Tuesday, November 11, 2014

Patience is a virtue, sometimes.

Patience, it is said, is a virtue. When investing in the stock market this can be a double edged sword. Sell good stocks that are suffering a temporary setback and one locks in one's losses. Be patient and a good stock eventually recovers and one can move on financially intact.

But patiently waiting for a dying stock to reverse course and head for the stars is a fool's game. More and more good money disappears with each passing day. Nortel immediately comes to mind or Yellow Pages or Bre-X Minerals. Even ETF buyers got burned by the Nortel meltdown. Some TSX index funds in reflecting the make-up of the exchange held a lot of Nortel. When it totally disintegrated, these index funds took a huge hit. Nortel is the reason I prefer XIC over XIU. I like the cap limiting holdings, hence the 'C' in XIC.

So, today I sit licking my wounds. I've had a good run. Since getting back into the market some years ago, I've done quite nicely. But this year I lost my footing. I've made some small mistakes, like buying Labrador Iron Mines (LIM), and some big ones, like holding onto PennWest (PWT) and even adding to my position. LIM was a small mistake. I didn't invest much. PWT was a big mistake. I should have sold when I was originally dragged kicking and screaming into the PWT fold of investors.

Years ago I bought junior oil company Canetic Resources. PennWest then bought Canetic in a $3.6 billion deal. I could have sold my Canetic at a profit and moved on. I didn't like PWT. It seemed too eager to grow by acquisition. This can make for a messy financial sheet. If you can't understand it, don't own it. I should have immediately jumped the PWT ship.

At one time PennWest was a $30 plus stock. Today it is struggling to climb back to $5. I calculate that I paid more than $17 a share for the stock I own. I don't see much chance of it ever getting back to that number. That said, if the present reorganization is successful the stock may hit $6 or $7 sometime in the new year. That would give me a 20 to 40 percent gain. All this assumes PWT doesn't find it necessary to cut its dividend again. That would drive the price down even lower.

Thanks to the present low stock price, the dividend is now yielding better than 10 percent. This has analysts worried. David Dyck, the company's chief financial officer,  has tried to calm investor fears by stating that the company "remains confident in its ability to fund its capital expenditure programs and continue to pay a dividend." Is "a dividend" different that "the dividend"?

Should I dump PWT and move on or hold and hope. I'm voting for holding, hoping and re-evaluating. PWT now has decent management. A good broom was taken to the former management. I'd like to see PWT recover to ten dollars or maybe even $12. Good management teamed with a return to $90 or better oil and all my dreams for PennWest may become reality.

Some of my other duds, yes there are still more lead weights dragging down my portfolio, are stocks like Norbord. Norbord is a successful company in a cyclical business. It will come back. I have no doubt. Norbord is a success story just waiting to be told. I just got onboard Norbord too early.

It is looking as if I will end the year easily in the black, even after all my withdrawals. And it looks, to the ever optimistic me, like I have some stocks well positioned to make some nice gains in either 2015 or 2016. I may yet beat the index funds again.

But, I must be patient.

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