Going for Growth (or is it speculation?)

It’s RRSP time again. I picked up Telus (T.TO) and BCE (BCE.TO) last month and now I have a little more cash to contribute before the deadline.

My Beating the TSX portfolio is now well rounded out after the recent Telus and BCE purchases, but I am not comfortable with Bank of Montreal (BMO.TO). After speaking with my financial adviser I have decided to swap it out for Royal Bank (RY.TO).

  • SELL BMO.TO @ $58.10
  • BUY RY.TO @ $53.41

So, what to do with the new cash? I have for a long time wanted to hold a more speculative or growth-oriented stock. Apple (AAPL) is the darling of the markets and might be over-bought, but fundamental analysis shows that its value is as good if not better than conservative names like IBM.

There are two upcoming catalysts that could move the stock a lot higher: 1) new products such as the iPad3, the iPhone5 and a new generation of the Apple TV product; and 2) a possible dividend or an acquisition that would put Apple’s $100B in cash to work. To be clear, this stock is does not conform to my investment policy, which requires that all holdings pay a dividend. Given its fundamentals, Apple is not a speculative stock. However, given it’s high growth rate in the past few years we must wonder if it offers good capital protection and we must confess that it is more speculative than our other holdings. Our mentor Benjamin Graham had this to say about speculation:

“If you want to try your luck at it, put aside a portion – the smaller the better – of you capital in a separate fund for this purpose.” – Benjamin Graham

So, with Benjamin’s cautious blessing, we proceed.

  • BUY AAPL @ US$521.05

Apple now makes up 4.5% of my portfolio, which breaks down like this:

  • Beating the TSX Stocks 47.9% (ten high-dividend Canadian stocks)
  • Bonds Fund 28.5%
  • US Equities Fund 12.6%
  • Gold 6.0%
  • Speculative Stock 4.5%
  • Cash 0.4%

This looks like a good and balanced portfolio.

POSTMORTEM

One month after these trades they both look good. Royal Bank has advanced over 8% in a month, while BMO has advanced only 1%: a 7% advantage in only a month.

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Apple closed today, 14th March 2012, at US$589.58: an advance of 13% in a month.  Nice!  This level of improvement calls for caution as analysts feel that Apple’s stock is advancing parabolically.

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