Tuesday, February 26, 2013

Labrador Iron Mines (LIM)

Added near the end of February 2015: I broke my rule and invested in a company referred to as "unprofitable." My investment, very small, disappeared completely. Oh well, it was more fun owning LIM than buying a lottery ticket but no more profitable.
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Just caught a fellow on BNN  talking about Labrador Iron Mines (LIM). He wasn't bearish on LIM but he did have some strong reservations. He felt the cancellation of the proposed CNR line was not as harmful to LIM prospects as others in the trough but I know I would not buy LIM now.

Labrador Iron Mines reportedly sees no "adverse impact" from the CNR rail plan suspension but I find that hard to believe. On the plus side, LIM is going to be reimbursed its advance payment of C$1.5 million.

This is an isolated geological formation with large confirmed iron ore deposits. The proposed 800 km (500 mile) track was, in my mind, an important part of the puzzle confronting producers on how to make the extraction of the iron ore profitable. I think the challenge has just become harder.

If I held a lot of this stock, I'd sell. I only own a little and so I see this as a personal hold. If it climbs above my entry point, I'm out.

Saturday, February 23, 2013

Itching to buy: CET

March 7, 2013

Addendum:

Not wanting to grab the classic falling knife, I held off on my purchase of CET. The stock hit a low, as of now, of 3.69 today. I never imagined such a collapse in price. But CET released its earnings report, or lack of earnings report, and the market took notice.

I still like CET and decided to get off the sidelines and get into play. I bought 600 shares. I picked up some for $3.90, more at $3.75 and I had to settle for $4.00 for the last purchase. From everything I know about the company it still seems a good bet at the right price. The question is: What is the right price? Only time will tell if I have acted wisely.
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I like Cathedral Energy. I picked up a little at $5.15 some months ago and now with CET almost back to my entry point, I may buy some more. Let me tell you why.

  • It has a nice dividend of almost six percent which seems fairly secure at this time.
  • Some analysts see CET hitting a target price of $7.00 within a year.
  • I can pick up a hundred shares for just more than $500.
  • Scotia McLeod rates CET a focus stock, albeit carrying high risk.
  • A Google search turned up no big red flag warnings but the stuff I found told me caution is warranted.

If you haven't come across the term "focus stock" before, here is how Scotia McLeod defines a focus stock:

The stock represents an analyst’s best idea(s); stocks in this category are expected to significantly outperform the average 12-month total return of the analyst’s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst.

If CET continues to lose value, I will probably try and pick up a few shares next week. I won't pick up too many though, I don't want to be overexposed to this technically high risk investment.

Tuesday, February 19, 2013

Are the markets getting a little frothy?

I was going to post this question late last week: Are the markets getting a little frothy? In the few days that have passed between the thought and today, all the numbers I had gathered for my post are clearly out-of-date.

My AUSE (WisdomTree Trust Australia Dividend Fund) is now up almost 20 percent from when I bought it. This is an extra gain of almost three percent in just about as many days. My SLF (Sun Life Financial Inc) is now up 37.37 percent, REM (iShares TR FTSE NAReit Mtg. Plus Capped Index Fund) is up 16.35 percent, and the list goes on: ZUT (up 16.06%), EWH (up 12.55%), RY (up 42.72%) . . . And these are all relatively recent purchases. One of my older investments, Bank of Nova Scotia (BNS), is up more than 106 percent! That is worth an exclamation mark.

Mark Carney, talking about what he sees as a housing bubble in Canada, said recently: "Real wealth is built through innovation, and it’s gained through hard work. It’s not through some magical asset inflation."

The stock market is not housing but I feel about the market the way Carney feels about housing. I applauded his statement when I first heard him make it on a television news report, and my feelings about housing values spill into the markets.

I'm not a market timer. I'll hold on for the moment but I am prepared for a eventual retreat. If the markets get too high, hard to say in advance just what constitutes "too" high, I think I'll try and sell off some of the stocks that seem to have inflated without good reason. I'm looking to have some cash on hand in order to buy after the correction.

To be honest, if history is any indication, in truth I'll buy long before the correction bottoms, but I'll do O.K.

Tuesday, February 12, 2013

Adviser probably has nothing to hide

Sandy Mikalachki deserves better. The investment adviser was featured in an article in The London Free Press written by Hank Daniszewski. Mikalachki sounds like the kind of adviser I admire.

Managing portfolios of half a million or more, Mikalachki is willing to work for a-fee-for-results. He writes on his company website:

". . . a fee is only charged at year end if there is a positive return. The fee is 15% of the return. For example, a year end 10% return would garner a 1.5% performance fee. If the annual performance is zero or negative, there is no fee. In the case of negative performance, like 2008, we would always have to recoup past losses before the performance fee would apply. There is no catch, it is client friendly but we are also confident in our ability to generate attractive returns over time."

But only about half of Mikalachki's clients sign up for the fee for results approach. The other half go with the more common adviser/client agreed management fee. My guess is that these investors are paying an annual charge equal to about one and a half percent of their holdings, in some cases more and in others less.

Why do I say Mikalachki deserved better than the report in the Free Press. Because it is important to not only make money, if you are an adviser, but to beat an accepted benchmark. By keeping his results secret, it makes it appear that there may be something to hide.

The paper tells us a lot about Mikalachki: We know who his father was, we  know who his wife is, we know where Mikalachki went to school, where he worked, but we don't know if his investments beat a benchmark. The paper makes it clear he is honest but they don't make it clear that he is good.

Let's take a look at one respected benchmark for balanced investing. A balanced portfolio is possibly the most common conservative approach to investing. It is favoured because it doesn't suffer the volatility of a pure equity approach. An investor misses the big spikes in gains but also escapes being buried in the hugh trough of losses when the market corrects.


 
A person investing half a million in the benchmark at the beginning of 2008 would have seen about an 8.79 percent decline in value or a loss of $43,950. The portfolio would have entered 2009 with a balance of $456,050. [Fee for Results: $0]



2009 was a better year with the portfolio earning 9.15 percent or $41,728. It was a good year but not good enough to dig the investments out of the trough. 2010 saw the portfolio starting the year with a balance of $497,778. [Fee for Results: $0]



2010 was not as good a year as 2009 but it did bring the portfolio back into the black with a gain of $43,506. The portfolio had climbed to a balance of $541,284. [Fee for Results: $6193/Portfolio $535,091]



2011 was an even worse year for the benchmark but at least it did not end the year in the red. It made an annualized return of 2.68 percent ($14506), ending the year with $555,790. [Fee for Results: $2151/Portfolio $547,280 ]



There was some recovery in 2012. The benchmark gained 6.4 percent or $34,571 and ended the year with $590,361. [Fee for Results: $2242/Portfolio $580,064 ]

Even if the portfolio matched the benchmark in raw performance, the management fees guarantee it will fall short in the end.

I have a personal benchmark, a balanced mutual fund that I like to watch. I like it so much that I have about 15 percent of my retirement holdings invested in it. It is the TD Monthly Income fund. The most recent MER charged by the fund is 1.48 percent and its annual portfolio turnover is only 6.08 percent.



As you can see, the TD Monthly Income fund beat the benchmark. An investor putting half a million in TDB622 at the beginning of 2008 would have ended 2012 with a gain of $118,314.57 or a total portfolio value of $618,314.57.

As an article examining placing one's investment money in the hands of an adviser, The London Free Press article falls quite short. The big question, the unanswered question, is: "How well has the adviser at the centre of this article done?" Assuming the adviser has done well, putting this information in the article would have only helped the London-based adviser.

Just as an aside, I know an investor with a self-directed portfolio who started 2009 with investments valued at about half a million dollars and is worth about $750,000 today. I am certain other investors have done even better. A lot of money has been made since the crash of 2008.