Yesterday the investment banking firm Bear Sterns stock fell 47% and I learned an advanced investing technique called shorting. Most people buy a stock in the hopes that the value will increase in the long run, on the flip side when an investor goes short they are anticipating the value to decline.

The basic idea of shorting is to borrow shares of a stock from a broker , selling it immediately then buying the same number of shares back. If the price at which the shares were bought back is lower then the price at which they were borrowed, the investor profits from the difference.

Here is an example:

You borrow 10 shares of company ABC at $50. You immediately sell the shares at 10 x $50 = $500. The price of the stock falls to $40 a week later and you decide to cover, so you buy back, 10 x $40 = 400. You just made $100 in profit by shorting.

It sounds easy enough but it is risky, very risky. There could be the case where you tried to short a stock only to see that the price kept on rising. At some point you will have to cover the number of shares you originally borrowed.

Here is an example:

You borrow 10 shares of company ABC at $50. You immediately sell the shares at 10 x $50 = $500. The price of the stock rises to $70 a week later and you decide to cover, so you buy back, 10 x $70 = 700. You just lost $300 by shorting.

So be careful when shorting because you are playing with money you dont have. In the next article I will discuss other aspects of this technique.

The announcement of Visa going public on March 19th of this month is probably the biggest buzz in the industry at the moment.

Visa is considered as the world’s leader in retail electronic payments service, I myself have a CIBC Visa Select card . Visa cards are accepted in more than 170 countries around the world. Visa does not lend money but rather charge a service fee to merchants for using their network. The company was originally called Visa International Service Association.

I had been watching for Visa’s IPO since early 2007 after Mastercard went public and finally in late 2007 they started to restructure and merge Visa Canada, Visa International, and Visa U.S.A. a into what is now called Visa Inc.

Offer Overview

• Issuer: Visa Inc.
• Ticker Symbol: “V” on the NYSE
• Shares Offered 406 Million Class A shares
• Price Range $37.00 to $42.00
• Dividend $0.105 per share. Quarterly starting June 2008 (roughly 1% yield)

Disclaimer: I am not a financial advisor and therefore am not recommending to buy any stocks discussed.

Why VISA IPO is attractive:

• Plastic will replace paper (cash and checks) in the near future. Developing countries such as China and India will soon be a slave to plastic just like us.
• Entry barriers into this business is very high.
• Visa has a very strong brand and will continue to experience growth in emerging markets such as Asia. The brand is as strong as MacDonalds, Sony, Coca Cola Company, Mercedes Benz.
• I believe John Patridge (Visa COO) is on the right track with such ideas as: Visa Gift Card, Card to Card transfers, ECommerce Solutions and Mobile transactions
• Double digit year to year growth in revenue

Update - According to Goldman Sachs the IPO has been moved ahead to Tuesday the 18th

Tax season is upon us and I hope to help you in choosing the right software solution. Filing taxes online through Netfile is definitely the better way, you save on cost and you receive your tax refund sooner ( in 10 days I believe). In order to file your taxes online with the CRA you will need Netfile certified software and all your documents such as T4, T4A. When looking for tax return software there are a few things I specifically look for:

• Number of returns allowed (CRA allows a maximum of 20)
• Tips/guide for additional deductions
• Wizard to walk through the whole filing process

This year my top 3 choices is UFile, QuickTax and StudioTax.

Ufile By Dr. Tax.English Futureshop Only

UFile

My taxes last year was filed using UFile by Dr Tax Software Inc., the software was easy to install and the wizard was very helpful and informative. You basically follow the 5 steps at the very top and then fill out the Netfile form and attach the .tax file created by UFile. Be sure to have your 4 digit Access Code ready when filing with Netfile.

This year I believe UFile has a new feature called MaxBack Refund Analyzer to automatically calculate and ensure you have maximized your entitled refund. If your net income is more then $25,000, you are allowed 8 returns and 16 with UFile Plus. Support is only available through email with the normal version and Ufile Plus also provides additional phone support.

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QuickTax

This is the most widely used tax preparation software, however this year users are very upset that Intuit has reduced the number of returns to only 2. There are 3 versions for personal income tax returns, Basic, Standard and Platinum. The Basic version does not have support for RRSPs and spousal/dependant credits so I suggest at least purchase the Standard version. The prices for QuickTax is much higher then UFile. I have not used this personally myself so I recommend reading reviews on Amazon.ca.
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StudioTax

StudioTax was created by 2 developers from Ottawa and is available for download for free from their website. Be generous and do make a donation. I tried it out myself this evening, the file was only 5.5 mb and easy to setup (please note you will need .NET Framework 2.0 installed before setup). The walk through wizard and interface is just awful, there are many bugs and spelling mistakes. The software calculated my refund correctly but I did not submit to Netfile. Support is only available through email. I think this software is a great solution for those who are on a budget.

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In conclusion, my pick would be UFile which I intend on picking up at Futureshop for $19.99. Happy filing everyone!

On my rainy drive home tonight, I was concerned when I heard news that it was surveyed that 50% of Canadians will not be contributing to their RRSP’s this year. I believe the common fear is that there is going to be a recession in the US and that stocks are losing value, which is true. However, this is actually a good thing, it means we are able to purchase RRSP Mutual Fund units at a much lower price.

Earlier this morning I waited outside of my CIBC until it opened and borrowed 3 grand to contribute to my RRSP. Now why would I put so much money into a retirement savings plan?  RRSP’s is the best way for taxpayers to defer tax. Let me illustrate a quick example, if you contributed $10,000 and then borrowed $6,667, so now you have $16,667 and your marginal tax rate is 40%, your tax return for your contributions will be 6,667!

Heres a list of the 2007 Ontario Marginal Tax rates:

• first $35,488 21.05%
• over $35,488 up to $37,178 24.15%
• over $37,178 up to $62,485 31.15%
• over $62,485 up to $70,976 32.98%
• over $70,976 up to $73,625 35.39%
• over $73,625 up to $74,357 39,41%
• over $74,357 up to $120,887 43.41%
• over $120,887 46.41%

The deadline to contribute to your RRSP’s is tomorrow, I urge everyone to take advantage of this great tax brake.