Getting into Telecommunications

When I adopted the Beating the TSX system for my equities, I did not have sufficient funds to buy all ten of the stocks in the system. The stocks in the system that I do not own are:

  • Telus (T.TO)
  • BCE (BCE.TO)
  • Husky (HSE.TO)
  • CIBC (CM.TO)

I now have some additional cash to contribute to my portfolio. I don’t really like Husky too much as a stock. Future earnings estimates are declining, and I already have two oil companies in the portfolio. Nor do I want to add CIBC. I already own BMO and two insurance companies, which I think is sufficient financial services exposure during the continuing European debt crisis. So, I’d like to use it to add the two telecommunications stocks.

  • BUY Telus @ $56.38
  • BUY BCE @ $40.25

The stocks in my portfolio now look like this.

Company PE Ratio PEG Ratio Dividend Yield
Canadian Oil Sands 10.57 2.5 4.81%
Enerplus 5.42 -0.48 9.20%
Power Corp 9.76 7.03 4.70%
Shaw 12.04 2.31 4.91%
Sun Life 668.33 0.11 7.18%
Telus 14.95 1.8 4.12%
BCE 12.74 4.07 5.14%
Royal Bank 11.39 1.54 4.10%
TransAlta 16.44 4.33 5.78%
TransCanada 18.44 2.27 4.01%

POSTMORTEM

One month after these trades they look OK. Telus is up 2% and BCE is flat: that’s an average gain of 1% in a month.

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Return to Volatility?

Markets have been strangely calm in the past few weeks. Why is that a problem? Well, the markets were very uncalm in August through November 2011, and the underlying conditions have not changed since then. Europe is still a mess (actually, ever more so as Greece teeters on the brink of default and several European countries are downgraded by S&P), the US debt problems are unsolved, and earnings are unexciting.

The fear index – volatility (^VIX) – is lowering but I do not think that this is sustainable.

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I predict that the VIX will rise materially within the next month. To trade this prediction, I could buy an ETF that mimics the VIX, such as VXX (VXX), which is currently $31.49.

UPDATE

One month later, on 17th February, the VXX closed at $26.60. This was a bad prediction. Conclusion: I’m not ready to try trading the VIX!

Portfolio Update – Up 0.31% in December 2011

My portfolio balances at close of trading on 31st December were:

Ticker Price (C$) Price Change Percentage Industry
COS.TO $ 23.25 8.39% 6.5% Energy
ERF.TO $ 25.85 -3.00% 6.0% Energy
PHY-U.TO $ 14.14 -9.10% 7.1% Gold
BMO.TO $ 55.88 -6.34% 5.9% Financial
POW.TO $ 23.82 6.86% 5.3% Financial
SJR-B.TO $ 20.25 -3.89% 4.8% Technology
SLF.TO $ 18.90 2.38% 4.2% Financial
TA.TO $ 21.02 -4.41% 4.9% Energy
TRP.TO $ 44.53 3.85% 5.9% Energy
S&P Fund $ 106.04 1.16% 18.0% US Equity Fund
Bond Fund $ 217.12 1.69% 30.6% Bond Fund
Cash     0.8% Cash
Total     100.0%  

Overall my portfolio is up 1.19% since last month, including additional cash contributions. Without these cash contributions the portfolio would be up 0.31%.

For comparison my TI Index is down 1.31%, the DOW is up 1.43% and the TSX is down 2.04%.

My portfolio performed quite well compared with the TSX and compared with my TI Index. Biggest movers: Canadian Oil Sands (COS.TO) is up 8.39%; gold is down 9.48%.

The European debt crisis rumbles on, unnerving investors and suppressing prices. Indices rose a little near the end of the year as fund managers did a little window dressing. I expect a little pullback in early January 2012 (unwinding of window dressing) and then…?

My bonds are now 30.6% of my portfolio and gold is 7.1%, which is OK. No rebalancing required this month.

Portfolio Update – Down 1.30% in November 2011

My portfolio balances at close of trading on 30th November were:

Ticker Price (C$) Price Change Percentage Industry
COS.TO $ 21.45 -7.14% 6.1% Energy
ERF.TO $ 26.65 -3.86% 6.2% Energy
PHY-U.TO $ 15.56 5.31% 8.0% Gold
BMO.TO $ 59.66 1.31% 6.4% Financial
POW.TO $ 22.29 -11.20% 5.0% Financial
SJR-B.TO $ 21.07 4.36% 5.1% Technology
SLF.TO $ 18.46 -26.63% 4.1% Financial
TA.TO $ 21.99 0.27% 5.2% Energy
TRP.TO $ 42.88 1.20% 5.8% Energy
S&P Fund $ 104.82 2.12% 16.7% US Equity Fund
Bond Fund $ 213.50 0.82% 30.9% Bond Fund
Cash     0.6% Cash
Total     100.0%  

Overall my portfolio is down 0.42% since last month, including additional cash contributions. Without these cash contributions the portfolio would be down 1.30%.

For comparison my TI Index is up 0.28%, the DOW is up 0.76% and the TSX is down 0.39%.

Markets have been very choppy this month, with the Dow rallying over 4% just today. The European debt crisis is the main factor that seems to be restraining prices. Greece is about to default on its debt, Italian debt is yielding 7% and even Germany is having trouble in its bond auctions. However, earnings are good and even consumer sentiment seems to be improving.

The US Government has still not resolved its earlier debt crisis. The debt ceiling was raised in August only when politicians agreed to create a “super-committee” to find deficit reductions. Well, apparently the supercommittee has failed to do so. Trouble may lie ahead there.

My portfolio has not performed well compared with the TSX or compared with my TI Index. My bonds and gold have done well, but the equities have been mixed. Sun Life (SLF.TO) is down a whopping 26% this month. If Sun Life had remained at the same price as it was last month then my portfolio would be UP marginally for the month.

My bonds are now 30.9% of my portfolio, which is too high. I will rebalance now (buy/sell prices of trade not recorded as this is a routine rebalancing).

Crisis? What Crisis? Part 2

A couple of weeks ago I wrote a post discussing the supposed crisis that was developing regarding the US Congress’ failure to agree to raise the debt ceiling. In summary I thought it was a political issue, not a financial issue, and I took advantage of a fearful market to sell some of my bond fund and buy the S&P500 fund.

With hindsight I see that my thinking was correct (the debt ceiling issue was resolved) but the decision was dead wrong. Since I wrote the post on 25th July the S&P (^GSPC) has fallen 12% from 1337 to 1172! The cause: a surprise downgrade of US debt by one of the ratings agencies (S&P), and concern over European debt.

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The decision to sell the bond fund and buy the S&P fund might be my worst decision to date. The lesson: sometimes Warren Buffet’s maxim “Be fearful when others are greedy, and be greedy when others are fearful.” is not completely true!

On the bright side gold is up and the Sprott Physical Gold Trust (PHY-U.TO) is up 11% from the purchase price of $13.46 to $14.91.

Crisis? What Crisis?

Democrat and Republican leaders in the US failed to reach an agreement this weekend on raising the US’ debt ceiling. Markets around the world fell today on this news. The media are getting pretty excited about this issue, but is at really a big deal? Sure, the US defaulting on its debt would be novel, but would it really matter? The US can afford to pay its debts – failure to do so it a political issue, not a financial issue. So, with the exception of actual US Treasury bond holders, should anyone care?

I moved more heavily into bonds on 13th June. For a time this offered excellent protection against a drop in the stock markets, but it also means that I have failed to participate fully in the recent rally (see chart below).

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I currently have 41% of my portfolio in bonds, 6.5% in gold, 0.5% in cash, and 52% in stocks. I have been looking for the right time to increase the stock holdings back to the 75% level. Given the risk to bonds (real or imagined) now is the time. I will reduce my bond holdings to 19%, keep the gold and cash at current levels, and increase stocks to 74%.

  • SELL Bond Fund @ $205.48
  • BUY S&P Fund @ $103.03

POSTMORTEM

One month after these trades, on 25th August 2011, they look like a bad call. The S&P fund is down 12% while the bond fund is up 2%. I made a classic investing error here: after missing a rally, I tried to chase it and ran into a major pullback. I also deviated from my Investing Policy, which states that I will hold a minimum of 25% in bonds regardless of market conditions.

The lesson here is to stick to my Investment Policy at all times and never try to chase momentum. I will set my bond holdings to 30% of total holdings and leave it there.

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