Monday, January 26, 2015

Investing: not gambling but still taking chances

I liked what I knew about Norbord. It made a good product, in my opinion, and it had a commanding position in its manufacture. The product? Oriented strand board (OSB). One can think of OSB as a cross between plywood and cheaper, both in price and quality, chipboard. There is a lot of OSB used in building construction today, especially home building. As home building in the U.S. rebounds, Norbord should benefit. I bought some stock.

Norbord briefly popped and then started on a long, bumpy road downward. I should have bought more when it dipped below $22 but fear of catching the falling knife, I have some deep financial wounds from making doing this in the past, kept me on the sidelines.

Today, Norbord is back in the black in my books. My tax free savings account, started after I retired, is now up almost 25%. Is this like winning a small lottery? No. This gain is simply the result of making a good call. A good investment call.

Take care, invest carefully, and, over time, you will win more than you lose. There is no way to guarantee a win with a lottery ticket. In fact, buying lottery tickets for all but the very lucky is a money losing proposition.

Learn about asset allocation, set some investment goals, find some stock analysts you trust . . .  And stick to your decisions unless something happens to prove you were wrong. Don't flit here and there, buffeted by changing financial winds.

I am going to go on record as saying I will hold Norbord until I have at least made a profit of about ten percent on my original investment. That was my original goal and I see no reason to change it. Because I am retired and I need to be moving into safer investments, I will put my investment plus the profits into something less risky, something less volatile. If I were younger I'd be bolder. But, I'm not.

For instance, I will be making fewer forays into resource stocks like Labrador Iron Mines in the future. My winners have easily covered my losses in LIM. I didn't jump into LIM with both feet. Still, it was not a great move for a retired chap. But, my asset allocation encompasses making wild-flings-for-fun and I did not put more into LIM than I had budgeted as a manageable loss.

Will the path upward be smooth for Norbord in 2015? I don't know. I would be surprised if it was. Still, I have confidence Norbord will deliver a tidy profit in the end.

Other stocks and ETFs that have helped buoy my portfolio:

Bank of Nova Scotia: up 122%
Crescent Point Energy: up 34%
iShares XIC: up 36%
iShares MSCI Singapore: up 60%
iShares XMD: up 47%
Royal Bank: up 55%
Sun Life Financial: up 85%

Only four of my investments are in the red.

Wednesday, January 14, 2015

Living in Retirement

The market waxes and wanes but my expenses just keep on growing. Putting my retirement money in the market, I was told, was a bad idea. I did it anyway. Even with the recent pullback, my wealth has grown by more than 50 percent since leaving The London Free Press. And that is after removing some funds annually to balance my books.

Today I checked the present yield my wife's Dream Office REIT is delivering. She is enjoying an almost 7.5 percent yield when calculated on her original investment. And the best part is that her total investment has grown in value and is still hundreds of dollars to the plus side. The stock is actually down from where she bought in but the constant flow of monthly dividends has given her investment the needed buoyancy.

We don't need to cash the dividends and so they simply 'puddle.' Each month the cash in her account grows. Each month the percentage of cash in the account tends to increase. The account gets less and less risky over time -- if you equate volatility risk. Today her tax free savings plan is about 14 percent cash. 84 percent equity and 14 percent cash is not a great ratio if safety is one's goal but it is still a pleasant holding of cash. The interest on her cash isn't much but it helps protect the cash from the ravages of inflation.

We won't buy more D.UN. No point having too much exposure to one stock. But we will buy another solid, dividend-paying investment and let it sit with dividends 'puddling.' When we get into our mid 70s and need a good source of steady income, I'm hoping our two TFSAs will be there to help fill the need.

Thursday, January 8, 2015

Some investments holding up well

When my wife opened a tax free savings account she had very little money to shove into the plan. Because of the limited funds, she simply stuck all the money in some shares of  Dream Office REIT (D.UN).

Recently the stock started moving lower. Thanks to over a year of accumulated monthly dividends it took awhile for her account to descend into the red, but eventually it did. But today it is back in the black thanks to those same dividends that earlier provided some buoyancy. She is now almost six percent to the good. With interest rates at historic lows, this is not a bad yield. In seven days she will realize another dividend payment and the cushion sheltering her from a loss will grow yet again.

Like my wife, I have little money available to invest in a tax free savings account. But I divided my money between two companies: the Royal Bank and Norbord. My RBC share not only pay a nice dividend but have grown in value. Even with the recent downturn in financials, I am up about 74 percent on my investment. My Norbord is down if all one considers is the stock price but it is up almost 3.5 percent after the dividends are considered. Thanks to good luck and those nice dividends, my tax free savings account is up some 24.7% in very few years.

With the market battling to gain a little ground, with volatility the name of the present game, it is easy to lose faith in the market. At times like this, I like to stand back and look at the big picture. Where are my investments today compared to the day I retired? My investments are up. Way up. After removing tens of thousands to live in retirement, my retirement portfolio is up more than 55 percent.

Have I always made the wisest investment choices? No, but just how bad is something one can argue about over a beer. The dividends have been a godsend in retirement. At the end of the month I'll see how I am doing this year compared to two alternative investing approaches, both easily done: the TD Monthly Income fund and the Complete Couch Potato.

A reader recently made me aware of another TD fund that has performed very well over the years. I'm watching it and may blog on that fund at some later date. I may even buy a little for myself.


Wednesday, January 7, 2015

Tightening the financial belt

Our VW Jetta TDI has not been costly.
The good times are over -- for now. When the markets were climbing, as was the case in recent years, my wife and I enjoyed the windfall. We have a new car, a Volkswagen Jetta TDI, we made lots of improvements to our home, making it a nicer place to hang in our retirement. I refreshed my wardrobe. The list goes on.

Now, with the markets down and our portfolio down even more, the taps controlling our spending have been closed. Not completely, we are will still be taking my oldest granddaughter to see Paddington Bear at the nearby cinema, but big tickets items are no longer in the budget.

And when I say budget, I am not just talking figuratively. We have an actual budget. It is an Excel spread sheet and it pulls no punches. I list all our sources of income and all our can't-wiggle-out-of-these expenses. I then add the expenses we can control and these are the ones I trim. The shortfall is what must come out of our RSPs. This year we will try to remove less than four percent. This is less than our dividend income.

To get our expenses down, I have applied zero-based budgeting where all expenses must be justified. For instance, I could not justify our monthly cell phone expense. I've canceled our monthly plan and moved us to a prepaid annual plan. This chopped our cell phone expense from some $420 a year to about $100. Although there were some one time costs associated with the move. I figure these only amounted to about another $50.

A budget is important and a very important part of the budget is the section where one estimates how much one might spend on stuff that was impossible to accurately estimate. For instance, our central vac hose has split and must be replaced. We did not anticipate this expense. But, I have a field for these unanticipated expenses and it is not blank. I know I will be blindsided during the year. I am just not sure by what.

For instance, we had to have a new furnace installed immediately after Christmas. This was one of those financial hits difficult to see coming. Recently, we have been battered onto the financial ropes by both increasing expenses and decreasing income. This will be a year for testing the resilience of our investment strategy.

Sunday, January 4, 2015

Returning to the fold

Years ago I experimented with index investing. I bought iShares back when these units were under the control of Barclay's and I opened a TD self directed account just so I could buy the bank's e-series funds. I also had a few mutual funds (TD, CIBC, RBC, Septre and Mawer) but overall I put relatively little money into these funds. With each passing year I jettisoned more and more of those former holdings and I'm not sorry I did. I did just fine on my own.

Now, going into my seventh year of retirement, I find I have just suffered my first truly bad year. I got whomped and whomped soundly. My investments are still pumping out the cash needed to live in retirement but the overall value of my investments is way down from what it was just a year ago.

When my portfolio was at its peak, I should have changed horses. My approach was running out of steam and I didn't notice. The winner, when not only capital growth but also dividend payments are considered, was the Complete Couch Potato portfolio. The CCP didn't pay the most in dividends, my approach did that, but the CPP paid well and clearly the risk/reward was way better with the CCP. I can still sleep at night but the losses I've suffered would leave many small investors tossing and turning with anxiety.

Click on the link and check it out. This portfolio turned in an amazing performance in 2014. Admittedly there were mutual funds that beat it but the complete couch potato tended to deliver great dividend bang for the buck, a rapidly growing buck. Today this portfolio is up well into double digit territory since early January 2014. This is thanks in large part to it U.S. holdings.

The TD Monthly Income, which I follow, was also a winner, and if teamed with the e-series U.S. index fund to create a balanced portfolio with exposure to the States, it delivered even better returns than the CPP. Where this mix fell behind was in the dividend payout. The ETF mix was clearly the better choice here. As a senior, I have to begrudgingly give the nod to the ETF mix above over the mutual fund approach mentioned.

Am I going to dump my present holdings and move my investments to last year's winners? No, I'm not. Chasing last year's leaders is rarely a good idea. I still have faith that some of my holding will outperform the market. I'm on board the individual-stock-owning train now and I want to be still riding when it pulls into the station. I don't want to be one of those who buys high and sells low.

One of my holdings, Norbord, has cut its dividend as expected but it is still yielding better than four percent. I believe I see a nice pop in value in its future. Crescent Point Energy should rebound when the global oil market recovers a little. My banks stocks are also down from their highs but the dividends are solid and I see no benefit to selling what I bought at fire sale prices back in 2008 and 2009. I can go right through my entire portfolio and for most holdings I can see a brighter tomorrow.

As my portfolio recovers, and hopefully at a quicker pace than the index-based portfolios, I will again revisit the idea of moving my investments back into the index fold. (At the moment, I am doing better than my old personal benchmark nemesis -- the TD Monthly Income fund. We are only days into the new year but I am still willing to take a little comfort wherever I can find it.)

Note:
If you follow the links to the Canadian Couch Potato site, there are other suggested portfolio mixes that also performed quite nicely in 2014. I mention these only because I followed them and was impressed.

This is not to say the approaches not mentioned are not worth considering, this is simply to say I have not personally back-tested them. Do your homework, back-test some of these portfolio approaches and if you find anything interesting, write. I'd love hearing from you.

Me, I'm following two new test portfolios. I created one using the TD Monthly Income and another using the Complete Couch Potato mix. Both are based on the value of my actual portfolio at the end of 2014. As the year progresses I will post how these two imaginary portfolios are preforming relative to my actual investments.

Friday, December 26, 2014

In the end, it's your decision, your gain or your loss

Some time ago, I bought a few hundred shares of Norbord. I was betting on a recovery in the U.S. housing market driving the shares of the large OSB maker higher. The monster dividend was nice but I had doubts that it was sustainable. I expected to see a cut in the dividend in 2015.

After purchase, the stock popped briefly and then settled into a decline that dragged my losses into the four digit numbers before finding a floor. Norbord, once a market darling, lost its luster and many analysts downgraded the shares.

In October Raymond James cut their price target by two dollars to $22. That same month, RBC Capital dropped its target also to $22. As I recall, even a Norbord booster like ScotiaBank dropped its target price a little. And what happened? The Norbord stock price started on the road to recovery. Today, not two months later, my holdings are again in the black. The dividend is being cut in the new year but I got two good payments before the announcement. Some analysts are even raising the target price on the stock. I'm happy.

The lesson? Others have opinions but there is only one that really matters: Yours. Do your homework. Don't just buy on the advise of others. Have some rules and stick to them. For instance, I have a rule against buying companies that are unprofitable. Almost every time I have ignored this rule, it has cost me money.

And there is another lesson. If you buy stock in a good company and the price drops, don't panic. Sell if the story surrounding the stock has changed for the worse but if the stuff that attracted you is still intact don't be overly concerned with a small fall in share value. Stock prices go up and down. This is just life. No reason in itself for great concern.

I invest for the long term. If a stock is paying a dividend of four percent or better based on its present price, I feel it is paying its way. I hold and I don't lose sleep. Companies like Precision Drilling fall into this category. Until oil prices rebound, I will hold onto stocks like my Crescent Point and take solace from the dividend. In some cases my dividend has shrunk but my faith in these companies has not. There may still be a sports car in my future.

Monday, December 15, 2014

Interesting fact without comment: Household Debt in Canada at all-time high

In the third quarter which just ended, the household debt-to-income ratio of Canadians hit an all-time high. According to Stats Can the ratio hit 162.6 percent up from 161.5 percent in the previous quarter.
The Bank of Canada has expressed concern Canadians may be taking on too much debt. The Bank is monitoring the ratio and watching for signs consumers being overextended. Bank of Canada Governor Stephen Poloz forecasts household imbalances, caused by high levels of debt and a hot housing market, should fall gradually as the economy strengthens.

Despite the record high debt-to-income ration, the ability of Canadians to service their debt has improved thanks to interest rates remaining low. The interest paid as a proportion of disposable income fell to a record low 6.8 percent in the past quarter.

Personally, I hate debt. I take it on when I must but I attempt to pay it down as quickly as possible or, at least, keep the payments low and non-threatening. I track all my expenses by charging the vast majority of purchases and paying the entire bill monthly. I have a budget and my monthly MasterCard bill tells me whether of not I am keeping to my budget.

Right now I am preparing my budget for 2015. I have cut my spending and trimmed my savings plan due to the fall in oil prices. My dividends are threatened. My income may suffer but I will be just fine. I'm prepared -- I hope.