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My latest crack at a "Retirement Portfolio"

Monday, November 19, 2018

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.

Monday, November 12, 2018

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.

Friday, November 9, 2018

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.

Sunday, October 28, 2018

For my kin: a final word on mutual funds

As you may have gathered from the tone and direction of my comments in the previous posts, I am not a big fan of mutual funds. I believe mutual funds are overpriced and under-performing. That said, some folk need hand-holding and a good mix of mutual funds will do that while putting some money in your pocket.

So, if you insist on investing in one or more mutual funds, watch the following:

  • Pay as little MER as possible
  • Do BUY no-load funds
  • Do NOT buy front-end loaded funds
  • Do NOT buy back-end loaded funds
  • Do NOT buy a fund based on its name
  • Do check a fund's past performance
  • Do BUY a mix of funds: Canadian, U.S., International equities plus bonds

Check how the TD Dividend Growth fund has performed compared to the TD U.S. Equity Portfolio fund (TDB3092). Canadian Dividend is green line and U.S. Equity Portfolio is purple.


Having some exposure to U.S. equities is highly recommended, as is some international exposure as well.

An expert on investing, whom I have admired for years, writes a blog called: The Canadian Couch Potato. Click the previous link and read what he has to say about creating a couch potato portfolio using TD e-series mutual funds. To see a suggested portfolio mix click this link: Model Portfolio using TD e-series funds. The Couch Potato portfolio is an excellent guide to creating your own well balanced portfolio. One will not go far wrong just following the advice found on the Couch Potato site verbatim.

Still, I shy away from mutual funds. In my experience ETFs are a better bet than mutual funds. In my next post we will look at ETFs.

Friday, October 26, 2018

For my kin: what have we learned?

What have we learned thus far?

Well, we think we've learned that simply paying more for a mutual fund, in the form of a higher MER, does not guarantee better performance. We've learned that the name of a fund may not reflect how it has performed in the past nor how it will do in the future. Just because it claims to be comfortable guarantee that it will be. We've learned that sometimes owning two funds is better than owning just one.

Now, to throw a monkey wrench into all of it. How a fund has performed is based on the time frame under discussion. Nothing is certain in life and the stock market follows this maxim. All we know for sure is how our five funds performed over the time we've operated our sham portfolios. Let's take a look at a longer time frame. We'll only go back three years as one or two of our funds are quite new.


Over the last three years, the Dividend Growth fund (dark blue line) has outperformed all the others after getting past the hurdle of January 2016 when it dove to the bottom of the pack. That was a stressful time for some of those holding this fund but in the end the fund performed as expected. But, let's admit that stress comes with owning this fund. It gyrates up and down more than any of the others. It's a great ride, and in the end worth it, but many would be unable to hold on through the down times.

The Comfort fund comes in second but it's often bested by the Monthly Income and not because the Monthly Income has been such a stellar performer. No, the Comfort fund was simply not all that comfortable to hold. It was a bit volatile. In the end the Comfort fund and the Monthly Income finished in almost a dead heat.

Whatever happened back in January 2016 allowed the Retirement fund to shine. But note, it did so  only because all the other funds did so poorly. The moment the others gained their footings, they pulled ahead of the Retirement fund and never looked back. Today an investor in the Retirement fund has little more than what they originally invested. Is this the performance retirees want from an investment? If this is what makes them happy, maybe they should simply buy a  GICs.

Before ending this post, let's take a quick look at one other time frame: one year.


In this scenario, the Retirement fund is in first place. What I think is important to note is that it is in the red. Yes, the retiree investor would have been better off with a GIC. Heck, in the past year, they'd have done better putting their money under their mattress.

The Dividend fund is at the bottom. Hmmm. Every year I put money aside for my granddaughters' education. I usually stick it in the TD Monthly Income. Maybe I should consider putting a little in the Dividend Growth fund, too. I will definitely buy some units of the Dividend fund for my granddaughters when the next bear market hits.

In the past year, the Comfort has both lead the pack and trailed it. When one inspects its holdings, one can see the logic behind this fund. It is not a dog but it is certainly not comfortable. Aggressive? Yes. Comfortable? No. At one year it is being outperformed by the Monthly Income, a far more comfortable investment.

But do notice that all funds are down after one year. Not one of the funds being tracked is in the black. Trust me. If this were real money and it was yours, you'd be uneasy. Losing money is not easy. And the near future promises to be just as difficult, if not worse. The drop you see is not even a correction, which is a 10% drop. When the bear market eventually roars in bringing a drop of 20% or more in market value, the air will be thick with panic. If one is caught holding the wrong mutual fund, you may never get your money back.

This is what happened to my $4200 that I invested with Freedom Fifty about twenty years ago. The investment went down to $1700 and never fully recovered. I am still waiting for my $3150 guaranteed payout. If I had put the money in the TD Monthly Income fund instead, I'd have better than $14,000 today and it would be immediately available to boot.

Thursday, October 25, 2018

For my kin: Volatility, Risk and Marketing

I'm going to post two images. Both show five funds I am following. The first was a screen grab from a few days ago. The second is a screen grab from today, after a sizable drop in the market.

All five funds started with an initial deposit of $10,000. And all have gained value since being opened. But note what two days of crashing market values have done to each fund.

The TD Comfort Aggressive Growth Portfolio - I is marketed as a fund with great growth potential. How a fund can by both aggressively seeking growth stocks while providing comfort is beyond me. Aggressive growth means risk and risk does NOT mean comfort. And if it can go up smartly, it can come down equally quickly. And it did. In the past two days it lost 26.5% of all its gains.

The TD Dividend Growth - D series holds a lot of solid, dividend paying stocks. It is not a great mix but it does aim for good quality. It can be volatile but still it only lost 14.8% of its accumulated gains.

The TD Dividend Growth - I series charges less MER and so collected more gains. The drop affected both the D-series and the I-series similarly but because the I-series had a smaller gain, the percentage of the gain lost was a little greater. It lost 16.7% of all its gains.

The TD Monthly Income is one of my favourite funds. It doesn't set the world on fire when the market is hot but it doesn't fall through the floor when the bottom falls out of the market. You can expect to lose a lot but this will be a lot less than many other funds. In the past two days it has only lost 10.75% of its gains. One can still sleep at night.

And lastly, the Retirement Portfolio is proving to be a dog. It only had a meager $527.36 in gains and yet it lost 27.65% of these in just two days. Its gains dropped to $381.50.


Before I let you go, note the final value of each fund. This is the Market Value column second from the left.

The two dividend funds are in the lead with the Monthly Income fund in third place. The TD Comfort Aggressive Growth Portfolio has dropped well back and is now in fourth place. The fifth place fund, the Retirement Portfolio, is not yet in the red but it is looking like it could be a big loser in a bear market. And this is what the bank sells retirees? Huh?
One last add: I talk a good line but I hate too much volatility. I can handle the ups but the downs kill me. I begin to panic when I lose more than 40% of my investment. For this reason, I try to buy safe stuff - like utilities. Banks can be good in that they almost never cut the dividend. If it is the dividend you need, then up market or down market, your day will unfold as it should.

I'm embarrassed to admit it, but along with my stocks, I own TD Monthly Income. I mix it owning it with a lot of pure equity plays. The TD Monthly Income, with all the bonds it holds, softens the landing when my portfolio crashes.

As you may have already surmised from the above two images, if one mixed the TD Monthly Income - D series with a carefully selected amount of the TD Dividend Growth - D series you keep your risk manageable, increase your gains when times are good, get a fair dividend to help tide you over during down times and keep the worst bears away from your financial door. You shouldn't lose more than 25% in a crash  -- with a little luck, probably a lot less. This is better than losing 50%. Honest.

Cheers,
Ken

Wednesday, October 24, 2018

For my kin: MER and other mutual fund fees.

When buying mutual funds always check the MER. Now, what is MER and why should you care?

According to RBC Global Asset Management: The MER is the total of the management fee, operating expenses (or administration fee) and GST/HST charged to a fund each year. It is expressed as a percentage of a fund’s average net assets for that year. All mutual funds and ETFs have an MER.

If a fund gained 4% last year but paid a MER of 3%, you, the investor in the fund, would realize a return of only 1%. If two funds are identical except for the MER, the one with the lower MER returns more to the investor.

D-series TDB3088 has a MER of 1.19 while TDB972 has a 2.02 MER.
TD offers some funds as both investor series funds and as D-series funds. The D-series funds are only available to investors with self-directed investment accounts. Funds in the D-series have lower MER charges compared to the comparative I-series version.

Recently, I compared five funds. All funds opened with an original investment of  $10,000. Note: the two Dividend Growth funds are identical except for the series. One is an investor series while the other is a D-series.

The D-series fund has a MER about 0.8% less than the very similar I-series fund shown.

The D-series fund returned $285.48 more to the investor than its I-series counterpart. That's a nice reward for buying and selling your funds directly without the aid of a middle man at the bank.

TD Dividend Growth Funds compared: fund with lowest MER performs best.
A general rule: always pay as little MER as possible.

What else should one watch for when buying mutual funds? Answer: sales commissions, known as loads. Try and only buy no-load funds which have no sales commissions added when being purchased or sold. I try to stay clear of both front-end load and back-end load funds as both increase costs.

Is that it? No. Generally, mutual funds are not sold for quick trading. If mutual fund units are sold too soon after purchase, a short-term trading fee is charged. This fee deters quick and frequent trading of funds and the associated trading fees a fund would accrue. How soon is too soon? Usually, one must hold a mutual fund for a minimum of thirty days to avoid short-term trading fees but check this and confirm with each individual fund.

Lastly, there are a few funds designed for short-term investing. An example would be money market funds. Such funds are often excluded from the short-term trading charges. I park free cash in a money market fund, TDB8150, a TD Investment Savings Account. Today TDB8150 is paying 1.35% daily. That's not much but it's better than earning zilch.