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Taking stock.

THE STOCK MARKET ROLLER COASTER RIDE OF THE '70S AND EARLY '80S IS BEHIND US. WHAT IS THE NEW PHILOSOPHY FOR CANADA'S RESTRUCTURED BROKERAGE INDUSTRY?

In Canada's stock markets, the '70s was a decade of penny stock tipsters and hype men. People had money to spare and the good times rolled on both the Toronto and Vancouver stock exchanges. High-risk stock speculation was rampant. There were all kinds of tips floating around about hot gold and oil stocks, and amateur investors started thinking there was fast money to be made without any real risk.

But the majority of these buyers weren't real investors. They fell into the category of 'speculator' and, even worse for the brokerage industry, many were gamblers bent on making a swift profit, which for the most part was based on paper, not true long-term value.

There were few investors who really knew what the securities markets were supposed to do -- provide financing for real businesses. Few made decisions based on knowledge. Some investors made money out of sheer luck or because they jumped aboard early after hearing a whispered rumor of hot things to come. But there were more 'bag holders' who joined the party late, lost their money and wound up with a hole in their bank account and a sour taste in their mouths.

Then came the '80s, the era of tax shelters, which only now are showing themselves to have been horrendously bad investments. MURBs and the Liberal government-sponsored fiasco, Scientific Research Tax Credits, were bad raps for the securities industry, according to Gordon Paterson, chairman of the Manitoba Branch of the Investment Dealers Association of Canada (IDA). Paterson is an assistant manager with Richardson Greenshields, a brokerage company owned by James Richardson and Sons. The IDA is the professional association to which all brokerage houses in Canada belong. It is the education, licensing, self-policing body for securities sales people whose money is earned on a tariff basis.

Says Paterson, "The hype of the '70s and the MURBs and Scientific Research tax shelters were two tragedies for the brokerage business. A lot of people were hurt and there are still a lot of skeletons in the closet arising the '70s hype for resource stocks and in the '80s from the MURBs and SRTCs."

Paterson says those kinds of products and the sales approach hurt portfolio brokers who were trying to educate people on the long-term viability of proper investment strategies.

Of the tax shelter instruments of the '80s, Paterson says Manitoba had the highest personal tax rate in Canada and there were hundreds of high-wage earners who would do most anything to avoid paying taxes. He says they were hurt because they didn't analyze the long-term value of the projects which came so highly recommended by specialty houses outside the established brokerage industry.

Then came the October, 1987 stock market crash which sent the entire North American industry out into the street. Since then the brokerage industry has, like many other businesses, felt the sting of the business downturn. Paterson says that in some ways it is for the better. On the negative side, there are few opportunities for careers and fewer opportunities to finance a business in a era in which all the roads to business start-up seem eroded.

Says Paterson, "In Winnipeg five or six years ago we had 15 brokerage members of the IDA. Now there are eight brokerage houses with a total of 125 licensed brokers where there used to be 200."

But out of all this restructuring of the securities industry and the economy as a whole, Paterson sees a new, strengthened financial community where the strong new entrepreneurs will have their game plans in order and where the brokerage industry will offer better investment opportunities.

A survivor of the industry shake-out is Van Whitehead, 38, a broker in the Winnipeg office of Midland Walwyn. A broker for 14 years, Whitehead says investing is a deadly serious business. "I want you to emphasize that," he says.

For his age, Whitehead has been in the markets for far longer than most. At only 14, he bought his first stock, Canadian Pacific, using his paper route money. Unusual for a kid living in Manitoba, which has the lowest direct stock purchase ratio per capita in Canada. Whitehead feels Canadians know too little about money matters. He says intelligent investment of savings is important. Whitehead has seen the Canadian economy work, close up. He was around at the time of the 1987 market crash, but says there is still value in the stock market for those investors who are prepared.

Since 1987 business has changed in the brokerage industry. Where buying and selling stocks once accounted for 90 per cent of the brokerage business, it now comprises only 25 per cent. Bonds, treasury bills, guaranteed investment certificates and high-producing mutual funds are their major companion products.

With the advent of discount brokers, such as the Toronto Dominion Bank's Greenline services, there are more options for people who have learned to handle their own investment portfolios. John Allore heads the Winnipeg office. He says his people are licensed brokers who only execute the wishes of the client rather than seek out clients with recommendations. But Greenline does attempt to educate the public in matters of trading. On three Wednesdays a month at noon it runs seminars which explain how the market works and the language of the equity markets. "Sometimes it's full; sometimes it's not. But we're there," he says.

Whitehead says that when it comes to investing money knowledge is all-important. He says a few percentage points on a term deposit can make all the difference in return on the capital.

Says Whitehead, "It's a tragedy in a way that too many Canadians don't know much about money management." He quotes what he calls Rule 72 for invested capital: a one per cent return on capital takes 72 years to double, at two per cent, 36 years and so on.

"The difference in return is staggering," says Whitehead. "Statistics tell us that 40 per cent of Canadians retire with savings below the poverty line. I see a lot of older people at lottery kiosks trying to recover from years of a lack of financial knowledge."

Charlie Spiring, 35, a senior vice-president and director of brokerage Midland Walwyn, says brokers are still interested in the market but the days of the "stock de jour" are over.

Says Spiring, "Brokers stuffing stocks down people's throats is a time that is passed. It was too easy in the '80s because there was a lot of money around. Today we're doing business in the old-fashioned way -- very cautiously."

Stock Talk

BLUE CHIP

An active, leading, well-seasoned equity issue, usually with an established dividend record and strong investment qualities.

BOOK VALUE

The net assets belonging to the owners of a business (or shareholders of a company) based on balance sheet values.

BULL

One who expects the market will rise.

BEAR

One who expects the market to fall.

CYCLICAL STOCK

One in industry which is sensitive to swings in economic conditions.

GROWTH STOCK

Common stock of a company with excellent prospects for above-average future growth.

INCOME STOCK

A stock that provides a generous dividend yield that is relatively well assured.

LONG

When you are "long" on 100 shares of a stock, you "own" the shares.

MARGIN

The amount paid against a larger amount when purchasing a security.

LIQUIDITY

When the market can absorb a reasonable amount of buying and selling of stocks. An important quality of a good market.

OUT OF LINE

A stock that appears to be selling too high or too low.
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Title Annotation:Canada's securities industry
Author:Gage, Ritchie
Publication:Manitoba Business
Article Type:Industry Overview
Date:Jun 1, 1992
Words:1277
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