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What is meant by old economy versus new economy?

The use of the term "new economy" is a fairly recent phenomenon, tied directly to the rapid growth of the Internet. New economy stocks include high-tech, dot.com companies. Old economy companies would include the resource-based industries of Canada, as well as banks and railways companies. Then there's IBM, which has been researching and building new technologies for decades, but haven't been recognized as a new economy stock until perhaps recently.

As our technology-driven economy continues, how can wise investors adapt their investment strategies? Fred Ketchen, Director, Scotia Capital Markets spoke about the old economy versus the new recently at an investorlearning.ca seminar. With 40 years experience in the industry, Mr. Ketchen brings a wealth of information on both perspectives. "If you understand there must be an interplay between old economy companies and new economy companies," says Mr. Ketchen, "and how you come to grips with that you really get the best of both worlds. Old economy companies must embrace new economy companies and invest in new technology in order to remain competitive, in order to remain efficient, and in order to increase profitability."


Successful investors will realize that high-tech advancements are not going to go away and that new technologies enhance companies, creating more efficiency and profitability and, therefore, shareholder value. Perhaps the best examples of the interplay between the two economies are the companies who have succeeded in marrying the old and the new. Think about Sears Canada Inc. who offers old economy service through traditional bricks and mortar stores, along with catalogue shopping and online service. And what is more old economy than tomato processing? The H.J. Heinz Company of Canada Ltd. now uses highly skilled technicians and equipment in their plant in Leamington, Ontario, blending the success of the old with the technology of the new economy, and carrying on the success of the veteran company that began in the 19th century. Buying a book to read in a bookstore is not new, but "clicking" on one to order it on-line is. Banks could be considered part of the old economy, but look at the technology they're using now: debit cards, Internet banking, bank machines. All of a sudden, the lines between the old economy and the new start to blur.


How can you create a portfolio that fits the two economies together? Sound financial planning is at the heart of financial success in any economic environment. Begin with a goal. Set yourself realistic financial goals and stick to your plan. You can't reach your destination unless you know where you want to go. Do your investment choices fit in with your long-term goals? Avoid risk. Don't chase dreams and end up empty handed. Ask yourself why you are investing and know what you are investing in. Research the companies you want to invest in. Do they fit in with your risk tolerance? Seek advice. Take advantage of the wealth of information available. The investorlearning.ca, your financial advisor, your local bank, or online financial sites, are just a few of the information sources readily available. Diversify. Yes, you've heard it before but the age-old wisdom of not putting all of your eggs in one basket never goes out of vogue. Diminish your risks by diversifying among cash, stocks and bonds, while incorporating well-researched new economy companies into your portfolio that meet your financial goals and comfort level.