Welcome to the first edition of The Market Guy. This irregularly-scheduled column provides an opportunity to share my thoughts about investing. I may talk about previous investing experiences, stocks on my watch list, and what I’m doing in the markets. Expect the occasional item from the field of behavioural finance, my old intellectual stomping ground.

Here are a few minor details: I have absolutely no professional qualifications, no stable of insiders, and no on-the-job business experience. I’m just a guy who enjoys investing and talking about the markets. Many of you know this already. If you don’t want to receive the letter, fine, be that way. Just send a note.

Let’s begin with some thoughts on Canadian electric generator, Transalta Corporation (ticker symbol: TA):

In early March I purchased shares of Transalta, paying $16.06 a share. The company had just announced a $240 million equity offering at $16 a share and the stock was snapped up overnight. The speed at which the shares were gobbled up tells me the offering had strong institutional support. In fact, the syndicate of underwriters decided to exercise their over-allotments, adding another $36 million to the deal. It would have taken several days, if not weeks, to peddle such an offering to retail investors. With the big boys on-side, I felt better about the safety of the $1.00 annual dividend (roughly 6% yield). A CEO that goes to market and then slashes the dividend might as well start stealing office supplies while waiting for the security escort out the door. So I was happy to pick up a batch of shares at $16.06.

When I buy a stock for its payout, I’m usually content with a chart that flat-lines. Who cares if the stock moves up? As long as I’m getting the cash, life is sunshine and lollipops. Through mid-May, the market continued to express its enthusiasm for income product and TA was going along for the ride. Thank you, low interest rates. When the stock traded above $18, I decided to eliminate my position, settling at $18.10. If you can earn the equivalent of 2 years dividends in 2 months, sell. Put another way: If I can pocket the equivalent of 24 months of dividends in 2, then if I sell, anything I make in the next 22 months puts me above my original investment goal. That’s a long time to enhance the return on capital! Plus, I get to keep more of my profits because, in Canada, capital gains are more tax-efficient than dividends.

This investment scenario also illustrates an aspect of my investor psychology. To borrow from my days studying behavioral finance, I typically exhibit risk-aversion in the domain of gains (more on this another time).

Back to Transalta. Earlier today the company announced a $24 million charge to earnings as a result of a “clerical error.” That’s just great. Shouldn’t a company of this size (market capitalization touching $3.5 billion) have rigorous safeguards designed to identify and prevent this type of problem? And why is it that when I turn on Report on Business Television, all they are talking about is the indictment of Martha Stewart? They keep showing clips of her entering a New York court building. Incidentally, the arrest provided an opportunity for Martha to display a lovely cream-tone umbrella, no doubt secured while antiquing through Westport. But ROB-TV should have been showing pictures of Transalta’s Steve Snyder (CEO) and Ian Bourne (CFO) going for lunch in Calgary. Canadian investors have just lost millions ($150 million to start). That’s not a good thing.

In any event, total return after commissions: 12%.

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