Wednesday, August 22, 2012

Staying on track

Right now a chap is being interviewed on BNN and he is saying that in his view this "train" is going to keep charging ahead, at least in the short term. But there are flags on the horizon. He is warning that investors must brace themselves for the possibility of a strong pullback in stock values.

I agree wholeheartedly. Today I checked my portfolio and it is up almost 11 percent for the year on an annualized basis. This is good --- maybe too good.

I use a spread sheet to track my investments and plan my retirement spending. Spend too much and you run out of money before your life runs out of steam. The rule quoted in much of the retirement literature is "remove no more than four percent annually from your retirement savings." It is a good rule of thumb, but only a rule of thumb.

My spread sheet has a column showing my portfolio opening value and my original goals for my portfolio's value at the end of the first year and at the end of every year thereafter through 2014. I estimated an overall annual return of seven percent with four percent to be removed annually to cover living expenses. (The seven percent figure reflects what a financial adviser at ScotiaMcLeod said he would deliver if I put my account in his care.)

In other words, retire on $400,000 and at the end of the first year you hope to have a balance of at least $412,000. ($400,000 + $28,000 [7%] - $16,000 [4%])

If the market goes through the roof, as it has since my retirement, one can spend a little more. I have. Based on my original retirement portfolio, I removed 6.1% from my plan this year. This might sound foolish but I defend this by saying I have 34 percent more in my portfolio than I had originally forecast.

Now, back to our speeding financial train. It can jump the tracks. A financial train wreck is never out of question. What would be a financial train wreck? How about a loss of 34 percent? If this should happen, I am prepared in two ways: I can cut the amount I remove from my RSP to 2.6%. That is the amount that I must remove, based on my retirement starting balance, in order to live. And mentally I have a 34 percent cushion. Until I lose 34 percent, I am still on track.

Friday, August 17, 2012

On the radar: FGD

One can't just grab a hunk of money and invest. Well, actually one can and often folks do. That said, it is not the best approach to investing.

A new ETF (new to me) has registered on my financial radar: First Trust Dow Jones Global Select Dividend Index Fund (FGD).It is at $23.45 (U.S.) today.

FGD is rated a 4 Star Fund (****) by some with above average return mated with average risk. That's is all very well but what has peaked my interest is the dividend: 5.06%. In its category FGD has been in the top percentile for the past three years.

This investment can be volatile. It's biggest three month loss was about 41% back in late 2008, bouncing back with a gain of 54% in early 2009. But it is still down from its pre 2008 crash highs. And of course, it also benefits or suffers from fluctuations in the Canada/U.S. currency exchange rate.

A quick look at its holdings shows financials claim only 13.2% of this fund. With a global fund, this is good. I still have to examine the specific investments but no big flags have appeared as of yet.

I still like Cathedral Energy

I've been following Cathedral Energy (CET) for some time. I bought some at $5.77 and a lot more around $5.12. This morning it is at $5.75 and I've already enjoyed one dividend payment. I'm happy.

The ScotiaBank report I access from my trading account has a one year target for CET of $9.75. This is a high risk investment but the analyst believes CET will outperform others in its sector. And don't forget the dividend: "a solid balance sheet, strengthens our conviction of a strong and sustainable dividend (5.2% yield)."

As a retiree, the dividend is very important. I demand to be paid while patiently waiting for the market to deliver a financial pop.

When I started buying CET ValuEngine was calling Cathedral Energy a hold. The other day it moved CET into the buy column. If it climbs into the Most Favourable buy category, I'll let you know. ValuEngine only calls for a one year target price of $6.10. Still, for me, that would be about a 6% return on top of the 5.2% yield. I can live with that.

It seems odd but based on available data as of Aug 17, 2012, ValuEngine believes CET is actually 3.51% overvalued at the moment according to its true fair value. This is the price at which the stock should be trading if the stock market were perfectly efficient and everything traded at its true worth. So ValuEngine has a target price of $6.10 but sees a fair trading value of $5.55. Like I said, odd.

Another report that is available to me is one from Research Team. RT now rates CET a buy. RT sees CET as "one of the better performers in the Oil Equipment & Services industry."

Lastly, StockReports+ rates CET "currently among an exclusive group of 71 stocks awarded our highest average score of 10."

StockReports+ has what they call their Fundamental Indicator. "This displays stocks on a scale of 1-10 with ten being awarded to the strongest stocks based on a combination of four fundamental component factors: profitability, debt, earnings quality, and dividend. Each component is equally weighted." CET rates ten.

SR+ also has a risk section to their report. CET rates nine on this scale, with ten indicating the least risk. SR+ derives the risk number "by looking at a series of long (60-month) and short (90-day) term stock performance measures including volatility (standard deviation), magnitude of returns (best and worst day and month), beta (movement versus broader market), and correlation to the relevant index."

There are other reasons that I like Cathedral Energy but the stuff I've posted today simply helps to reinforce my faith in CET. I'll hold CET for at least a year and I can see holding the stock for a number of years if all goes as envisioned.

Clearly, I am not the only one who likes Cathedral Energy.
Some readers have questioned why I want to hold a stock that does not promise a bigger bang for the buck. I like to hold lots of different stocks. I only buy the one's I have confidence in, no surprise here, and even then I sometimes lose money.

I don't want to put too much money in investment. One never knows what misfortunes can await even a fine investment. Think RIM, or Nortel, or one that I presently hold, Suncor. I find if I make a little here and little more there and get a nice pop now and then, the gains are better than the losses and my portfolio is successful.

Update:

The shares of CET I hold in my TFSA (tax free savings account) are up 26.67 percent as of market close on Sept. 5/2012. (My REM, and earlier investment) is up 13.07 percent and ZUT is up 6.95 percent. And my Sun Life Financial has climbed 7.63 percent. Note: all of these investments pay dividends that easily meet the demands of retirement.)

Tuesday, August 7, 2012

Holding pat, values climbing, ready for a retreat

I have great fears about Europe. I would not be surprised to see the Euro Zone go down the financial tubes --- at least, for a time. If Europe sinks, it will take us here in North America with it to a great extent. I'm mentally prepared for some paper pain, no, for a lot of paper pain.

But today the market is rising and all is right with the world. For me this means that when the next pullback occurs I may be holding a more valuable portfolio than I am holding today. For me a bear market kicks in at a ten percent loss and a damn bad pullback is something more than 20 percent.

I started my retirement with X in my portfolio and as long as I don't dip below X, I'm comfortable. Mentally, I would not feel that I have lost any money. Heck, I've taken out cash in the five digits range over the past three and half years in order to live. If I can claim to have my original investment intact, I'm not going to complain too loudly.

The higher the market climbs the more it can fall and not rock my comfort zone. At the moment my comfort zone won't be threatened until my losses pass the 30 percent point.

My recent purchases of Penn West (PWT) are adding to my comfort. I bought some shares of PWT in the $12 range and some more for my wife around $13.27. Today PWT is trading around $14.25. My AUSE is almost back into the black and my recent Cathedral Energy (CET) purchases are nicely back in the profit column. And my REM units just keep climbing. For the past few months REM has been in its top quartile. Nice.

Despite all the gloomy talk, hey, I visit the dark side frequently, there is still money to made in the market. (The TSX is up 180 points right now.) Make some money while you can. It is a great buffer against bad times.

Cheers!