Friday, March 15, 2013

Kevin O'Leary: Delivering the truth (maybe)

"I'm not a tough guy. I'm just delivering the truth and only the truth and if you can't deal with it, too bad."
 — Kevin O'Leary

Kevin O'Leary is obnoxious and proud of it. He is definitely a land-on-his-feet kinda guy. But, is he a man to be  admired or mocked?

When I first caught the O'Leary schtick on BNN, I thought he was loud, and rude, but maybe knowledgeable. But, it didn't take long to begin thinking he was playing more the buffoon than the brain.

Since becoming disillusioned with O'Leary, I've read a lot about the man and very little of it has been flattering. A great deal of what one finds in the media is trying to strip away his oh-so-carefully manufactured brilliant entrepreneur persona to reveal a rather manipulative, mean-spirited, little man.

To read some of the stuff to  which I am referring, follow the links:

Kevin O'Leary: He's not a billionaire, he just plays one on TV (ROB Magazine, The Globe and Mail)
TV's Shark Tank Guru: In Real Life, No Business Whiz (Time Magazine, Business and Money section) (
Leary's 'nutbar' remark breach of policy, CBC ombudsman says (The Globe and Mail)
Kevin O’Leary: The natural --- Kevin O’Leary makes great TV. But is he the savvy business mogul he’s made out to be? (Canadian Business)
Brainy Quotes

So, here is the question: If O'Leary is simply a naked promoter who enjoyed one very lucky break, a lucky break that almost destroyed one of North America's most successful companies (Mattel), why does a respected Canadian business school at one of Canada's top universities risk sullying its reputation by putting Kevin O'Leary on their Advisory Board? Could the answer be found in one of the following links?

Kevin O’Leary. Millionaire Success Story
Kevin O’Leary Shares Cold Hard Truth on Student Business Ideas
Too successful to retire 

I think it is safe to say O'Leary is a boor. I don' t think even he would argue with that. He might even agree that "I'm just delivering the truth . . . "

Being prepared for the worst

It's nasty out there. I know a fellow with a great education, a fine work history and a lifestyle that is the envy of almost all. When the economy crashed in 2008-2009, he lost his job. Despite all he had going for him, he has failed to completely recover from the personal setback of four years ago. The sector in which he has expertise has yet to recover.

Now, a financial sinkhole has opened under his wife. After more than a dozen years at a fine company with a fine job, the company has been sold and she is finding her job threatened.

This couple lives in the States. When a couple loses both good jobs that were the financial underpinnings of their lives, they lose a lot more than Canadians. Here, I am thinking of the health care ramifications. For the first time in many, many years, this couple may soon find they are without health insurance. An unforeseen major health emergency could bankrupt these two. They are frightened.

There are some lessons here. One: Life isn't fair. This a truism that threatens all of us. We can be blindsided at any time. And Two: We must try, as best we can, to be prepared for the unforeseen.

I'm a big believer in budgets and spreadsheets. This doesn't mean you don't spend money, but it means you know where you spend your money. When my wife left her job as a manager some years ago, I looked at our budget. I found stuff to trim. It hurt but we survived.

Then I lost my job. A career approaching four decades came to an end. I jettisoned stuff, modified my life and my lifestyle and I pulled in our financial horns. It hurt but we are surviving.

The truth is, it hurt more when my wife stopped bringing in the big bucks than when I lost my income. That first disaster was a wake-up call. We visited banks and talked to financial advisers. Although I had dabbled in the market all my life and my wife had worked in the market early in her career, we were not using the market to full advantage. Talking with the banks and the advisers made us aware that we should open our own self-directed portfolios.

Between the time my wife left her job and I took early retirement, we took control of our financial lives. We began experimenting with various financial approaches and using our portfolios as our test bed. I started a spreadsheet to track our income and our expenses.

The advantages of dividend paying stocks quickly became apparent. We began replacing our missing income with funds generated by our retirement savings. When the Christmas layoff struck the newspaper, I turned to my spreadsheet and confirmed I could live on the reduced pension being offered. I took a buyout, stuck the money in the market and never looked back.

I believe everyone should track their income and expenses with a fine-tuned spreadsheet. It is easy and not at all time consuming but it is eye-opening. You might find yourself very surprised to learn where your financial life leaks money.

The couple I spoke of earlier have been dipping into the husband's retirement funds in order to live. I wonder about this. I think about how I remove an amount equal to six percent of my retirement savings at retirement each year without ever touching the underlying investments.

If the couple now facing their own financial Armageddon had invested all their retirement money in dividend paying stocks back in 2008/2009, they might have an annual income available to them of about $32,250 today. (This is based on them having about $600 thousand in retirement savings at that time and only removing dividend payments. This also takes into account a ten percent penalty imposed by the U.S. government on funds removed early from a retirement plan.)

If they have $500 thousand still in their plans, they could gamble today on some investments that return better than six percent. For instance, REM (iShares FTSE NAReit Mortgage Plus Capped Index Fund) is paying 10.95% today. Investments like this could deliver better than $49,000 income annually -- after expenses.

I have a little REM in my portfolio and I wish I had more. I got in when it was maybe half the price.

I know this couple has a financial adviser. With a portfolio of this size, his/her payment should not be equal to more than one percent of the value of the portfolio. If this person is good, it should be possible for their retirement funds to generate good cash flow and maybe keep the wolf away from their door. (I cannot say for sure as I don't know all that much about their expenses but they don't have kids.)

I realize this couple would be taking a big chance by restricting themselves to high dividend paying investments. In a downturn a lot of the value in their portfolio could disappear quickly. On the other hand, if they simply start withdrawing funds in order to keep their books balanced, they could completely deplete their retirement savings in just a few short years.

I don't know what they will decide to do. One or the other may soon get a new job. They may get a break, a reprieve, a stroke of luck. If they do, I hope they take advantage of the breather and take control of their financial lives, open a couple of self-directed portfolios and track their income/expenses with a spreadsheet.

Thursday, March 14, 2013

Failed to buy CET

In the interest of full disclosure, as I type this I have a couple of active buy orders for CET (Cathedral Energy Services) in play. The last trade was for $4.15. I've put in my order at $4.14. I'll post whether I'm successful or not at the end of the day. (I wasn't.)

I believe CET's ex-dividend date is March 26th. If you are an  owner of record of CET stock on that day you will receive the 7.5-cent dividend in mid-April. For that reason, I'll still be pursing the purchase of CET for the next few days.

[The next day.] The stock ended the first day with no momentum, I decided that my bid of the day before was now too high. As it turned out, I was right. CET continued to lose value. It dropped to about $3.97 in early morning trading. I thought to myself, this stock just keeps falling; It fails to gain traction.

But, it gained enough traction to prevent it from dropping the penny necessary to fill my purchase order. I remained a buyer with no matching seller all day.

Oh well, there's still Monday.

Today was a day for appreciating the strengths of a mixed portfolio. I ended the day with a four digit gain thanks, in part, to PennWest. It was a major gainer with a run up of 5.22 percent to close the day.

Addendum:

It is now more than a week later. I failed to buy the shares of CET. I was just trying to hard to get a bargain. Today CET was trading around $4.41. It, and my share of PWT that I am always bad-mouthing, are not just holding up but climbing. They are helping to soften the daily losses I have been suffering. This is rather ironic, yes?

Friday, March 8, 2013

PennWest climbs after buyout article

Earlier today I read that Penn West Petroleum (PWT) was climbing on the strength of an article posted on Seeking Alpha. The post speculated on what a sale of the petroleum company would mean to its stock price.

I checked out the article and smiled. I have had a lot of luck with buyouts during my years of investing. The first one I encountered was Britoil back in the '80s. The little North Sea oil producer was taken over by British Petroleum.

The last one to touch me was Progress Energy. The Canadian natural gas producer was taken over by Malaysia's state-owned oil company Petronas in a 6-billion dollar deal. My wife was really happy with that turn of events. I had just put some of her portfolio in Progress and, as I recall, I got her into the game for something around $10 a share. With the Petronas bid, she saw her investment approximately double in value.

Here is a link to the Seeking Alpha article that is possibly driving PWT higher today. At this time, PWT has gained more than 4% during the trading day.

PWT is not one of my favourite oil companies. I ended up with PWT in my portfolio when PWT took over Canetic. Now there was a buyout that didn't put a smile on my face. With a stake in PWT, I started following the stock and have increased my exposure to PWT over the years. It pays a nice dividend, it is among the best paying stocks that I own, yet, I would be happy to get anything close to what the Seeking Alpha article envisions as a possible buyout value.

Just a note on CET


The Cathedral Energy Services stock price tumbled over a cliff yesterday. I bought 600 shares of CET that I found in the rubble. My average price was below $4 and the dividend yield was north of 7%. Today the stock tried to stage a comeback but failed. It couldn't get past $4.10. Right now it is selling for $3.78 and the yield is approaching 8%. The volume today is absolutely incredible. It is over 1.25 million and the market is not yet closed.

I'm holding pat at the moment but if I buy more I will do it soon. A Q1 dividend of $0.075 per share with a date of record of March 31, 2013 has been approved. The payment is April 15, 2013. (Some are reporting an 8-cent dividend but I think this incorrect. I believe, they are rounding up the 7.5-cent dividend. With such a small amount, I think this is inaccurate.)

Tuesday, March 5, 2013

Another look at my Freedom 55 investment

About two and a half years ago I did a post titled: Freedom Fund down 71% Puts Mattress Up 345% . Today I decided to take a look at how my Freedom Fund investment is doing compared to my TD Monthly Income.

I had $1216.78 in my Freedom Fund account back on June 30, 2009. As of this past December my Freedom Fund investment has grown to $1590.22.

If I had put that $1216.78 into a simple, balanced fund like the TD Monthly Income, I'd have $1686.27 today. Despite the TD fund taking a $96.05 lead, I'd argue the fund managers at London Life are doing almost as well as the managers at the TD -- at least when it comes to stock picking. When it comes to the management charges, the Freedom Fund managers are actually ahead.

And that's one problem with Freedom 55 -- the MER charges may be too high.

Oh, and my mattress is still well ahead of my Freedom 55 investment. If I'd simply shoved the money under my mattress, rather than giving it to London Life, I would be sleeping on a lump of cash still worth $4196.71.

Spreading out the risk

Anyone following this blog knows I have made some bad calls lately. They are not bad enough to keep me awake at night but they are bad enough to slow the growth of my portfolio.

But, I don't have all my bets in one stock or in one sector; They aren't even all on the same continent. I have more than thirty investments and since some of those are ETFs, the total number of stocks in which I have an interest number in the hundreds, if not the thousands.

With the market climbing daily I figure about 94 percent of my investments are performing well. This is why one mixes up one's investments. If one knew, really knew, what was in the cards, one would put everything into one investment and make out like a bandit. Sadly, the world doesn't work this way.

I have two big questions: At what point in the future will my under performing stocks, begin performing like the other investments, and at what point in the future will my great performing stocks loose steam and begin falling like my present losers?

I'm betting my dogs will soon take off and then all my investments will tumble together. I'm already looking at what to jettison in order to have cash on hand to buy during the correction.