Volatility is rocking the market

Yesterday was a down day. All my bank stocks lost more than a buck a share. Today the Royal Bank is up about $2.70. That's simply non-nonsensical. The bank's true value has not fluctuated that wildly over the past 24-hours.

I'm watching my stocks and considering lightening up when move up and into the black. Why lighten up? Because I see more dips in the future. I could be wrong, I've been wrong before, but I know I'll be more comfortable being a little less exposed in the coming months.

But I will keep a big presence in the market. I must. I need the income from the dividends. There is a limit to how much of my investment portfolio I can afford to jettison.

The following was added two days after this post was originally written. The day after this piece was posted, the bank lost value. Oh, it didn't lose even a buck but it lost a fair amount. And the next day it was down for much of the day and then headed up and into the black before the close. It gained 12-cents for the day. As I said, volatility is rocking the market.

Buying stock should not be gambling but business.

The market crashed again today. It has been heading generally down for months. Late last summer a fellow I admire asked my advice when it comes to investing. I put him off. At the time, I had a bad feeling when it came to the market and I feared he would lose money in the short term. I was right. Late summer was a poor time to enter the market.

About a month ago, I learned some of my relatives are considering putting some money in the market. I tried to encourage them to learn a bit more before putting too much money into stocks, mutual funds and ETFs. Again, I wasn't convinced that it was a good time to start investing. (Novice investors don't accept losses well.)

Why didn't I just tell all these folk not to invest as a correction was coming? Because I  didn't know. I don't have a crystal ball. Plus, my advice would have been contrary to one of the axioms of investing: Never try to time the market.

At least, never try to time the market as if it were a game and one is placing bets. Think of the market as place selling small slivers of ownership in numerous businesses. These slivers are stocks. If you have some money you don't need at the moment, some money that can be tied up for a number of months, possibly even years, and there is a business in which you'd like to have a sliver of ownership, it may be the right time to buy the stock.

The above is a screen grab of my top movers of the day. All moved down. And the banks all lost more than a dollar a share. That's a lot in one day. Think about it. If one owned a mix made up of a thousand bank shares, one lost more than a thousand dollars in just a matter of hours. And that is just today.

This year, the Royal Bank hit a high of $108.52. It closed today at $93.62. That's a loss of $14.90 per share. The TD is down $9.60 from its 2018 high and the Scotia Bank has lost $15.83. It is easy to see someone holding a thousand shares being down more than $12,500 or more from this year's highs.

If you are a gambler, you are upset. You bet on some losers. Nags. But, if you are an investor you own some small slices of three banks. That cannot be all that bad. Banks are good businesses to own. The Scotia Bank has a $3.40 dividend, the Royal yields $3.92 and the TD delivers $2.68 annually. The investor sees his bank stock as a solid source of income -- possibly as much as $3300 or more annually.

And the investor who is in for the long term, believes bank stocks will recover. The investor has confidence in the system. The investor will follow the financial numbers and if the bank ones are good or, even better, show improvement, the investor will buy more stock if possible. They might even buy that extra stock in a fourth bank, spreading the risk.

One never truly knows the future.

Retirement thesis being tested

When I retired I made a bet. I bet that putting all my money into the market would yield the best income for me and my wife. So far, my thesis has worked. Oh, I've modified my holdings over the years, I've jettisoned my bond funds and bond ETFs and made other changes, but I'm still guiding my retirement portfolio and it is heavily into Canadian income-producing stocks.

This year the market has not been good to me. Come January 1st, I can envision being down 10% or more from where I was just one year earlier. This sounds bad but it is not as bad as it sounds. I will still be up something like 55% from where my holdings stood at the time of my retirement in early 2009.

The big test of my retirement plan will be my dividend income. If my revenue drops substantially, making it impossible for me to pay my bills, my thesis will have failed. If I get through the market down time with my finances intact, I will count this as a win.

But win or lose, I will be reallocating my money, I will be making changes to my holdings yet again. I may get back into bonds. I will definitely take on more exposure to the States, at least in my RIFs. I will spread my bank investments among more financial institutions and not be so concentrated in just three banks and one insurance company. I'll take some time to carefully increase my exposure to utilities. I will again consider ETFs and possibly cut back on my direct ownership of specific stocks.

Stay tuned.

I'm liking Morguard North American Residential Real Estate Investment Trust MRG.UN

I'm liking Morguard North American Residential Real Estate Investment Trust  MRG.UN

I've been playing with the screener software supplied with the TD WebBroker self-directed account. One stock that keeps appearing on my screens is Morguard North American Residential Real Estate Investment Trust (MRG.UN).

I began looking deeper into this REIT. I'm liking what I'm finding. I  discovered that the TD analyst believes the present and future growth is not being reflected completely in the current share price. MRG.UN is rated a BUY with a Target Price of $18.50, up from $18.00.

Morningstar calculates a Fair Market Value for this stock of $18.32. I always like to pay less than the fair market value, if possible. At this moment, MRG.UN is selling for $17.43. Despite today being a down day, MRG.UN is up .81% .

The profit margin is 95.84%, well above the industry average. The ROE is 25.23%, more than twice the industry average. And despite yielding almost 4%, the payout ratio is only 10.35%.

As usual, all the numbers are not as good as those mentioned but reading the figures leaves me with confidence. It this stock takes a dip, I'll try and buy a few hundred shares. What would it take to make me a buyer? I'd like a yield of 4%. I'm retired, I need the cash flow to live.

Note: I am talking about Morguard North American Residential Real Estate Investment Trust (MRG.UN). I am NOT referring to Morguard Real Estate Investment Trust (MRT.UN). The one is MRG and the other is MRT.

EMA: Yup. Buy EMA on the dips.

EMA (Emera), a utility, is one of the few really bright lights in my portfolio at the moment. I'm up more than two thousand in just a very few months. My portfolio desperately needs that boost.

This morning I read that Emera his a price target of $48 at BMO Capital. The utility has been doing well and is rated by many analysts as an Outperform. I took another look at its numbers. All is not perfect, then again, that rarely happens. But a lot of the usual signs of financial health are there. For instance, the ROE (Return on Equity) is 9.06%. This is well above the industry average of 3.8%.

ROA (Return on Assets) is also good. The ROA of Emera at 2.07% is greater than that of many of its peers. The industry average is 1.28%.

If you go down the list of posted numbers, you will find some to give one pause but stop, take an in-depth look, and all seems reasonable. I won't be buying more, I have filled my quoted for this stock, but, if I  did not have any holdings, I'd be watching the dips for a buying opportunity. Heck, with a big enough dip, even I might pick up another 100 shares to make a quick profit.

For my kin: I own both stocks but I only like one.

I put the thoughts below to 'paper' this morning. Then, as the day unfolded, I watched Inter Pipeline (IPL) lose 2.83% or 66-cents. A stock, highly recommended by a number of 'expert stock pickers', was shrinking when it came to stock price and I was writing it off because of its high dividend payout ratio. Is this really the best way to play this, I wondered. (The dividend is now yielding 7.55% annually with a payout ratio of almost 109%.)

Should I be looking more deeply into IPL's financial strengths? One wants to buy on the dips. Here was a dip. Should I be adding to my position? If this leaves me overweight, I can always sell as the stock climbs, if it climbs.

I've decided to find a book I read some years ago on evaluating companies and the balance sheets. Tomorrow, or the next day, I may rewrite the following post. Who knows, maybe IPL is worth buying. Let's learn together.

Stay tuned, kin.
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When you have a self-directed investment account you have a wealth of information available to help with your stock picking. I like to check out the Action Notes Summary from TD WebBroker every morning. An Action Pick is worth a look, a Buy is a hold, a Hold is iffy and a Sell is run-away-fast.

Today two of my holdings appeared on the equity research list: Emera (EMA) and Inter Pipeline (IPL). Emera can be picked up for just less than $43 today. I paid something close to $40. TD has a target price of $48, up from $47. Inter Pipeline is now selling above $23 and heading for $31, if you believe TD. I paid a couple of bucks more and I'm in the red on the purchase at the moment and it got redder as I wrote this.

On the plus, IPL pays $342 annually and EMA delivers $1410 annually. Why the big difference? I own three times as many shares of EMA as I do of IPL.

It is not only TD that likes EMA. Morningstar has EMA on its Canada Core Picks list. It is a four star rated stock with a Morningstar fair value of $46.

Would I advise others to buy these stocks? Would I increase my holdings? No, to the last question. EMA has a dividend payout ratio of 92.5%. That's a bit high. I'll hold. That said, if you don't own any EMA, buy a little on the dips. In a serious correction, EMA will drop but it will bounce back and pay you for your patience.

IPL may be a personal favourite but I would hesitate to recommend it. It has a dividend payout ratio of 109%. I've seen worse, much worse, but such a high ratio gives me reason to pause. I only hold 200 shares and I won't be buying more any time soon.

For my kin: Only buy with confidence

Look at the big picture. If overall you're up, don't let a few losses get you down.

Some months ago I started amassing cash. I was sure a correction (10% drop), or even a bear market (20% drop or more), was coming. It didn't and I finally tired of watching stocks climb while I sat on the sidelines. I bought. And the correction arrived. I'm down on a lot of money on my recent buys.

In the past, I've done very well buying Canadian banks. I felt very confident when I bought 300 shares of TD. I have now lost hundreds and I may lose even more in the coming weeks. One bright thought among the gloom: Canadian banks don't tend to cut their dividends -- ever. If the dividend isn't cut, I can hold on indefinitely. I support my wife and me in retirement thanks to the dividends.

I  owned Inter Pipeline, IPL, in the past and I was well rewarded for buying and holding it. After more than tripling my money, I sold. A big mistake. I should have taken my original investment, plus a bit of a profit, off the table and left the remainder to ride. It would have made a very nice core holding.

When IPL dropped about a third from its recent highs, I bought back in at the lower share price. I had confidence thanks to my past success with this stock. I even paid a little less per share to buy back in compared to what I was paid when selling out. I only bought a fewer shares and considered this correcting the mistake I made when I jettisoned all my IPL holdings.

IPL continued to drop. I had caught a falling knife, as they say. I am now down hundreds of dollars. Some say the dividend is safe but others are not quite so sure.

Did I buy anything else? Yes: Ontario Hydro (H), Pembina Pipeline (PPL), Shaw Communications (SJR.B), Emera (EMA) and Fortis (FTS).

I had confidence in all the stocks mentioned. Yet, all but EMA and FTS are down. Am I concerned? No. My earnings on Emera on Fortis are doing very nicely at balancing my losses suffered on my other buys. Both EMA and FTS are up in the four digits. When you look at the big picture, all is not so bleak.

But I haven't mentioned one purchase: Altagas (ALA).

I wasn't all that confident in Altagas. I had unanswered questions. I bought despite my misgivings and I got whacked. It is down massively, about $10 per share. Luckily, I didn't buy that many shares. My exposure is light even though my percentage losses are heavy.

I  expect ALA to slash its dividend by something in order of 60% and I expect it to liquidate a lot of stuff to bring its books more  inline with market demands. Will I be selling soon? No, I doubt it. After the dividend cut, I should be seeing a yield of about 4% and that new yield should be safe.

The word is that the dividend cut has already been priced in but I'm not so sure. It may drop in value again but I thing that that price may well establish a floor. I can foresee some bad endings to this story; forinstance, a buyout at much less than originally paid.

One stock picker, has ALA with a target price of $18. That's about three dollars higher than today's market price. But, I don't have a lot of faith in published target prices. The stock-picking experts miss the target all too often.

If something comes along promising a secure 4% yield paired with a promise of good future growth in stock price, I'll sell and move on. It may take some time to recoup my loss but I have confidence. (Note: there is always the chance that ALA will be that future stock. I bought Norbord in the $20s and then it dropped deep into the teens. I bought more and sold all in the mid $30s. Never lose heart.)

There's always tomorrow. In that, I have complete confidence.
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In a future post, let's examine what it is that gives one confidence.