one part to fund loans to other people (at small interest rates at first, but their interest rates on their owing loans tend to increase with time), and one part to fund their stockholders’, as well as their own’s pockets… (also same thing as a Ponzi scheme, with the exception of the loans that are given to other people).
• They incur too much overhead, such as employee and other operations expenses, bad investments, bad loans, etc… that they will lose all the money that they make from their loans. Which is worse than the average Ponzi scheme, as the overhead of a Ponzi scheme is much smaller than a bank’s overhead.
• They can invest with more money than they own. Banks have access to money much beyond their current assets in order to make investments and pay other people. In other words, banks can literally create money out of thin air. That money, however, remains in thin air, and this is how a bank is potentially much more dangerous than a Ponzi scheme.

Now, as you can see from the above, banks may be a Ponzi scheme, but an organized and legalized one that is. But, I can’t generalize, there are some banks that are solid, that are actually making profits, and that have low external debt (due to bad investments), and that have a ow amount of bad debt. So, now that we know that there are some banks that are a Ponzi scheme and some that are not, how can we tell one which ones are Ponzis?

Well, one way to tell is to wait until a massive withdrawal happens at that bank (because of bad publicity, for example), and then see if the bank goes bankrupt when the amount of withdrawals reaches a point that is sharply less than the total amount of invested money (the money that people put in that bank) minus the amount of loans. This means that the bank is not able to sustain its business, which means that this bank is just a Ponzi scheme.

Again, there are some banks that employ a Ponzi scheme in order to attract more investors, but, most of these banks were eliminated in the 2008-2009 crisis/recession. There are some banks, however, that are solid – but we all know that no bank is here to stay (except, maybe, for the Monte dei Paschi di Siena bank). Banks existed for 4,000 years now and I can’t see no bank that is 1,000 years old, let alone 4,000 years.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

Now that Apple is the most valuable company in the world, there are many people who are not investors that want to invest in Apple. I know that for a fact because I receive many questions nowadays on this website with the same title over and over again: “How can I buy Apple stock?”

Now my first answer to those who ask me this question is the following: “You can’t buy Apple stock, you buy Apple shares. There is a difference between a stock and a share. A share is a portion in the company, a stock is an index on how much each share is worth”.

Now once I’ve clarified the difference between a stock and a share, and that what you really buy is Apple shares, and not Apple stock, I move on to explaining the whole process of buying Apple shares:

Step 1: Open an investor account

If you search on Google for the following term “trade stocks online”, you will find many, many companies offering this option. These companies will allow you to create an investor’s account (also known as a trader’s account) with them, and they will also let you connect your bank account to your investor’s account, so you can transfer money from your bank account to your investor’s account and vice versa. It’s important to go with a brokerage firm that is very trustworthy and that has a good brokerage history and that won’t charge you an arm and a leg for every trade that you make. Additionally, it’s important to deal with a brokerage firm that has a 1-800 number that you can call whenever you want assistance (you will need assistance if you’re a first time trader, trust me on this one).

Another way for opening an investor/trader account is just going to your bank and opening the account there. Banks are usually very, very happy for doing this for you because they will make a lot of money from you if you’re a frequent trader. Just call your bank or go to the nearest branch and ask for opening an account that you can use to trade stocks. You may be required to sign several documents (basically saying that you’re adhering to the terms, that you’re understanding the risks associated with trading stocks, that you will never ever blame the bank for your losses, etc…)

Now once you open an investor account, you will be given the following information:

• The URL of the trading platform
• Your username or account number
• Your password

Step 2 – Transfer money to your investor’s account

Before doing anything, you will need to transfer money to you investor’s account, you can usually do this online by logging in to your bank account and moving money from any account that you have with your bank to your investor’s account. This process should be fairly simple and if you have any problem you should contact your bank (and not your broker) for help with this step. Keep in mind, however, that the money transfer might not be immediate (it might take a few days), especially if your broker is not your bank or is not an entity associated with your bank.

Step 3 – Login to your investor’s account

Using the credentials given to you in Step Number 1, you will be able to login to your trading platform. Note that when you login for the first time, you might be asked additional security questions or you might need to call a number to activate your account.

Step 4 – Accept all the terms

When you sign in for your investor’s account for the first time, you will be asked to digitally sign several documents – as far as I recall there will be one for the NYSE, one for the NASDAQ, one for the SEC, and one for the TSX (in case you’re trading Canadian stocks). This process might take you about 15 minutes to finish.

Step 5 – Start trading

After you accept all the terms, you are now are ready to buy shares of any company, not just Apple! But, you only want to buy Apple. But before you do that, try to accustom yourself with the trading platform. See what you can do – and don’t be scared of exploring, everything requires a confirmation!

Now that you’re accustomed to the web interface of your broker’s trading platform, you can execute your first trade. Just click on Trading, and then click on Equities (stocks are called equities). You will see a form where you will have to enter the symbol of the stock, for Apple you should choose AAPL (as soon as you enter the symbol the bid and ask price will appear), you will also have to enter the number of shares that you want to buy (you should choose an integer, the moment you type in a number the total cost of the trade will be displayed), and then you will have to choose buy next to order type (since you are buying AAPL). The form may also contain a field where you have to enter your phone number, and you will always have to enter your password (that you used to login to this website) to execute a trade.

Once all the information is filled, you will be able to see how much money (approximately – the price might change between the filling of the form and the filling of the order) including the commission you will have to pay for these Apple shares. Now click on submit. The moment you click on submit, your order will be executed and it’s pending to be filled. Since AAPL is a very, very liquid stock, your order will be filled almost immediately, provided you have enough money in your investor’s account to cover for the total cost of the trade. You can check if your order is filled by clicking on “Orders” or “Transactions” on the top menu (please note that the interface may substantially change from one broker to another). When you see that your order is filled, you can proudly say in front of your friends/family/significant other that you are now an investor in Apple.

Step 6 – Do nothing or buy extra shares

If you’re in it for the long term, then you don’t have to do anything anymore. You bought the shares and Apple’s fortune will be one with yours! The next thing to do would probably be buying more AAPL shares!

Now, if at one point you feel that you have some unmanageable debt, then you can sell your AAPL shares to settle that debt, instead of accruing interest.

How much time will the whole process of buying Apple shares for the first time take?

Normally, the process takes about 2 weeks, but I know of investors (including myself) who started trading 2 days after starting the process above. (I personally opened an investor’s account with the bank).

Some things to remember/caveats

• The stock market is only open from 9:30 AM to 4:00 PM every weekday. The market is closed on weekends and holidays (but there are some ways to buy shares on weekends).
• Be sure to choose the right stock symbol when filling in the form, you don’t want to be stuck with a stock that you didn’t mean to purchase.
• Don’t wait a long time between filling in the form and submitting the form. If you do you might buy the stock at a completely different price.
• You will rarely, if ever, buy the stock at an absolute bottom and sell it at an absolute top – don’t be greedy!
• Apple is a very solid company, but it is currently facing competition from other manufacturers in the smartphone and the tablet area – keep an eye on Apple’s performance at all times.
• Capital gains are taxable (when you sell shares and you make money out of the proceedings), but the taxation is different when it comes to capital gains. Here’s an article explaining how much taxes you should pay on your capital gains.
• The stock market is an up and down game. Don’t let fear and greed control you.
• As a shareholder in Apple, you will start receiving documents from Apple (the company), such as financial statements and board changes.

I have tried my best to explain from A to Z the process of buying Apple shares for those who have no previous trading experience whatsoever. I really hope this article will help someone, somewhere!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

This Friday, I have received a scary letter from CRA (Canada Revenue Agency, which is the equivalent of the IRS in the US). The letter is not copyrighted and that’s why I’ll publish it here. Please note that I will include the letter in full but I will not include the name of the person at the end of the letter (e.g. the person who sent me the letter), as well as my personal information (that goes without saying). Without further delay, here is the letter:

Dear Sir:

Re: Your 2010 income tax and benefit return

Canada’s tax system relies on voluntary compliance and self-assessment. The Canada Revenue Agency (CRA) provides Canadians with the information they need to meet their income tax obligations.

Our records show that you disposed of securities held outside a registered retirement savings plan account. You would likely have received monthly, quarterly, or annual statement(s) of your account(s) and/or Canada Revenue Agency T5008 Statement of Securities Transactions slip(s) detailing disposition(s).

The purpose of this letter is to provide information about calculating capital gains or losses that arise from dispositions of publicly-traded shares or mutual fund units. See Appendix A, attached, for information on capital gains or losses.

If you find that your capital gains or losses are accurate, you don’t have to do anything. However, if you find that some amounts were incorrect or missing, you should ask the CRA for an adjustment within 30 days of the date of this letter.

To request an adjustment, complete Form T1-ADJ, T1 Adjustment Request, available at www.cra.gc.ca/forms or by calling 1-800-959-221. Instructions for completing form T1-ADJ are on page 2 of the form. You can also make changes to your returns online at www.cra.gc.ca/myaccount. You will need to log in and follow the steps.

More information about the CRA, such as the Voluntary Disclosure Program and available payment options, can be found at www.cra.gc.ca or by calling our individual income tax enquiries line at 1-800-959-8281. You can also consult our web page developed for this letter at www.cra.gc.ca/audit.

Thank you for your cooperation.

Note: The remaining pages of the letter explain how to calculate capital gains/losses on the tax return, which I will explain on this article myself. However, I think it’s worthy to mention this line from the Appendix A mentioned above:

If you do not report capital gains on Schedule 3, the CRA may take a second closer look at your tax return because brokerage and fund companies send us an electronic copy of all their T5008 slips.

In case you were not able to understand what the above statement means, let me explain it to you. CRA knows about every single trade that you make because all brokerage companies you deal with send them all the information they have about your trades. In other words, the CRA people already know how much you owe them even if you don’t report this information, they’re just giving you the benefit of the doubt though…

I went through several mood swings when I read the letter:

1 – Fear: I felt very afraid when I first opened the letter. I thought that I made a mistake in my tax return for 2010 and that the CRA discovered that mistake. Obviously the letter is related to my stock trading activities back in 2010 which I was sure I reported properly, but still, there’s always the chance that I might have missed something. I searched my (physical) documents for my 2010 tax return, and I found the documents sent to me by BMO (The Bank of Montreal) Investorline at the end of the year. There was a trading summary (listing every trade I made back in 2010, grouped by stock name), and there was another form, which was investment form summary (none of them looked like an official document that might be needed to report taxes), and the final document was called a T5 form, which was an official document and which I have already included in my tax return (it contained my Interest from Canadian sources in box number 13 (all Canadians know what boxes mean in the tax return). Now that I am sure that I have reported my capital gains in my tax return, my mood changed to…

2 – Relaxation: I became more relaxed once I knew that I’ve reported my capital gains on my tax return. And what gave me more comfort is the statement “if you find that your capital gains are accurate…”. Obviously, that was a generic letter sent to anyone who did stock trading in the year before. And because 2010 was my first year of stock trading, it was natural that I would receive such a letter at this time… At that point, I felt there was no need for me to worry and I can now go to sleep. And so I did, but the moment I have closed my eyes I moved to the next stage which is…

3 – Anxiety: I started thinking, why would CRA send me such a document? Is it really generic and is it really sent to anyone who did stock trading? And how come they mentioned the dreadful word audit in their letter. So I left the bed, and I re-read the document, as well as the attached form on how to report taxes on capital gains (or losses). It turns out that I have to report every disposition of shares that lead to capital gains (or losses) after accounting for the different broker fees (such as commission fees). Apparently, the bank should have sent me a form called T5008 (which I haven’t received) that contained all these numbers in organized format (so that I won’t have to do anything). At this point my mood changed to…

4 – Anger: I know that it’s my responsibility to report any income on my taxes, but I have expected the bank to facilitate the work on my behalf and provide me with the appropriate tax statements (with the appropriate boxes filled in). What the bank has provided me was literally 6 pages of small-font characters and numbers. These 6 pages contained all the trades that I made, the date that I made these trades on, the number/quantity of shares that I bought, my average fill price, and the total cost/disposition resulting from that trade. All the trades were grouped by the stock name. On the other hand, CRA wants all the trades that resulted from the disposition of shares, the average cost (or book price) per share, the number of shares disposed of, and the gain/loss resulting from the disposition of these shares. The information that the bank gave me can give me the information that the CRA need, but it does take a lot of time to do all the calculation by myself. I felt and I still feel very angry at the bank for not providing me with the information in the exact format that CRA needs. Is it that hard for them to develop a program that will calculate the average buy price (including the commission fees) of a stock, the number of shares that I have disposed of for that particular stock, the proceeds from the settlement of that disposition, and the capital gain/loss from that disposition?

Now, after the above rant, let me explain to how to report capital gains on your tax return:

• Calculate your average cost per share (the so called “adjusted cost base per share”) the following way: Multiply the quantity of shares that you have bought for a particular stock by the average fill price of that quantity, and then divide the result by the total quantity. Let’s assume that you have done the following buy trades back in 2010 (note that all banks calculate-in your commission fees in the price/share):
  • Bought 20 shares of AAPL at $250/share.
  • Bought 20 shares of AAPL at $260/share.
  • Bought 20 shares of AAPL at $300/share.

  The “adjusted cost base per share” would be ((20x$250) + (20x$260) + (20x$300))/ 60 = ($5,000 + $5,200 + $6,000)/60 = $270. The formula is: ACB/share = (Σ (Total Cost of shares) + Σ (Total Commissions/Fees))/ Σ (Total Number of Shares). (Note that the formula is more complicated if you owned and partially sold shares of the same stock in previous years(s)).

• Calculate your adjusted cost base. Let’s say that you have sold 40 shares of AAPL. Your adjusted cost base will be 40 x $270 = $10,800.
• Calculate your capital gains. Let’s say that your 40 shares of AAPL had total proceeds of $11,280. This means that your capital gain resulting from the proceeds of this trade is: Total Proceeds – Adjusted Cost Base (ACB) = $11,280 – $10,800 = $480.
• Go to line 132 of your schedule 3 form. Column 2 should contain the proceeds of your disposition (or $11,280), column 3 should contain your adjusted cost base ($10,800), and column 4 should contain commissions/fees that you incurred when selling your shares (this should be zero since all banks already factor-in the commissions and fees), and finally column 5 should contain your capital gains (or losses), which is $480 in our example above.

Now since I didn’t report my capital gains by following the above steps, I have to pay the penalty (for some reason I remember that episode where Daffy Duck was a host in a show called “Truth or Aaaaaa”. In that show every time the contester made a mistake, Daffy Duck used to tell him “I’m sorry, but you have to pay the penalty”. I think that episode was called The Ducksters). According to CRA, the penalty is 5%+ 1%/month which makes it about 17%. I don’t know if they have the heart to make me pay it or not yet (although I suspect they do). I’ll keep you updated…

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.