Saturday, May 12, 2012

Unsettled Times

Recently I had a comment noting that it is hard to take advantage of a downturn in the market if one is fully invested, as I often am.

The person commenting was right. When the market is down, I put my dividends into what I hope will be good spots to stash the cash but there are times I wish I had a bit more to invest. Well, I've taken that comment to heart and moved a bit of my investments from the market and into cash. If the summer proves to be a bad time to be in the market, I'm prepared.

I bought some Inter Pipeline when it was going for the fire sale price of about $8. I've enjoyed a nice monthly dividend every since. Recently, my holdings had grown to about 160 percent of the original investment, and this does not count the dividends that I have spent for living in retirement. Nice. I sold all my remaining IPL.UN at just more than $20 this week. I can see IPL.UN climbing another ten percent but I'm comfortable exiting at this time.

I now have close to 8 percent of my portfolio in cash. I will remove a little to live but no more than what I would have made if I had continued to hold the stock. By doing it this way, the cash will last for more than fifteen years.

I'm comfortable.

If there is a crash, and with Greece threatening to back out of their debt solution promises it could be in the cards, the cash will add stability to my portfolio. Plus, I will have the funds to buy some of the bargains. If the market does not crash but climbs, my other investments will carry my portfolio higher.

It is a can't lose situation. I thank the person who made the comment. I'm comfortable and that is an important part of investing.

Trinidad Drilling (TDG) may be my next buy

P.S. Some of my recent plays, if you've been following, have done well, especially if you have gotten in and out as discussed. Progress Energy returned a quick ten percent and Penn West did likewise. If you have continued to hold as PWT turned south, my guess is that it will come back. There will be another exit point in the future. As long term holds, oddly I favour Progress Energy over Penn West but I'd rather not hold either well into the future.

Right now I am looking at buying some Trinidad Drilling (TDG). If it drops a bit more, I'm in. The dividend is small but it will do in a pinch. It's about 20-cents annually. Many believe that TDG will outperform and they see a future price of about $11 a share. Unfortunately, the risk is high.

This is what I found on the Scotiabank site:

Trinidad is Canada's fifth-largest contract driller with one of the newest, deepest, and most technically advanced fleets in both Canada and the United States, and growing exposure to Latin America. Trinidad's other business lines include coring, pre-setting, and rig construction.

They also say:

Solid outlook. We continue to have confidence in TDG's operations. With 65% of its fleet contracted for two years and essentially a Tier I fleet, we believe TDG is better insulated from reduced industry levels.

I checked some other sources and mostly they concur. I'll buy a thousand shares or so and move on when the shares get past $9. The dividend will keep me happy while I wait.

Cathedral Energy may be another option with 5.1% dividend

If TDG is not what you are looking for, my other pick in the drilling field is Cathedral Energy Services Ltd. (CET). This investment has the extra bonus of, according to Scotiabank, "a stable 5.1% dividend yield."


  1. Too bad again... instead of holding pure cash (which I assume you are getting 0% return, may I suggest keeping three years of income in cash or equivalent (I am more bullish on mortgage funds (find TD MERS high) , I would suggest the TD Income Advantage fund for the balance. The funds has very low volatility and very low % of equity (only about 16%). The fund is made to return 5% roughly through all markets. (Obvious exception 2008, but regained all loses in 2009).

    This will allow for some return on your cash position, but still give your income protection against volatility. This is the fund I have recommended for TFSAs (As I suspect people may look for liquidity in their TFSAs, and I am 100% comfortable with the risk/return on this fund if a client holds it for more than 2 years).

  2. You're quite right. I am holding cash. There was a time I stashed cash in a money market fund but the gains were so small that I decided it wasn't worth the hassle. I like the instant liquidity of cash.

    I cannot see my holding cash for months and months on end. I certainly cannot see my cash holding to extend into years.

    Your mention of TD Income Advantage fund caught my interest. I ran some figures using the calculator found here:

    I compared TFSA to my personal fave, TD Monthly Income. The TFSA chart is quite smooth compared to the TD Monthly Income fund's. Your advice is good and shows your clients are well serviced. But, if one is comfortable with a little more volatility (I like the term volatility in place of risk.), then stashing some cash in the TD Monthly Income can offer some advantages. I will post an edited version of what I discovered at [This may take a day or two as my wife and I are baby sitting my 33-month-old granddaughter. Nothing saves money in retirement as taking care of the grandchildren. It is far cheaper than travel and twice as rewarding.]

  3. Too Bad...

    Yes...I have young kids now... my mother always says to me..."If I knew grandkids were this much fun... I would have had them first... not sure what that means for me, but I know the kids are loved, and the grandparents spoiled.

    Yes, I agree with you, certainly if you are ok with volatility and have a longer timeline, I would use funds that have higher potential return, which in turn likely increases volatility. Sometimes that fund is TD Monthly Income fund (which have been (again under current review) the fund I tell clients, if I could only buy one fund in Canada, that would likely be it)

    I just believe most canadians think of their TFSA as a savings account they can dip into, and because of that, I error again on side of caution, not because I am afraid of volatility, but because I think I understand (after almost 20 yrs. at this) how the average investor thinks.

    On you article... I agree with you whole-heartledly with the exception of a couple of points. The risk questionnaires are used yes to protect the consumer and he institutions, but mostly because regulators (there are far too many, and certainly believe in Canada, we should have 1 regulator (a la bar, or CA association) where membership is mandatory.) require them. We, as advisors have liability (and I believe we should 100%) for poor advice. Now people like you that have excellent investment knowledge understand the risk and the opportunities, but the vast majority of Canadians do not. They see their investments lose value and panic... mostly pull the plug when they should be getting into the markets, and want in the markets when they have had a run.

    That is why I use asset allocation because it allows my clients (perhaps less educated in financials stuff, and perhaps not interested) to have some exposure to equities (which they need long term to protect them against inflation) without feeling like they are on a roller coaster ride.

    On the grandkids thing, we came up with a few original ideas (at least I came up with them, without any help) on how to move wealth from generation to generation and allow the grandparents to see the benefit and know they have left a legacy that will far out live them and perhaps make the family blood lines better than ever instead of willing that money to the CRA.